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For those folks who have accounts with us, you may now go to: www.aacesonline.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the aacesonline site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending March 31, 2003 For Quarter Ending December 31, 2002 For Quarter Ending September 30, 2002

30 April 2003

7:58am and this morning a client emailed with a question of why we didn't wait until today to exit our Sony position since the Japanese market rallied 3% this morning. Our reply was that had we known that The Bank of Japan was going to pump money into the economy and cause a 3% rally in the Japanese markets we would have. Unfortunately our crystal ball only speaks to us in English, which is why we should probably stay with American companies. Furthermore over the years we have learned that exiting losing situations clears our minds to focus on making money by looking for other investment opportunities. We have a very difficult time riding losers unless we expect them to be difficult stocks when we buy them. For example, when we bought Sara Lee the other day down $3 from the previous close we knew we might have a difficult ride for a while. That's why we have continued to buy SLE as it has moved lower. But at 11 times earnings, with an asset disposal program in the works and a 3.5% yield, we think there are enough catalysts to turn things around.

When we purchased Sony we did not expect the terrible earnings report and forward earnings negativity that were announced the day after we purchased it. We expected the stock to rally on the earnings report. And so when the price action went against us we at first were stubborn and added more shares. But then upon reflection over the weekend and having searched the web for discussions of the Sony earnings report we decided to cut our losses and move on to more positive investments.

8:25am and we haven't said anything about the billion dollar Wall Street settlement yet. To our mind it is t is too little too late. Moreover no high muckety mucks have been tarred and feathered and ridden out of town as they should have. In fact the CEOs of all the big brokerages and banks have kept their titles and salaries and perks although a few did forgo obscene bonuses this past year. But wait till next year and the bonuses will be back.

Aggrieved investors are still going to have to sue individually to receive any settlement. On the investor law suits we are neutral since we think a lot of investors were happy to ride the rocket higher; it was only when the rocket started crashing that they decided they had been taken.

But, the speech by Phillip Purcell, CEO of Morgan Stanley discussed in the NYT this morning saying that investors have nothing to be upset with Morgan Stanley about is symptomatic of the caveat emptor attitude of Wall Street toward individual investors. Individual investors have always been the sheep waiting to be slaughtered by the big brokerages. That's why we are on our own. At the large brokerage houses the brokers work for the brokerage house and the clients are considered to be clients of the brokerage house not the broker.

With Lemley Yarling Management Company our clients are our clients. It's a very simple relationship. We make money for our clients and they stay with us. If we lose big bucks for our clients they leave us and we are out of business. That's true capitalism. We depend on our clients for our living and our clients depend on us to manage their assets prudently. If we had treated our clients the way the big brokerages treated their clients in the bubble years we would be out of business. But too big to fail applies to Wall Street because of the money they have to spread around the political landscape. It has always been so, and it will always be so.

9:09am and the DJIA is down 50 points. Bush is going to declare victory in Iraq tomorrow night in a televised speech from the deck of an aircraft carrier as it steams toward port in San Diego. As we old hippies used to say, far out! We still hold to the feel good theory of market movement and so we think the speech and the planned parade in New York in a few weeks and the corresponding atmosphere and psychology of "can do" will be a pump for the markets.

9:31am and we have added the following brief biographies to the About Lemley portion of the Lemley Letter Online.

Sharon Minetti has been associated with Lemley Yarling Management Co. for 20 years. She joined the Group from Wayne Hummer & Co back in the mid 1980s and has worked for them and other investment firms since that time. Sharon is now a homemaker but spends one day a week in the office assisting Kathy.

Lauren Slavik joined Lemley Yarling Management Co. in April 2003 as a graduate of Johns Hopkins University with a Bachelor of Arts in Public Health. Lauren is an assistant to Kathy Pinto Cannova. Prior to joining Lemley Yarling Management Co. Lauren was employed by Johns Hopkins Bloomberg School of Public Health in the area of financial management related to personal, national, and global health. Lauren plans to pursue a MBA in marketing.

9:49am and the stock markets look like they are going to meander while Greenspan testifies. Breadth is negative and volume remains low.

11:51am and Greenspan is finished with his testimony and the stock markets are unchanged. The DJIA is down 20 points and breadth remains negative. These pauses without huge sell offs are positive and allow the stock markets to consolidate.

We bought Sprint PCS in our smaller accounts today at $3.55. We are also trying to buy Tellabs for these accounts under $6 per share.

1:49pm and we purchased the Tellabs at $5.95 and we also added some more Sara Lee at $16.98. Entering the final hour of trading the DJIA is flat. Breadth has turned positive and new highs are over 100 but we need more expansion in the new high list if the rally is to continue. We presume the DJIA will try to get through the 8521 mark in the last hour.

3:02pm and the DJIA closed down 23 points at 8480. The S&P 500 lost 1 point to end at 917 and the NASDAQ was off 7 points at 1464.

And tomorrow is another day.

30 April 2003 - Morning Comment

7:31am and we welcome Lauren Slavik to The Lemley Group. Lauren is a graduate of Johns Hopkins and will be assisting Kathy in managing the office. Sharon is still with us but will be coming in only one day a week.

We are getting a late start because we are having a gentle and much needed rain that began in the night and the patter of raindrops made rising this morning a bit of a chore. Overnight, Japan was up 3% on a surprise easing by the Central Bank. Europe is also higher but U.S. stock futures are slightly lower. A lot of the technicians consider the stock markets overbought and in need of a pullback before being able to move higher.

We are agnostic on the subject and invested for either a pullback or a rise. The Model Portfolio is 28% invested and if we have a pullback we will add to a few positions.

Greenspan testifies before Congress today. The WSJ is reporting that Tyco will announce more accounting irregularities and so everything is normal.

29 April 2003

9:05am and the DJIA is up 80 points and breadth is strong. Volume is a bit better than yesterday. We are watching.

9:18am and Consumer Confidence as measured by whomever measures consumer confidence -- we think it is something called the Conference Board - came in at 81 versus an expected 70. This is one of those roulette numbers that the markets need every day to keep the gamble going.

9:54am and the DJIA has trouble getting through and staying above the 8521 higher high mark. Stocks are now selling off with the DJIA down 25 points. We'll see whether this is profit taking from yesterday, or more.

10:31am and the markets remain a tad lower. We are using the pullback this morning to add a few more issues to accounts. We think a "We are Americans and we feel good," rally is in the works. We want to own stocks we can live with if we are wrong and so we added British Petroleum at $38.50 with a 4% yield, Eastman Kodak at 29.85 and yielding 6%, Bank One at $35.90 yielding 2.3% and SBC again at $22.70 with a 4% yield. We also purchased another slug of XLK at $15.72. We added Sara Lee at $16.65 to our small accounts that were all in cash. We are now at a 35% invested figure in large accounts and a bit more in smaller accounts and we feel we are well positioned for any eventuality. And so we are going to rest.

12:37pm and stocks are stuck with volume slowing. Breadth is positive and new highs are expanding a bit. The stock markets need the DJIA to close above 8521 to get any real action going.

3:02pm and The DJIA tried but couldn't close above 8521. At the bell the DJIA was up 35 points at 8506. The S&P 500 gained 4 points to end at 918 and the NASDAQ tacked on 10 points to finish at 1472.

And tomorrow is another day.

29 April 2003 - Morning Comment

6:45 am and the stock futures are suggesting a slightly higher opening. We have seen no market shaking news this morning. European markets were higher and Japan was on holiday but other Asian markets were higher on the feeling that authorities are getting a handle on the SARS media phenomena.

Today we see up early and then we don't know.

28 April 2003

8:02am and Wal-Mart sees April sales at the low end of forecasts. Personal income rose 0.2% and there just isn't a whole lot of news. There is a piece in the WSJ about General Electric's asbestos problems and that should give an indication of whether asbestos is still a problem worth worrying about when owning a stock. If General Electric's share price ignores the news that will be a positive for the likes of Honeywell. There is a national asbestos settlement in the works that is supposed to settle the issue.

With the end of earnings season approaching and earnings warning season a month off the markets are going to have to find some other news to trade off. SARS has about another week of negativity left, unless some new facts arrive. And so stocks may just enter the summer doldrums early this year. April ends Wednesday and their may be some window dressing but the stocks we own are more likely to be under selling pressure than buying pressure.

8:54am and after a long weekend of pros and conning we decided to sell our SNE position today at $23.50 for an $8 per share loss. That is the largest loss we have taken for a few years and we don't do it lightly. But in reading the press releases and comments we decided that in a bear market we are better off taking our lumps and moving on. We realized that we may not have purchased the stock after the earnings announcement since the plans for correcting the problems and moving ahead are nebulous. We think SNE is one of the best conglomerates around and it is selling at book value. If we were in a bull market we might not act. But the markets are still in the bear and we are moving on.

There are plenty of stocks that are off as much and are basing or have based and offer more immediate upside potential. With the SARS scare in Asia, and the fact that Sony is going to have to put a few good quarters together to re-interest the large institutional investors we decided to take our lumps and move on. We violated our philosophy when we bought the stock but we are following it in selling. And in taking our loss and selling we clear our mind to concentrate on looking for buys rather than focusing on a losing holding and hoping. Hoping is for Cubs fans.

In conjunction with the sale we are redeploying part of the money raised on the sale of the Sony into SPDR Technology at $15.363 since we want to keep our market exposure around 20%. And we are buying HPQ at $15.63, Honeywell at $22.80 and Sara Lee at $17.10, Tellabs at $5.75 and Sprint PCS at $3.80 for accounts that owned SNE but none of the other stocks we purchased last week.

10:08am and the DJIA is up 144 points at 8450. The NASDAQ is up 25 points and the S&P 500 is up 16 points. These gains erase Friday's losses. In the Model Portfolio we reduced our Sara Lee holding to 1000 shares by taking a 60 cents per loss on 500 shares and we also purchased 500 XLK, 500 HPQ, 500 HON and 1000 PCS in this mornings purchase. We sold HON is a few accounts for a scratch profit where we had purchased too much last week.

11:30am and breadth remains 3/1 positive and up volume exceeds down volume 5/1. Volume is light and that is a negative. The DJIA remains up 140 points and new highs haven't been able to climb over 100 on the NYSE.

Sara Lee is off from where we bought it today and last week. It may remain under selling pressure through month end. But we think the proposed divestiture program will rekindle interest in the shares sooner than later.

1:31pm and the DJIA is up 178 points. Breadth remains strong and new highs have climbed over 100, but volume remains light.

2:31pm and we are adding more SLE to accounts that already own it at $16.50. SLE is now selling at 11 times earnings with a 3.7% yield. We are comfortable buying this stock at these and lower levels and will be increasing our holdings if it moves lower.

3:02pm and the DJIA closed up 164 points at 8470. The S&P 500 gained 16 points to end at 915 and the NASDAQ gained 28 points at 1463.

And tomorrow is another day.

