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28 September 2005 Daily Comment

Thoughts

This is our last post until Thursday October 6. The Model Portfolio will be updated if there are changes in the holdings

Durable goods orders were up 3.3% and the ex-different things numbers were up 3.6% and up 4.2%. Stocks decided they like that number while bonds are a little softer. Oil is up a few pennies to begin the day.
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Investors Intelligence has bulls 53/ bears 26.
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Wednesdayís Markets September 28, 2005

9:15pm and we sold our trading position in CSCO and AMAT for a plus scratch on CSCO and 15 pennies on AMAT. The stocks didnít act well after we purchased them yesterday and we are using the morning rally to unload the trading positions.

Treasuries are lower with the two year at 4.12%. Last week at this time it was at 3.90%.

Oil is higher and the major stocks measures are higher in desultory trading. there is a bit of a kick in tech stocks but we wonder whether that will last all day.
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12:58pm and the major measures are lower. Oil is up $1.58 at $66.65 and Treasuries have found a bit of a bid and are better than this morning with the two-year at 4.08% and the ten-year at 4.26%.

Breadth is 5/4 negative on the NYSE and 2/1 negative o the NAZZ. Volume is OK.

We are buying New York Community Bancorp which yields 6% and we think the dividend is safe. The bank services the New York metropolitan area with 143 offices. NYB ran into mismatch problems several years ago and took a bi write-down and the share price dropped from the mid $30s to the lower $20 range. We are buying shares at $16.05 (book value is $12) as the quarter ends as we think there is mutual fund selling pushing the shares down. The CEO has been buying shares on a monthly basis and other directors have been buying. We view it as a recovery candidate for next year.
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3:02pm and the DJIA closed up 19 points at 10475. The S&P 500 gained 1 point to 1217 and the NAZZ lost 1 point to end at 2115. Breadth was positive on the NYSE and negative on the NAZZ. New highs exceeded new lows by 50. Oil closed up $1.33 at $66.40 and Short Treasuries were unchanged with the two-year at 4.08% while the ten-year ended at 4.26%.

And the games will continue while we are not posting and we will be watching and maybe playing if the price is right.

Weíll be back on October 6.
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27 September 2005 Daily Comment

Thoughts

We are taking a week off from witting our comment beginning Thursday September 29 when there will be no post. We will return on October 6. We are heading to Chicago for meetings with clients and will be watching the markets but our set up there is not favorable for writing our comments. If we make any transactions we will post that news and will update The Model Portfolio daily.
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Treasuries continue to weaken with the two-year at 4.07% this morning. Fed folks keep talking about fighting inflation and those words now have bond tradersí attention as the hurricane scares recede to the old news category.
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Bear Stearns had cautious comments on Cisco and that may account for some of the weakness in the shares yesterday afternoon. We eliminated our trading position in the morning at a small profit but remain interested.
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AG Edwards said that AMD has a good server product but reiterated its positive comments on Intel.
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Morgan Stanley says the Bells may have trouble meeting revenue projections in the year ahead and lowered its forecast for BellSouth and SBC. That may present a buying opportunity since the dividends are so generous.
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Heard on the Street in the WSJ has positive comments on TWX cash flow and also GE and KO and Yahoo.
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Our tech guru is OK on the bull case through the end of September because of mark-ups but he is gloom and doom for October talking about eclipse similarities with 1987 and a whole lot of other scary stuff. Weíll take it one day at a time but we like buying when it is scary because prices are usually good.
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Tuesdayís Markets September 27, 2005

Oil is lower after being higher earlier this morning. OPEC has basically said they are going to pump all the oil they can and why not when the price is $60 plus per barrel. Those guys arenít stupid.
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The dollar is at a two month high against the euro.
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Mother Merrill cut Boston Scientific to neutral from buy. Looks like BSX will be making another new low today. We remain interested and are looking at an under $20 buy point.
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President Bush wants folks to stop driving and use public transportation. If he quit flying to the Gulf every other day he would save a lot of fuel. We know he cares.
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9:22am and the major measures have been up and down depending on the programs that are being operated by the big boys and girls. Treasuries are now up in price down in yield on the day and oil remains lower.
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11:44pm and JP Morgan cut its view on chip makers and among others Applied Materials sold off. We repurchased our trading position at $16.65 that we sold yesterday at $17.06. We also bought back the CSCO at $17.83 that we sold yesterday at $18.14. We are trading in our larger accounts. In those same accounts we sold TLAB at $10.10 for a 38 pennies profit. We added a few shares yesterday at this level and the stock price proceeded to drop to $9.84. We are hoping for the same action today.

We like trading these three stocks in our larger accounts and $500 here and $1500 there eventually adds up. It is our tried and true singles approach that has worked of us in the past versus the home runs we went for at the beginning of 2005 that caused us to strike out.
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The major measures a lower and breadth is 2/1 negative. Fed governor Janet Yellen was talking inflation and rate hikes about an hour ago and this caused Treasuries to give up their gains and move lower with the two-year back to 4.09% and the ten-year at 4.31%.
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We sold our OATS trade for a 50 pennies profit in smaller aggressive accounts and a hard earned plus scratch in our larger accounts.
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12:59pm and oil is now down over $1. Coincidentally the DJIA is rallying to the plus side on programs but breadth remains negative by a 2/1 margin. Itís just the boys and girls paying games.

3:02pm and the DJIA managed to close positively for the day up 11 points at 10455. The S&P 500 was fractionally higher at 1216 and the NAZZ lost 5 points to end at 2116. Breadth was 5/4 negative and volume was moderate. New highs and new lows were about equal. Oil ended the day down 76 pennies at $65.06 and Treasuries bounced positively on Greenspanís late afternoon speech with the two-year ending at 4.07% and the ten-year at 4.30%.

And tomorrow is Wednesday with only three trading days in the month and quarter left. So join us for the fun and games.
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26 September 2005 Daily Comment

Thoughts

Happily, for most the hurricane was a minor inconvenience although some folks really got smacked. And with oil down to $63 Treasuries are back in the proper alignment with the two year at 4.05%.

Barronís has an article that AMD has a chip that runs rings around INTC and so there will be the obvious switching by the flighty folks today.

As we approach month and quarter end we would expect some mark up games to occur although how much firepower and will the big boys and girls possess to own stocks at this time is in question.

The sell off last week with most major measures down 2% was in part engendered by the hurricane mania encouraged by the media mania. But the timing of the sell off coincides with the time of year when we have usually have strong corrections of 8% or more and so we donít think the all clear has yet been sounded. Of course when it is it will be too late to buy the way we do (on the way down). And so we plan on continuing to buy a few more stocks if the weakness continues this week. If not there is always next month when the bottom usually occurs.
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Mondayís Markets September 26, 2005

9:04am and the major measures opened higher with breadth 2/1 positive. That was the relief rally from the hurricane.

Now stocks are coming back in, breadth is down to 3/2 positive and the real test of the power of the bulls will occur.

We sold our CSCO and AMAT trades for better than and scratch profits. We think we can pick them up cheaper.

We added shares of TLAB to accounts that own it as the stock received another upgrade this morning and traded over $10.

We also added Nokia at $16.40 to accounts that own EL and in the same amounts. MOT has been getting all the good vibes but now there is a lot of positive news flow on NOK and with their strong financial position and our luck trading it in the past we want to have a position in it now and will buy more if it moves lower.
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Greenspan made negative comments about the budget deficit while in France over the weekend and this morning Fed member Moskow made negative comments about inflation and positive comments about the economy being sound.

Those comments and the drop in the price of oil have short Treasuries selling off as it becomes clearer that the Fed is going to raise rates again in November. We are going to hold off on buying the two-year for a while. We want to get our portfolios set over the next month and then place the rest of the funds in the two year and we w donít think we have to rush to own the two-year over 4%. It would seem that the only rally in t short Treasuries will now come from an intensified sell off and if that occurs we will probably be using cash to pick up more stocks.
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Existing home sales were up by 100,000. Since a bunch of homes were destroyed these numbers become pretty meaningless for the next year.
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11:10am and volume has slowed as the major measures hold their gains and breadth moves back to 2/1 positive. Oil is on the plus side over $64.
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1:44pm and the bull test is here as the major measures are back to even and the contra hour wanes. Oil is now up $1.50 and Treasuries have disconnected from oil since the hurricane is over and the Fed folks who are speaking remain inflation hawks.
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We repurchased our JP Morgan position at $33.95. We have had good luck trading the shares and at this price JPM yields 4% and will go x-dividend on October 4.
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3:02pm and the major measures managed to finish on the plus side with last inning rally. The DJIA closed up 25 points at 10445. The S&P 500 gained 1 point to 1215 and the NAZZ rose 5 to 2121. Breadth also finished positive. Volume was light. New highs exceeded new lows by 2/1. Treasuries finished lower with the two-year at 4.05% and the ten-year at 4.29%. Oil went out on the plus side up $1.63 at $65.82.

