Bud's Poem Page

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30 August 2002

6:34am and the last business day of real summer begins. Since CNBC is leading with an anti union analysis of the baseball strike we presume that today is going to be a non event. The move higher in the NASDAQ may continue as mutual funds try to mark up their depressed holdings. We don't know why they bother. And since Sun Micro and Novellus had more bad news yesterday evening no major NASDAQ rally should be expected. Today, Goldman Sachs downgraded all the RBOC. Glad we sold most of our holdings and we are looking for a new entry point. Bristol Myers was weak yesterday afternoon because the SEC is conducting a formal investigation of the channel stuffing that occurred last year. We are waiting for the Imclone fiasco investigation to start before repurchasing the shares, unless the share price drops to $15 in a major sell off.

VP Cheney's continuing verbal attacks on IRAQ and his desire to go to war with IRAQ is a real downer. Never mind the effect it is having on the stocks markets, the effect on the American psyche is profound. Whenever Bill Clinton talked of military action in Bosnia or Serbia or Somalia, the fact that Clinton avoided service in Viet Nam was always given as a reason for him to back off and let those who know decide. Now we have the Chicken Hawks, those who avoided service in Viet Nam because they were too busy or whatever among whom are Bush, Cheney, Card, Perle, Wolfowitz, and Ashcroft plus Limbaugh, Kristol and O'Reilly of the Republican Party and Right Wing Media, pushing us into a war with no known outcome.

It is a given that Saddam Hussein is a bad guy who represses his people and is not averse to using poison gas and chemical weapons. That same statement can be made about twenty dictators around the world, nineteen of whom are considered allies of the U.S. In his speech yesterday Cheney specifically mentioned oil and the fact that Iraq controls ten percent of the world's reserves. And that fact is what makes Saddam different from the other twenty creeps.

But in the 21st Century America cannot adopt a first strike philosophy. We should use all the diplomacy and cajoling we can, we should be aware, we should isolate, but we cannot attack. If we do, we will lose even as we win. With the sophisticated listening and looking devices we have it is impossible to believe that we can't isolate Iraq and watch the movements and be ready to strike if any belligerency is detected. That's why we spend billions on black hole defense every year. And if we don't have that capability then the folks running those programs should be fired. The ridiculous fact that the FBI does not have its computers connected so that they can communicate intra agency is a travesty. And more of a travesty was the fact that no Senator at the hearing where that fact was revealed seemed surprised or demanded immediate action to remedy. The FBI director said it might take several years any no one gagged. Forget about dropping smart bombs on piles of rocks in Afghanistan, fix the computers.

Back to business and Merrill Lynch has downgraded Wild Oats. Guess they are upset that JP Morgan was awarded the underwriting of the four million shares. Glad we sold ours since it looks like we'll have a chance to buy it much cheaper. Also, Hain Celestial earnings which were announced after the close were in line but HAIN lowered expectations going forward and so that stock isn't going higher anytime soon.

7:09am and the stock futures are indicating a slightly down opening. Looks like it's going to be all baseball all day. Beats bombing Iraq.

7:36am and the big number of the day is July personal income was unchanged and personal spending was up 1%. 1% increase in spending is the largest increase this year, until it is revised next month. The Michigan Consumer Confidence number will be announced at 9:20am and we'll be right on top of what's happening.

7:41am and Nestlé's CEO is quoted as saying that he doesn't think U.S. authorities would allow his company to acquire Hershey since together they would control 60% of the chocolate market in the U.S.

9.28am and the Michigan number was down a point while the Chicago PMI was up 4 points. Chairman Greenspan of "spend the surplus before it gets too large" fame said today that the FED couldn't do anything to prevent the stock market bubble. Guess he never heard of raising initial margin requirements. The market measures rallied on the Michigan and/or Chicago numbers we think. Whatever, stocks are now a bit higher and breadth is positive.

10:44am and baseball is saved. The owners and union have reached a contract. Hooray, hooray and the DJIA rallied 6 points in celebration. You read it here first although you won't read this till tonight or tomorrow or Monday. So rather we wrote it here first for you to read later. Oops, the rally is fading. Time to get back to worrying about war.