28 April 2003 - Morning Comment

7:13am and the stock futures are indicating a slightly higher opening. Europe is fractionally higher while Japan was again down over 1%.

Our crystal ball has clouded a bit and while we expect a rally to resume into May, a lot of other folks are expecting the same and so of course that makes us nervous.

We are in a watch and hope mood.

25 April 2003

7:31am and advance GDP came in at up 1.6%. Michigan Sentiment number is coming at 9am. The GDP number is negative for stocks but is a lagging indicator which mean that it reflects the past not the future so traders are hoping the Michigan number which is current feeling will be positive.

Treasuries have popped higher on the news and stock futures have weakened but not terribly.

8:50am and the University of Michigan Sentiment number was 86 for April versus 83.2 preliminary. The markets are not rallying on this number.

Up until now this year we have avoided any real wrecks but Sony is doing a number on us. It is off $3 again today. At this price, as Don used to say, it is too late to sell and too early too buy more. We are just going to wait this one out.

10:55am and we sold the SUNW at $3.36 that we purchased at $3.20 a week ago. We also sold the remainder of the ABS at $19.40 for a 50 cents per share profit. In our trading accounts we reduced our position in HPQ for a scratch profit and we hope to sell some HON in our trading accounts before the day is out. As we said yesterday:

One of our knee jerk reactions the last few years when we have a stock blow up on us is to reexamine positions and raise cash. We do this especially if we are going to try and ride out a "falling knife" like Sony. We know this is may seem at odds with most text book trading philosophies that suggest selling losers and keeping winners. But the stocks we are selling aren't really winners. They are trading positions waiting to be winners. Our reason for selling is to reduce our overall market risk by reducing our exposure. We think this is especially called for when the stock markets are teetering on their 200 day moving averages.

We are back in DIA at $83.15 with another bid in at $82.70 for our aggressive trading accounts as a day trade in keeping with buying the DJIA down over 100 points. The DIA were actually down 135 points at $83.15.

12:42pm and the DJIA is down 105 points and trying to inch higher. We even have some green on our screens. Breadth is almost 2/1 negative and down volume exceeds up volume by 3/1. Volume remains lower than it was during the up phases of this rally.

1:37pm and several folks have asked about our bat problem. As of last night we are hopefully confirming that the final trap releases placed on Wednesday did the trick. Our dusk observation saw no bats leaving from their last hiding place. But now we have a raccoon poop problem on our office porch. We think the raccoon who left his calling card on our porch may be a friend of the raccoon we sent to raccoon heaven last week. Raccoons love to leave their calling cards in unusual spaces. And so we plan on rigging our action activated porch light to go on when the raccoon approaches our porch steps. Ah the joys of country living!

1:49pm and the DJIA is down 126 points. As we approach the final hour the question is whether traders want to be long or short for the weekend. We shall see.

2:32pm and we canceled our $82.70 bid for the DIA. We sold our DIA bought earlier for a scratch profit at $83.25. We aren't selling any HON since it backed off on us.

3:02pm and we've given a bit of our gains for the year back today and yesterday. Happily we were on our high for the year on Wednesday when we became a bit more aggressive and the opposite would have been better. We finished the week with the Model Portfolio up 8.9% for the year and 22% invested in stocks. The DJIA is down 0.4%, the S&P 500 is up 2.2% and the NASDAQ is up 7.4% for the year.

At the close the DJIA was near its low for the day down 136 points at 8303. The S&P 500 was off 13 points at 898 and the NASDAQ was down 23 points at 1434.

And tomorrow is another day.

25 April 2003 - Morning Comment

7:07am and we turned on CNBC to an advertisement by UBS Paine Webber where the voice over asks clients whether they would be upset by seeing their portfolio drop 30% in value. That's a cheery welcoming ad in the morning.

The overseas markets were lower overnight and the stock futures are indicating a weak opening. The push through the 200 day moving averages is not occurring and with the SNE blowup yesterday, we are not willing to give much rope to the rally before pulling the empty hatch and raising some more dollars.

We'll see how the morning goes and then decide. Following our instincts over the past five years has usually worked and we aren't about to change a winning formula even if we are selling yesterday's purchases and taking losses in the process.

The reasoning is that if market action doesn't do what we thought it would we are probably out of touch with the markets.

But the last few down openings have led to midday rallies and we hope today will be the case.

24 April 2003

7:30am and initial jobless claims were up 8,000. Continuing claims rose 42,000. Durable Goods orders were up 2.2%. The jobless numbers are negative and the durable goods number is a positive for stocks. The lower stock futures are more a function of the recent run higher in the stock markets than a reaction to any of these numbers.

It looks like Sony is going to slam us today. We bought before the earnings release last night and we are paying the price today. It is trading off $4 and now it is a question mark for us. Do we add more or abandon ship? It is a great company and down significantly. We did buy with the possibility of holding for a while, but we thought it would be going slowly higher during that while.

Also we now learn that "the street" likes SBC earnings and it is trading higher. So we guessed wrong on which stock to buy before earnings. Our rule of not buying before earnings comes from days like today.

8:59am and the DJIA is down 75 points. Breadth is 2/1 negative but there is no panic selling. Even the selling in SNE is orderly albeit down $4 from yesterday's close at $27.75. We are buying a few more shares. We do like the company and the country play and so we are going to stay with the stock for now and try to extricate ourselves from a difficult situation. Since most of the wireless operators have had numbers that were appreciated by Wall Street we are buying Sprint PCS at $3.85 in accounts where we bought XLK yesterday. We are buying this just as a trade.

11:56am and the DJIA has been down 120 points and is now down 85 points. We are adding Sony to smaller accounts and to some of our larger accounts at $27.25. Next time we will stick to our trading philosophy, we said ruefully.

Sara Lee is off $2 to $17.77 and we are adding SLE to accounts for which we bought Sony yesterday. SLE is off on reduced earnings forecast for the next quarter but this under $18 level is a good level at which to buy some shares.

We are adding a little Kyocera to larger accounts in keeping with our Japan theme. The SARS scare has the media in frenzy. With the war over and no sensational trials occurring SARS is the media grabber of the moment. Unfortunately the media hype is having an effect on economies where some SARS is evident and that is a reality the stock markets are trying to figure out how to integrate into economic forecasts.

We purchased DIA at $84.20 for a trade in some of our larger accounts.

We also sold MCHP at $21.70 for a $2 per share gain in our larger trading accounts.

12:29pm and we read reports that Chairman Greenspan prostate from prostate surgery in his hospital bed said yes he will forge on as Chairman of the Fed for a record fifth term. That's good since he will be able to preside over the bursting of the housing bubble he helped to create, as he presided over the bursting of the stock market bubble that he helped to create.

1:31pm and today has reaffirmed our desire not to be in troubled and not so troubled stocks ahead of earnings. And so since SGP earnings come on May13 we are selling our trading position in SGP and placing the money in SLE at $17.77. We don't lose anything in yield and the SLE is a more stable type of trade than the always surprising SGP. We sold the SGP at $17.80 for a 25 cents per share scratch trade gain.

We sold our DIA at $84.65 for a 40 cents gain but we weren't able to acquire much so most of our trading accounts did not participate.

1:55pm and entering the final hour of trading the DJIA has grudgingly inched back toward even but still remains down 32 points. Breadth remains negative and down volume exceeds up volume 2/1 on the NYSE. Trading is moderate and continues the trend of lower volume on pullbacks than on rallies which is a positive.

2:21pm and on of our knee jerk reactions the last few years when we have a stock blow up on us is to reexamine positions and raise a cash. We do this especially if we are going to try and ride out a "falling knife" like Sony. We know this is may seem at odds with most text book trading philosophies that suggest selling losers and keeping winners. The stocks we are selling aren't really winners. They are trading positions waiting to be winners. Our reason for doing this is to reduce our overall market risk by reducing our exposure. We think this is especially called for when the stock markets are teetering on their 200 day moving averages.

With this in mind we are trying to sell our ABS position for a slight gain although the markets are making this a bit difficult right now. Hopefully a rally into the close will help us.

3:02pm and we weren't able to sell the entire ABS holding so we are going to reduce positions in our trading accounts which have the largest exposure to the stock markets.

At the close the DJIA was down 76 points at 8440. The S&P 500 lost 8 points to end at 911 and the NASDAQ dropped 9 points to finish at 1457.

And tomorrow is another day.

24 April 2003 - Morning Comment

7:12am an all the foreign markets are lower as are U.S. futures. It looks like the stock markets are going lower to retest and gain strength before they can push higher in a May rally.

We are as invested as we wish although if SBC gets slammed today on its earnings report we may buy.

Down early then …?

23 April 2003

The updated Model Portfolio has been posted.

8:06am and there are reports that AMR is back on the brink of bankruptcy because the unions want to revote because of the executive compensation problem. The screwy thing about this brouhaha is that if AMR files bankruptcy the unions will get nothing and the executives will eventually receive repriced options at much lower prices and bonuses for leading the airline out of bankruptcy.

On another topic, Boeing announced earnings of 42 cents per share versus a 31 cents estimate if one ignores special charges. And the street is applauding the number. There should be no such item as special charges unless it relates to a hurricane or other act of nature or war. All other charges are the result of economic miscalculation and lousy decision making or a falling economy. Boeing took special charges last year and the year before.

9:36am and just in case there is a break out to the upside we bought some more shares of the stocks we purchased yesterday for a few more accounts. We are keeping our investments under 25% of portfolio assets. We are using the slight pullback this morning for that purpose. The DJIA is off about 10 points at this time.

12:53am and the DJIA has been meandering again today with buying met by selling and selling met by buying. We added Honeywell at $23.05, Sony at $31.35, HPQ at $16, TLAB at $5.88 and SUNW at $3.45 to many accounts. We also bought a bit more ABS at $18.96 in a few accounts that didn't own it and repurchased one half the XLK at $15.60 in accounts where we sold it last week. We are paying up for the XLK to get back but if the markets decided to rally from here the XLK will participate fully. And our risk in the XLK is only the profits we have already realized trading XLK this year. We purchased DIA in our aggressive trading accounts at $84.90. A close above $85.25 will place the DJIA above its 200 day moving average and presage a move to test the January highs of 88.

2:09pm and entering the final hour the DJIA is up 14 points. Breadth is positive and volume is moderate. New highs on the NYSE are less than 200 and the markets have spent most of the day marking time.

2:47pm and we sold our DIA trade for a 35cents profit. The DJIA is having such a hard time at the 8525 mark that we think it won't make it today and that we will have a chance to buy the DIA lower tomorrow. All stock are anchovies.

3:02pm and the DJIA closed up 30 points at 8515. The S&P 500 rose 8 points to end at 919 and the NASDAQ gained 15 points to finish at 1466.

And tomorrow is another day.

