Bud's Poem Page

29 September 2006 Daily Comment

Thoughts

Asia was fractionally higher overnight in most countries and European bourses are also mostly better. Gold is off a few dollars at $604 and Oil is off a few pennies at $62.34. Treasuries are flat.

Personal Income was up 0.3% in August and Personal Spending was up 0.1%. The PCE Deflator (Inflation as the Fed likes to measure it) was up 3.2% on a year over year basis and the Core PCE Deflator which is the Number was up 0.2% in August and 2.5% on a year over year basis.
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Monday is Yom Kippur and so trading activity may be volatile with fewer players at the tables in the casino.
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We are buying St Jude Medical, Tiffany, Andrew Corp, Deutsche Telecom, Yahoo, and Loweís in our larger aggressive accounts. All six stocks are 20% or more off their 12 month highs and selling at below the market multiple. We also repurchased or added to Time Warner positions in those accounts.
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The Chicago Purchasing Managers Index for September was 62 versus 56 expected and 57 in August. The University of Michigan Consumer Sentiment Index for September was 85 versus 84 expected.
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On September 1 Amaranth Hedge Fund was worth over $9 billion and was supposedly up 25% for the year. Since then Amaranth has lost 65% of its value. Risk and greed lost this time.
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Oil ended the week at $62.91 in NYC. Gold closed at $604. Treasuries lost ground with the two-year at 4.69% and the ten-year at 4.63%.

The DJIA closed down 40 points at 11678. The S&P 500 lost 4 points to 1335 and the NAZZ dropped 12 points to 2258.

Breadth was slightly negative on the day and volume was light.

New highs were 245 and new lows are 70.

And the casino is closed for the week-end.
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28 September 2006 Daily Comment

Thoughts

Asia was fractionally higher overnight and Europe is the same at midday. Gold is $609 and oil is over $63. Treasuries are a tad weaker.

As the stock markets have opened the DJIA is now trading at an all time high exceeding its high on January 14, 2000. So it only took 6.5 years for folks who bought the DJIA that day to get back to even. The Model Portfolio on that January 2000 day was worth $360,000 and today it is worth $582,000.
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This story was in the WSJ today. Too bad companies donít pay their taxes on their profits, especially drug companies which receive patent protection from the government they wonít support.

Merck medications Zocor and Mevacor have been used by millions of people to help lower their cholesterol. But Merck also used the drugs to lower something else: its U.S. tax bill.

Thirteen years ago, Merck set up a subsidiary with an address in tax-friendly Bermuda, in partnership with a British bank. Merck quietly transferred patents underlying the blockbuster drugs to the new subsidiary, according to documents and people familiar with the transaction. Merck then paid the subsidiary for use of the patents.

The arrangement in effect allowed some of the profits to disappear into a kind of Bermuda triangle between different tax jurisdictions. The setup helped Merck slash $1.5 billion off its federal tax bills over roughly the next 10 years.

Now, the complicated transaction -- never publicly disclosed -- has sparked one of the largest tax disputes ever involving a U.S. corporation. The Internal Revenue Service is challenging the tax benefits from the arrangement, which the company code-named "Project Ryland," after a fancy restaurant near the company's New Jersey headquarters. Merck anticipates it will be ordered to hand over a total of $2.3 billion in back taxes, interest and penalties, according to its filings with the Securities and Exchange Commission, which give the amounts in dispute but virtually no other details.
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Final GDP was revised to up 2.6% for the second quarter of 2006 down from the previous almost final GDP number of up 2.9%. The Bureau of Economic Analysis said the downward revision for Q2 "primarily reflected a downward revision to private inventory investment, an upward revision to imports of services and a downward revision to residential fixed investment that were partly offset by an upward revision to PCE for services.
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Tony Dwyer at FTN Midwest Securities opined that the S&P 500 making a new yearly high in September has occurred 19 times in the last 50 years and 8 times in the last 24 years. That type of action when a new calendar year high has been made in September has on average been followed buy a 3% correction in October followed by a rally into year end.
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We had forgotten but Ford paid a $10 billion cash dividend in 2000. Ford could surely use the money now. Nice forward planning. By the by, Bill Ford was Chairman of the company then as he is now. Plan.
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We began establishing our year end positions yesterday. We will add to those stocks in a correction and also will be looking for blue chips and other non worrisome stocks that have significant price drops as third quarter earnings are announced. That is our game plan. The election in November may add a note of interest to the fall and to the markets. The markets are priced for the Republicans maintaining control of Congress.
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Europe closed mixed small either way.
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Oil ended at $62.76 in NYC. Gold was $610. Treasuries gave ground with the two-year at 4.67% and the ten-year at 4.63%.

The DJIA closed up 25 points at 11715. The S&P 500 gained 3 points to 1339 and the NAZZ was up 7 points to 2270.

Breadth was 5/4 positive and volume was active.

New highs contracted to 275 and new lows were 90.

And the casino is open for one more day this week for hedge fund games.
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27 September 2006 Daily Comment

Thoughts

Asia which had traded fractionally low the last two days caught up with the U.S. rally overnight with Japan up 2% and Hong Kong up over 1%. Europe is trading fractionally higher. Oil opened higher in NYC and is at $61.62 in the early going and Gold is peeking above $600. Treasuries are firmer.

John Succo at www.minyanville.com had this to say in a morning post:

Either the inverted yield curve (the six month - ten year spread is now at an inversion of 41 basis points, a recent high) and either bonds are right about deflation (recession) or stocks are right about inflation (growth). Both can't be.
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Durable Goods Orders fell 0.5% in August when a gain was expected. Ex Transports Orders fell 0.3%. Treasuries are stronger on the news.
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General Motors, Renault and Nissan today said that a meeting was held between Carlos Ghosn, President and Chief Executive Officer of Renault, SAS and Nissan Motor Co., Ltd., and Rick Wagoner, Chairman and Chief Executive Officer of General Motors Corp., regarding ongoing discussions concerning the possibility of creating an industrial alliance among these three companies. Through the work of the three study teams, the companies continue to explore the potential opportunities of an industrial alliance. The teams are conducting a thorough and objective analysis of potential synergies between all three companies with a focus on how an alliance could generate significant shareholder value for each company. Following today's meeting, it has been confirmed that the teams will continue the studies through to the planned mid-October completion date.
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We are going to re-purchase the Intel at $20.50 that we sold at the beginning of the month. We are paying $1 higher for the stock. Yesterday INTC announced that they will begin selling their new 4 processor chip and also that a judge had thrown out a large portion of AMDís lawsuit. That caused the stock price to run up. Intel broke up through the $20 resistance level this morning. We were a little too cute with this stock but our ownership traces to $17.75 in July and we basically have given up the $1 between $19.50 and $20.50.
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We are repurchasing Sprint at $17. We want a position in this stock and we werenít comfortable not owning the shares. We are buying Sprint within 75 pennies of its low for the year.
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We are also taking a position in Boston Scientific at $14.90. We have been watching the stock since the mid $20s. BSX bought Guidant last year and it has been all downhill since then for the share price. The company is priced at 3 times sales. It has a good chunk of debt and is currently being sued for $5 billion in damages by Johnson and Johnson over the Guidant merger. There is a lot of bad news priced into the stock and for these reasons the shares are on a multi-year low

Boston Scientific Corporation engages in the development, manufacture, and marketing of medical devices that are used in interventional medical specialties in Europe, Japan, and Inter-Continental. The company's products are offered by three groups: Cardiovascular, Endosurgery, and Neuromodulation. The Cardiovascular organization provides products and technologies for use in coronary stents, drug-eluting stents, bare-metal stents, coronary revascularization, intraluminal ultrasound imaging, embolic protection, interventional cardiology, peripheral interventions, vascular surgery, electrophysiology, and neurovascular procedures. The Endosurgery organization provides products and technologies for use in oncology, colorectal intervention, pancreatico-biliary intervention, pulmonary intervention, urinary tract intervention and bladder disease, prostate intervention, endoscopy, urology, gynecology, and esophageal, gastric, and duodenal intervention procedures. The Neuromodulation organization provides products for the treatment of auditory disorders and chronic pain. The companyís less-invasive medical products are used for enlarging narrowed blood vessels to prevent heart attack and stroke; clearing passages blocked by plaque to restore blood flow; opening obstructions and bringing relief to patients suffering from various forms of cancer; performing biopsies and intravascular ultrasounds; mapping electrical problems in the heart; placing filters to prevent blood clots from reaching the lungs, heart, or brain; treating urological, gynecological, renal, pulmonary, neurovascular, and gastrointestinal diseases; and modulating nerve activity to treat deafness and chronic pain. The company markets its products through direct sales force, and a network of distributors and dealers.
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We are re-purchasing Palm at $14.30. We are buying in accounts where we sold it earlier in the month. The earnings news has hopefully been discounted by the price movement lower and we think there may be some quarter end selling in the shares.