12:26pm and the bond market is closed and the stock market should be. The NASDAQ is negative but the DJIA and S&P are up a bit. We are trading a bit of Biogen off the $33.55 level. Didn't get all we wanted even though we are trading reduced size because of light volume and problems with size the other day. We think Fidelity will mark it up at the close.

1:56pm and entering the last hour of trading the NYSE has advancing issues ahead of declining issues by a 2/1 margin. Breadth on the NASDAQ is negative as it looks to be giving back its gains of yesterday.

3:02pm and the DJIA, S%P 500 and NASDAQ all closed fractionally lower for the day. For the year to date the Model Portfolio is all cash and unchanged, while the DJIA is down 13%, the S&P 500 is down 19% and the NASDAQ is down 31%. We lost 10 cents a share on our Biogen trade. No mark ups today. Have a good holiday weekend.

And tomorrow is another day.

29 August 2002

7:10am and as we begin the day the futures are slightly lower. Lehman reduced earnings estimates for GE by 5 cents per share for 2003 from $1.81 to $1.76. Retail stores continue to lower guidance on same store sales and that has the markets worried because the consumer has been the driver of the economy the last few years. We know that isn't new news but we would guess the slowdown will continue. Going forward we think that September same store sales are going to be punk because of all the memorials and the maudlin media coverage of events surrounding the anniversary of 9/11. We doubt that the coverage will place shoppers in a jubilant mood.

7:35am and jobless claims rose 8000 to over 400,000 in the week of 8/24. We learned today that the U.S. is in a growth recession which is when an economy is growing below its potential. That's a new term that satisfies both recession fans and growth fans. The Commerce Department confirmed today that GDP grew at 1.1% in the second quarter of 2002.

7:54am and our man on the trading floor just called to tell us that there is a rumor sweeping the bond pits at this very moment that the US is going to secretly attack Iraq on November 30 and that is the reason bonds are rallying and stock futures are selling off.

8:45am and the DJIA is down 1.5% as if the NASDAQ and S&P 500. Much is being made of the fact that bullish sentiment jumped to 47% in the latest Investor's Intelligence survey. This week's market action has gone a long way to curing that bullishness.

9:15am and the stock markets are rallying. We've been reading about the closing of the spreads between corporate bonds and Treasuries. The spread is the difference in the yield an investor receives from buying a corporate bond of a certain maturity-say ten years-versus the yield the investor would receive if he/she purchased a Treasury bond maturing in ten years. For example the ten year Treasury is currently yielding 4.13%. So if an investor bought a corporate bond due in ten years yielding 7.13% we would say the spread was 300 basis points or 3% over Treasuries. Those spreads have been narrowing recently, say from 300 basis points on single A rated bonds to 250 basis points. Some analysts are saying that the closing of the spread is the result of investors having more confidence in an economic recovery. Our take is that folks our panic buying higher yielding bond funds, since Treasuries don't yield what they are accustomed to or what they need to live on. Investors buy mutual funds that invest in lower quality bonds because those funds have the higher yield and that inflow of investment money causes the bond funds to buy in the open market and the demand lowers the yield and thus shrinks the spread. We have repeatedly warned that individuals chasing yield by buying lower quality funds is going to create the same gnashing of teeth and bitter recriminations as the stock bubble bursting has, when interest rates begin to move higher as economic recovery occurs.

9:29am and the NASDAQ is positive while the DJIA remains negative. Can the Janus funds of the world be starting the month end markup period so soon?

9:35am and several folks have asked about a package of sold out telecom stocks to buy. The idea is that an investor buys six or seven stocks with the hope that over the next few years as the telecom fiasco works out only one or two go bankrupt, one or two go up/down ten percent, and one or two rise five to ten times in value. In a year like this such a package seems reasonable. We just think it is too early to construct or buy one. We know that NT is selling at $1 and LU at $1.73 but they both could go to fifty cents in the next big down move. By the way, we are using NT an LU as examples, we would probably not pick them. For now, we are waiting and watching and making a list. We'll be checking our list twice to find out which stocks we think will be nice to us.