23 April 2003 - Morning Comment

6:48am and we are in early because we have been on bat patrol since 5:05am or daylight. We didn't see the little critters come home this morning and we are guessing they returned during the night because it was a might chilly for the little gals and guys around 3am. Batman did come the other day and close up two spots that he was sure were the entrances and exits for our little friends. We suggested another spot but he said no. Unfortunately we were correct and saddened when we saw the bats emerge last night at dusk. And so we have another call in to batman. It is now a race against time and maternity because once the little folks have their babies we can't do anything till July at which time the colony of 8 bats that we now have may number in the hundreds.

As to the markets, Japan was up 2% overnight and Europe is also higher on the heels of the good day in the U.S. stock markets yesterday. Well it was a good day unless you were short stock. Most of the major averages and indexes except the DJIA punched through their 200 day moving averages to the upside and that has led to a more bullish atmosphere among traders. Not a few technicians are suggesting that the markets are becoming overbought and that the rally can't continue for too much longer without a pullback. When the pullback comes, which we think will occur, it will be important to see if the averages can stay above their 200 day averages. If they do then it's off to the races in May and we may get a ten percent or more move.

All this noise does not obscure the fact that while earnings being reported are beating expectations; expectations had been lowered and lowered and lowered. And so we remain long term bearish but in larger accounts we have put a little money to work to try and catch part of this rally.

Futures this morning are indicating an up opening and then we shall see.

The updated Model Portfolio as of Brother Jody's 50th birthday on April 22, 2003 has been posted. The Model is comfortably above a 10% return for the year.

22 April 2003

7:55am and now the Bushies in the words of Treasury Secretary Snow are willing to phase in the tax cuts over a period of years to pass the tax cut package, which is how the Bushies passed the last tax cut package that did no good. Whatever the merits of tax cutting, the way this package will be phased in will have no effect on the economy. And the last tax cut package is proof of that fact.

The reality is that both tax packages are ideological commitments to reduce government revenue and so to reduce government programs which the Bush folks don't want. And by creating huge federal deficits the Bush folks are effectively precluding government programs in the future since any tax increases will have to go to debt service.

That is the reality of what is occurring. We obviously don't like or agree with the approach but Bush is selling the plan to the public. Wall Street which will see its own personal tax rates drop and dividends become tax fee is cheering him on. Wall Street is predicting big times for the stock markets when the tax cut package passes. It is important to remember that these predictors are the same folks that saw 50000 on the DJIA, 10000 on the NASDAQ and salad days forever just a few years ago before the crash.

We don't think the tax package will do anything for the economy except eventually raise interest rates and that is our economic and not political reason for treading lightly in stocks right now.

10:51am and the stock markets have been meandering this morning but we detect a bias to the upside. We added some HON at $22.60 to trading accounts and we are buying SGP at $19.45 and TLAB at $5.75 to add to more accounts. All for a trade.

11:05am and breadth has turned positive and the DJIA is up 42 points. Bush says that he will appoint Greenspan again. Our bet is that Greenspan will choose to retire. In the old days news of Greenspan's reappointment would have been worth 200 points on the upside. Now it is just yawn producing. That's what a bear market will do.

1:25pm and from a technical standpoint the stock markets are on new ground for this rally that suggests moving higher. We added HPQ to our aggressive accounts at $15.70, Microchip at $19.62 and Sony at $31.90. We are treating this as only a trading move and so we are leaving most accounts in cash because we don't have more than a one or two day time frame on our buys and we are buying in amounts larger than we want to place in most accounts.

We purchased 1000 TLAB and 1000 SGP for the Model Portfolio in these latest purchases.

2:02pm and entering the final hour the DJIA is up 140 points.

3:02pm and the DJIA closed on its high up 158 points at 8486. The S&P 500 rose 20 points at 912 and the NASDAQ gained 27 points to end at 1457.

And tomorrow is another day.

22 April 2003 - Morning Comment

7:31am and we wish a Happy Birthday to our brother and computer guru. Today is number 50, halfway to the century mark.

Japan gave back all its gain of yesterday and then some closing 2.2% lower. Europe is mixed upon resuming trading this morning after the Monday Holiday. And the U.S. stock futures are lower and bonds are a bit firmer.

We plan on buying a bit more HON today. We shouldn't have been so greedy with our KYO yesterday because it is probably going to head back down to buy territory and we had a bit of trading stock left to sell.

We are just watching the markets looking for trading opportunities with no desire to commit very much money. Down early may mean up late, we'll have to wait and see.

21 April 2003

7:56am and we have attached a letter we wrote to a client today:

Dear ,

Attached is the performance report for the XXXXXX Endowment for the first three months of 2003. we have also enclosed a six month performance report which covers the time period during which we have managed $4 million of the money more aggressively with our trading philosophy.

For the three months ended March 31, 2003 the equity portion that we traded showed a return of 3.98% and an actual realized gain of $193,235. During that same three month period the S&P 500 lost 3.3%.

In the first quarter the Treasury bond portion return was helped by a few quick trades in the five-year Treasury note and showed a return of 1.57% versus the Lipper Intermediate Index 1.16% return. No one is getting rich on short term Treasury yields now but we don't want to extend maturities because we think the risk of higher interest mitigates any slightly better yield over the short term.

The performance report we have sent displays a much larger percentage return figure for the equity portion because that figure is the time weighted return (return for the only the time period the money was invested in stocks) and because it prices securities on a previous quarter end value rather than an historical value. The overall return of the portfolio of 3.325% is germane because it reflects the investment return of the entire investment portfolio.

For the six months the $4 million equity portfolio has trading gains of $362,000 which is a 9.2% simple return. In that same time period the S&P 500 is up 4.4%


8:13am there were inflows of between $5 billion and $8 billion into equity mutual funds last week. That money is going into stocks and the sooner the better according to bulls. We are in the time period where there could be a pop in stocks, although we are happier on the sidelines, and the inflow into mutual funds is probably directly related to IRA and pension contributions around the April 15 filing deadline. Whether the trend continues will take a few more weeks to know.

9:11am and the DJIA is up 50 points in mild trading. Treasuries are lower in price/higher in yield with the ten-year yielding 4.03% up 7 basis points. We are trading out of some the KYO we purchased last week.

11:24am and we bought some SGP at $17.50 in our aggressive trading accounts. We aren't ready to commit investment money but there may be a trade in the stock this week as SGP announced this morning as expected that the former CEO of Pharmacia was hired as CEO of SGP. Supposedly he is a turn around get ready for sale type CEO. The markets seem to be selling the news or at least are unexcited by the news. SGP earnings come May 13th and we will be out of the stock by then. We didn't buy any for the Model Portfolio.

We also bought Tellabs in trading accounts at $5.80. TLAB has about $3 per share in cash in the company. We bought this one for a trade also. We have had luck trading the stock over the past year. We bought 1000 for the Model Portfolio.

Finally we added ABS to some trading and larger accounts at $18.80. Albertsons pays a nice dividend and is on a ten year low. We've tried to trade this stock several times before to no avail but at these levels we think it's worth a shot. We bought 1000 for the Model Portfolio.

We are not neglecting our smaller (less than $100M) accounts. We feel we made enough money for them in the new year pop and are waiting for the fall sell off/buying opportunity to again commit money for them unless something really special comes along.

SBC earnings come this week on the 24th and we are watching that stock for a maybe buy on bad news opportunity.

12:26pm and the DJIA is in positive territory. Breadth is positive and new highs are inching above 125 on the NYSE for the day. The stock markets seem to want to go higher more than lower.

3:02pm and near the close we bought some Honeywell at $22.40 in our trading accounts. We weren't able to buy all we wanted and so we will bid on some more shares tomorrow. At the close the DJIA was down 9 points at 8329. The S&P 500 was off 1 point at 892 and the NASDAQ was also down 1 point at 1424.

And tomorrow is another day.

21 April 2003 - Morning Comment

7:15am and after the vote to ratify pay cuts to keep AMR out of bankruptcy AMR employees learned that nothing has changed in corporate America. Immediately after the vote AMR filed documents with the SEC that revealed that AMR executives voted themselves a pension and pay package for top executives. If seven top executives stay through 2005 they would receive a bonus equal to twice their pay. AMR is also going to fund 60% of the pensions of 45 top executives even if it files bankruptcy. A spokesperson for AMR said the bonus and pension plan were needed to keep the top talent. He neglected to mention that this top talent ran AMR into near bankruptcy. The unions have now rescheduled a vote on their pay concessions. In the light of day, the executives have decided to forgo their bonuses but not their pension guarantees.

The reality is that until some equity returns to the political and economic system we don't think the economy can recover. The salad years of the American economy in the last century were when workers and management were sharing in the fruits of their labor.

We remember a story the "old stockbroker" told of Roosevelt vacations during the depression where one half of the workers took the month of May off, and then the other half the next month on a rotating basis so that everyone could receive a paycheck of some sort. Don't remember him telling me about special bonuses for top executives. Management wasn't saints back then by any means but that was a creative way to deal with a difficult problem.

On another subject, we have always heard that in the past social security had 35 workers working for every one receiving a payout. And since that ratio has dropped the Social Security System is in trouble. While Social Security needs some tweaking it is not on the verge of collapse. We present the following from www.uggabugga.blogspot.com to dispel that urban legend.

We draw your attention to something Tim Russert said:

  • …there used to be 35 workers for every retiree. There are soon to be two workers for every retiree. "
Here are the facts:
  • President Franklin Roosevelt signed the Social Security legislation in 1935.
  • In 1945, a decade after Social Security was implemented we had 40 workers for every retiree.
  • In 1950, there were 16 workers for every retiree.
  • In 1960, there were 5.1 workers per retiree.
  • In 1970, there were 3.5 workers for every retiree.
  • In 1980, there were 3.2 workers for every retiree.
  • In 1995, there were 3.3 workers per retiree.
  • The ratio in 1998 is slightly more than three workers per retiree.
  • By the year 2030, there will be fewer than two workers contributing to Social Security for each retiree.
By Russert's logic, we should have had a crisis in 1950, 1960, 1970, 1980, 1995 - 'cause there were a whole lot fewer workers than 35 per retiree.

Obviously, when a pay-as-you-go program is first started, the ratio of pay-ins to pay-outs is going to be very large. However, Russert tosses around 35:1 as if that's the ratio for a settled, steady-state system. And another thing. We've heard about how much more productive U.S. workers have become over the last 50 years . You know, more output per unit worker. That's true, and a reason why over time, fewer workers are needed to build a car, publish a book, or support a retiree.

Now, there are real issues having to do with the Baby Boomer demographics which require building up a surplus to tap into later, and certain other adjustments. But when people like Russert talk about 35 workers per retiree - and contrast that with an expected 2 per retiree, that's shorthand for implying that the system is hopelessly broken.

And that is not true.

Japan was up 1.66 overnight and most of Europe is on Holiday. The futures are indicating a higher opening. We are cash and comfortable.

17 April 2003

7:31am and Asia ended lower for the day. Treasuries are rallying as jobless claims rose 30,000 in the 4/12 week to 442,000. Continuing claims were up 76,000 to plus 3,574,000. The four week moving average of jobless claims also rose to 424,000.