And tomorrow is Tuesday so join us and weíll tell you how the games went.
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23 September 2005 Daily Comment

Thoughts

Typhoons in Tokyo, hurricanes in Houston, and confusion in Washington all converge on the markets this Friday.

Watching those folks trying to get out of Houston is amazing and confusing. Where do 6 million people go? We know Texas is large but are they going to camp on the Ponderosa.

So much for American confidence in evacuation plans.
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Fridayís Markets September 23, 2005

9:27am and we donít think today is going to be an up day in the markets or in Texas and so we took our short profits and AEOS and SBUX. Hopefully weíll be able to repurchase them next week.

We still would like to buy JP Morgan under $34 but we havenít had any luck yet.

The major measures are lower and breadth is 2/1 negative out of the gate. This is the way yesterday began and then Rita was downgraded to a Category 4. If they downgrade it to a Category 3 today weíll have another rally.

Treasuries are finally acting like the Fed is going to continue raising rates as the two-year has moved back to 3.96% and the ten-year is 4.22%.

Oil is lower.
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11:47am and we added Estee Lauder to accounts at $35.50 which is where it traded at the beginning of the week on the disappointing earnings news.

The major measures have moved higher but have now rolled over and breadth is flat. Treasuries are weak and oil is down $1.65 under $65.Breadth is flat; volume is good; and new highs exceed new lows 2/1.
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1:14pm and Rita is now a category 3 and the markets are rallying a bit. Itís known as the hurricane effect in technical terms. As in baseball and as the White Sox are re-learning it ainít over till its over. You could almost hear the sadness in the media mavensí voices as they realized that most folks will be watching their favorite football teams instead of the destruction of Houston.

And as stocks rally bonds continue to retreat in price and rise in yields and your corner gas station is lowering the price of gasoline.
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3:02pm and strange it the only word we have for this weeks markets. The lunatics are running the asylum. Yesterday we said that it was nuts that the Treasury two-year was trading under at 3.91% since the Fed has indicated that it will raise the overnight rate to 4% in November. Well someone must have read our post because in the last 24 hours the two-year has gone from a yield of 3.91% to a yield of 4.02%. The ten-year moved from 4.11% to 4.25%.

With the hurricane now Category 3 oil ended at $64.19 down $2.31.

And stocks were all over the place and the major measures ended mixed on the day. The DJIA gained 2 points to 10420. The S&P 500 rose 1 point to 1215 and the NAZZ gained 5 points to 2115. Breadth was 5/4 positive and volume slowed. There were 212 new lows and 180 new highs.

And tomorrow is the weekend and play time for everyone except the folks in the southern red states.

On Monday the games continue.
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22 September 2005 Daily Comment

Thoughts

We seem to be the only folks in a buying mood. The hurricane looks like a bad one and the media mavens are predicting the end of Texas which we donít think would be so bad Ė except for Austin. We never have understood that state. We are reading that 6 million folks are evacuating Houston. The media rather than serving as a calming influence is hyping the *&^%$#%^ out of this storm.
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It is no wonder that some individual investors are scared but one would think that the big boys and girls have been around long enough to have some perspective. The markets are pricing in the absolute worse with oil and natural gas at the top and all other stocks at the bottom. Of course the hedge funds love the volatility and will short till the markets turn higher and then reverse.
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We are the only ones who think Treasuries seem to be saying that there is going to be an inter-meeting announcement of no more rate increases and a move towards loosening.
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First time claims for unemployment were 432,000 as the effect of the Katrina disaster begins to ripple through the governmentís checkbook.
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Rite Aid lost a penny a share for the quarter as expected. Not as expected CFSB started Rite Aid as a sell with a $3 price target. That wasnít nice of them.
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We are hoping to buy JP Morgan back around $33.50 in todayís sell off.
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Thursdayís Markets September 22, 2005

9:59am and stocks opened lower and then a snap back rally moved the major measures to positive at which time selling returned and the major measures are now lower and heading down.

We added TLAB at $9.50, International Paper at $30.45 and SBC at $23.90 to our large and/or aggressive accounts.

Fifth Third Bank now yields 4% and we are adding shares as the share price drops. It is an OTC number and who knows where the bottom is but you can only buy it well at times like this. It was overpriced at $60 but at $37.50 a lot of the steam is out of the stock.
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10:58am and stocks are under pressure and out of the blue Rite Aid jumped 30 pennies to $4. We sold our position thinking of sows ears and silk purses. As we said above CFSB came out this morning with a price target of $3 and it is the confounding part of markets that the lowest quality stock we own jumps 10% on such a dreary day. Luckily yesterday we reduced our cost price by buying a big chunk of stock and so all but our largest accounts are escaping with a small profit. Our largest accounts are taking a scratch loss versus a 10% loss where they were yesterday.

Our guess is that Carl Icahn has reestablished or is reestablishing his 10 million share position that he sold last month after the stock ran from $4 to $4.80 when he announced he owned it. If he is, we wish him good luck. We have better stocks to own in this market sell off and 10% one day gains in are not easy to come by.
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12:54pm and Hooray Hooray, Rita is now a Category 4 hurricane and oil is lower, Treasuries are higher in yield and stocks have stabilized.
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3:02pm and today was timid rallying day after some early uncertainty. Treasuries closed unchanged with the two-year at 3.92% when should be trading over 4%. Oil lost 30 pennies to end at $66.50. The DJIA closed up 47 points at10425. The S&P 500 gained 5 points to 1215 and the NAZZ rose 7 points to 2112. Breadth was negative at the bell and volume was active on the NYSE and moderate on the NAZZ. There were 240 new highs and 340 new lows.

And tomorrow is pre-hurricane Rita Friday. It should be interesting. The games continue and we will be here to play along.
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21 September 2005 Daily Comment

Thoughts

We wish all a Happy Vernal Equinox and welcome autumn, our favorite season.
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Itís always something. Folks were wondering what calamity or event would create the selling in September and October that the markets have come to expect. There werenít many bets on a hurricane destroying New Orleans as the culprit. And for the same reason that folks looked for another 9/11 for two years after it occurred, and another 1998 Long term Capital in 1999, and another 1990 lead up to the first Gulf War in 1991, and another 1989 Untied Airlines buyout collapse in 1990, and another 1987Crashfor the next ten years, the same is happening with the hurricanes. Maybe Hurricane Rita will be another Katrina but the odds say it wonít be. The media needs a story and as with 9/11 the hurricanes through the end of this year will be the market moving and scaring stories. By the way, what is the color code for terrorist attacks? Maybe it can be adopted for hurricanes
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Take down the green clocks and awnings on State Street and say goodbye to the green Fieldís shopping bag for Marshall Fieldís is no more. Federated Department Stores has decided that Chicago deserves Marcyís and so that is what will become of the Fieldís name. Fieldís named for Macyís a New York Store? That will be very strange. Chicago is own town and it is a shame that our landmark department store is disappearing. We are getting older.
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Avon is the crash of the day with earnings for the year forecast at $1.77 versus the $2.04 that analysts had been saying. We may try to trade this blow up as we have McCormick and Estee Lauder. Since Fidelity and Janus are major holders of Avon to the tune of 45 million shares we may tiptoe into this stock a bit more carefully.
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Itís Hurricane Rita all day every day for the rest of the week. Now we have the daily Hurricane reality show and the media networks are ecstatic because there are no production costs, plenty of pathos and real sorrow, and President Bush flies in afterwards in his big blue plane to see how the rescue efforts are going and make nice photo pictures. Who needs phony reality shows when we have 10 hurricanes a year?
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And so why does the Treasury two-year trade at 3.97% the morning when the Fed clearly indicated that short term rates are going to 4% in November?
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Investorís Intelligence had Bulls at 54 versus 53 last week and Bears at 25 versus 26 last week. We think the bulls on stocks are bulls on oil stocks and no others.
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Tuesdayís Markets September 21, 2005

The oil and oil related stocks are the main reason the S&P 500 is unchanged. Without their support the S&P 500 would be down over 10%. (We saw this statement on www.minyanville.com but weíve been told it was also in Barronís over the weekend.)

That is one reason we are comfortable buying stocks now since the ones we are looking at are already down 25% or more from their yearly highs.