10:25am and the NASDAQ remains higher while the DJIA is lower. We are mystified by the TV folks that whenever they talk about the West Nile Virus they always show a picture of a mosquito and then CNBC usually shows a picture of an arm being bitten by hundreds of mosquitoes. What does that all mean? There must be some subliminal message that we aren't receiving.

11:36am and the stock market measures have all turned slightly positive and breadth is positive also. Softbank, the Japanese Internet investing company sold 30 million shares of Yahoo yesterday at $9 per share to raise cash. Yahoo bought back 11 million of those shares and the public the rest. Merrill Lynch upgraded it opinion of Yahoo today from reduce to neutral. We would bet that Merrill was part of the Yahoo/Softbank transaction and from recent filings we would guess that Fidelity was a buyer of part of the block. That's all the more reason for Merrill's analyst to raise his rating on the stock if he can make a big trader like Fidelity happy. Raising a rating right after the investment bank you work for has assisted in a transaction for the company whose rating you raise is now called "doing a grubman".

1:12pm and the afternoon plus summer doldrums have begun. Now the only event to keep us awake is to guess whether we close up or down for the day. We guess the DJIA down 65 points for the day and the NASDAQ up 5 points.

1:15pm and the Office of Homeland Security has announced that agents at airports will no longer question passengers about their bags since terrorists would probably not answer the questions honestly. Duh.

2:05pm and an analyst is on CNBC talking about Boeing. We have the sound off, we usually do, but scrolling across the bottom of the screen reveals that the analyst owns no Boeing stock although he is recommending the stock. We have never understood why not owning a stock you are recommending that investors own is seen as a sign of objectivity. We would like the folks telling us to buy a stock to own a big chunk of it themselves. We never buy for clients what we aren't buying for ourselves at the same price and at the same time. We have the same practice when selling a stock.

3:02pm and the DJIA closed down 30 points while the NASDAQ was up 20 points or 1.5%. So much for our guessing. The S&P 500 was slightly lower.

And tomorrow is another day.

28 August 2002

8:07am and we are running a little late this morning as holiday fever strikes Soldiers Grove. The stock futures are indicating a lower opening and Treasuries are a bit firmer.

One reason trading activity is light is that many investment folks are on vacation. But a more serious reason is the War talk that is permeating the airwaves. The stock market hates uncertainty. Not the uncertainty of whether the US can succeed but the why and how and when and what of any war. Coupled with lousy earnings, job layoffs and the summer doldrums there is not much positive news to get stocks moving higher. Correspondingly, the bad news is out and it doesn't seem to be getting any worse. The panic of July has subsided and while there doesn't seem to be much incentive to buy there also is no longer much incentive to sell. After Labor Day when folks return to work and 9/11 and the coming November election and more War talk the markets will be more likely to react. And so as with last year, enjoy these last few days of August torpor, it's not likely to last.

The Model Portfolio is now 100% cash with a value of $429,650 which is $154 less than it was at year end. The DJIA is down 13%, the S&P 500 is off 20% and the NASDAQ is down 31%. Most accounts are also all cash. Since we were able to sell the HAIN and OATS today we have accomplished our goal of being all cash and ready to start over after the Holiday. Larger accounts are unchanged to up 2% and smaller and more aggressive accounts range from up 2% to down 5%. Our recent flurry of trading added about 5% to account values and for that we are grateful.

8:33am and Wild Oats priced a 4.45 million share offering at $11.50 so it should sell well. We had been trying to sell to get ahead of that offering. The offering put a good bid in the stock and so we sold at $12.26 for a scratch profit. We had been hoping that a stronger market would have allowed the company to price the shares to be sold higher. Since the company is happy with $11.50 we'll gladly take $12.26 for our shares.