Manufacturing is the sector losing jobs and manufacturing is the higher paying middle income job. Now those jobs have all gone overseas. Employment is a lagging indicator and not predicative of the future unless you are one of the folks who lost their job.

According to the gurus on CNBC this morning American companies have no pricing power and so the only way to improve profits is to bring down costs by attacking benefits. Thus companies are moving to cut health care cost and benefits, retirement benefits, perks et al. (except for executives) that is a long run recipe for failure. If workers have to pick up these costs themselves then they have less to spend on other goods.

There are money raising benefits almost every week where we live for individuals who have or need operations but don't have health care or their insurance won't cover some and/or all of the health procedure. Since most folks up here live paycheck to paycheck they can't afford the cost of insurance or the companies and local governments they work for only pay part of reduced health benefits. And none of the companies and governments have retirement plans to speak of. Twenty years ago everyone had affordable complete health care through their local dairy coops. But the farms are gone and so is the affordable insurance. Most folks just hope to make it to 66 and Medicare. Aside from the social and moral aspects, the economic crunch this downsizing in health care services is causing is affecting folks all over the country and is, we believe, a major negative for the economy going forward.

8:49am and stocks are lower in desultory trading.

Today we learned that the IRS has hired 600 new agents to "assist" low income families to properly claim the earned income tax credit to make sure that only those entitled to the credit receive it. Three times as many earned income tax credit filers are audited as other filers.

9:30am and we purchased addition XLK at $14.97 in accounts where we sold Cisco yesterday. If we really believe the XLK is going to $15.30 this will be a good trade. And we are taking a flyer on Sun Micro at $3.18 in aggressive trading accounts. SUNW had lousy earnings and sales for the 12th quarter in a row and is currently priced at one times sales and cash on hand exceeds debt.

We believe we are in a trading range with a bottom of 8000 and top of 8700 on the DJIA at least thru the end of May. And so we are trying to buy stocks at the bottom and sell at the top. We are looking for five per cent or more moves in the stocks we buy.

12:31pm and the DJIA is up 60 points. We are going to sell our DIA trade of yesterday at $83.30 if we can for a scratch profit. We have put that money to work in more XLK and Sun today and want to keep a cash position.

Treasuries closed early today and gave up their gains to close lower on the day in price, higher in yield.

12:53pm and we were too cute with the DIA sale and missed it as the DIA price backed off on us. So we have pulled the offer at $83.30 because we think we'll get more if the DJIA resumes its rally and if the rally fades we'll just hold till next week.

1:46pm and the DJIA is up 50 points. We sold the XLK we purchased last week. We realized $15.15 net for a nice gain of about 50 cents per share. Since we are buying in size and hitting for singles we like this kind of trade. If we get another pop into the close we are going to sell the XLK we purchased today

1:52pm and as we head into the final hour the DJIA is doing its daily fade. We'll see if the bulls can muster some strength in the final hour.

2:02pm and half a loaf, etc., and so we sold our DIA at $83.25 for a scratch.

2:39pm and we sold the XLK we purchased today at $15.18 for a net 20 cents per share 3 hour profit. That's what we call a squeeze play profit.

3:02pm and the DJIA closed up 81 points at 8338. The S&P 500 moved back above its 200 day moving average to close higher by 14 points at 893. And the NASDAQ rose 30 points to end the week at 1425.

For the year the DJIA is flat, the S&P 500 is up 1.6% and the NASDAQ is up 6.7%. The Model Portfolio is up 10% at $506,350 and is 98% cash with 3000 shares of SUNW as the only holding. And tomorrow all the financial markets are closed but banks are open. And it is also another day

17 April 2003 - Morning Comment

7:19am and the WSJ is reporting an investigation into front running by specialists on the NYSE. It's about time. While the NYSE is the best for market executions compared to the NASDAQ, we ourselves have seen what looked like execution of orders ahead of our orders when we thought we were entitled many times. In the old days twenty years ago when volume was much less, the old rules of priority and size prevented too much front running. But now with the speed of the markets, the volume, the electronic communication networks, and the more lax atmosphere of anything goes, front running is a good subject to address. The same goes for executions on the NASDAQ but there the ECNs have leveled the field somewhat.

The futures are indicating a slightly higher opening and Europe is higher today. We are going to continue to trade the DIA and may buy lower in more accounts and are ready to let the XLK go above $15.30 and buy more under $14.50.

Today will be a Holiday session with light activity outside the necessary double witching volume.

16 April 2003

8:04am and North Korea has agreed to enter into talks with China and the U.S. This is good news for the whole world and hopefully real progress can be made. A real solution would remove a great uncertainty from the area and have a correspondingly positive if subtle effect on the stock markets as one less worry.

Bush says he will continue to push for the $550 billion tax cut although gurus think the actual cut will be nearer $350 billion. That is the best of both worlds for Bush politically since he can either/or the effects of the reduced tax cuts depending on how the economy is doing running into election. The Republicans have again painted the Dems into a corner where the Dems are the losers.

8:13am and batman is supposed to come today to find the nesting place of the little critters. We think we know where it is but the location is much too high off the ground for us to risk life and limb to climb to. As of last night there were only 8, and the now cold weather should keep their friends away for the next week or so. The only problem is when it gets as cold as it now is the mammals tend to stay home at night and we can't lock them out.

Well, our well was completed yesterday with no further problems and our water is again running well.

8:39am and stocks are higher. The Chicago Tribune is reporting that ad lineage is picking up. Our take on the economy is that before the economy can come out of the woods a retrenchment in housing prices is in order. It would be constructive for all the excesses of the past few years to be corrected for a solid base for expansion to occur.

9:25am and the terror threat has been lowered from orange to yellow. The DJIA sold off to a negative 30 points but is now in positive territory. Tech stocks have been the leaders today with the NASDAQ up almost 2%. We think some shorts are covering.

9:58am and the DJIA is swinging with it now down 70 points. This week is a double witching week and all the markets are closed for Good Friday. Over the last several days we have been picking up a bit of Kyocera slowly around the $48 to $49 level. Book value on the shares is $40 and it is a tech company selling at 1x sales. Also the Japanese markets are at a twenty year low. We plan on adding KYO and Sony to accounts as long term investments over the next few months as a means of participating in the Japanese market. We are waiting for Sony's earnings to be announced on April 24 before initiating buying.

12:10pm and we used the run up in tech stocks to sell our Cisco holdings at $13.78. For some the sale was a scratch 20 cents per share profit and for some the sale was a 65 cents per share one week trade. Singles are what we want; this was in the nature of a bunt single. Since we own CSCO through the XLK we are allowing the XLK to run for now but if it hits $15.30 today on a late day rally we'll let it go too.

1:19pm and the DJIA is down 120 points. We bought DIA in our large trading accounts where we have been trading it. We will day trade if the markets move back to even, but we plan on holding over night if not.

1:52pm and the DJIA is down 135 points. Where oh where has the rally gone? We sold our long term buy in Ionics after 3 days for a 60 cents per share gain in the few accounts that owned it. We'll have a chance to buy it again lower. Our DIA trade isn't looking too great right now but the final hour is ahead and hope springs eternal in the hearts and minds of all Kickapoogians. A Kickapoogian is a person who inhabits the lands of the rolling river known as the Kickapoo here in God's country.

2.09pm and Reuters is reporting that a giant turtle has been freed from a sorcerer's home in Ghana. The Ghana navy returned the turtle to the sea after it had spent weeks in the sorcerer's captivity.

3:02pm and we kept the DIA because that was our intention upon entering the trade. At the close the DJIA was down 148 points at 8255. The S&P 500 closed right below its 200 day moving average at 879.88 and the NASDAQ outperformed up 4 points at 1395. All in all we had a positive day in most accounts on a big down day for the markets.

Tonight Passover begins so trading may be muted tomorrow except for volume crated by double witching since all markets are closed Friday.

And tomorrow is another day.

16 April 2003 - Morning Comment

7:27am and CNBC is interviewing the governor of the State of Arkansas about their plans for Homeland Security. Arkansas?

The stock markets liked MSFT earnings and sales report, or rather they didn't hate it and so the share price is up a dollar in early trading. Intel is higher as are other techs and that will punch the XLK over $15 in early trading and is giving a bit of a boost to Cisco.

Stock futures are higher, crude oil is stable. March CPI came in at up 0.3% with the core rate unchanged. Traders would actually like a bit more inflation in the core rate to show pricing power for companies. Housing starts were up 8.3% to 1.78 million. Building permits slipped 7% in March.

Today we'll be up early then...?

15 April 2003

7:34am and with tax day upon us the media is filled with commentary on the advantages of a cut in income tax rates. With the war in Iraq over and the war with Syria not scheduled to begin until next February in time for election season, President Bush is going to spend the next month selling his tax package to America. Our thoughts on the tax package have been offered ad nauseum on these pages. But for our new readers we reiterate our belief that the tax package as currently proposed is garbage. And our belief that the current proposal will not jump start the economy is the reason we are holding most of invest able assets in cash equivalents.

One constantly repeated mantra is that Reagan's 1980 tax cuts increased tax receipts although the Democrats obscured the increase by running up budget deficits by over spending. As we remember, Reagan signed all the tax and spending bills presented to him and reversed part of the 1982 tax cuts in 1984.

But, more importantly, while cutting the top tax rate substantially to 28% at one point, Reagan and the Republicans and Democrats passed the largest continuing tax increase in history when they voted to increase the FICA tax, to have the income tax apply to the FICA tax, and to make the FICA tax base and rate a continuously increasing figure. Whereas back in the early 1980s the FICA tax was a combined (company/employee) less than 10% tax it now exceeds 15% when the Medicare premium is added. And the base of earnings has expanded from under $30,000 to over $70,000 and is still rising. The FICA tax increase is one that neither party blames on the other because it was a bipartisan commission that created this tax. And no one is going to suggest dismantling it because it is what keeps social security solvent. And the FICA only applies to folks who have to get up in the morning, drive or ride to work, listen to boobs tell them what to do and risk losing their jobs on a whim. The FICA tax does not apply to those hard pressed individuals whose total income is derived from dividends and interest arising from inheritance and who spend their days trying to decide where and when to play golf and with whom to lunch and dine.

7:50am and the Europe is up over 1% across the board as was Asia. U.S. Futures have turned negative so the markets may be down before they journey higher later today.

8:21am and to conclude our adventures of yesterday we are pleased to report that our well was successfully replaced and that the pipe to nowhere went nowhere. Unfortunately the well pipe is supposed to stick up a foot above ground and the well pipe the workers brought was about two feet short so they are to return today to finish the job. We are to supply old towels to wrap the well head as the two foot piece is welded onto the main piece so that the wires to the three hundred foot deep submersible pump don't melt. And so you see our concern that today goes well also.