Starbuckís is going to have a 2/1 split in October which will make it a $20 stock. We own a few shares in large accounts.
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Today is the day the big boys and girls are really killing the retailers. We forgot how relentless the selling can be when they decide to get out. All of the retailers are in the sinker as traders and institutional investors at higher prices decide that shopping is dead, hurricanes and oil refineries are in. Also there is a lot of arbitrage activity with Exchange Traded Funds (ETF) that owns retail stocks symbol RTH. The big boys and girls develop intricate option and shorting strategies for stocks that are active and volatile and that fit the retailers to a tee.

Gap is down 50 cents but we are going to take our time to add to that position. We are buying a few shares of American Eagle Outfitters at $20.82 (the high this year was $34) and looking at Talbotís but we are holding our powder. Since all three are institutional stocks and the selling season for institutions has another month to go with one first Thursday in October retail sales report to be announced cautious buying is prudent.
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Mother Merrill upgraded Intel to a buy. Thank you Mother, itís the only stocks we own that is up today.
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9:21am and the major measures are lower as Oil is up $1.65 and Treasuries are better on the Hurricane Rita mania.

The book to bill ratio on computer chips used to be a big trading number in the old days but it doesnít arouse much interest among the big boys and girls anymore. Anyway it was 1.05 this month which means that for every chip sold 1.05 chips are being ordered. With that in mind we have reestablished our Applied Materials at $16.97 holding in our aggressive trading accounts.
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Gasoline inventories were up 1.7 million barrels. And heating oil was up.Those are the new weekly trading data for the big boys and girls. Of course that means there is more gasoline and heating oil on hand than expected but you wonít see that at the pump.
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We are adding shares to our Rite Aid position at $3.68. It is down almost 25% in the last month and is at a six month low. That doesnít mean it canít go lower but our plan now is to hold our nose and buy as the sellers predominate.
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1:35pm and in the contra hour the major measures are lower and we would guess that the final hour is going to take stocks to their lows of the day and month and bring the S&P 500 back close to its August low and not far from the low of last June. The S&P 500 is now down again for the year.

Treasuries are up on the day and oil is up $1.30 at $67.50.
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3:02pm and the disasters continue as the DJIA closed on its lows for the day down 104 points at 10379. The S&P 500 dropped 11 points to 1210 and the NAZZ lost 25 points to end at 2106. Breadth was almost 3/1 negative, down volume/ up volume was 8/1 and new lows exceeded new highs and reached 305. Volume was moderate and usually the selling climax has over 600 new lows and much greater volume, so there must be more selling to come. And that means even better buying opportunities.

Treasuries in all maturities closed higher on the day and oil ended at $66.80 up 60 pennies.

And tomorrow is Thursday and the first full day of Fall so why shouldnít stocks? the games begin bright and early.
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20 September 2005 Daily Comment

Thoughts

These are a few of our comments from the September 20, 2003 daily letter:

ÖÖ we just completed a sampling of the losses we would have incurred in the last month had we not liquidated our stock holdings at the end of August in the Model Portfolio. While we were only 45 % invested in the market on August 21 we would have lost $33,000 had we held those positions. Enough said.

ÖÖ and the Model Portfolio ended the week up $378 for the year at a value of $430,182. The DJIA is down 20%, the S&P 500 is off 26% and the NASDAQ is down 37%. Happily we are 100% cash in most accounts.
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We repeat these words to remind that sitting on holdings often has been very painful in the month of September and October especially the last few years. We donít think this year is different from a risk standpoint. But we do think that gradual commitment to decent quality stocks like Time Warner that are coming into the focus of the momentum boys and girls; or buying good quality temporarily of favor blue chippers like Estee Lauder and McCormick for trades will be rewarded this year as such purchases are most years.

We are trying our best to avoid the down and out tech stocks we have traded at year end for the last five years. But we remain interested in Tellabs and Andrew Corp. Actually ANDW and TLAB are cash rich well run companies that will eventually sell 50% higher than present prices. The question is how long eventually is.
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Heinz is joining the divesting game in which Sara Lee has been engaging. This too is about the fifth makeover for Heinz in the last ten years. At least OíReilly is gone. The divesting game with Heinz may affect HAIN because of the 20% ownership. We donít know which way but we would think there is a willing buyer of the block of stock.
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UBS chain store sales fro the week of September 17 we down 2% versus down 0.5% the previous week.
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American Eagle Outfitters has been dropping like a rock down from a high of $34 this year to $24. Itís still too rich for us but we are looking at it and Talbotís which is at $29 probably on its way to $25 again. We let a barn burner go earlier this year when we took a small profit in Tiffany. We just canít kick the retail habit.
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Thursdayís Markets September 20, 2005

Today is all about the Fed meeting and the release of the wording of the 1:15pm CDT announcement. Then the markets will go back to focusing on the new Hurricane Rita and conjuring the most horrid events imaginable to be created by that storm. We are sure all the major network news anchors are already positioning themselves to stand in the wind and rain and show their courage.
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Japan and Hong Kong were up overnight and Europe is higher.
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Goldman Sachs announced big number this morning.
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Housing starts were down 1.2% in August.
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We are buying Estee Lauder down $5 per share at $35.50 in our larger and aggressive accounts. At the same time and speaking of down and out Tech stocks, we sold JDSU for a scratch loss because we want the money for the EL purchase. This is a quality switch. One low priced stock in Rite Aid is enough for our portfolios right now.
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9:18am and the major measures are higher with breadth 5/3 positive. Treasuries are unchanged and oil is of a bit after the huge run up yesterday.
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10:39pm and the Hurricane watch reminds us of the old days when it rained in Chicago corn went down in price.

Oil is lower by $2 now and maybe the hurricane isnít going to disrupt as much oil production as traders thought (?) yesterday. Do traders think?

The major measures are higher and breadth remains positive.

EL has jumped $1 from where we bought it and we will always take a two hour 3% profit and so we sold part of our larger positions. We do think the shares have at least $4 in them by year end which is why we didnít sell the entire holding. In fact we hope the price comes back down so we can buy more around.
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1:16 pm and The Fed raised the discount rate 25 bps and kept the same language. The stocks markets didnít like that the language wasnít changed and stocks are lower than before the announcement and the two-year is at 4% while the longer notes and bonds are also lower. The Fed is saying everything is OK and the markets donít want to believe.
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Fifth Third raised its quarterly dividend to 38 pennies from 35 pennies. It didnít help the share price today.
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In the after the Fed raise sell off we bought CSCO at $17.89 for a trade in our aggressive/larger accounts.
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3:02pm and at the bell the DJIA was down 72 points at 10485. The S&P 500 lost 7 points at 1222 and broke support at 1225 and the NAZZ dropped 13 points to 2132. Breadth was 2/1 negative at the end and OIL lost $1.16 to $66.23. Treasuries gave ground with the two-year going out at 3.99% and the ten-year at 4.26%. The thirty-year actually closed higher at 4.53%.

And tomorrow is Wednesday so let the games continue.
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19 September 2005 Daily Comment

Thoughts

Reading articles in the NYT over the week-end about the New Orleans and Mississippi and Alabama destruction and the monies that are going to be needed to rebuild we wondered about all the arguments about cutting and raising taxes and cutting spending. We know that politicians arenít going to cut farm programs or road programs nor are they going to raise taxes. We find it interesting that one unforeseen benefit of sun-setting the tax change cuts in 2010 is the New Orleans and Iraq disasters. Some group of Americans is going to have to bite the bullet and why shouldnít it be the folks who are deriving the benefit?

That argument of how to finance the deficit and whether the deficit really matters and the effect of the deficit on interest rates is of course a main bugaboo for present market conditions. While the stock markets are on their recovery highs from the 2000 Ė 2003 sell off; the DJIA and S&P 500 remain 15% below their highs. That is pretty amazing when you think how low all those tech wonders that comprised the 2000 market measures are now trading. Of course oil stocks and housing stocks have taken up the slack but whereas tech booms are of benefit to the economy by creating new means of productivity Ėthe IPOD excluded- oil booms only benefit the oil companies especially since the booming earnings for those entities is coming from rising prices and not an increase in exploration and discovery.

Where to for the markets? Even with the cross currents we donít think the world is going to end. As we have said before we are always cautious but the great World Wars and the great Depression and the Cold War were all a lot more difficult to deal with than present problems. The only difficulty now is for folks to get the wherewithal to deal with the problems.
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Hopefully the North Korean situation has been settled.
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Mondayís Markets September 19, 2005

9:15am and stocks are lower out of the gate with breadth 2/1 negative. Treasuries are a bit better ahead of tomorrowís Fed meeting and that is the focus of todayís action. There is mindless media chatter about what the Fed will do and of course waiting a day will resolve the whatever.