9:26am and speaking of nothing we read that US Airways which is in bankruptcy is asking all its employees to take pay cuts, etc., to make the airline solvent. Oh, and by the way, executives of the now bankrupt airline, according to The Pittsburgh Post Gazette, are still seeking $6 million in bonuses they say they earned before the airline filed bankruptcy. That attitude certainly will inspire sacrifice.

9:33am and Pepsi is tanking on a downgrade. Several days ago PEP was trading at $43 per share and it now is at $39.60. In an earlier post we bemoaned not buying Pepsi at $36 in the July sell off. We wonder if we will buy it now or wait for the $32 number we had picked?

11:13am and we were reading on a website this morning a short essay on preserving capital. It reminded us of our response to an inquiry last week. As we go to all cash in most accounts after a nice 5% gain we would like to reiterate our philosophy for these volatile times.

Hi D
You asked what percentage of liquid assets should be in stocks at our age? First of all, we don't run money for folks based on age. We manage money for our clients based on market risk. Our oldest client is 101 and he owns the same stocks and has the same market exposure as our grandson who is 5. Since we tend to error on the side of caution we have on average been less than 50% invested in stocks for many years. But there are times of the year, usually year end when we will raise exposure to 100% if we think the risk reward ratio justifies that posture. Our philosophy presumes active management and the willingness to take losses and realize short term gains. Most folks don't like the activity involved in this approach but we find it works for us and our record gives credence. We can't tell you how much you should invest on your own because we don't know with whom you are investing and what their philosophy and objectives are. We used to try and answer the question and suggest percentages. Now we have reached the point where we say, give us all your liquid assets and let us do the worrying. We will take the responsibility and we don't know anyone who will do better than we. Nor do we wish to vouch for another's investment expertise. Finally your question reminds us of two questions we asked early on in our former life when we were actively engaged in farming. The first question was our asking a farmer how often one should trim a horse's feet. The answer was obvious, "as often as the horse needs it". Our second question was when we were digging a foundation for a chimney for our wood stove and that question was how deep to dig the foundation and the answer was, of course, "deep enough." Hope we have been of some help.

11:25am and we sold our remaining HAIN at $14.50. HAIN earnings are being announced tomorrow and whoever is buying thinks they will be good. We have no opinion but since the market is so punk we can only sell when there is a buyer. We lost about 50 cents per share on the trade.

11:55am and breadth is negative while volume remains light.

12:35pm and we bought BGEN at $34.32 in some of our larger trading accounts for a one day trade since the DJIA is down over 150 points and we expect some rally this afternoon. The $34.50 level has been a good trading buy level for the past month in good and bad markets.

1:42pm and we are nearing the last hour of trading. The DJIA and S&P 500 and NASDAQ have all been down over 2% today. Volume is very light. There is talk that since Friday is the end of the month that it will be mark-up day for the mutual funds. With the light volume anything is possible.

3:02pm and we sold our BGEN at $34.19 a half hour before the close for a loss of 15 cents per share. Had we held a bit longer we would have made a few dollars, but the size we were trading required us to move early. The moral is don't day trade large size in thin markets even if the price is right. The DJIA and S&P 500 closed down over 1.5%. The NASDAQ lost over 2%. Breadth was two to one negative and the down/up volume was 8/1. The only saving grace was that volume was very thin.

And tomorrow is another day.

27 August 2002

7:18am and as we enjoy another beautiful morning in God's country having removed the sleeping bat from behind the picture on the screened porch we sit down at our computer to find the stock futures suggesting a downward bias to the opening. For those interested, there is a slight opening on our porch through which a bat looking for a place to sleep after a long night of eating mosquitoes slips once or twice a month. We have a picture frame that makes a perfect bat motel and so every morning it has become our job to check the bat motel for occupants. Today's occupant was removed to more appropriate quarters in the barn. So much for our excitement for the day.

We really don't expect much from stocks the next few days although with the low volume and few participants anything is possible.

7:31am and durable good orders came in up 8.7%, ex transportation up 3.9%. Stocks are rallying and bonds are bombing. Last month orders were to down 4.5% from down 3.8%. The CNBC talking heads are talking to the other three or four people besides us who are watching, and we are only here because Kathy is on the Po. It now looks like an up opening in stocks and a down day for Treasuries.