We had some trout fishermen here for the weekend. Long time readers will remember that the trout fisherman are the folks who catch 15 or 20 fish a day but throw them all back and eat hamburgers and donuts for dinner. Anyway, one of the fishermen noticed a large raccoon eating sunflower seeds by the barn early one morning. We have a rule posted that wild critters can visit at night but cannot inhabit any building on the homestead. And so yesterday as we were testing the water pressure in the barn, which was a little low for our taste, our fearless 15 pound wire haired fox terrier, Pooper, cornered a 25 pound raccoon in the hay mow. After fetching the shotgun from the office where we keep it to fend off Al Qeda terrorists who might want to capture clients' data drives, we explained to the raccoon that he either had to leave the premises or it was raccoon heaven. With a little prodding from a very long stick we were able to get him out of the barn and moseying out of the barnyard when some cows spooked him and he made a run for the doorway of the barn. But, he had crossed the line of no return and when he growled at us and bared his teeth we took that as an unfriendly sign and off he went to raccoon heaven. We are non hunters and also lousy shooters since we tend to close our eyes when we squeeze the trigger. But the use of a shotgun mitigates much of our ineptness and the nearness of the prey also helped. There was a metal gate between us and the raccoon and we did hear some pings from shot bouncing off the gate so we consider ourselves lucky that we didn't shoot ourselves also, as we almost did once before when trying to butcher a goat. But that is another story for another time.

8:38am and the stock markets have opened lower in light trading. It looks like the markets are awaiting MSFT earnings tonight. The down early and up late will be a bullish change from the recent pattern of up early and no follow through.

8:52am and oil is in oversupply and prices should come down. That is a real positive stimulus for the economy because the lower costs proportionally benefit lower income folks who spend all their money.

12:29pm and with the well men here and the markets boring us we haven't had much to write. So far there has been no rally and so this is about the 100th day in a row on which we have been in error in our Morning Comment suggestion of the day's market action. Guess that is why we have been hugging cash.

1:07pm and the weather is too nice and the markets too dull and so we are going bike riding today before the weather changes. As we leave the DJIA is down 15 points. Breadth is positive on the NYSE and slightly negative on the NASDAQ. It looks like our guess of yesterday of a quiet day preceding MSFT earnings today is going to occur.

And tomorrow is another day.

15 April 2003 - Morning Comment

7:18am and we are a little late this morning because we are again on bat patrol. Yes, the little critters love our house so much that upon return from winter vacation in the south of Kentucky they have again chosen to establish residence in our friendly attic. They didn't seem to notice that our favorite painter has spent the last two weeks recaulking every nook and cranny in the big house. We also had hung a very nice modern bat house on the barn in the hopes that any returnees would find the new quarters more delightful than a musty attic. Unfortunately the ever present sparrows took over the bat house and within days had so filled it with straw and such that no self respecting bats would set wing within the place.

Our first thought was to call VP Cheney in his bat cave in places unknown to find out how he would handle the bat problem. But then images from Cent Com briefings of bunker buster bombs destroying Saddam's palaces crossed our thoughts. We know the bunker busters would take care of the bat problem but we considered that solution a bit too extreme, at least initially. And so we have a call into the batman in LaCrosse who we hope will show up before the dear things have babies in the next month at which time we by law can't do anything till August. There is a very narrow window as with the rumble in the desert to take action.

Now that we have shared our most important problem we offer our take on the markets. We think we will have a rally today into MSFT earnings and we may move all to cash if the rally is strong enough for us to exit our two remaining trading holdings with a nice short term profit. Remember we hit singles not home runs.

14 April 2003

7:15am and all the oil wells are under control in Iraq and the world is once again safe for shipping oil.

8:35am and the DJIA is up 40 points without much conviction. IBM earnings come tonight and with MSFT earnings tomorrow we don't think much is on the card for today

10:10am and today our Diamond Club plumber is pulling our well and replacing our outside pressure tank with an inside one. We just cut a water line that we think goes nowhere but we won't know until we fill the hole back in and replace the well pipe. Talk about pressure?

The DJIA is up about 50 points and trading is light.

10:49am and we were thinking that last month we sold Cisco the day before it issued guidance and the stock jumped $2 on that guidance. We are in a quandary about whether to sell Cisco before tomorrow's earnings.

On that same note we are going to exit SBC today or soon because we don't want to own it for its earnings announcement on April 24. With soon to be MCI emerging from bankruptcy with little debt and the ability to cut prices to gain subscribers we buy the argument that SBC will have more problems than it already has. We have had fun trading it but we think we'll let some time pass before reentry.

11:08am and we have decided to keep the Cisco and sell the SBC. Cisco is still the leader in its field and the NASDAQ has outperformed the DJIA this year. We think that NASDAQ out performance will continue over the next month because the short term traders who dominate this market are still interested in the tech area. The competition in the telephone area creates too much uncertainty for traders. Sometimes we don't realize our desire not to own a stock until after we take a position in that stock.

New highs are not expanding and we take that as a negative sign. We think there will be a tech pop this week and we hope to sell CSCO and XLK into that rally.

11:23am and we are adding small amounts of Kyocera, the Japanese ceramic company to larger accounts. We have been trading/investing in this stock over the years and it is near a ten year low. When the Japanese market rallies KYO tends to run to the mid $50 range and it makes a nice trade. The Japanese market has been making new lows since year end March 31 and we think it is due for a dead cat bounce.

The DJIA is up 108 points and we will be surprised if it hold the gains for the day. Volume is very low. We picked up a bit more Ionics at $16.05 today.

11:33am and the ten-year Treasury is up five basis points in yield. The short end is also higher as the bond markets begin to focus on the domestic scene.

12:12pm and we were mistaken about Cisco earnings being announced tomorrow. That was their earnings report in early February that caused the stock to pop. Next report is early May. They are having a conference call tomorrow for other reasons. Actually we thought it strange that CSCO and MSFT would announce on the same day. Anyway May earnings are far enough off to hold CSCO for a pop this week.

2:01pm and entering the final hour the DJIA remains up 100 points. We sold SBC at $20.98 for a scratch profit.

The ten-year Treasury is now up to a 4.02% yield. Today Merrill Lynch recommended committing 10% of cash to bonds.

3:02pm and at the close breadth was 7/3 positive but volume was light and with the DJIA rising 148 points to end at 8351 new highs were less than 100 on the NYSE. The S&P 500 gained 17 points to finish at 885 and the NADAQ rose 26 points closing at 1385.

And tomorrow is another day.

14 April 2003 - Morning Comment

7:07am and the war is winding down and some rapprochement with North Korea was offered as a possibility by Bush yesterday. Since our handicapping of the passage of the tax bill in the Senate was way off, we are not going to try and handicap the Korean situation. But the positive news from Iraq of the release of the 7 POWs plus the Korean possibilities has the stock markets in a better mood this morning.

Europe is higher and the stock futures are indicating a slightly higher opening. Microsoft and Cisco earnings come tomorrow and will be the focus of early week trading although all the gurus say tech doesn't matter any more.

We are in a watching mood and will use any rise in our three trading stocks to lighten up. With the war over earnings and the economy become the focus; and the Bush Administration has much less control over either of those two.

11 April 2003

6:50am and we are trying to ascertain whether the tax and spending bill passed by the House last night includes dividend exemption. We haven't been able to find any definitive statements in the press reports but we will keep looking. If it does we may reenter the SPDR Utilities.

7:32am and retail sales were up 2.1% in March which was well above expectations. The PPI was up 1.5% and core PPI was up 0.7%. That's inflationary and as a result Treasuries are selling off with the ten-year yield rising to over 4%. Stock futures are rallying and Europe is also moving higher. The stock markets want inflation so prices can go up. What goes around comes around.

7:41am and it is mind boggling that the WSJ and the Washington Post websites are carrying stories on the tax package passed by the House last night that are written by the A.P. and not their own reporters. And the New York Times story is by Reuters. Coupled with the consolidation of the networks and cable and radio and now satellite, independent news sources are becoming passé

9:26am and the DJIA opened strongly and ran up over 100 points before backing off. The Michigan Consumer Confidence number came in at 83, which was above expectations. The DJIA and S&P 500 retreated this morning after touching their 200 day moving averages. A strong close would save the week.

12:01pm and everyone must be watching Tiger go for his third Masters title in a row. Paint drying would be more exciting. We repurchased SBC at $20.80 in accounts where we sold it last week at $22.40. We are just trying to scratch our way to a profitable year without assuming too much risk. We purchased 700 shares of SBC in the Model Portfolio.

12:24pm and the DJIA is down 20 points.

12:44pm and we were just reading a story on www.realmoney.com about Disney 2.125% debentures due 2023 and convertible at $29 per share. $1.1 billion were sold to suckers in 2001. Those were the days. Citigroup and JP Morgan were the lead underwriters. Luckily for the debenture holders the debentures may be put to the company in 2008. Until then good luck and thank you JP Morgan.

1:27pm and after slumping about 40 points the DJIA has crawled back to down 15. Volume is light. The lousy weather in the East and the beautiful weather in the Midwest may have something to do with the volume. Also neither bull nor bear has been able to catch a trend this week and so maybe folks are wrapping up early.

2:28pm and CNBC is reporting that Republican Senator Grassley says he won't back a tax cut above the $350 billion figure. If that report is true his vote will probably secure Republican Senator Collins of Maine's vote against a larger tax cut and cause the $350 billion cut to pass without a dividend provision in the Senate.

Microsoft and Cisco earnings come Tuesday night and the stock markets reaction to their earnings will set a tone. Until then we presume stocks will flounder.

3:02pm and the DJIA couldn't make it back to positive territory closing down 18 points at 8203. The S&P 500 closed down 3 points at 868 and the NASDAQ dropped 7 points to end at 1358.

For the year the DJIA is down 1.5%, the S&P 500 is off 1% and the NASDAQ is up 2.3%.

The Model Portfolio is up 9.3% and is 85% cash.

And tomorrow is another day.

11 April 2003 - Morning Comment

6:38am and maybe God is a Woman. How else to explain the rainout of the first round of The Masters Golf Tournament where the brouhaha about women membership has equaled the anticipation that Tiger will win his fourth in a row.

Japan closed 2% lower this morning while Europe is higher. The war is in a mop up phase and so its effect will be minimal. The stock markets reaction has been muted to war's end and is not at all like the 1991 reaction if memory serves us well. That non-connect may have to do with the fact that the peace in this instance is going to be as important as the war.

We perceive a desire in the markets for stocks to move higher given the fact that they are having a hard time rolling over. GE is out with in line earnings but lower sales by 1%. That tells the story of many stocks this quarter and is the brake on any breakout rally.

Stock futures are suggesting a slightly higher opening.