And we bought Williams Sonoma in many accounts and Urban Outfitters in our larger/aggressive accounts.

We have wanted to own these stocks. As we said above we were probably too cute in trying to trade them for a pull back but maybe now that we have purchased them we will get the pullback and be able to build larger positions.
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Altria (Phillip Morris) is the best performing stock in the DJIA this year. This year 5 million Americans will suffer tobacco related deaths. It is predicted that in this century tobacco will kill 1 billion people worldwide.
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Oil closed at $62.96 in NYC and Gold also was higher at $606. Treasuries were a bit flat with the two-year at 4.68% and the ten-year at 4.60%.

Europe closed fractionally higher on most bourses.

The DJIA gained 20 points to finish at 11690. The S&P 500 rose 1 point to 1336 and the NAZZ gained 2 points to 2263.

Breadth was positive and volume was active.

New highs were 330 and new lows were 85.

And there are two more days till quarter end.
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26 September 2006 Daily Comment

Thoughts

To be exact for our granddaughter Abigail: The date, near September 22nd in the northern hemisphere, when night and day are nearly the same length and the sun crosses the celestial equator moving southward, marks the Autumnal Equinox, or the beginning of autumn. This year the Autumnal Equinox was at 12:03 a.m. EDT on September 23rd.
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Yesterday was the type of day we wish were long stocks and on margin. It was a win for the bulls with the only fly being not so hot new highs versus new lows.

Today weíll see whether the quarter end positioning continues. Overseas Asia was mostly lower with Hong Kong down over 1% while Europe is big fractions higher on most bourses.

Gold is off a tad at $594 and Oil in also a bit lower at $61.13 as the trading day begins. Treasuries are backing off which is not untoward after the big run they have had over the last week.
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The Consumer Confidence Index was 104 in August versus 100 and Consumer Confidence in the present situation was 127 versus 124. Consumer Confidence Expectations were 89 in August versus 84 in July. On that news stocks are rallying.
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The Office of the Comptroller of the Currency for the U.S.A. in their Quarterly Derivative Fact Sheet claims that J.P. Morgan Chaseís derivatives book grew from $48.26 trillion notional at 4Q '05 to $53.76 trillion at 1Q '06.
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From www.miynaville.com we offer some market history.

ďThe legendary trader W.D. Gann reportedly claimed that capital and commodity markets tend to top on or around September 22nd more often than any other day of the year. There is no apparently economic logic behind this reported observation... but... in as much as September 22nd happens to be the usual date of the Autumnal Equinox ... Initially, we never took such notions seriously... however... we have experienced first hand the October Massacre of 1978; the October Massacre of 1987; the October ĎCrashetteí of 1989; the 1997 Asian collapse; the 1998 Long Term Capital sell-off, etc. And remember the Great Gold Boom of the 1970s. While bullion peaked on January 21, 1980, the gold and silver stocks made their all time bull market highs on September 22, 1980. This day also saw the major peak in many oil stocks, which were enjoying a parallel bull market at the time. Also prior to the Great Crash of 1929, the last stock market index to make its then all time peak, the Dow Jones Utility Index, did so on September 21, 1929. Even as far back as 1873, such absolute panic struck, that the NYSE voted, on September 21st to temporarily close its doors.

On rare occasions, markets bottom on the Autumnal Equinox. Soybeans made a major bottom on September 21st, 1984; and more recently, the market low after the infamous terroristsí attack on our country occurred on September 22, 2001...Ē
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The markets canít have it both ways. Eventually Treasuries or stocks have to crack and go their separate ways. Today Treasuries are giving back a little bit of their strong gains.
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Oil closed at $61.05 in NYC and Gold finished at $597. Treasuries were weaker with the two-year at 4.70% and the ten-year at 4.59%,

European bourses were mostly 1% or better at their respective closes.

The DJIA gained 92 points to 11668. The S&P 500 rose 10 points to 1336 and the NAZZ gained 12 points to 2260.

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

New highs expanded to 310 and new lows were 95.

And there are three more days till the end of the quarter.
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25 September 2006 Daily Comment

Thoughts

Oil is trading below $60 for the first time in a while and gasoline prices have plummeted. Could there be an election on the horizon?

Gold is lower at $593 as the day begins and stock futures are indicating a higher opening. This week marks the end of the third quarter and so there should be a bullish bias to the week as folks who have to report on a quarterly basis will want to see stable to higher prices.

Morgan Stanley upped Time Warner to overweight saying it was 30% undervalued I relation to its peer group. Sanford Bernstein also upped TWX.

Overseas markets are mixed with Asia closing fractionally lower on most measures and European bourses fractionally higher at mid-day.

Treasuries remain firm on the back of their huge rally last week as traders smell a rate cut by January. The stocks markets are in a quandary since a rate cut would suggest that the economy is weakening. But the Goldilocks scenario of the Fed getting it just right pervades the trading floors and so bond and stock bulls are eating their cake while hoping for more.
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Despite the breakout in bond yields last week to new swing highs as seen by the inverse breakout in price on the chart below of the 10-year Treasury note, stocks refused to follow.

Since July, stocks have moved up following yields lower -- until last week. That's a notable divergence.
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When Long Term Capital Management crashed and burned in 1998 the turmoil set off a mini-panic in the stock markets. In that brouhaha, there was half the money involved as there was when Amaranth Hedge Fund announced that they had lost $6 billion in the last three weeks.

The difference is that LTC was leveraged 100 to 1 and Amaranth was leveraged 5/1. And with LTC a lot of other folks on Wall Street were following LTCís trading strategy and so found themselves in the same predicament. And the major Wall Street firms had over- extended credit to LTC which wasnít the case with Amaranth. In fact a couple of the biggies are bidding to take Amaranths positions.

So the street does learn. It is not the last idea that brings the markets down it is the next new idea.
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The National Association of Realtors reported that housing inventories in August rose 1.5% to a 7.5 months supply.
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At noon thirty oil is higher, stocks are higher, Treasuries are higher in price and gold is higher. All is right with the markets as they move higher in synch.
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The following is from James DePorre, a trader who writes as Rev. Shark on www.realmoney.com .

There are few things that bother me more than market participants who proclaim that making money in the market is "easy." Invariably, these folks are confusing some good luck in the short term with overall skill. The market is never easy. Sometimes when the gods are smiling upon you the profits will simply fall into place and it will feel easy, but experienced traders understand that what the market gods give you one day, they can easily take away the next. They don't start thinking they are trading geniuses who are going to mint money.

Even the best traders in the world are going to get burned at times, and they not only know it but respect it. They don't get overly confident when their timing is good and they catch some good gains. And they don't get overly worried when every trade they put on seems to go against them. They take it in stride and just keep on keeping on.

Among many experienced traders, it is simply regarded as "bad karma" to even think that the market is easy. It is almost as if you are asking the market beast to teach you a lesson in humility and modesty. Hence I have two important trading rules for which I know no exceptions. 1. The market is never easy and 2. There are no good stocks.
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Europe closed mixed on the day.