8:24am and oil is trading over $29 a barrel in the near months. That's a heck of a price for oil and if it continues will be a damper on an already dampened economy. The DJIA looks to open about 75 points higher and then we may all take a nap.

9:05am and we neglected to mention yesterday that we sold our Ford position for a scratch profit. On our sell of HAIN yesterday we sold 500 shares from the Model Portfolio. The Model Portfolio is now 95% cash Rich J so we hope you are calmer. The stock markets have turned negative and bonds continue under pressure. Volume is light.

9:28am and consumer confidence came in at 93% down from 96%. Those numbers mean nothing to us but we are sure some folks will use them as a reason to get long or short.

11:23am and there isn't much happening. Breadth is negative, volume is light and there is no one around to buy or sell large blocks. We presume the markets will get even thinner as the week progresses. We are looking for an opportunity to sell our GMH but the stock is just not doing enough volume to move our small block. We may start piecing it out later today if a rally ensues.

11:30am and the Congressional Budget office today slashed its estimate of budget surpluses over the next ten years from $1.7 trillion to $336 billion. Last year at this time the same folks were estimating a budget surplus over the next ten years of $5.6 trillion. That's a revision!

12:20pm and Citigroup's Salomon Smith Barney unit admits it gave up to 200,000 share of hot IPOs to executives of WorldCom. The lawyer for Citigroup says there was nothing illegal about this. We remember a discussion we had years ago with a partner of a NYSE firm about legal and ethical and moral. Some things never change.

1:45pm and the stock markets are lower. We are trying to sell the HAIN position at $14.75. It looks like someone is buying ahead of earnings which are coming on Thursday. We would just as soon sell and make up our minds afterward. But the markets are so thin we can only show an offer and hope someone is interested. We sold our remaining GMH at $10.70 for a $1 per share profit. We are also offering our Wild Oats holdings at $12.25 because it looks like there is a buyer. If there is a last hour rally we may luck out. For now, the popular measures are down over 1%.

3:02pm and the DJIA closed down over 1%, the S&P 500 was down 1.4% and the NASDAQ was off 3%. We sold a few shares of OATS at $12.18 including 500 shares in the Model Portfolio for a scratch profit. We sold part of the HAIN at $14.75 including 500 shares in the Model Portfolio for a 50 cents per share loss.

And tomorrow is another day.

26 August 2002

7:37am and there is news that Nestlé is going to bid $85 per share for Hershey. Nestlé is going to buy Dreyer's Ice Cream which is acquiring Ben & Jerry's so two icons of the American way of life are off to Europe in one year. Nestlé chocolate is sooo bad. Other than the Hershey news there is not much of interest occurring. According to the gurus there are a lot of economic indicators being reported this week so we will be here to report them, mainly because our partner Kathy is floating down the Po River in Italy on a fancy barge and so we have to man the battlements for the week.

8:11am and saving the best for first we are happy to report that the Model Portfolio is down one-eighth of 1% for the year but among friends (not the SEC) we will round it to unchanged for the year. In dollars we are down $600 from year end 2001 including fees and commissions. The value of the Model Portfolio on 8/23/200 was $429,265. On that same date the DJIA was down 11.5%, the S&P 500 was down 18.1%, and the NASDAQ was down 29.2%. We have reduced significantly the number of stocks we own in the account and thus our risk exposure and with a rally this week hope to be at down to Hain and Wild Oats...

9:05am and new housing starts were up smartly although last month's were revised downward so that this month's numbers would look good. New home starts were up 6.1% and existing home sales were up 4.1%. On the negative news front Wal-Mart said same store sales growth for August would be at the low end of expectations. The stock markets are meandering in desultory trading and Treasuries are a tad weaker.

10:07am and a Fed governor is on the tape implying that the Fed doesn't need to ease to save the economy. And so stocks have slipped lower. With the thin markets this week any news will have a magnified effect. Now we'll go back to sleep.