Gold is higher as is oil. Japan and Hong Kong were closed overnight for holiday. The Washington talk about the North Korean agreement seems positive and for that we are grateful. Natural disasters can be dealt with, nuclear disasters canít be.
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Rita the Hurricane is coming to the Florida Keys and Gulf. Hopefully it will be an ordinary hurricane.
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With crude oil up $2.50 to $65.65 stocks are having a difficult time getting any traction. Interestingly Treasuries are recovering all of Fridayís losses.

We are picking up a few shares of Fifth Third and Starbucks for our larger/aggressive accounts and sold the Commerce Bancorp in those accounts for a scratch gain. We are also adding more shares of GPS to larger/aggressive accounts.
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12:10pm and the major measures continue at lower levels not wanting to fight the rise in oil and the uncertainty of tomorrowís Fed meeting. Every 15 minutes mindless media plays pictures of the Florida evacuation from Hurricane Rita and while there are no levees to break the psychological impact on an already skittish market is negative.

We are guessing that The Gap sales numbers for September will be bad but we think the stock is cheap and want to own it. This may turn into another Reebok or long ago ORYX or Nike situation where beginning in September through year end we bought all the way down. We hope so anyway because our only mistakes with them was to sell to soon for big profits. We love those kinds of mistakes.
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12:51pm and the big boys and girls are having fun today as crude oil is up $4 to $67.
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If they can keep the levees intact it would seem that a nice heavy rain would be the beginning of the cleanup of New Orleans.
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CNBC has a small picture of Hurricane Rita spinning on the TV screen where it usually shows the DJIA. Since the hurricane is going to be around for the next week that picture is going to get pretty boring. (It already is.) It reminds us of our trip to the Philippines to see our daughter Christine who was in the Peace Corps. We flew out of San Francisco and on the TV monitor they showed the progress of the plane towards Hong Kong which was fourteen hours away. The TV screen was only about 6 inches wide so it took about 6 hours for us to get out of San Francisco Bay. That was one long trip and we have a feeling that this hurricane is going die of overkill by the media.
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We are going back into Time Warner over the next month and we are beginning today buying shares in our Aggressive accounts at $18.60. This is higher than where we sold at the beginning of August but the rumors and movement of the shares over the last few weeks suggest some positive developments on the AOL front. Also MSFT has been coming down in price and that is to be expected if they decide to take a position in AOL.
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3:02pm and the DJIA closed down 86points at 10555. The S&P 500 lost 7 points to 1230 and the NAZZ dropped 15 points to 2145. Treasuries closed higher and Oil jumped $4.39 to $67.39. Itís time to raise prices at the pump again.

And tomorrow is Tuesday and the games will continue on Schedule.
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16 September 2005 Daily Comment

Thoughts

And we read in the WSJ that Richard Parsons CEO of Time Warner has placed a value on AOL of Ė yes you guessed right- $20 billion. You of course know that because that is the value that we have always placed on AOL while Wall Street has been valuing it at zero.

From the WSJ: Öpeople close to the discussions say that the size of Microsoft's possible stake in AOL hasn't been determined and that investment bankers haven't been engaged. And the price of the stake is likely to be a sticking point. In the past, Mr. Parsons has balked at offers for AOL that fell below the price he has put at about $20 billion.

We of course arrived at that value after serious and studied consideration of all aspects of the business. Actually we just multiplied 10 times a $2 billion cash flow. But whatever, great minds and all that, we would only be interested in Time Warner if they kept a big chunk of AOL because that is the future while their magazines are the past.
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Our tech guru is very short term bullish to 1250 on the S&P 500 if that index can move up through the 1232 level in the next few days without settling below the 1225 level beforehand. Hope you understand that. It is called a down three down/up one / twisted chicken breakout for you technicians out there. Just kidding, but the guru does think those levels are important. He continues to look for an October rollover. Nothing is simple.
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The yield curve is now 34bps between the two-year 3.89% and ten-year 4.23%. (4.23-3.89=34). That is the steepest it has been since Katrina hit. The steepening of the curve should help banks like Commerce Bank , which took a $3 hit to its share price this week, unless of course they reversed the positions which is always a possibility.
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$200 billion being thrown at the economy will be stimulating to the economy. A trader on CNBC says throwing the $200 billion at the economy will work since supply side economics will provide the taxes to cut the deficit as long as Congress keeps spending under control. Say What? That is what passes for analysis. We must admit he was a trader and is probably long the markets so we know where his sympathies lie.
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CSFB upped Intel to neutral citing valuation. Neutral is an upgrade?
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Fridayís Markets September 16, 2005

8:50am and the University of Michigan consumer Sentiment for September was 77.9 versus 88.7 in August. Since 85 was expected that is a negative negative which in terms of stocks doesnít make a positive although it should for Treasuries but isnít because Uncle Alan is an economist and not a scientist.

Stocks opened higher on huge buying for witching day and the major measures remain higher but are giving ground.
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9:15am and stocks are holding onto their gains with breadth 2/1 positive and volume active. Treasuries continue to slip ahead of the Fed meeting and oil is lower by 65 pennies.
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10:45am and breadth is moving back towards even as the major measures do the same. The ten-year Treasury is up 5 bps and the two-year is up 3bps. Oil remains lower but above the $64 level.

The world is not going to end and life has returned to normal for most of us. The folks in the South will have to deal with their problems and those problems are many and difficult. But a lot of Federal money is going to be thrown at the problems. The rest of the country is fine and if oil can just come down a bit more so will gas prices.
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We repurchased the GPS we sold two weeks ago for less $18.27 that we sold it $18.35. It certainly wasnít a great trade but at least we got back in for less. We want to own GPS into year end since it is unloved by on Ďthe streetí with only 4 real buys and 16 holds which mean there are low expectations of anything good happening. The flip of the shares the week of Katrina was just that and was occasioned by our not wanting to hold any stocks into the return from the Labor Day holiday. Since then the pessimism has grown and as it grows we will slowly buy more stocks by continuing to add beaten down big caps.

In the last two years the Gap has paid down $2 billion in debt and has cash on hand of over $2.5 billion with only $500 million in debt. GPS has free cash flow of $2 billion per year and even with all their problems earnings are growing at 10% a year. Shares outstanding will be reduced by over 10% this year which amounts to about 80 million shares. In its glory (goofy) days of 2000 the Gap sold at $50 and earnings were 50% less and debt 4 times present levels. The stock is cheap.
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We also bought JDSU at $1.85 in very large/aggressive accounts for a trade. Citigroup upgraded the shares today to buy and the company still has $1 per share in cash so it will survive as long as we plan to hold it. JP Morgan upgraded (?) to neutral on August 8. There are currently 3 buys and 9 holds on the shares which is a slightly better percentage than GPS. We are not going to buy it around in any other accounts.
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The pre-closing imbalances look to mostly on the buy side.
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3:02pm and the DJIA closed up 82 points at 10640. The S&P 500 gained 10 points to 1237 and the NAZZ rose 15 points to 2160. Breadth was positive at the close. New highs exceeded 400 but new lows jumped to 200. Treasuries closed higher in yield and lower in price with the two-year at 3.96% and the ten-year at 4.26%. Oil dropped $ 1.85 to end at $62.90 and gold was $463.20.

And itís Friday and weíre out of here for the week-end.

The games begin bright and early Monday morning.
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15 September 2005 Daily Comment

Thoughts

The secondary offering of Google stock was priced last night at $295 versus a close of $302 and the shares were well received. Google gets $4 billion with which to play.
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After buying Disney yesterday we were greeted with a speech by their CFO that said the movie division was going to take a $350 million write down for Miramax releases that arenít doing so well. Moreover Disney will write off $100 million in Delta Airline leases that it owns since Delta filed bankruptcy yesterday.And who was the genius that decided to own airliners for the tax writoffs and long term gains? Now they get to write off the whole amount with no gains or interest. We are sure the sales pitch was a great one.

Our purchase timing could have been better. But the new CEO assumes command in January and we would guess that these and more write-offs are going to clear the decks. And we would expect analysts at some point in time in the next few months to say the same thing.
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Delta and Northwest bit the dust on the same day by filing Chapter 11 bankruptcy yesterday. We and others predicted the event several years ago when US AIR filed. It is impossible for many airlines to compete with bankrupt airlines on a cost basis. Maybe all airlines should operate in Chapter 11 since many of them spend a lot of their lives their. UAL has been in bankruptcy for two years. We have tickets on Delta to fly to Florida for a basketball tournament in Christmas week so we hope they keep working on the planes.
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Fifth Third Bank made a presentation yesterday at the Lehman Banking Conference and today major brokers (6) are downgrading FTIB since they didnít like the forward look the bank gave. The downgrades will hopefully provide a more profitable buying experience for us than the last time we owned the shares.
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Newell Rubbermaid is launching its umpteenth three year plan by first laying off 5000 workers to attempt to get costs under control. The Rubbermaid acquisition has taken a lot of years to integrate and the growth of the super stores like Wal-Mart has placed great pricing pressures on the company. Under $20 we will again be interested.
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We are also looking at Sara Lee again since with the myriad restructurings there seems to be value that will eventually rise to the surface. The sale of the European apparel division has hit the rocks. With the shares are under $19 and we would be interested at the $17.50 level.
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Finally it is being reported that Microsoft is going to buy AOL from Time Warner. There is no official confirmation or mention of price. We presume it is neither the $20 billion number we suggested nor the plus $100 billion that Time Warner paid. And the investment bankers who did that deal original deal and were paid big bucks still have their jobs. Amazing.
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Thursdayís Markets September 15, 2005

7:30am and CPI, the Consumer Price Index, was up 0.5% in August while the core rate was also up 0.1%. Business Inventories were down 0.5%. First time claims for unemployment were 398,000 and as the Katrina job losers find unemployment offices that number will rise significantly. We guess we wonít see the magic under 300,000 until next year at the earliest.