Oil ended at $61.45 in NYC and Gold closed at $595. Treasuries were better with the two-year at 4.65% and the ten-year at 4.55%.

The DJIA gained 68 points to 1175. The S&P 500 ended up 12 points at 1327 and the NAZZ jumped 30 points to 2250.

Breadth was 2/1 positive on the NYSE and 3/2 to the good on the NAZZ. Volume was active.

New highs were 235 and new lows were 175.

And there are four more days till the end of the quarter. The bulls were in control today until the last one half hour of trading.
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22 September 2006 Daily Comment

Thoughts

We wish a healthy and happy New Year to those observing Rosh Hashanah.

Asia was lower overnight with Japan down over 1% and Europe is trading large fractions lower on most of its bourses. Gold is up to $596 and Oil is lower at $61.90.

Treasuries are firm and stock futures are showing lower.

New York Times and Boston Scientific both warned and are indicated lower.

The bonds rallied big time yesterday and yet stocks didnít. That is the first time in a long time that that diversion occurred. It is a sensible diversion since the bonds were rallying on a slowing economy, as in lower earnings. And this morning on CNBC a perpetually bullish stock futures trader was less than in his interview. He opined that now may be the time to lock in some profits. That is of course if one has profits.
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Bloomberg is reporting that the GM / Nissan talks are going nowhere and so Nissan is preparing to begin talks with Ford.
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We reduced our Hershey position in most accounts by one half and added shares to a few accounts. We want to have room to add at lower prices. We also reduced our J Crew trading position for the same reason.
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Palmís earnings disappointed and the shares dropped in after hours trading. We are going to watch the stock for now.
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There are no bids under many stocks and it is difficult to sell any size in many. This is not a usual occurrence when a bull market is roaring.
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Europe closed over 1% lower on most exchanges.
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Oil closed down at $60.27 in NYC and Gold closed up at $595. Treasuries remained on fire with the two-year at 4.67% and the ten-year at 4.60%.

The DJIA lost 30 points to end at 11505. The S&P 500 dropped 4 points to 1314 and the NAZZ lost 20 points to 2218.

Breadth was over 2/1 negative and volume was active.

New highs contracted to 165 and new lows expanded to 145.

And the casino is closed for the week-end.
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21 September 2006 Daily Comment

Thoughts

It is not the first day of autumn. Saturday the 23rd is the first day.

Asian markets were fractionally higher overnight with no fall out from the Thailand coup and European bourses are higher at mid-day as the U. S. markets get ready to begin trading. Treasuries are flat and Gold is down a bit at $583 with Oil higher at $51.18.

The $61 level is the level for oil to bounce from if that is going to occur. Since oil has been lower for all of a week now, analysts and investors are deciding who is to benefit and are moving swiftly to sell their oil stocks and buy the retailers and techs and others. The need to outperform continues overcoming any fear. We thought the big boys and girls were buying techs because their share prices were oil price resistant so we donít know why the rush to tech as oil drops. The markets are the markets and a market verity is sometimes but a moment long.
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Wal-Mart Stores Inc. said Thursday that it will sell nearly 300 generic drugs at $4 a prescription beginning in Florida this week and spreading to as many states "as possible" next year.

The program will be available to insured and uninsured consumers, a move that also will help stem criticism of Wal-Mart's employee health-care policies.

The program, announced in Florida, will begin at 65 Wal-Mart, Sam's Club and Neighborhood Market stores in Tampa Bay. All other stores in Florida will be offering the program in January, the company said. Wal-Mart said the program also will fill the gap of coverage senior citizens now have with the Medicare Part D prescription drug plans that leaves them paying for 100 percent of many prescriptions. In Florida, for example, Wal-Mart said the program will help nearly 2.7 million uninsured Floridians -- many of them retirees -- who may avoid filling prescriptions. The company estimates the program will save that state hundreds of thousands of dollars annually in Medicaid costs.

At this time, the $4 prescriptions are only available online for in-person pickup in the Tampa Bay, Fla. Not all generics in each therapeutic category are included. It's unclear how Wal-Mart is getting the drugs and if it's in a partnership with specific drug makers.
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The Wal-Mart news is pressuring CVS down $3, Walgreen down $3 and Rite Aid down 50 pennies.
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The Philadelphia Fed survey of business activity in the Philadelphia area was negative in the latest reading and Treasuries are rallying on the news and are back to their Friday before Labor Day lows on yield.
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We sold J Crew in the Model Portfolio and reduced positions in some of our larger accounts. We decided the trading position was too aggressive for the Model and too large for the other accounts with the major stock measures at an inflection point.
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The CNBC talking heads are wowing about the Philly Fed number and the drop in interest rates. Mortgage rates are going lower and so visions of a new round of consumer refinancing and retail shopping is being mentioned in reverent tones by these folks. But unless the home market picks up and prices rise refinancing isnít going to do much. The ability to sell houses may be helped but our guess is that the perfect landing scenario is overdone.
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Treasuries staged a strong rally on the weak economic data and the two-year closed at 4.71% with the ten-year at 4.65%.

Gold finished at $588 in NYC and Oil was $61.85.

The DJIA lost 80 points to 11540. The S&P 500 dropped 7 points to 1318 and the NAZZ surrendered 15 points to 2238.

Breadth was 2/1 negative at the close and volume was active.

New highs were 395 and new lows were 115.

And there is one more day left at the casino before the gaming ends for the week.
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20 September 2006 Daily Comment

Thoughts

Oracle reported earnings up 29% last night and the share price jumped 13% in after hours trading and has given a positive tone to this mornings pre-opening trading. Our take is that Oracle made a number of software acquisitions in the last two years and that the earnings improvement is directly related to the firing of folks who worked for the acquired companies. That is the old Computer Associates model for satisfying Wall Street on the backs of the people and their families who made the acquired companies worth acquiring.

Overseas markets were mixed overnight in Asia and European markets are mixed at Mid-day in Europe.

Oil is at $60.89 and Gold is $580.

Investors Intelligence reports Bulls 47, bears 33 versus last weeks Bulls 45, Bears 35.
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We are selling the balance of our Ford position in accounts. This was not our brightest trade and we our swallowing our pride and taking the loss. With tax selling season arriving for mutual funds (October 31) and individuals (December 31) Ford is going to be a prime candidate for sale. The risk in selling it now is that Toyota (or some other foreign auto company) and Ford decides on a merger. We donít think that is going to occur. We would rather get out of the stock and look at it again later in the fall when we think it will be lower, substantially so on a percentage basis. The street didnít like the corrective actions taken so far and we donít think that opinion will change for the next few months. In our trading in Ford this year we are slightly negative in larger accounts to flat to positive in smaller accounts.
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Stocks are up across the board and we are going for a bike ride so that we can get back in time for the release of the Fed Speak at 1:15pm. This is the first sunny day since Saturday.
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This is the FED release:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
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J Crew sold off late in the day and with all the other retailers higher we decided to buy shares in our larger accounts including the Model Portfolio.

Oil continued its downward spiral and closed in NYC at $60.46 with Gold finishing at $586. Treasuries were firm with the tow-year at 4.82% and the ten-year at 4.73%.

 

The DJIA closed at 11613 up 73 points. The S&P 500 rose 7 points to 1325 and the NAZZ rose 30 points to 2252.

Breadth was 2/1 positive for the day and volume was active.

New highs expanded to 390 and new lows were 115.

And there are two more fund games days left at the casino for the week.
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19 September 2006 Daily Comment

Thoughts

The overseas markets were mixed to lower overnight in Asia and at midday in Europe. Gold is down at $589 and Oil is higher at $64.09 as the trading day begins.