10 April 2003

7:53am and Fox Entertainment's bid of $6.6 billion for all of GM's holding of Direct TV and a small portion (14%) of the public's holding was approved. This take under is classic Murdoch and we are happy not to be in the stock now. All our trades in GMH over the years were profitable. Murdoch has only an interest in Murdoch and other shareholders are nuts to own a company he controls. He'll never buy the rest of the public shares

8:51am and we sold our trading position in MAY for $20 and a net 30 cents per share loss and in BP at $38.55 for a net 40 cents per share loss. We are going to add to our Cisco holdings in accounts that don't own it if it trades under $13. The gurus are saying that the stock markets are still overbought from the war rally and that the 850 level on the S&P 500 is the current line in the sand for any sell off retrenchment. If the S&P moves below that line trouble lies ahead.

We've posted the updated Model portfolio to reflect the XLK and CSCO buys of yesterday.

9:35am and the stock markets are seeping lower. Maybe our hope of one more rally is misplaced but we'll hang with the few shares we own for a while. As usual, we are going to try and day trade SBC but haven't found an entry point yet. And we'll probably buy the DIA down 100 points if they get there. We don't think the rollover to lower prices is going to happen that fast. We don't have much money at risk if it does.

11:56am and we paid $12.98 for the Cisco and bought SBC at $20.85 in our trading accounts. The DJIA has been trying to move higher for the past hour but doesn't seem able to get up a head of steam. It's slow and boring again today. There isn't much reason for stocks to do much since earnings are lousy and the economy is stagnant. Treasuries are weaker.

1:24pm and we were doing some reading when we noticed that the CEO of Ionics Arthur Goldstein had resigned and been replaced by Douglas Brown. Goldstein had been CEO of Ionics for the last 32 years. Brown had been with Ionics in the early 1980s and at the time of his election he was Chairman the Ionics' audit committee. The interesting fact is that Brown has not been an operating person for 20 years. For the last 20 years he has been President of Advent International which is a private equity investment firm with over $6 billion in investment assets according to its website.

For the past few years we have felt that Ionics was an attractive take over candidate. It is the only major water purification play that is an independent company. The entire Company with sales of $300 million is selling for $300 million. Since half of that value is cash the net price on the company is a bit over $150million, or one half sales. Book value is $24 per share. ION has no debt and net quick assets exceeding $8 per share. ION currently is selling a bit above $16 per share and net of cash is priced at $8 per share or 4 times cash flow and 12 times depressed earnings. It is truly a takeover candidate and the installation of a non operating CEO suggests that the company may be for sale. We've been trading around the stock for the past four years because we haven't wanted to own any stocks as longer investments. But we are going to establish an investment position around this level if we can.

2:04pm and VP Cheney, the chicken hawk who disparages retired generals who fought in Viet Nam but disagree with him on war tactics, is out of the bat cave and pronouncing that Iraq needs foreign help getting its oil production up to 3 million barrels a day. Can anyone say no bid contracts for Halliburton?

2:09pm and entering the final hour the DJIA has been trying weakly for the past few hours to mount a rally but just can't get one going. Yesterday a late day sell program caused stocks to sell off in the last fifteen minutes of trading. We'll see if that pattern returns today. Maybe whoever executed the sell program yesterday will reverse it today. Stranger things have happened.

3:02 pm and what goes around comes around. WorldCom is going to change its name to MCI. Too bad all the long time MCI shareholders were wiped out by WorldCom management.

We sold our SBC trade in most accounts at $21.10 for a net 20 cents per share gain.

The DJIA closed up 23 points at 8221. The S&P 500 gained 6 points to end at 871 and the NASDAQ was up 9 points at 1366.

And tomorrow is another day.

10 April 2003 - Morning Comment

7:27am and the stock futures are suggesting a mixed opening. The war is history now and traders are going to be looking for other signposts on which to churn and earn.

Asia was lower and Europe is mixed.

We made a small bet on the tech sector in many accounts yesterday and we are going to leave it at that for now. We are trying to increase values this year by making small bets and keeping large cash reserves. So far it that strategy has worked and we hope it keeps working. The big news this morning is initial claims for unemployment compensation.

Jobless claims were down 38,000 to 405,000 which was better than expected and continuing claims dropped 60,000. Treasuries are a bit weaker and stock futures are a bit higher.

9 April 2003

7:33am and in reading the stories coming from Iraq the old refrain, "Be careful what you wish for", is running through our minds. The war, for practical purposes, is over and now the task of securing a country is ahead. The American army can do that for as long as it remains. But as with Afghanistan we have no illusions that the American stay will be long. The American attention span is short and Rummy and the gang is interested in taking on Syria next. And as long as the troops are there only bad things can happen from now on as the euphoria wears off. We don't mean the soldiers will do bad things, we mean that terrorist attacks may occur against the soldiers.

The eventual outcome of the war was never in doubt and there will be a modified peace in Iraq, but with the war finished we are absolutely sure that the American people will have no continuing interest in Iraq after the troops come home.

And so the control of oil in Iraq becomes the new concern. We know the Americans don't want the revenues but we are just as certain that the American government does want the flow to resume and increase as a way of bringing down the price of oil and providing the war dividend the U.S. economy needs. And the economy will get and benefit from that dividend. And some American oil companies will surely benefit from contracts in Iraq. But it has always been so, thus the time worn phrase about victors and spoils. The news media is in anguish over who will control the oil. We don't know why. The victors will control it as victors have from time immemorial. That is what colonization has always been and is all about.

And the drop in oil prices should have a salutary if temporary effect for the average consumer and also the airlines. Unfortunately, no one wants to fly right now. And the tax cut is hanging out there which is going to increase the deficit and yet have no immediate salutatory effect on the economy. But we say get on with it and let's see who is right. And so investors have to hope that the gas price drop will stimulate investment and spending and offset the negative effects of huge government deficits. We don't think so.

7:55am and what strikes us about the pictures from Baghdad being shown on TV is what a beautiful city it is. We are glad that Saddam is gone yet we wonder what the means used to depose him implies for the world. And who is next and when. Is this success like eating chocolate and do the Bushies really believe that they can rid the world of nuclear weapons by war? If so, the next stop would be North Korea, although Syria would be easier and Iran is closer but not as easy. Of course no nuclear and other weapons have been found yet in Iraq but we know that is "picky, picky". Saddam was a bad guy and The Cowboy who rides SUVs in his White Hat at his Western White House has whipped him.

8:35am and the pictures from Baghdad are having a better effect on stocks than the talking heads and it looks like we are going to get our taking Baghdad rally this morning. The stock futures are now higher. And Europe has also reversed and moved higher. So today will be the test of the rally on wars' end thesis as Monday was not. That's because from the pictures it is obvious that U.S. forces control Baghdad and that Saddam isn't coming back. We actually think we could have a pretty good rally. It's amazing the effect positive pictures can have on the psyche.

8:42am and we are back in CSCO at $13.38 and XLK at $14.65 for our larger and trading accounts. We also added British Petroleum at $38.80 and SBC at $21.41 and May Department Stores at $21.20 to a few large accounts for trades. All three stocks have 4% plus dividends which give support. We are day trading the SBC.

9:05am and V.P.Cheney has emerged from his hidden bat cave to rave about the wonders of modern warfare. His emergence means the war is officially over and the stock markets are rallying on his news. As we have said for the past few months we opposed the war but we also know the power of images and we think the pictures from Baghdad while not on a par with the fall of the Berlin Wall are very powerful. That's because the rule of Saddam has been a thorn for 13 years in the side of Republicans who trafficked with him in the 1980s and now they have exorcised that thorn from the American psyche in spectacular style. In victory, might makes right.

10:15am and the DJIA has stalled at up 46 points. We think there will be a pick up in the rally later today. The signs of normalcy on the Iraqi streets continue to please.

12:11pm and no sooner had we said rally then a sell program took the DJIA to minus 60 points.

Companies are using this time period to come to market with bonds at low yields that will not be seen again for years to come. And the buyers will not see the principle they are investing until maturity. For example, Park Place Entertainment sold $300 million of ten year bonds at a 7% yield. The buyers were probably income funds looking for high yields to entice investors to their lair.

The Model Portfolio now owns 3000 XLK and 1000 Cisco. Although tech stocks have been under pressure the last week we still think trading rallies will be led by techs.

1:52pm and entering the final hour of trading the DJIA is off 61 points. Hopefully we'll get a small rally in the last hour to rescue our SBC trade. The other purchases were made with the idea of holding for at least a few days.

2:33pm and CNBC is announcing that the purchase of GMH Direct TV by the "alien" also know as Rupert Murdoch is to be announced after the close. We are glad that our systems out here in the country are provided by Dish Network.

3:02pm and stocks zagged at the end when we thought they were going to zig. We sold half our SBC position for a scratch profit but we still hold half at a small loss.

The DJIA dropped in the last 15 minutes of trading to end the day down 101 points at 8198. The S&P 500 lost 12 points to finish at 866 and the NASDAQ was off 27 points at 1357.

And tomorrow is another day.

9 April 2003 - Morning Comment

7:06am and as with many events in life the anticipation of the end of the war with Iraq was much more exciting for the stock markets than the reality. For the reality of the end means the expense and time involved in securing a future for the folks left there. And that's not a job we would want.

The media mavens have now moved on to SARS and earnings as the next market movers. Earnings will be punk and SARS is still an unknown. In the early going the stock futures are slightly lower and bored. The stock markets are an anticipating mechanism and so earnings six months out are more important than current earnings.

We are in a watching mode and we believe that the housing bubble has yet to burst. So we are looking for trading opportunities but have no inclination to become investors.

8 April 2003

9:15am and stocks opened weaker in light trading. The DJIA is down 11 points and the other indexes and averages are off similar small percentages. Where to from here is the question of the day? And we don't have the answer. So we are going to watch.

11:46am and after a trip to the post office to send Uncle Sam his due, we are back watching the stock markets mark time. Breadth is negative 4/3 and down volume exceeds up volume 2/1. Trading is light. Every time "Saddam is dead" crosses the news tape the stocks attempt a rally.

The gurus suggest that because the sell off of yesterday afternoon has not expanded that stocks are showing signs of wanting to move higher. We are agnostic on the subject at the present but we will continue to look for trading opportunities.

1:59pm and as we enter the final hour of trading all we can say is "borrrrrrrrrrrrrring". The DJIA is down 10 points and volume is light. With the war news not moving the markets, stocks need a new catalyst.

Is he or isn't he? If one drops a bunker buster bomb on a person, we don't know how one can determine whether that person is dead. A 60 foot hole in the ground is all that is left, plus collateral damage, i.e., dead human beings who were minding their own business. As The Onion opined in its war issue, those dead folks would have loved freedom from Saddam if only they could have lived to enjoy it.

Osama is back on tape again. He's a bit like the North Koreans; he seems to get jealous when he's not the center of attention.

Europe closed 1% to 2% lower except the U.S. war ally Italy which gained a small percentage. Treasuries were a bit firmer on the long end at the close.

Since we think most if not all of the "we won the war" rally is in the stock markets, there is the danger of an untoward incident scaring folks. That's one reason we are in cash.

We've updated the Model Portfolio page as of April 8, 2003, to reflect our all cash position. The value of the Model is $504,503 which is up 9.6% for the year. The S&P 500 is unchanged for the year.