The talking heads on CNBC canít figure out why the inflation numbers shown in full CPI donít pass thorough to core CPI. The answer is simple, hedonics, which is the art of making numbers say whatever you want them to say. And the Fed and Administration want no inflation and so the core number shows no inflation.
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There is a squeeze going on the ten-year Treasuries. The Fed is interested. The big boys and girls must be losing money and they need the Fed to rescue them.
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Find a chart of the DJIA and if you draw a line from the March high to the September high; and then draw a line from the April lows to the August lows you will see a pennant formation that is narrowing. The DJIA is going to break out one way or the other and whichever moves occurs should be strong and quick.
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This is the time of year when we are not surprised that the stocks we buy continue to move lower after we purchase them. That is why we are concentrating on quality names as we re-enter the market. With hedge funds willing to short any name and spread any rumor to help their short or long positions is important to believe in the stocks we are buying. That is the expensive lesson we learned over the past year.
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9:08am and the NAZZ is lower as folks sell stocks to make room for the Google they purchased. We think that is one of the main causes of Intel dropping as many other lower quality techs have risen. Or maybe that is our hope.

The major measures are mixed but it looks like the DJIA and S&P 500 will test negative territory before too long.

Breadth was positive out of the gate and remains so on the NYSE but is 5/3 negative on the NAZZ.
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11:24am and the Philly Fed manufacturing report was less than expected and the markets turned lower. Oil is also heading lower.
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Treasuries are losing ground with the ten-year at 4.22% and the two-year at 3.90%.
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New highs are at 150 which is half of where they were a week ago and new lows are at 80 which is twice where they were a week ago.
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Gold ended the day at $459 which is a 17 year high. We didnít know it has been that long.
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2:45pm and we have to leave early to get Luna, the dog, to the veterinarian for a check up.

The DJIA is currently down 10 points at 10535. The NAZZ is down 5 points at 2143 and the S&P 500 is down 2 points at the very important 1225 number.

Breadth is almost 2/1 negative. Treasuries closed higher in yield lower in price with the ten-year at 4.21% and the two-year at 3.89%. Oil ended lower at $64.75.

This is a witching day and anything can happen into the close.

And tomorrow is tomorrow so let the games continue.
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14 September 2005 Daily Comment

Thoughts

The heat wave broke last night with terrible storms last night north of us but not a drop of rain for us. We had almost an inch in the morning though so we did Ok and missed most of the wind. Every day as we water our plants we think of all those gardens in New Orleans that will never be again and feel sad for the owners who spent years creating their own private little paradises.
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The S&P 500 punched through 1232 last week and was holding well above until the sell off in the last hour yesterday. 1 point below does not break the break out but the next few days will tell the story. One of the bearish gurus we like thinks that the S&P 500 will still make it back to 1250 which is a 2/3rds Fibonacci retracement of the down from the March 200 high. Yes the S&P 500 remains 15% below its high of March 2000.

We are maintaining a large cash position awaiting the return of the two year to above 4% and also buying a few stocks we want to own through year end and beyond.

We have abandoned the lower priced tech area as it abandoned us this year and are concentrating on broken blue chips and larger tech issues.

We bought Disney yesterday in small amounts in large/aggressive accounts yesterday because Eisner is finally leaving at year end and we think that will give the analysts a reason to begin recommending the stock in the next few months. We are buying more in other accounts today at $24.65 and are willing to increase the position lower.

We own Intel as a play on a move in the tech area into year end. Intel powers Dell and others computers and will eventually be grabbed by the big boys and girls if a tech rally commences.

Hain Celestial is a natural foods company that sells at one times sales and is 20% owned by Heinz. HNZ owns the share around $30 and has said that by year end they will either write down their investment or do something. We donít know if that something is a takeover or a convincing of their investment bankers to get the rice of HAIN higher. But we have had good luck trading the stocks from this level to above $20 and we like their products and expect something good to occur.

Rite Aid, the third largest drug chain, is turning the corner. In our very large accounts we have been trading in big size for 5% moves and in our smaller accounts we are just holding. RADís debt load is substantial and acts as a hindrance but they are slowly whittling it down. We have always had luck with drug store stocks and hope the luck continues.

We own Verizon for the yield and the fact that it is down to $33 form $45 earlier this year. There is great competition in the DSL and cable field but the melding of the whole area is a process in which Verizon will come out OK and with the 4.5% dividend we will hold or trade as event unfold.

We are adding shares at $19.65 of Cabelas (hunting/fishing/outdoor retailer) to our large/aggressive accounts and to our son-in-lawís IRA account and our grandchildrensí accounts since he is a great fan of the store. We traded last year in the middle and high 20s and the shares have come down under the offering price of $20. We think it is a good retail speculation. Insiders own 50% of the 66 million shares outstanding and three of them bought 10,000 shares each a week ago. That is chump change for them but more a sign to the market. Short sellers are all over this stock and so we arenít going to make a federal case of it but we think the shorts will eventually get caught by growing sales and earnings.

We are looking at other stocks of this type and will be adding them over the next few months for our usual year ends foray. Remember that that are two year ends now. Mutual fund year end is October 31 and for that year end we concentrate on the McCormickís of the world that we bought in larger accounts for a pop after October 31, or failing that after year end. We would like to buy more of the spice provider but donít want to pay over $30.
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Jack Welch is on CNBC giving his wisdom to a weary public. Some folks donít know how to fold gracefully into the sunset.
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Retail sales for August were down 2.1% but ex autos they were up 1%. Ex gasoline sales they were up 0.5%. We donít know what that all means but that is what the talking heads are spending time on this morning.
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Investors Intelligence has Bulls at 53% versus 52% last week and Bears at 26% versus 28%.
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Wednesdayís Markets September 14, 2005

9:45am and the major measures are mixed with flat breadth. Google is the item of the day since underwriters are pricing 14 million shares tonight. GOOG is at 50 times earnings but it was at that level when it went public 200 points ago. Some gurus swear it is the new Microsoft only better. But 50 times earnings which is where it will always sell until it doesnít isnít our cup of tea.

Oil is up $1.04 over $64 and Treasuries are flat.
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A fellow from Sanford Bernstein was on CNBC suggesting that Ford be taken private. That caused the stock to jump 20 pennies which it is now giving back. Selling Hertz makes sense for Ford but breaking the rest of the company up doesnít. The finance arm is an integral pat of selling cars. The ďold stock brokerĒ used to say that the brokerage business was all about the interest earned on the money generated by the brokering. And that is what the car business has become. Sell the cars for cost and make money on the financing. Eventually analysts are going to realize that. Breaking even on the car sales is the goal and every few years make money on selling them. We are interested in Ford but our last foray was too early in the autumn cycle and that is why we quickly exited. Hopefully we will be able to get stock around the $8.50 level.
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Courtesy of a friend who spotted this in the NYT this is the perfect retort for folks who are upset when you change your mind although we donít think it would work with grandchildren.

"The matter does not appear to me now as it appears to have appeared to me then."

Supreme Court Justice in an opinion repudiating as a Supreme Court justice a position he had advocated as attorney general.
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1:27pm and in the contra hour the major measures are now negative with the DJIA down 32 points. Breadth is still positive on the NYSE but not on the NAZZ. Treasuries are down a tick to one half points on the thirty-year. Oil is up $1.19 to $64.30 on lower inventory numbers.
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With BIDU (the Chinese Google) down $30 and the real Google down $10 the NAZZ is going nowhere today but down.
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3:02pm and the DJIA closed down 53 points at 10543. The S&P 500 lost 4 points to 1227 and the NAZZ dropped 22 points to 2150. Treasuries closed lower with the two-year at 3.87 and the ten-year at 4.18%. Breadth was negative at the end and oil closed up at $65.05. The Fed better hurry up and meet before oil is over $70 again or they will have to pass on raising rates.