The Producer Price Index was only up 0.1% and the core rate was actually down 0.4%. Year over year the PPI was up 3.7% and the core year over year rate was up 0.9%. Coupled with a 6% drop in housing starts in August and a revised down 3.3% on housing starts in July, Treasuries have rallied from their sell off of yesterday with the two-year at 4.82% and the ten-year at 4.75%.
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Motorola is going to buy Symbol Technologies for $3.5 billion.
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We sold a chunk of the Ford at $7.85 that we bought last Friday at $8.08 in our larger accounts to reduce the position and enable us to buy more shares lower. In retrospect last Friday we were acting like masters of the universe on Friday when we stepped in to buy shares on the sell-off. With a stock acting like Ford was it is better to let the shares find their level and then add. We didnít add any Ford in most accounts on Friday and so we are holding pat with our position in those accounts.
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The word is that Amaranth Multi-Strategy Hedge Fund lost $5 billion last week on their gone bad natural gas bet. Ant that is what is was- a bet and not a hedge as in hedge fund. The funds size was $9 billion so that is a significant loss.

But it the general marketplace it canít happen to me continues to fuel the appetite for risk and trump the fear of loss.
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10:30am and there is a state of emergency in Bangkok, Thailand. Ten tanks are on their way to central Bangkok. Treasuries are rallying further on the news.
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Yahoo announced this morning that earnings are going to come in near the low end of its previous guidance and the shares are off 12% and other net stocks are getting hit also.
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At noon Oil is now trading at $62.60 and oil stocks are lower in sympathy. We havenít read that this drop in the price of oil is a wave from the Amaranth Hedge Fund troubles but the ripple effect from unwinding billions of dollars in trades has to spread to and affect counterparties of the Amaranth trades.
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European markets closed lower and Brazil was off 2%.

Oil closed at $61.66 in NYC and Gold also dropped to $580. Treasuries staged a rally with the two-year ending at 4.80% and the ten-year at 4.73% with the weak PPI and housing data coupled with the Thai coup providing impetus for the buying.

Retailers are moving higher on lower oil prices. The momentum folks seem to be moving from oil to retail. There are times it is good just to watch.

The markets rallied in the last hour but the DJIA closed down 12 points at 11543. The S&P 500 lost 3 points to 1317 and the NAZZ dropped 14 points to 2222.

Breadth was a bit less than 2/1 negative and volume was active.

New highs contracted to 235 and new lows were 135.

The Fed shows its hand to the big casino at 1:15pm tomorrow.
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18 September 2006 Daily Comment

Thoughts

The overseas markets are fractionally higher as the new trading week begins. The Fed meeting with their policy statement on Wednesday at 1:15pm is the immediate focus. (We incorrectly stated last Friday that the policy statement would be Tuesday.) Tomorrow Tuesday the Producer Price Index (PPI) for August is announced.

Gold is up a bit at $588 as is Oil at $63.75, Treasuries are flat.

As the markets move to new highs Prudential has upped stock allocations to 90% from 80% with the rest in cash. We think CNBC reported that Mother Merrill is taking a more cautious approach and sees a correction. If so, we are listening to Mother. If Mother didnít say that we are listening to our own inner voice.

Blackstone Group is buying Freescale Semiconductor for $17 billion. In a few years after they have taken some big dividends and management fees they will be happy to resell it to the public for $35 billion. This buyout is a situation where the buyout firms have raised the money and now have to spend it or return it. And this type of investing is the future for the big money boys and girls. They create your own performance numbers (on which their fees are based) by finding independent folks (to whom the buyout firm pays a substantial fee every year) to value the privately held investment. No mess with the daily pricing that the public markets do.
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Amaranth Hedge Fund was supposedly up 22% for the year on September 1. It is or was an $8 billion fund. Unfortunately they bet incorrectly on natural gas and a few other commodities and the fund is now down 35% year to date. The huge losses this fund has suffered may explain the final push lower of oil last week as the fund liquidated positions.

We mention this not to gloat since as traders for the last 20 years we have suffered losses also although none approaching this magnitude. Our accounts did drop 30% in the Crash of 1987 but they had been up 37% so while painful the drop was not disaster. And ever since then we have usually maintained a large cash/short term bond position except at times when the markets were on their lows or in the Octoberto December tax loss selling season.. Since the DJIA and S&P 500 are approaching six year highs we are more inclined toward cash than stocks.

Finally this event while considered isolated does demonstrate the many hedge funds do not really hedge.
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We are selling Sprint at $17.26 for a scratch loss of 15 pennies. The shares have traded to this level three times in the last month before tailing off to the low $16s. We see a sell off coming and we are trying to reduce positions. Since S traded under $16 in the last drop we selling to reenter lower. Our hope is that we arenít being too cute with the trade. Time will tell.
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Treasuries are higher in yield lower in price on news that foreign capital inflows into the U.S. in July were $32 billion when $90 billion was expected. The thinking is that maybe foreign central banks are going to reduce their buying of Treasuries with their dollar reserves.

The two-year is back to a 4.89% yield as talk of rate cuts anytime soon disappears.
*****

We read the following passage which is taken from some words Warren Buffet wrote in the 1980s and it reminded us of our partner and dear friend Don Yarling who, after he had read this commentary, always referred to Mr. Market when we were bemoaning or celebrating a particularly terrible or astute trading move that we had suffered or accomplished.

Mr. Market. As recounted by Warren Buffett:

ďA remarkably accommodating fellow named Mr. Market . . . is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, which you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market; you don't belong in the game. As they say in poker, ĎIf you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.íĒ
*****

In our effort to continue raising cash we are going to let our MSFT go for a $1 plus per share profit.
*****

We think there is going to be some type of military confrontation with Iran in the next month such as a blockade with accompanying verbiage and while we donít think it will lead to war we do think it will cause the market to least pause.
*****

The week after September Witching the S&P 500 has been down 15 of the last 18 years.
*****

We are going to sell the rest of our tech positions. We stayed too long at the party and gave up some of the gain but spilled milk is just that. Palm earnings come on September 21 and with the queasiness of the markets and the thinness of the stock we would rather be out than in. We are taking a scratch loss on it and Alcatel and 50 pennies per share loss on Intel. We thought Intel would break through the $20 level last week into expiration and since it didnít we think it goes back to under $18 in any correction. Finally we are eliminating EMC for a scratch profit in most accounts except our larger ones where it is a loss.

The discipline is to realize some losses when taking profits because the markets look dicey.
*****

After those sales we hold Ford and Time Warner and Hershey.
*****

Oil closed up at $63.80 in NYC and gold was also higher at $592. Treasuries gave ground with the two-year at 4.88% and the ten-year at 4.81%.

The DJIA closed down 6 points at 11555. The S&P 500 gained 1 points to 1321 and the NAZZ lost 1 point to 2234.

Breadth was 5/4 negative and volume was brisk.

New highs expanded to 473 in early morning trade before stocks pulled back and new lows were 143.

And there are four more days at the casino this week.
*****

 

15 September 2006 Daily Comment

Thoughts

We learned yesterday that autumn doesnít begin until September 23 this year. Maybe the fall in the stock markets will be later this year also.

Overnight Asia was fractionally mixed and Europe is the same at midday. Gold is down a bit at $583 and Oil is a bit above $63. Treasuries are firm on the release of CPI data.

That data said that Core CPI rose 0.2% in August the same as headline CPI. Year over year the core CPI was up 2.8%.

The Empire Manufacturing Index ticked higher to 13.1 for 11.8 suggesting a pick up in manufacturing activity in the New York area.
*****

Ford is the news this morning announcing their restructuring and the shares are down 10%. Mother Merrill went from neutral to sell on the shares. We wonder why they didnít suggest selling at $20 or $30 or $40.

In the restructuring Ford eliminated its dividend which means that a goodly number of institutional holders will have to sell because of requirements that they only hold stocks that pay dividends.

The dividend cut makes sense as does offering buyouts that require the workers to give up their medical retirement benefits. That means more folks for Medicare.
*****

GE is selling a division for $3.2 billion. They must need some one time earnings so that they can make their quarterly numbers.
*****

There are rumors that Schering Plough is going to make a bid for Bristol Myers. That makes some sense because Fred Hassan who runs SGP is well respected. In fact we presume BMY will try and hire Hassan away from SGP and that would not be good for SGP. SGP is at a level where it has failed twice before over the last three years and with stocks making new highs (and we think in a topping process) we are going to sell the SGP.