3:02pm and The DJIA closed unchanged at 8300. The S&P 500 lost 2 points to end at 878 and the NASDAQ lost 6 points to end at 1383.

And tomorrow is another day except for those Iraqis who became collateral damage today.

8 April 2003 - Morning Comment

7:27am and with the snow and time change and grandchildren visiting and late basketball game we are a little late to work this morning. Happily, Kathy has returned from vacation and so all is right in our little world although the larger world is another story.

Early reports today say that Saddam and his two sons Satan 1, and Satan 2, were killed by bombs overnight. Since the world won't know for a couple of days whether that is true by the time it is known we would guess that the worrywarts would be on to other events. As we turned on CNBC this morning the topic of conversation was about when and how the troops would be coming home. So much for attention spans.

The failure to close above the 200 day moving averages yesterday sets up a test of the trading range and also a test of the strength of the war rally. We are not believers and that is why most accounts are all safely in cash for further developments.

7 April 2003

7:27am and the ten-year Treasury is up 10 basis points in price this morning to 4.05% which corresponds to almost a 1 point or 1% droop in value. Now that the flight to quality is over interest rates will move higher to reflect the reality of higher deficits.

8:54am and the stock markets have opened strongly higher on good volume. The DJIA is up 227 points, the S&P 500 is up 24 points and the NASDAQ has risen 44 points to 1428.

We are trying to sell our remaining position in ION at $16.80. We are inclined to move to all cash and we are trying to use this major rally to sell the one position we still own. Our strategy is to watch and wait at this point and see how far the rally goes. Breadth is 5/1 positive and up volume is 20 times down volume in the early going. New highs do not exceed 100 on either the NYSE or the NASDAQ.

9:33am and the DJIA opened up 220 points and is stuck around that level. The stock markets are now back to where they were before the serious war talk began. Buying is being met by selling at these higher levels and in a few days the war will be old news, unless something untoward happens. And so we think that after today the war rally will be in the markets.

10:53am and we sold the Ionics and are now all cash in most accounts including the Model Portfolio.

11:09am and a bit of a pullback is occurring but is more in the nature of a consolidation than a sell off. Breadth is now 3/1 positive and up versus down volume is 8/1. New highs exceed 100 on the NASDAQ but are still under 100 on the NYSE.

1:07pm and the war is going well since Rummy and the General Myers are giving the daily briefing. The DJIA is up 171 points, breadth remains 3/1 positive and up over down volume is 5/1. Trading activity has slowed just a bit and the question is whether the bulls have pulled in their horns or are just waiting for a bit more of a pullback. We are seeing prices on stocks that we saw last January and we weren't moved to buy them then and we aren't now.

We've been catching up on our naptime with the hour change and in preparation for the NCAA finals tonight. The grandchildren stayed for the week and so we'll be running out right at the close to fetch the horses. Luckily for us their father Dave is here for the week and so we won't have to be pulling them in the snow. 60 degrees by Saturday is our watchword for today as the snow continues to fall and blow. This is the first and hopefully last snow of the year. April snowstorms are much more tolerable than November snowstorms.

1:48pm and so now the question is whether all the good news is in the market. The Americans have won the war, which is no surprise. Now do economic considerations both in Iraq and the U.S. move to the front?

Entering the last hour of trading the DJIA remains off its highs but still up 140 points on the day.

3:02pm and the stock markets gave up much of their early gains. Both the DJIA and S&P 500 closed slightly below their 200 day moving averages after being well above them at the opening. The DJIA closed up 22 points at 8299. The S&P 500 gained 1 point to finish at 880 and the NASDAQ rose 8 points ending at 1390.

And tomorrow is another day.

7 April 2003 - Morning Comment

6:52am and in the midst of an April snow storm stock futures are suggesting the major rally on the success of the War in Iraq. Thankfully it looks like and end to the killing is at hand for the American forces and the Iraqis.

The NASDAQ is up 4% and DJIA and S&P 500 are both up 2%. The question now is how long the celebration lasts before reality sets in. Our guess and actions have suggested that we don't think it will last for any length of time.

And so we say congratulations to the generals and soldiers. It was obvious that they tried to avoid civilian casualties even at risk to their own lives. Hopefully the peace will go as well as the war.

4 April 2003

6:47am and in 45 minutes we get non farm payrolls, and average hourly earnings. That should set the tone for today's trading aside from the ever changing war news.

7:32am and non farm payrolls in March dropped 108,000. Average hourly earnings increased 2 cents. February job loss was increased by 45,000. The unemployment rate was unchanged at 5.8%. Treasury prices are lower even with that lousy data and stock market futures are higher. The guru on CNBC says that because the job losses were in the government sector that the markets are taking that as a positive.

8:51am and the DJIA is 52 points higher without much enthusiasm. Software stocks are under pressure as a number of them preannounced last night after the close. That's not a help to our selling our Cerner holdings but we are working on the sale right now.

10:09am and we completed sale of our Cerner at $17.49. And so we lost between 70 cents and 90 cents per share on the trade. A bad trade every once in a while keeps us humble, as long as it is not too often. We also sold our AOL holdings at $11.27 for a 20 cents per share profit. The only stock we hold now is Ionics which we can only sell by appointment.

The NASDAQ is off 1% while the DJIA is up 10 points. The sell off in software stocks is what has the NASDAQ down.

10:39am and now the CNER is above our cost price. Just goes to show that we shouldn't buy falling knives, because for every one we catch correctly we wind up grabbing one by the blade.

It's interesting to observe that many of the stocks we traded on this recent market foray are higher than when we sold them. We would remind of what the "old stockbroker" used to say that, "it's nice to see the folks who buy the stocks we sell make a little money, because we want them around the next time we go to sell". We make the easy dollars, they make the harder ones.

If the stock markets turn down here the DJIA will continue its pattern of the last three years of making lower highs. A new twist is that since last July, the DJIA has been making higher lows and so as we narrow the trading range in an elongated pennant formation a breakout to the upside or downside is going to occur soon.

11:49am and breadth is positive on the NYSE and negative on the NASDAQ. Volume is light. The "is Saddam alive?" game is being played over and over on the cable stations. The war seems to be moving to its own inevitable conclusion.

12:31pm and just for fun we list below the best paid CEOs for 2002 as reported today by Reuters and the amount of market value lost by each company in 2002.

  1. Steven Jobs, Apple Computer, $116 million, AAPL lost $3 billion in market value.
  2. D. Koslowski, Tyco International, $73 million, TYC lost $40 billion in market value.
  3. David Cote, Honeywell Int'l, $65 million, HON lost $22 billion in market value.
  4. Edward Breen, new CEO Tyco Int'l, $62 million, he came from Motorola which has tanked since he left.
You get the idea. Welfare Capitalism rewards the CEOs no matter what happens and fires the workers.

1:21pm and Ted Turner continues to sell AOL stock. His sales are one of the reasons we are comfortable trading the stock but not owning it. We don't understand why he is selling at these low prices. Could it be that like Lucent and Sun Micro the low teens are still too high?

2:12pm and entering the final hour stocks are mixed and trend less.

3:02pm and the DJIA closed up 32 points at 8275. The S&P 500 gained 3 points to finish at 880 and the NASDAQ lost 12 points to end at 1384.

For the year the DJIA is down 0.9%, the S&P 500 is down 0.1% and the NASDAQ is up 3.6%.

The Model Portfolio is up 9.5% and is 97% cash.

An updated Model Portfolio will be posted by Monday morning. The only stocks we own in The Model Portfolio are 700 shares of Ionics Inc. As Don used to say, "No positions no surprises."

And tomorrow is not just another day. Shalom.

4 April 2003 - Morning Comment

5:52am and on Monday the time will be 6:52am so we are just getting ready for DST. The Asian markets closed higher and the European bourses are also higher as are the stock index futures.

Upon reflection last night we decided we didn't like the way CERN acted into the close and so we are going to try and extricate ourselves from the position early this morning. Most of the other one day falling knives that we have observed and the few we have traded recently have managed to close higher on the day than their opening trades. The fact that CERN dropped through the $18 level where it started trading was unsettling. There is a large short interest in the stock and since it is an OTC stock the shorts may have been piling out into the close. With OTC stocks shorting on down ticks is allowed. And so the sell off at the close could have been caused by short sellers who had waited till the buyers were satiated and not by day traders and margin liquidators. Anyway, since the stock did not perform as we thought it would we are going to follow our discipline, which causes pain at times, and take our losses and move on. Sticking to our discipline is what has allowed us to survive and prosper the last five years.

Our feeling is that the markets will try and close higher today because traders will expect the weekend to be filled with positive war news. Opposed to that scenario is the extended nature of the rally and the rise in bullish sentiment and so it should be an interesting day.

3 April 2003

7:30am an initial claims for unemployment have jumped to 445,000. Treasuries are rallying a bit but stock futures are holding their gains. This jump in job loss fits in with our show me before we buy mood.

There is a lot of talk about SARS, the virus that has felled 2500 people around the world. We don't want to minimize the risks, but the media doesn't seem to be able to get a handle on the disease and it seems as if it is too early to draw any market moving conclusions. The death rate of 4% in known cases may have something to do with medical facilities available and we haven't seen any age or immune compromise data.

7:41am and Reuters headline: Is final push into Baghdad underway. Just yesterday the talk was of two more weeks. Cent COM has announced that a prominent Iraqi cleric has announced a Fatwa that Iraqis should cooperate with U.S. Forces.

8:48am and the up 1% DJIA forecast by the early morning futures failed to materialize and right now the DJIA is down 10 points after being up about 30 points in early trading. We bought Cerner at $18.25 in aggressive trading accounts. The shares are off $13 and book value on the stock is $15. It's an OTC former high flyer and we think a couple of mutual funds are abandoning ship. Once that is over we look to make a few dollars on the stock. Cerner produces software for medical diagnostics and it says its quarterly bookings are down.

Our guess is that this morning's action in many stocks is profit taking and that we'll get a 100 point plus rally to the upside sometime today.

9:44am and after flirting with lower prices, stocks are beginning to edge higher. We would like to let our SPDR Technology holdings go today. Since Ionics trades by appointment only we are selling it piecemeal. We think eventually the stock will go higher but it is not suited to our rapid trading style and it will go lower if the market sells off after the war rally ends. We'll hold AOL since it can be sold in size.

12:21pm and the stock markets remain mired in unchanged territory. We decided to buy Cerner in many more accounts at $18.40 since we look for a rally tomorrow and we think we can make a few points on this trade in the next few days. We sold our SPDR Technology shares at $15.10.

1:41pm and the DJIA has improved a bit and is now up 32 points.

The following URL on MSN Slate has some interesting quotes about war and supporting the President. http://slate.msn.com/?id=27730 Guess it all depends on the President.