And tomorrow is tomorrow so let the games continue.
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13 September 2005 Daily Comment

Thoughts

Last night we read a column in the New York Observer that discussed the various types of mortgages that are being used by folks to finance homes they are buying. More than 40% of mortgagees currently outstanding required a 5% or less down payment. Unlike the 1980s when banks and savings and loans went under because they held the mortgages present day banks sell the mortgages in pools to investors and other countries and such.

We found the article interesting because yesterday we were listening to a banking analyst from Lehman talk about Commerce Bank and why it was it had warned on earnings and dropped in price. She said that CBH earnings were under pressure because the spread between short and long rates had narrowed. Since CBH borrowed short and invested long its profits were being hurt by the narrowness of the spread.

She made excellent sense and she obviously knew what she was discussing. But then when discussing GNMA mortgage pools that Commerce Bank might hold she made the comment that that they were rated AAA so there was nothing to worry about. Obviously she was in grade school or younger in the early 1980s and they neglected to discuss the pitfalls of AAA securities in the early 1980s at the business school she attended.

Folks and traders are talking as if 4.5% rates are going to be out of sight high. For any of us who lived through the early 1980s and then the early 2000 we know that nothing is too high or too low. Rates will go where the markets take them. And we would guess that 6% will occur in the not too distant future.
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Nokia announced that their higher end phones are selling better and raised guidance. The shares are up 10% this morning to $16.70. We have been hoping to re-purchase the shares at the $15 level and the next sell off would have given us that price. Ah well hopefully weíll have another chance.

In July Nokia lowered guidance from 20 euro cents per share for the quarter to 14 to 17 euro cents and the share price dropped $2. Now they have raised to under where they were in July but itís the action not the reality that counts in the markets today.
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PPI (Producer Price Index) for August was up 0.6%, ex food and energy and other essentials it was unchanged.
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Tuesdayís Markets September 13, 2005

Cendant and Best Buy have lowered their numbers because of Katrina, of course. Oil is higher and the major measures are going to open lower to begin the day.
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A day late and several dollars short JP Morgan cuts Delta Airlines from overweight to underweight. We remember when JPM put the overweight rating on a couple of months ago and the DAL shares rallied $1.50 to $4. JPM must have been helping a client get rid of some stock or maybe getting out of their own position. We know we are cynical but there is no other explanation for the rating action at that time given subsequent events. Either that or the analyst should be looking for another job.
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9:27am and the major measures are lower as Treasuries are staging a bit of a rally. Oil is up 36 pennies. Breadth is 2/1 negative and there are no real strong areas.
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This was sent to me by a client.

Broker who worked until age 97 is dead
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We bought Disney at $24.92 in some of our large accounts as a beginning position.
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2:02pm and in the contra hour the major measures rallied back to almost even before heading back down to down 60 on the DJIA. The DJIA is now down 40 as programs rule the afternoon trading. Since this is a witching week anything can happen over the next few days.
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3:02pm and for the day the DJIA closed down 85 points at 10597. The S&P 500 closed down 9 points at 1231 and the NAZZ lost 11 points to end at 1276. Treasuries closed up on the day with the two-year at 3.87% and the ten-year at 4.13%. Oil lost 23 pennies to $63.11. Breadth was 2/1 negative at the bell

The 1232 level on the S&P was important support --but who knows.

Tomorrow is tomorrow so let the games continue.
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12 September 2005 Daily Comment

Thoughts

If you want to have a good laugh and have the time, just click through on this. It isnít political.
http://www.chumfm.com/MorningShow/bits/march24.swf
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Oracle is buying Seibel for $10.66 which explains the 10% jump in SEBLís price last Friday.  Whoever bought August 10 options on Friday will probably get a call from the SEC. We thought the bid would be less than $12 and after the CEO said that SEBL wasnít for sale we moved on last spring. So much for listening to CEOs.
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Mondayís Markets September 12, 2005

This Friday is quintuple witching day as the Quarterly evening up comes early on the third Friday of the month.
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For the first time ever, on Friday Intel recorded a one month low at the same time that the Sox Index recorded a one month high. Thatís never happened before and we donít know what that means. We would guess that either the Sox is going to roll over or INTC is going to move higher. We of course are hoping on the latter for now.
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9:24am and the major measures are mixed in slow Monday morning trade. Breadth is negative on the NYSE and flat on the NAZZ which is up a few points. Treasuries are giving ground as the price of oil continues to drop and the indications of another Fed rate increase on September 21 become more evident.
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It was disturbing to read in the Friday NYT that Yahoo cooperated with the Chinese Communist Government in helping them trace a reporterís E-mails that were derogatory to that government. That reporter has now received a 10 year jail sentence. There has also been talk of Google cooperating with the Chinese government by removing the ability of Chinese web surfers to reach sites that are inimical to the Chinese government way of thinking.

This is scary action in the name of profits.  We guess the web isnít as altruistic and open as we would like to think.
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As oil drops so do Treasury prices. The rally in Treasury prices and drop in yields in the few days after Katrina hit and New Orleans flooded has given way to profit taking and readjusting hedge fund holdings. The long treasuries, long oil trade has been a disaster. Thatís trade thought $70 oil would cause the Fed to pause in its rate increase pattern. With oil at $63 where it was the last time the Fed raised rates the thinking now is that Fed raise on September 21.
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Q: What is Bush's position on Roe vs. Wade?
A: He really doesn't care how people get out of New Orleans.
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3:02pm and the DJIA closed up 5 points at 10683. The S&P 500 lost a point as oil stocks pulled back and closed at 1240. The NAZZ gained 7 points to 2182. Breadth was flat on the NYSE and positive on the NAZZ. Treasuries gave ground with the two-year ending at 3.90% and the ten-year at 4.17%. Oil closed at $63.69 down 48 pennies after trading below $63 during the day.

And tomorrow is tomorrow so let the games continue.
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9 September 2005 Daily Comment

Thoughts

Itís Friday. We are looking forward to the weekend.

We are having a tough time wrapping our arms around the tragedy that is New Orleans. Thousands dead and recriminations fly. $2000 or $4000 to displaced folks who have nothing and anger over the giveaway hits the airwaves. A whole city gone and the uptown folks talk about keeping the riff raff out when rebuilding starts with your and my money. This country isnít as kind as it would like to think. It wasnít the poor folkís fault that the levees failed. Everyone is suffering but the poor folks seem to be getting the short end. That higher place and better life in the next life is a sop that isnít working as well as it did.

The tragedy gives a lot to think about. But most folks donít have time because they have their own day to day problems. Too bad.

Fridayís Markets September 9, 2005

9:08am and the major measures opened higher. Treasuries are unchanged and oil is up 50 pennies to $65. Breadth is positive and volume has begun on the light side.

Texas Instruments had a positive mid quarter report last night and opened higher and is still up but off its highs. Intel had a good report but not enough and it is off 50 pennies. We picked up INTC for accounts as a contrary play in the tech area. INTC is near its 4 month low and while no stock is a safe holding in a market collapse INTC is a good holding for a move up into the September close if the big boys and girls want to keep the market higher till then. And while every stock is an anchovy, INTC is a premium anchovy from a quality stand point.

We also would like to buy back some HAIN for accounts around the $18.40 level. We sold over $20 in mid July. Earnings came last week and were OK but the stock seems to have corrected enough before the earnings and not realized that the slightly lower sales were for positive reasons. We are going to leave enough room to buy more shares lower if the markets take a nose dive. We have had good luck trading this stock and happily we also like their products.
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Halliburton wins again. Do you think they know someone? Bush suspends the prevailing wage which just means more money for the contractors and less for the workers.

President Bush issued an executive order Thursday allowing federal contractors rebuilding in the aftermath of Hurricane Katrina to pay below the prevailing wage.

In a notice to Congress, Bush said the hurricane had caused "a national emergency" that permits him to take such action under the 1931 Davis-Bacon Act in ravaged areas of Alabama, Florida, Louisiana and Mississippi.
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3:02 pm and the DJIA closed up 82 points at 10679. The S&P 500 gained 10 points to 1241 and the NAZZ rose 10 points to 2175. Breadth was over 2/1 positive at the bell. Oil closed lower down 40 pennies at $64.08 and longer dated Treasuries rallied while the two-year was unchanged. The market are saying one more rate increase and then a pause.

And tomorrow is Saturday so enjoy the time off. We will.
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8 September 2005 Daily Comment

Thoughts

By moving all the black folk to Houston and other parts of Texas, Louisiana has just become a Red state that the Republicans will carry in the future. New Orleans was the Democrat territory that delivered the victory for Democrats. No more will that happen.
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Thursdayís Markets September 8, 2005

12:39pm and the major measures are lower. There isnít much going on with oil unchanged and short Treasuries off a bps while the ten-year is unchanged at 4.13%.