We are also taking our profit in National City Bank.
*****

We are buying more Ford in many accounts on the sell off today. CNBC is saying that traders donít think the cuts were harsh enough. We think because today is expiration day, that the dividend has been cut forcing selling and the piling on of short sellers that the stock is under extreme pressure. But folks have had five months to do their selling and as the shares trade under $8 we are reaching the level of committed buyer land. The position is not untoward and Ford is doing what it hired the cost cutter from Boeing to do.
*****

Federal Reserve Bank of Kansas City President Thomas Hoenig said on Friday news consumer prices were calming was welcome and that slower growth will help moderate inflation going forward. Traders have taken his remarks to mean that there is no rate cut coming soon. Treasuries are higher in yield by a tick or two on the comments.

The Fed meets next Wednesday September 20 and issues its policy statement at 1:15pm that day.
*****

Pope Benedictís quoting of an obscure text on Islam in a speech in Germany could be the start of new round of violent demonstrations in the Muslim world. That would have negative implications for stocks.

The pope quoted from a book recounting a conversation between 14th-century Byzantine Christian Emperor Manuel Paleologos II and a Persian scholar on the truths of Christianity and Islam.

"The emperor comes to speak about the issue of jihad, holy war," Benedict said. "He said, I quote, 'Show me just what Muhammad brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached.'"

Oops!
*****

In NYC trading Oil closed at $63.33 and Gold finished at $584. Treasuries were weaker into the close with the two-year at 4.87% and the ten-year at 4.80%.

The DJIA closed up 33 points at 11560. The S&P 500 gained 4 points to 1320 and the NAZZ rose 7 points to 2235.

Breadth was positive and volume was active.

New highs were 375 and new lows were 145.

And the casino is closed for the week-end but worry not since the big boys and girls can head to Atlantic City and Las Vegas to continue their fund games.
*****

 

14 September 2006 Daily Comment

Thoughts

Asia was mixed overnight as Japan recovered the 1% it lost yesterday. European bourses are fractionally higher and Treasuries are firm with gold up to $600 and oil up at $64.40.

Retail sales were up 0.2% and ex autos up 0.2% which was more than expected. Import prices for August were up 0.8% which was stronger than expected and Jobless claims dropped to 308,000 in the test week.

Tomorrow we get CPI for August.
*****

We are presenting below todayís post from one of the technicians we follow. We know that none of our readers are technicians but we though you would appreciate the verbiage.

I recently wrote that the Thursday of the week prior to options expiration is often a misdirection day. In other words, the market closes in the extreme opposite direction on that Thursday from where the options-expiration arbs intend to drive it.

Last Thursday was the low close on the S&P 500 of a multiday pullback. The index closed at 1294, just below its 20-day moving average, followed by an inside day last Friday. Subsequently, the S&P left a Lizard Buy Signal on Monday this week.

As explained in my books, Hit and Run Trading, a Lizard Buy Signal occurs when a stock or an index makes a 10-day low but tails back up to close near the open and high of the session -- hence the "lizard" pattern.

In addition, Monday left an outside day up, indicating a rally phase. That expectation certainly has played out. Moreover, when 1305 S&P, the breakdown point from the September high, was recaptured it suggested yet higher prices to come.

A look at the Square of Nine Calculator shows that the date of Sept. 13 is a harmonic to or squares out with the price of 1318 -- they are in opposition to each other.

The S&P has now rallied up 90 degrees or days off the June 13/14 low. Unless the market is going to blow out from here to 1340/1350, it is quite conceivable that a test of the May high is complete. Remember that the May high was a four-year high and that the four-year cycle is due to trough sometime this fall.

Strategy: I would not short strength into expiration and I would not scale up shorts here, unless the S&P leaves a key reversal day, trades back through the high, or trades back below 1305.

However, should the S&P trade back below the Sept. 5 high of 1314.65 and stick below it, it would be an early warning signal that something may be wrong, as that would carve out a "Soup" sell signal.
*****

A Nokia supplier Elcoteq issued a warning for its next quarter about noon today European time and that has caused a sell off in Nokia suppliers and also Nokia itself which is down 3%. According to one analyst we follow Nokia has been shifting contracts away from Elcoteq and that may be one reason for the shortfall and not Nokia related but he is cautious non the less because he doesnít really know.

We purchased a small amount of Nokia yesterday and will monitor the situation. All stocks are anchovies.
*****

Another technician we follow and like has this to say this morning:

I've been bearish -- and wrong -- for the past several weeks. That is because I'm a slave to my indicators, which have continued to say that we're late in the rally. They say nothing different this morning, except that sentiment has finally gotten bullish. The put/call ratio fell to 75% yesterday, and we haven't seen a reading like that in a month.
*****

The Detroit News reported that Ford may show a loss of $8 billion this year. Now that is a lot of money. Much of the money in the loss will probably be bookkeeping money in write downs and buyouts to departing employees that will reduce future obligations.

Ford is going to offer buyouts to 75,000 workers.
*****

We sold Nokia at $19.40 for 35 pennies one day loss. Nokia can drop 20% on bad news and we have traded such drops several times in the last few years. We donít need the soap opera. We bought it for a trade. The trade didnít work. Goodbye for now.
*****

We are doing a bunch of selling in our accounts. The markets are very thin and we have itchy profits and we tend to agree with the two technicians we quoted today except for the lizard tail buy signal. We think it is prudent to take some profits.

We sold Viacom, Talbotís, Tiffany, Urban Outfitters, DuPont, Genetech, 3M, and UPS in our large accounts.

We also sold TLAB and S in our large trading accounts while holding it in our other accounts. We have been more aggressively trading these two stocks in our large accounts than we have in the other accounts. There are takeover rumors on TLAB which may be why it is up and we do think a takeover is possible as we have said before. But since we have been trading these two in the larger accounts we want to remain consistent

In most accounts we also sold Williams Sonoma, Home Depot and Chicoís.

All these sales had trading profits in them and retail stocks have always been anchovies to us.
*****

National City is up today on the news that it said in a filing with the SEC that it sees third-quarter improvement in margins and hedging results in its mortgage business.
*****

Comcast sold $1 billion in securities due in 49 years at a 7% interest rate. The securities have a $25 par and Mother Merrill and Citigroup are managing the deal so we presume they are selling the securities to a lot of individual investors. 49 years is a long time. The securities are callable in 5 years so the buyers are taking all the risk. Folks greedy for yield are the buyers. Greed and fear, and greed wins this one.
*****

European exchanges closed mixed to lower.

Gold ended at $586 and oil at $63.22 in NYC. The commodity complex is getting smashed. Treasuries also gave ground and the two-year finished at 4.82% and the ten-year at 4.80%.

The DJIA closed down 15 points at 11530. The S&P 500 lost 2 points to 1316 and the NAZZ gained 2 points to 2228.

Breadth was negative for the day and volume was active.

New highs were 368 and new lows were 110.

Tomorrow is the last day for the boys and girls to play their games in the big casino. It is also Quadruple Witching so be ready for fund games.
*****

 

13 September 2006 Daily Comment

Thoughts

The sun has just come out of the clouds for the first time in five days. We had five inches of rain over the last two days and so our rain drought is in abeyance, at least.

Asia was fractionally higher overnight as are most European bourses at midday. Gold is down again to $592 and Oil is pennies higher at $64.07 as the trading day begins. Treasuries are firm.
*****

We are adding Nokia and Intel to accounts to try and take advantage of the rally that we think will last at least though month end which is also quarter end. Performance anxiety is going to coax sideline money into the fray.

We are buying the Intel back at a higher price but in smaller amounts as we did with Ford yesterday. The Intel is a play on the rush to tech stocks that seems to be occurring while the Ford buy was based on the change of leadership. We are going with the flow and we hope that flow wonít become and undertow.
*****

We added shares of Alcatel to more accounts. From our September 7 posting when we bought our first shares:

The merger between Alcatel and Lucent has been approved by shareholders of both companies and we are buying Alcatel in our large accounts. Weíve been interested since the merger was announced. The combined company is selling at one times revenues and has a major position in telecom equipment in Europe and the U.S.