3:04pm and about 30 minutes before the close we bought some more CERN at $18.05 in our aggressive trading accounts. The stock then broke $18 and closed at $17.65. We presume the late sell down was occasioned by day traders unloading positions since only about 1.5 million shares traded on the break of $18. The total trade today was over 27 million shares which equals the float. So barring untoward financials, of which we have no inkling or we wouldn't have purchased the stock, we think CERN is putting in a good trading bottom.

The DJIA closed down 47 points at 8238. The S&P 500 lost 5 points to end at 876 and the NASDAQ dropped 2 points finishing at 1395.

And tomorrow is another day closer to the end.

3 April 2003 - Morning Comment

6:48am and Europe and U.S. stock futures are again higher on news that American forces are approaching Baghdad. News reports indicate that the Iraqi forces may be close to collapse. Hopefully those reports are correct.

The DJIA and S&P 500 are both up over 1% this morning. We did a bunch of selling yesterday and will finish selling our holdings today if the stock markets allow. When the war ends the reality of the economy will again rear its ugly head and we don't see any great stimulus lurking in the bushes that is going to get business booming. Much of the continuing economic data is negative and as interest rates rise following the flight from quality, the housing boom may finally come to an end.

We are not doom and gloom. We are just being realistic and in a show us mood. Up early and then stocks meet resistance.

2 April 2003

7:44am and the airline bailout is an example of how quickly government can work to help out large contributors to both political parties while ignoring individuals with much more serious life threatening problems.

Treasuries are often as volatile as stocks. That has been the case recently. This is because every time there is a crisis in the world there is a rush to the safety of Treasuries. But human nature being what it is, folks don't want to settle for safety at 1.5% on the two year and so they go to the five and ten years notes that have higher yields with the idea that they will exit quickly as soon as the crisis is over. But the looming huge deficits have placed permanent upward pressure on interest rates that is only being held in check by the uncertainty of the war and geopolitical events. And so every time a crisis eases there is a rush to the exits. Thus there have been 2% up and down movements in the five-year Treasury three times in the last month. That is a lotta risk.

8:28am and we sold our BGEN holding at $33.50 after they announced better than expected earnings. That's a nice $2 to $3 per share profit in accounts. We were hoping for a mark up at month end but we'll take the profit even with the two day delay.

9:05am and as the stock markets pop higher with the DJIA up 180 points we are doing some more selling. We sold the Cisco we bought yesterday for a 40 cents per share gain. We also sold MAY for a 50 cents per share gain. We sold the Cisco because we only bought it for a trade in size and the XLK gives us good exposure to the Tech area. The XLK is up 60 cents today.

10:55am and the DJIA is up over 200 points. Treasuries have continued to drop in price as the stock markets have rallied. This morning's economic news was negative so this very strong rally is being fueled by war news. We are in a selling mood and so we sold our SPDR Utility position at $18.66 for a $1 or 5.5% gain including the dividend we will receive. We also sold the first part of the XLK holdings that we bought in large trading accounts. We had a scratch 10 cents per share profit but we wanted to raise more cash and keep the shares bought better a few days ago. We have the SBC in to sell at $22.50. We are offering our trading position in MOND at $21.25. We think there may be a few more setbacks in the war before it ends. We hope we are wrong.

12:11pm and breadth is 3/1 positive and up versus down volume is almost 9/1. The DJIA is stuck at up 222 and the question is whether the stock markets build on the gains or give part back this afternoon. Treasuries continue to slip. Trading in all markets is active.

12:18pm and for folks who want to know the calf didn't make it this morning either.

1:02pm and the rally has resumed after an hour with no pullback but lower volume. We sold some more AOL for scratch in aggressive accounts to reduce positions. We are in the process of selling the SBC at $22.40. Our desire to raise cash is unabated and not worth holding out for the extra 10 cents per share. With this sale on which we made about 80 cents per share we are down to Ionics, SPDR Technology and AOL in most accounts and under 15% invested in the Model Portfolio.

2:02pm and as we enter the final hour of trading the DJIA is on its high for the day. Volume remains active. We sold MOND at $21.25 for 50 cents per profit. We are back to watching. Europe closed up in all stock markets on the day.

3:02pm and the DJIA closed up 215 points at 8285. The S&P 500 gained 22 points to end at 880 and the NASDAQ finished up 48 points at 1400.

And hopefully tomorrow is the last day of the war.

2 April 2003 - Morning Comment

7:29am and we are a little late this morning because we lost a cow overnight while she was calving and the prince and princess had to learn that animals die and deal with all that. Thankfully they don't yet have to deal with people dying as we do.

The Stock futures are strongly higher this morning on the back of positive war news. Everyone hopes it ends soon and that hope is being reflected in stocks as the news improves. Treasuries are lower.

Up early then back to even.

1 April 2003

7:08am and American Airlines reached agreement with its unions to avoid bankruptcy by gaining $1.8 billion in concessions from its employees. Now they will get some money from Uncle Sam. Our caveat on AMR filing bankruptcy is that it is a Texas Company with ties to Texas politicians. But we still think bankruptcy is in the cards for AMR.

GM is offering 0% financing for 5 years on certain vehicles. Soon the auto companies will be paying folks interest to buy. This financing is worrisome and robbing profitable sales in the future.

Retailers are coming in with lower earnings blaming the war for keeping folks at home.

8:12am and reports from Iraq say that the northern and southern oilfields are now controlled by American forces. So we can rest easy since Cheney's war is won. Months ago we said that the first order of business would be to secure the oilfields. But of course this war is not about oil.

8:15am and airline relief of $3.2 billion is to be added to the war money appropriation. Too bad the Congress can't find any money for health care or schools.

8:35am and Barton Biggs is now more bearish since he doesn't think the war is going well.

9:52am and the DJIA after being up over 60 points is now heading into negative territory. Trading is light and breadth is mixed. We have repurchased a bit of the ION at $16.15 that we sold yesterday at $16.60. And we sold the balance of the SLE at $18.70 that we weren't able to sell yesterday at $18.70. Other than that we are just watching.

10:02 am and below are some quotes from earlier times by prominent chicken hawks as the war enters its 14th day.

  • Vice President Dick Cheney, in an interview with NBC's "Meet the Press" on March 16th, said, "The read we get on the people of Iraq is there is no question but that they want to get rid of Saddam Hussein and they will welcome as liberators the United States when we come to do that."

  • In an opinion piece for the Washington Post published February 13, 2002, former U.N. ambassador Ken Adelman said, "I believe demolishing Hussein's military power and liberating Iraq would be a cakewalk. Let me give simple, responsible reasons: (1) It was a cakewalk last time; (2) they've become much weaker; (3) we've become much stronger; and (4) now we're playing for keeps."

  • Christopher Hitchens, writer for Vanity Fair said on January 28, 2003, "This will be no war -- there will be a fairly brief and ruthless military intervention. The president will give an order. It will be rapid, accurate and dazzling ... It will be greeted by the majority of the Iraqi people as emancipation. And I say, bring it on."

  • Richard Perle, chairman of the powerful Defense Policy Board until his recent resignation amid accusations of financial conflicts of interest, said in a July 11, 2002 PBS interview, "Saddam is much weaker than we think he is. He's weaker militarily. We know he's got about a third of what he had in 1991. But it's a house of cards. He rules by fear because he knows there is no underlying support. Support for Saddam, including within his military organization, will collapse at the first whiff of gunpowder." This is the same Richard Perle who told David Corn in May of 2002 that Iraq could be taken with a light force of 40,000 American troops. "We don't need anyone else,"

10:09am and the DJIA never made it to negative territory before reversing and heading higher.

10:23am and with the stock markets flat we are off to vote. We'll return in half an hour.

11:04am and no live Saddam on TV and so the DJIA is rallying.

11:26am and another old favorite of many years, Fleming, filed Chapter 11 today. The company was done in by a new CEO from Wal-Mart who got the company accounting involved in misallocating vendor promotional discounts similar to what happened with Ahold. And K Mart's bankruptcy didn't help.

We are taking a flyer on Cisco is our larger accounts for a short term trade. We are buying stock at under $12.90.

12:10pm and we just were wondering whether Saddam is playing an April fools joke on all the stock traders who are trying to figure out if he is dead. If Saddam is dead the stock markets will rally big time, if not more of the wallowing will occur. Iraqi television announced Saddam would address his nation live at 11:00am CST but he didn't show. The current half hearted rally is a bet that he is dead. The DJIA is up 70 points.

12:16pm and CNBC is reporting that SBC will no bid for Direct TV (GM Hughes). Hooray, SBC has enough on its plate.

12:44pm and the ISM's index of manufacturing activity fell to 46.2 from 50.4 in February. Construction spending declined 0.2%. We added SPDR Technology at $14.60 and SPDR Utility at $18.50 to some accounts today.

1:50pm and in a poll released today 44% of Americans believe that that The Republican Guard is a unit of the U.S. Armed Forces who are detailed to protect Congress.

1:51pm and as we enter the final hour of trading the DJIA is up 84 points after being up over 100 points half an hour ago. We have no bets going on the final close although today's action is following our Morning Comment prediction for the first time in several weeks. One out of ten isn't bad.

SARS is the virus that is spreading throughout the world having begun its travels in Asia. The World Health Organization reports the fatality rate at 4% which is high for flu like disease. We can't make up our mind whether this is more media hype or a real problem. 5000 cases among 5 billion people doesn't seem like a major disease. But an American Airlines plane from Tokyo has just been parked remotely but not quarantined on a tarmac in San Jose California while health authorities figure out what to do since four people on the plane became sick with the symptoms. If the virus lives up to the media hype the world of travel is going to really take it on the chin. And airlines are going to have a tough time getting anyone to fly.

By the way our 1:50pm post about the Republican Guard is our April Fools joke.

3:02pm and the DJIA closed up 80 points at 8075. The S&P 500 gained 10 points to finish at 859 and the NASDAQ gained 7 points to end at 1349.

And tomorrow is another day.

1 April 2003 - Morning Comment

6:43am and we'll skip the obvious morning greeting for today. Stocks in Asia and Europe have rebounded weakly from Monday's sell off and U.S. stock futures are also mildly higher. We would guess a slightly higher opening then down and then a rebound.

The war news is muted and traders are taking a show me attitude. For the First Quarter of 2003 the DJIA lost 4.2%, the S&P 500 was down 3.6% and the NASDAQ eked out a 0.4% gain. The out performance of the NASDAQ in the first quarter is one reason we repurchased the SPDR Technology Trust yesterday at $1 (8%) less than we sold it a few weeks ago. We believe that the end of the war rally will be led by the Tech stocks because folks are still looking for action rather than investment opportunities.

The Model Portfolio, which is posted this morning, finished the First Quarter up 8.3% and is 73% cash. Our nimbleness has allowed us to catch some gains while avoiding the big sell offs. Hopefully our luck will continue.

Finally, at the close yesterday we sold our trading holdings in SLE and ION for a scratch profit. We are maintaining our investment holding in Ionics and remain interested in SLE.

The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.