Breadth is negative and volume is light. There is some strength in tech stocks while oil, drug and finance stocks are lower.

Itís quiet today and we are having a nice rain which we are enjoying. Itís the first rain in two weeks and we need it.
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Searís Holdings which is K-Mart/Sears is off $6 today as the synergies of two loser retail outfits combined to deliver lower sales and earnings than expected. Eddie better get busy selling all that valuable real estate in New Orleans to puff up the balance sheet.

Searís Holdings named Aylwin Lewis to replace Alan Lacy as chief executive on Thursday and announced that Chairman Edward Lampert will take a more active role in the day-to-day management of the company. ÖLampert, a renowned hedge-fund manager based in Greenwich, Conn., will direct the marketing, merchandising, design and online businesses of Sears Holdings as well as its Lands' End casual-clothing unit ''to ensure that these initiatives are clearly focused on responding to customer needs,'' the company said.

It sure makes sense for a hedge fund manager to be making retailing decisions. Not. Supposedly the deal with the merger was to sell all the valuable real estate.
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400,000 jobs lost. A city and surrounding area of 1 million souls in tatters; $200 billion and counting in new Federal Debt; $20 billion plus in insurance payouts; and the Fed is still going to raise rates. Wow!
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3:02pm and the major measures closed lower with breadth over 2/1 negative. At the bell the DJIA was down 37 points at 1596. The S&P 500 lost 5 points to end at 1232 and the NAZZ was down 6 points at 2166. Treasuries closed unchanged and oil was up 38 pennies at $64.75.

And tomorrow is tomorrow so let the games continue.
*****

 

7 September 2005 Daily Comment

Thoughts

Last night when we were walking the dogs we began thinking about our post of yesterday regarding holding the 4% Treasury Notes. We argued then for holding them because the gain we would realize would amount to one monthís interest. What our aging mind failed to take into account is that the monies raised would then be reinvested as 2.7% or higher until we repurchased the 4% which we think will go back to the 4% level when the Fed raises the discount rate 25 basis points on September 24.

Moreover for taxpaying accounts the gain on the bond trade will be offset by the current losses from our January fiasco so it will turn taxable interest into a non taxable event.

And so this morning we sold the 4% Treasuries for a $4 per bond gain. And we expect to repurchase them within the month while earning interest on the funds realized in the mean time at 2.7%. Or we may go back to one year or less paper yielding 3.6 %.
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This morning preliminary 2nd Quarter GDP productivity was announced as up 1.8% which is less than the 2.2% number announced last month when the advanced 2nd Quarter Productivity number was released. Remember there are multiple releases of GDP numbers before we get the absolutely final GDP number for the 2nd Quarter.

2nd Quarter GDP labor costs were changed to up 2.5% from up 1.3%.

Both those numbers are negative for Treasuries and would suggest that a 25 basis point increase is in the cards for the September Fed meeting.
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Moreover the employment and jobless claims figures for the next few months are going to be all over the board. The reality is that probably 300,000 plus folks are out of work for a while. Nice companies like Wal-Mart cut their employees off salary after four days for stores that arenít open. Starbucks and some other less enlightened stores are keeping their employees on salary and with health benefits.
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The German Dax is approaching 5000 for the first time in three years.
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Over one million jobs existed in the New Orleans area. The status of 170,000 homes is in doubt. With the toxic sludge there will at the least be no gardening in New Orleans for many years if ever. There is no estimate that we have seen of cars destroyed.

Major lending institutions are going to forbear on mortgage payments and auto companies are going to do the same and provide relaxed payment schedules. The whole lending mess is gong to be a real Solomonís quandary. We would guess there are going to be a record number of bankruptcies this year.
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Tuesdayís Markets September 7, 2005

9:16am and stocks are flat out of the starting gate with the major measures mixed. As of now there is no follow through to yesterdayís super strong finish. Oil was lower early in the morning but is now a few pennies higher.
*****

Investorís intelligence has bulls at 52% versus 52% but Bears also higher at 28% versus 27%. For a sell off to occur usually Bears are under 20%.
*****

We sold our trading position in Rite Aid for a 10 penny profit but kept the position in many accounts. The share price has jumped 15% in the last three days.
*****

12:02pm and Treasuries remain under pressure with the two-year at 3.83% and the ten-year at 4.14%. The yield curve on the two to ten year has steepened from 5 bps last week to 31 bps. Democrat Senators are urging Greenspan not to raise rates at the September Meeting. They should be urging him to raise rates if they want him not to raise rates.

Chicago Fed President Moskow is talking today and says Katrina is extraordinary in its damage. Moskow says the damage seems to be temporary and he remains more worried about inflation. That means a rate increase or so the bonds are saying.

Breadth is 5/4 negative and new highs are at 200. The major measures are mixed but the NAZZ is peaking into positive territory.

The share price of McCormick & Co, the spice folks, is off $3.90 per share to $29.41 today on downgrades by Mother Merrill and others after MCK announced that sales and earnings will be less than anticipated due to Katrina. This may be the first of many but it is an interesting stock with a stranglehold on its market and we are interested. Janus owns 3 million shares and Janus used to abandon ship on these types of moves but we donít know if that is still their style. On the other hand Ariel owns a chunk and would a buyer on this kind of selling. We are buying a bit in our large/aggressive accounts with room for more.
*****

This is the kind of Reuterís story that can get a real panic going:

As many as five people have died from bacterial infections caused by the dirty water that

Hurricane Katrina drove ashore last week, the U.S. Centers for Disease Control and Prevention said on Wednesday. The patients appear to have been infected with Vibrio

vulnificus bacteria, a water-borne pathogen that is related to the bacteria that cause cholera and which is common in water off the Gulf of Mexico."There was one in Texas and I think three or four in Mississippi that were confirmed by state and local health officials and reported to CDC," CDC spokesman Tom Skinner said.
*****

1:08pm and oil is lower by $2 to $64. The major measures have turned positive and breadth is also positive.
*****

3:02pm and oil closed down $1.59 at $64.37. At the bell the DJIA was up 40 points at 10630. The S&P 500 gained 2 points to finish at 1235 and the NAZZ rose 3 to 2170. Breadth was barely positive at the close while up volume exceeded down volume 6/4. New highs were over 300 again today. Treasuries gave ground with the two-year going out at 3.84% and the ten-year finishing at 4.17%.

And tomorrow is tomorrow and all the casinos except those on the Gulf Coast are open so let the games continue.
*****

 

6 September 2005 Daily Comment

Thoughts

The governments finally have plugged the levee leaks and now can begin pumping out New Orleans.

The ramifications of the New Orleans disaster are being seen as positive and negative for the economy. What we are certain of is that over 1 million lives have been permanently disrupted, some for the good in the long run but all for the bad in the short run.

We went to cash last week when we realized that we have no idea how the disaster will affect the markets. We can guess like everyone else is doing but guessing is just that. And at this time of year caution is our go byword.

Interest rates are backing up a little as the September 20 Fed meeting date approaches and the thinking since last week is that the Fed will do one more quarter point raise and then stop. We didnít attempt to trade the 4% notes we bought early last week even though we had a 50 penny per bond profit because that represents only 1.5 months interest and we want to keep a 4% yield locked in.

BellSouth says the cleanup is going to cost $500 million. And that doesnít include the lost telephone connections which number over 750,000 that will never be re-connected. We remain interested in the shares but only at lower prices.

Last weekís trading was a wash for most accounts. The bond purchase in the larger accounts ended the week with a nice profit but we would expect the yield on the two year to move back to 4% by mid-September as the meeting approaches.

We have lower buy levels on all the stocks we sold last week and we are going to stick with them as the fall progresses. Better to give up a gain than to take a loss. The risk/reward metric is on the risk side this time of year and with the New Orleans disaster in the mix we donít think a quick fix is going to arrive to change that ratio.
*****

Tuesdayís Markets September 6, 2005

8:54am and stocks gapped higher out of the gate with breadth 2.5/1 positive and the DJIA up 90 points. Treasuries are giving back some of their gains of last week and oil is lower at $66.90 range.
*****

CNBC says there is a good start to the markets this morning as the adults are back doing the investing. Well that is good to know.
*****

CNBC is reporting that gas prices in Death Valley California are $5.03 a gallon. Maybe gasoline is finally more expensive than water there.
*****

12:21pm and stocks continue higher as oil moves lower now down $1.72 at $65.85.
*****

With the markets action today it is apparent we should have waited for the adults to return so we could sell them the stock we sold last week. For the last few months markets that have been up/down all day have tended to stay that way into the close.