Mother Merrill recommended the shares at these levels last week with the comments:

Merrill advised investors to buy the stock, its favorite in the European telecoms equipment sector. Analyst Sandeep Malhotra resumed coverage of the stock with a buy rating and price target of 12.20 euros -- equal to 27% upside from current levels in Paris.

"We believe Alcatel's merger with Lucent will create Ä2 of value per share for Alcatel shareholders and recommend that investors vote for the deal on 7 September," he said.

The combined company will have a 17% share of the global market for telecoms equipment, "will emerge as a powerhouse in wire line including access and optics, and a leader in network convergence to all-IP," he said. The deal with Lucent would create value even if management were only able to achieve half of its targeted $1.4 billion in synergies by 2009, he said.
*****

Genentech fell $4 yesterday when the FDA asked for more data on its drug Avastin for the treatment of metastasic breast cancer. Avastin is already approved for the treatment of colon cancer. We are buying DNA for a trade in our very large accounts.
*****

Oil closed at $64.07 and Gold finished at $596 in NYC. Treasuries were better with the two-year at 4.80% and the ten-year at 4.76%.

The DJIA closed up 44 points at 11545. The S&P 500 gained 5 points to 1318 and the NAZZ rose 12 points to 2230.

Breadth was 2/1 positive and volume was brisk.

New highs expanded to 380 while new lows were static at 120.

And there are two more fund games days left this week at the big casino.
*****

 

12 September 2006 Daily Comment

Thoughts

Asia was mixed overnight and European bourses are fractionally higher. Treasuries are weak again this morning with the tow-year at 4.85% and the ten-year at 4.82%. Oil is up pennies at $65.90 and gold has bounced to $603.
*****

Bristol Myers is meeting to decide whether to fire CEO Dolan. That is a no brainer to us but we are sure he will receive a very nice send off package. We have had such bad karma with the shreds that we are not going to participate.
*****

Texas Instruments gave guidance last night and it wasnít too hot or too cold. The shares are trading a few pennies higher.
*****

The July Trade Deficit was $68 billion.
*****

1280 on the S&P 500 remains the line in the sand.
*****

We made a quick trip to Madison to pick up our car and returned three and one half hours later to find retailers on fire as oil had dropped to $64.45 and the big boys and girls seem to be entertaining visions of shoppers galore with new found wealth of a few unspent pennies per gallon of gas to devote to retail purchases.

Happily we own a few retailers but we are more jaundiced about lower oil and thus gas prices working wonders on the economy. But we arenít about to kick a gift horse in the mouth and so we are hoping that the hedgies keep rotating to retail.
*****

We read that each $1 decline produces a roughly $7 billion benefit to U.S. consumers, if that price drop is sustained for a year. This means that with oil down about $15 from its peak, consumers will have roughly $105 billion more in their pockets than they would if oil stayed at its peak. That's enough to add close to a percentage point to growth in the $13 trillion U.S. economy, not counting in any multiplier effects and the benefit that the oil drop will have on consumer confidence.
*****

The auction of ten-year Treasuries was strong and as a result the ten-year has rallied from 4.82% to 4.79%. Since dealers bought a lot of the auction paper though, the rally may be short lived.
*****

We have reconsidered our Ford sale given that Willie Ford has stepped aside for a supposed cost cutter. Ford is going to survive and we think the street will take a second look at Ford because of the new guy. We are reestablishing a position in the stock in many accounts.
*****

Apple did not introduce an I Pod cell phone today when it was announcing new products today. We think that may give a boost to Palm and we are adding more shares to our larger accounts.
*****

With the rally today we are selling our Dell Computer holding. It is a good discipline to sell a loser on a rally day when other gains mute the pains. Dell has moved up today with the markets and we are taking a scratch profit/loss. We may go back to the stock later this fall but for now we want to be out of it while the investigations are continuing Because of the inquiries and time involved DELL hasnít been able to file its quarterly earnings report.
*****

Fed Member Janet Yellen said Tuesday: "The bottom line is this: With inflation too high, policy must have a bias toward further firming. The current stance of policy will move inflation gradually back to the comfort zone while giving due consideration to the risks of economic activity," Yellen's "comfort zone" on inflation, one that she considers "an appropriate long-run inflation objective for the Fed," is 1 percent to 2 percent on the core personal consumption expenditures, or PCE, price index. That measure ran at 2.4 percent in the year through July.
*****

Gold finished at $594 and Oil ended at $63.76 in NYC. Treasuries were flat on the short end and rallied on the auction news on the longer end. The two-year closed at 4.82% and the ten-year at 4.78%.

The DJIA gained 102 points to 11498. The S&P 500 rose 13 points to 1313 and the NAZZ jumped 42 points to 2215.

Breadth was positive all day and ended 3/1 to the good. Volume was active.

New highs were 305 and new lows were 135.

This is an expiration week so anything can and will occur. Join us tomorrow for fund games at the big casino.
*****

 

11 September 2006 Daily Comment

Thoughts

Asia was lower overnight with Japan down 1.7% and Hong Kong down over 1%. North Korea is talking about exploding another nuclear device.

Europe is lower and Gold is at $600 with Oil under $66 at $65.32. Treasuries are firm.
*****

Dell announced that it is not filing its second quarter 10Q because it is still researching various revenue and other financial stuff from the past that may call for a restatement. That news has the shares down a $1 this morning at $20.75. We are not happy with this development but will hold for the moment.
*****

Friday is Quadruple Witching Expiration and so some of the activity this week will be in anticipation of that event.
*****

An hour into the trading day and Silver is down 7%, copper is down 4% and Gold and Natural Gas are both down 3%.
*****

Strong business investment suggests the U.S. economy is far from weak despite a slowing housing sector, St. Louis Federal Reserve President William Poole said on Monday. He warned however that inflation was running above the range he is comfortable with, and said that if it did not ease over the medium-term that he would rather "act earlier rather than later. The economy is not fragile -- it is robust," said Poole, although he noted that "that's not to say we couldn't have a weak quarter or two."†††† Poole flatly dismissed the idea that he was softening his views on inflation after some investors interpreted recent comments of his as being rather dovish for a reputed hawk. Instead, he pointed to robust construction in the nonresidential sector even as the housing market retrenches, and said anecdotal evidence suggested business plans were in full swing.†††† Poole acknowledged that at 2.4 percent, the year-on-year inflation according to the Fed's preferred measure was high -- above his comfort range of 1-2 percent.
*****

We took a new position in PALM in our very large accounts and also repurchased Loweís, UPS, MMM, Ford and more shares of DreamWorks and J Crew in those accounts. We sold Aetna holding for a $1.50 profit.

We added Hershey to some accounts that didnít own it.

We are interested in adding all these stocks to our other accounts on any sell off but for now we are holding off. Retailers are strong today as mutual fund oil money is seeking a home. The rationale is that lower gasoline prices mean more spending money. We donít buy that scenario but the big boys and girls make the rules and we just try to trade around them.
*****

Palm makes the Treo fancy phone and the company pre-announced less than sales for the quarter to be reported on September 21.

Palm engages in the development, marketing, and sale of mobile computing solutions worldwide. The company offers smart phones, as well as handheld computers, add-ons, and accessories in two product lines: Treo smart phones and Palm, and Tungsten and LifeDrive handheld computers. Its Treo smart phones combine mobile phone; and wireless data applications, such as email, messaging and Web browsing, multimedia features, and productivity software in a device that integrates applications that included in separate devices into one device. The companyís handheld computers provide personal information management, and mobile computing and media experiences for entry-level consumers, mobile professionals, and serious business users. Its add-ons and accessories help to enhance the end userís smart phone and handheld computer experience, including portable keyboards, SD/MMC expansion cards for storage and content, modems and carrying cases. Palm sells its products through a network of wireless carriers, and retail and business distributors to consumer, professional, business, education, and government users.

Palm has revenues of over $1.4 billion and a market cap of the same amount so it is priced at a very fair one times sales. With a net $500 million cash position and book value of over $9 per shares and earnings approaching $1 this year the stock is interesting.
*****

Treasuries lost ground on Pooleís remarks and the two-year ended at 4.83% and the ten-year at 4.80%.

Gold ended down at $597 and Oil closed at $65.56.

The DJIA closed up 5 points at 11398. The S&P 500 gained 1 points to 1299 and the NAZZ rose 8 points to 2173.

Breadth was 5/4 negative for the day and volume was moderate.

New highs were 155 and new lows were 125

And the fund games will begin again tomorrow at the casino.
*****

 

8 September 2006 Daily Comment

Thoughts

Several days ago we said Paramount fired Tom Hanks. Actually they refused to renew their production contract with Tom Cruise.
*****

In the we all can use a little help department the following news may warm your heart. News Corp. (NWS) is paying $50,000 a month to rent an apartment for Chairman Rupert Murdoch, who earns $25.7 million a year. If you would like to read more about how CEOs take care of themselves at shareholder expense visit http://www.footnoted.org/ .
*****

Overseas markets were and are fractionally better as the trading day in our great country begins. In NYC gold is down again to $619 and oil is up pennies at $67.45. Treasuries are unchanged.
*****

Fed governor Janet Yellen said on Thursday that, ďWith inflation too high, policy must have a bias toward further firming. However, our past actions have already put a lot of firming in the pipeline. These will unfold gradually over time. By pausing, we allowed ourselves more time to observe the data and more time to gauge how much, if any , additional firming is needed to pursue our dual mandate."
*****

Yesterday traders took the above comment as hawkish. Since Yellen is a dovish member of the Fed Treasuries weakened. Today trades have rethunk the statement and are taking it as nothing new and Treasuries are lower in yield higher in price. And so the world turns.
*****

A valued reader asked that when home sales slow when does building stop. We think that many builders have stopped building or at least slowed their building to let the market catch up. The large builders canít stop as easily as the smaller local builders because their crews are specialists and they want to maintain at least a core group. But anecdotal comments we have heard suggest that small local builders and even large local builders have reduced their work forces.
*****

Tellabs is back under $10 and we have purchased shares in many accounts at $9.66. We have traded this stock for many years. TLAB has finally begun to earn money and has over $1.5 billion in cash on hand. Revenues and earnings for the last quarter were fine but the company warned going forward and that took 25 % off the price of the stock. We like for a trade or to hold.
*****

With the driving season over now crude oil is at its lowest level since April at $66.65. Collusion anyone?
*****

Fordís new CEO gets a $2 million salary, a $7 million signing bonus, $11 million to replace forfeited Boeing options and options to buy 4 million shares of stock at $8.25 per share. Thatís nice work if you can get it. Remember, Goldman Sachs said Boeing wonít miss him.
*****

Oil ended the week in NYC at $66.25 Gold also finished lower at $617. Treasuries were firm all day with the two-year going out at 4.79% and the ten-year at 4.77%.

The DJIA gained 60points to close at 11390. The S&P 500 rose 5 points to 1299 and the NAZZ gained 10 points at 2165.

Breadth was positive all day and closed 5/4 to the good. Volume was light.

New highs at 115 regained the upper hand on new lows at 100.

And the casino is closed for the week-end but football has begun in earnest and so the gambling action will continue.
*****

 

7 September 2006 Daily Comment

Thoughts

Asia was lower overnight as Japanís Leading Indicators suggested contraction in the economy six months out. Japan was down 1.6%. European bourses are lower at their midday and oil is slightly higher at $67.53 while gold is down to $633. Treasuries are weaker with the two-year at 4.83% and the ten-year at 4.82%.
*****

The tech folks we follow were less than enchanted with yesterdayís action. The line in the sand is 1280 on the S&P 500 with it currently at 1295.
*****

Realtors see new home sales down 16% this year and existing home sales down 7%.
*****

Jobless claims for the latest week were 310,000 down from an adjusted upward 319,000 the prior week.
*****

For the latest period oil inventories dropped more than expected but gasoline inventories were up when a drop was expected.
*****

The merger between Alcatel and Lucent has been approved by shareholders of both companies and we are buying Alcatel in our large accounts. Weíve been interested since the merger was announced. The combined company is selling at one times revenues and has a major position in telecom equipment in Europe and the U.S.

Mother Merrill recommended the shares at these levels last week with the comments:

Merrill advised investors to buy the stock, its favorite in the European telecoms equipment sector. Analyst Sandeep Malhotra resumed coverage of the stock with a buy rating and price target of 12.20 euros -- equal to 27% upside from current levels in Paris.

"We believe Alcatel's merger with Lucent will create Ä2 of value per share for Alcatel shareholders and recommend that investors vote for the deal on 7 September," he said.

The combined company will have a 17% share of the global market for telecoms equipment, "will emerge as a powerhouse in wire line including access and optics, and a leader in network convergence to all-IP," he said. The deal with Lucent would create value even if management were only able to achieve half of its targeted $1.4 billion in synergies by 2009, he said.
*****

Two Regional Fed Banks wanted a rate hike before the last Fed Meeting.
*****

Oil closed down a few pennies in NYC at $67.53. Gold was also lower at $625. Treasuries were firmer with the two-year at 4.82% and the ten-year at 4.79%.

The DJIA closed down 70 points at 11335. The S&P 500 lost 6 points to 1294 and the NAZZ dropped 12 to 2155.

Breadth was 5/4 negative and volume was moderate.

New highs contracted again to 86 while new lows expanded to 89.

And there is only one more fund games day left at the casino this week.
*****

 

6 September 2006 Daily Comment

Thoughts

Asia was lower overnight with Hong Kong down over 1% and European bourses are also in negative territory at their midday. Oil dipped under $68 early this morning but is now at $68.10 in NYC trading. And gold is off a bit at $643 after its big run yesterday.
*****

Non Farm Productivity was up 1.6% in August as expected but Unit Labor Costs rose 4.9% when a rise of 4% was expected. The Treasury traders didnít like the rise in unit labor costs and so Treasuries are weaker this morning with the two-year at 4.82% and the ten-year at 4.81%.
*****

Ford has a new CEO Allan Mullaly from Boeing who is known as a cost cutter. The shares are higher on that announcement and a Citigroup upgrade.
*****

Intel announced that it would be cutting 10,500 jobs which are 10% of its work force. Traders wanted more cuts and so the share price is lower.
*****

Investors Intelligence had 43% bulls and 33% bears in its latest week.
*****

Verizon and AT&T canít be too happy reading this from todayís NYT:

A consortium of technology companies, including IBM and CISCO announced plans Tuesday for a vast wireless network that would provide free Internet access to big portions of Silicon Valley and the surrounding region as early as next year.

The project is the largest of a new breed of wireless networks being built across the country. They are taking advantage of the falling cost of providing high-speed Internet access over radio waves as opposed to cable or telephone lines.