We think todayís reaction is the one we had last Monday and Tuesday and that our negative reaction later last week will also appear later this week in the markets. Time will tell.
*****

43 out of 3150 Rite Aid stores are closed because of the Hurricane.
*****

We have sixty stocks on our main screen and the only one in negative territory is Google.
*****

3:02pm and it was up, up an away today. There is nothing like a good disaster with $200 billion in rebuilding funds to get the markets going. We donít think it will be that easy.

At the bell the DJIA was up 141 points at 10590. The S&P 500 gained 16 points to end at 1233 and the NAZZ rose 26 points to 2166. Breadth was 2/1 positive and up volume/down volume was 3/1 on the NYSE and 4/1 on the NAZZ. New highs exceeded 300 and the only negative was that overall volume was still summer light. Some of the adults must still be on vacation. Oil lost $1.75 to finish at $65.85 and Treasuries also gave ground as recovery boom talk held sway.

And tomorrow is tomorrow and all the casinos except those on the Gulf coast will be open so let the games continue.
*****

 

2 September 2005 Labor Day Week End Comment

Thoughts

We though the Federal government knew what it was doing. We thought that the Disaster folks who have been studying these things for four years and since New Orleans being hit by a hurricane was one of their three likely disaster scenarios that they had a plan to deal with the event. Thatís why we bought on Monday. We were wrong.

New Orleans is gone and the Feds donít know what to do. Wal-Mart is giving $17 million to someone for something. Big Deal. We have a Federal government that is responsible for disasters. Federal Revenues should be going for this tragedy. Camps and food distribution should already have been set up.

We are irate and disappointed in the Government. They actions in this disaster are uncoordinated and amateurish. They donít know what they are doing.

With that frame of mind our inclination is to get rid of the stocks we were buying and go back to cash and the Treasuries. Gas lines and not traveling arenít going to be good for the economy. The bond markets are saying that.

Boeing machinists are on strike, Northwest machinists are on strike. Two major airlines in bankruptcy, several more nearly and gas lines begin.
*****

Cash looks pretty good right now
*****

Fridayís Markets September 2, 2005

Payroll jobs were up 169,000 jobs in August. The July report was revised to up 242,000 from up 212,000. Manufacturing continues to lose jobs for a total of 110,000 jobs in 2005. The unemployment rate is 4.9% as more folks quit looking for jobs. Hourly earnings were lest than expected. That is good for the markets i.e. no inflation and bad for workers.

None of these figures reflect the job loss from the hurricane Katrina.

The dollar is back in a moving lower mood.

The Treasury two-year is at 3.69%.
*****

10:25am and the major measures have moved a bit lower although there hasnít been much selling pressure. Breadth is negative and new highs are contracting. Treasuries are firm and oil is lower.

We sold JPM and BLS for a slight gain, and Ford and Cisco and some GE and SBC for flat to a loss. We also sold the GPS we purchased yesterday for a 30 cents loss. Ouch. Most of these were purchased in the last few days but we have always said that if the situation changes as we perceive it we will step aside and reexamine our theories. We have been discomforted by the disorganized response to a major calamity and the gas lines and price gouging are spreading the effects of the disaster nationwide.
*****

A risk modeling firm has placed the costs of Katrina at $100 billion.
*****

We read today that the way CPI is calculated the housing cost of CPI is from rental units and the rent cost not from the cost of buying a home. And as a further distortion, when heating costs rise because of the cost of fuel, the CPI is lowered because heating cost is deducted from rent under the assumption that heating costs are part of rent. Since housing costs are about 17% of CPI that is no small distortion.
*****

1:05pm and entering the contra hour the major measures remain mildly lower while breadth is flat to negative. Oil closed at $67.57 and Treasuries went out a bit weaker on the day with the two-year at 3.74% and thee ten-year at 4.03%. Volume is holiday light.
*****

3:02pm and the DJIA closed off 12 points at 10447. The S&P 500 dropped 3 points to 1218 and the NAZZ lost 8 points to 2140. Breadth was negative at the bell.

And Monday is the Labor Day Holiday observed and the markets are closed but all the other casinos are open. So let the games continue.
*****

 

1 September 2005 Daily Comment

Thoughts

Rabbit Rabbit!
*****

The folks on the Gulf coast can surely use some luck. The more pictures we see the more depressing for them the situation seems. Their livelihoods are gone as well as their homes. The folly of building in swamps below sea level and skimping on preserving the levees that allow the whole town to exist is now apparent. The Federal folks saved on the order of $100 million by not improving the levees over the last few years.

And no connection will be made to the folly of building on earthquake faults or the Outer Banks and so these catastrophes will continue to occur as man tries to prove more intelligence and strength than nature. In the end nature always wins.
*****

Mindless media is continues to explain the reasons for immediate rise in the price of gasoline yesterday. Reasons range from refinery shutdowns to pipeline cuts. Gouging is very seldom mentioned. That word is not part of the party line for media outlets that earn big bucks from oil company ads. And we are certain that oil company ads are in the works that will tell just how wonderful and benevolent BP and Exxon are and how they just hate; just absolutely hate to see these high prices.
*****

It is pretty amazing that stocks can rally in the face of all the devastation, but markets are anticipatory mechanisms that are always looking six months down the road. And markets donít have feelings.
*****

Hain came in with punk numbers and so we are going to hope to pick up a few shares this morning in a sell off.
*****

Personal income was up 0.3% and Personal spending was up 1% in July. Spending exceeded income in July. So what else is new?
*****

Thursdayís Markets September 1, 2005

Stock futures are indicating a higher opening and overseas markets were overnight and are today higher. Treasuries are firm. The TV pictures are showing only poor folks who donít much vote and who were living in the areas that were devastated. It they were showing a bunch of folks with Mercedes sitting waitng to be rescued we think the markets reaction would be different.

Folks know where we stand philosophically on this but from an economic standpoint and a political standpoint the utilities are going to get industry going a lot faster than domestic. The Entergy CEO on CNBC said that most of the refineries on the Mississippi River would have electricity today.

Remember the last President to have gas lines was Jimmy Carter and that led to the Reagan revolution. Karl Rove isnít stupid and gas lines and $5 gas arenít going to get Republicans elected next year. And that is why we expect supply disruptions to be short lived if at all.
*****

Colonial Pipelines, the nations largest will be 60% operational by this week-end.
*****

Oil is down a few pennies and Treasuries have begun to move lower in price and higher in yield. No inversion yet today with the two-year at 3.81%.
*****

9:24am and the major measures are lower after opening higher. Treasuries are flying with rumors that Bush and Greenspan are meeting this afternoon. That will be an interesting conversation.

We sold a few shares of BLS for a scratch profit in accounts where we decided the position was too large and put some of that money into BMY for the 4% dividend, we hope. We are buying GPS at $18.60 for many accounts. The Gap same store sales were down 9% but cash flow is large, cash on hand is huge and debt is miniscule. The shares sell at less than one times sales. Maybe the Fishers will decide to cash out.
*****

Pimco, the largest bond management firm in the business says the Fed is finished tightening.
*****

Itís just like the early 1980s with talk of shale oil. There was a stock called Sullair that made the little generators that are pulled behind trucks that you see hanging from cranes at construction sites. That stock was like Sirius in that all the traders were in and out of it all day long. We still see the generators so we presume the company exists although it is probably part of Halliburton now.

Whatever, the talk is of nuclear power to save the day. Never mind that it takes ten years to build the plants. With the price of gasoline heading to $4, SUVs are going to be hard to sell and that will do more to conserve than any other plan. For years folks have been saying the government should put a tax on gas to make it $4 per gallon to force conservation, now the markets are doing it. Hopefully the oil companies will give some of their profits it back in taxes, but we arenít holding our breath.

Municipalities that charge a sales tax on gasoline are getting a windfall also. As the price rise so does their take since it is a fixed percentage of the selling price.
*****

12:43pm and the major measures have been up and down all day. They currently are lower. Breadth is positive and new highs are over 400. Volume is again brisk and again Treasuries are on fire with the two-year at 3.73% and the ten-year at 4.02%.
*****

3:02pm and the major measures closed mixed with the DJIA down 20 points at 10460 while the S&P 500 gained 2 points to 1221. The NAZZ lost 5 points to end at 2146. Oil finished the day at $69.40. Breadth was almost 2/1 positive on the NYSE and flat on the NAZZ. Short Treasuries were strong with the two-year ending at 3.72% and the ten-year went out at 4.02% which was unchanged from yesterday as the yield curve steepened.

And tomorrow is tomorrow and the casinos are all open except those on the Gulf coast so let he games continue.
*****

 

 

 

 

 

 

 

 


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