The project will cover 1,500 square miles in 38 cities in San Mateo, Santa Clara, Alameda and Santa Cruz Counties, an area of 2.4 million residents. Its builders, going by the name Silicon Valley Metro Connect, said the service would provide free basic wireless access at speeds up to 1 megabit a second ó which is roughly comparable to broadband speeds by telephone ó in outdoor areas. Special equipment, costing $80 to $120, will be needed to bolster the signal enough to bring it inside homes or offices.
*****

Several hours into the session Treasuries remain under pressure and that in turn has placed pressure on stocks. Breadth is 3/1 negative but volume is light.
*****

Goldman Sachs says that Mullalyís exit at Boeing will have minimal impact. Mullaly is the fellow who is taking over at Ford. It is interesting that Boeing wonít miss him according to Goldman Sachs. Mullaly was Executive VP, Member of Executive Council, Chief Executive Officer of Commercial Airplanes and President of Commercial Airplanes He made over $2.5 million last year.
*****

Fed Beige Books released today reported that consumer spending is rising slowly. Higher energy prices are crimping consumer demand; manufacturing is expanding in all 7 districts. Auto inventories are bloated.Residential construction is uniformly weak. Commercial Construction is strengthening. Wage pressure is rising especially for skilled workers. Banks report reduced lending activity and manufacturers say they canít pass though higher energy costs. The Kansas City Fed reports an increase in the number of foreclosures. Drought conditions continue throughout the country.
*****

We sold our remaining Intel holdings for a $2 per share profit. The fact that the share price didnít pop on the restructuring news from last night means that INTC is now a Ďshow meí stock and it may be weak through at least the next quarter.
*****

Gold finished down at $642 in NYC and Oil also ended lower at $67.50. Treasuries gave ground but were above their lows with the two-year at 4.81% and the ten-year at 4.80%

The DJIA closed down 60 points at 11410. The S&P 500 lost 12 points to 1300 and the NAZZ dropped 35 points to 2170.

Breadth was 3/1 negative for the day and volume was moderate.

New highs contracted to 125 and new lows were 85.

And there are two more fund and games days left at the casino for this week.
*****

 

5 September 2006 Daily Comment

Thoughts

There wasnít much action overseas overnight and this morning stocks are meandering as the big boys and girls straggle back to working full time.
*****

Oil is down to $68.50 as a huge new discovery was announced by Chevron. Supposedly this discovery in the Gulf of Mexico may increase U.S. oil reserves by as much as 15 billion barrels which is equal to 50% of known U.S.reserves. Thatís good for the economy and also will make the necessity of drilling in the Artic Wildlife refuge a no starter. And it should give time for alternate forms of energy to be developed, ifÖ..
*****

Treasuries are lower on profit taking. We are among those locking in profits as we sold our 5% and 5 1/8% two year notes. We are going to sit on the money and see what happens. We kept bonds in a few income accounts and a few larger accounts where we didnít want to make the trade since we thought the client would be more advantaged by standing pat.
*****

Hershey was downgraded by JP Morgan and removed from their focus list and the shares are trading down by $2.50. We own a few shares in our very large accounts and we are adding to that position and also adding the stock to other accounts.
*****

The talking heads on CNBC are all a twitter because Sumner Redstone at Viacom has fired the CEO after Firing Tom Hanks a few weeks ago. The shares price is down $2 and on its low for the last twelve months and we are picking up a few shares for a rebound trade in our very large accounts. VIAB revenues are over $10 billion and market cap is $24 billion.

Viacom offers programming and entertainment content for television, motion pictures, and digital platforms. It operates in two segments, Cable Networks and Entertainment. The Cable Networks segment owns and operates advertiser-supported basic cable television program services through MTV Networks, including MTV Music Television, MTV2, Nickelodeon, Nick at Nite, TV Land, VH1, Spike TV, CMT: Country Music Television, Comedy Central, and MTV U, as well as cable program services, including BET and BET Jazz, BET Gospel, and BET Hip Hop. This segment also offers other program services, including online programming services, such as Websites, broadband channels, and wireless applications. The Entertainment segment, through Paramount Pictures, produces, finances, and distributes feature motion pictures. It distributes its motion pictures on DVDs and videocassettes in the U.S. and Canada through Paramount Home Entertainment; and outside the United States and Canada, through Paramount Home Entertainment International. In addition, Viacom engages in music publishing business and owns copyrights to various musical works, such as songs, scores, and cues.
*****

National City Bank announced that it is selling its sub prime lending business to Mother Merrill. NCC still retains $10 billion of sub prime loans on its books but the press release made it sound like those loans were for sale also. We like the idea of NCC getting out of the sub prime lending business and they are booking a $1 billion profit in the process. We are adding more shares to our very large accounts at $34.80 and will be adding more to our other accounts over time if the share price cooperates. The stock yields 4.5%.
*****

Here is the URL for an interesting article by Bill Gross who manages half a trillion dollars of Treasury Bond money. http://www.pimco.com
*****

Oil closed at $68.60 in NYC and Gold was up to $647. Treasuries lost ground with the two-year at 4.80% and the ten-year at 4.78%.

The DJIA closed up 6 points at 10470. The S&P 500 gained 2 points to 1313 and the NAZZ rose 12 points to 2205.

Breadth was positive all day and ended 3/2 to the good. Volume was light.

New highs were 265 and new lows were 50.

The casino is open but all the players arenít back.
*****

 

1 September 2006 Daily Comment

Thoughts

Asia was fractionally mixed overnight and European bourses are also fractionally higher. Gold is off a bit at $632 and Oil is pennies higher at $70.47.

The Employment Report for August indicated 128,000 jobs were added to the economy and the unemployment rate dropped to 4.7%. Average hourly earnings were up 0.1% when up 0.3% was expected.

On that news Treasuries gave ground which is probably more a reaction to the news being out than the actual news. There is nothing in the Employment Report which runs counter to the idea of the Fed continuing to watch rather than raise.
*****

A judge issued a restraining order on the further distribution of generic Plavix. This was a win for Bristol Myers and the shares are back up to where we sold.
*****

There is a rumor that Intel is going to fire 20,000 folks and that has placed a bid in the stock.
*****

The University of Michigan Consumer Confidence Index was 82 versus an expected 79.
*****

Pending Home Sales dropped 7% in July (down1.5% was expected) and Residential Construction Spending was down 2.1% in July.
*****

John Succo at www.minyanvill.com says the 121,000 of the 128,000 new jobs added were actually birth/death adjustments to the number that the Labor Department makes to take into account changes in births and deaths as they estimate. In reality most of the numbers the markets trade on are guestimates.
*****

We commented earlier this week on DuPont getting rid of its pension plan. Floyd Norris in todayís NYT wrote a column on the subject. Two excerpts follow:

ďThe planned changes reinforce our commitment to help employees provide for a secure retirement,Ē said James C. Borel, a DuPont senior vice president. ďThey also modernize the design of our savings and retirement plans for a new generation of employees, many of whom want more direct control and portability in their benefits.Ē If those new employees are really enthusiastic about a program that DuPont estimates will save it ó and take away from employees ó around $46 million a year, after taxes, then the state of economic education in this country is worse than you may have thought.
*****

DuPont deserves credit for changing executive pensions in the same way it is changing those for lower-level workers. Some other companies have not done that. But rules for bosses can be flexible. Consider the case of Gary M. Pfeiffer. He stepped down from his post as DuPontís chief financial officer earlier this year, at the age of 56, and will retire in December, having earned an annual pension of more than $500,000. You might think that was enough for a man who saw DuPontís stock lose about a third of its value in the nine years he served as C.F.O. But DuPontís board did not. Just a few weeks before directors voted to reduce retirement benefits for employees, they decided to give $2 million to Mr. Pfeiffer ďin addition to the payments and benefits to which he is otherwise entitled as a retiree.Ē Why? A DuPont spokeswoman said this was ďa typical arrangement in the industry,Ē unrelated to pension policy. Mr. Pfeiffer and the company signed ďa mutual nondisparagement clause,Ē which makes it sound like the $2 million was to get him to go quietly. You can assume that lesser workers forced out of their jobs are treated a bit less kindly.
*****

In our very large accounts we are trading out of some positions that we are holding in most of our other accounts. We have been aggressive with these very large accounts all year and we want to continue our trading pattern in order to be consistent. We are not making any changes in the Model Portfolio.
*****

Oil ended in NYC at $69.19 and gold was $633. Treasuries closed firm with the two-year at 4.76% and the ten-year at 4.73%.
*****

The DJIA closed up 80 points at 11460. The S&P 500 gained 7 points to 1310 and the NAZZ rose 11 points to 2195.

Breadth was better than 2/1 positive on NYSE and 5/4 on the NAZZ and volume was last day of summer before the Labor Day Holiday light.

New highs contracted to 265 and new lows were 45.

The casino is closed until Tuesday morning.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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