11:51am and the stock markets continue to inch along down less than 1%. Breadth is mixed and volume is very light. And there is no news.

2:06pm and we sold our 100,000 share Palm trade at 92 cents for a ten cents profit. Since we were buying in 5000 to 10000 share amounts it was nice to make a quick $500 to $1000. We sold our QQQ at $25.25 for a profit in many accounts of $1.10 per share and a few others made a scratch profit. We are determined to raise cash and we are now down to three stocks, GMH, Hain and Wild Oats. We have the GMH in for sale at $11.

3:02pm and we sold some HAIN at $14.50 that we had purchased at $13 and $12.80 a few weeks ago. The DJIA closed up 45 points, and the S&P 500 and NASDAQ were up .75%. Volume was light.

And tomorrow is another day.

23 August 2002

6:46am and we noticed in last nights post that we were looking for 200 more pints in the DJIA. Of course we meant points. We must have been in a hurry to have our Kaliber after work. As we sit down to our computers the futures are suggesting a lower opening. CNBC is discussing WAR with Iraq and its effect on the economy. Even a Democrat Senator Corzine is afraid to say that invading Iraq as a first strike to get rid of someone we think is a bad person is morally wrong. And so as WAR talk permeates the air we wonder how the markets will continue their advance.

Last night we reread our Winter 2002 Lemley Letter that is posted on the website. We should first apologize for the lateness of the Summer 2002 Lemley Letter and we fear it is becoming the Summer/Fall 2002 letter. Anyway, in reading that letter we noticed that when we sent it to readers we were long Ciena at $16 and some other stocks that were trading in the teens and are now trading in low single digits. We had been trading Tellabs and Ciena for nice gains and owned AT&T Wireless at a cheap $12 per share. It made us realize how lucky we have been to sidestep the carnage of this year. And it also gave us new resolve to eliminate our remaining stock positions now that we are ahead for the year. A fresh start this autumn would be a good idea.

Saudi Arabia announced that it would make up for lost Iraq oil if there were a war. They would encourage OPEC to increase production. How kind, and they would also make extra bucks.

7:40am and we just finished reviewing year end values versus current values of our accounts. Our larger accounts are ahead for the year as are some of our mid size aggressive accounts. Many of our smaller accounts are down 2% to 5%. Those were the same accounts that were up 25% or more last year so there is some regression to our mean performance occurring.

The WSJ reports that Sandy Weill, the CEO of Citigroup, is being investigated by the NY State Attorney General. That is affecting the DJIA since C is down a couple of points on that news. We do believe there is much more to come on this issue.

8.32am and as the stock markets open a sea of red covers the screen. We have AT&T Wireless in to sell at $6, GMH at $11, the QQQ at $26.25, and Ford at $12.25. We hope to catch the counter rally to this down opening in about an hour.

9:27am and there has been no rally yet. The major stock measures are down over 1% and volume is negligible. There may not be enough trading interest for anything to happen today on our sales. We ourselves are leaving early to go to Madison.

10:01am and the reason we are trying to sell the GMH and AWE and QQQ is that on a technical basis they run into resistance right above our sale prices. GMH currently trades on a discounted arbitrage basis with DISH, which is offering .73 shares on the merger. The discount is over 25% annualized and 50% on a real time basis. This suggests that the street is not confident that the merger will be approved. If the merger is not approved GMH stock will sell off initially as arbitrageurs sell the GMH stock they have purchased versus their short position in DISH. We only want to own GMH if the deal doesn't go through since we don't like the debt load of the combined companies.

11:49am and we decided to sell the AWE at $5.90. The stock may be down from $30 several years ago but Palm is down from $95 and sells at less than a dollar. Obviously we think AWE is a more viable company but it is also up 50% in price in the last week on very low volume. We have seen AOL, Z and now EMC drop by $1 per share in the last day after we sold them, and we are intent on raising cash and locking in our 20% profit.

We sold a little of the GMH at $11 but since that is an arb situation we are content to wait on that stock. The QQQ are off more than our profit so we'll wait on that and the same goes for the Ford. We sold the balance of our Fleming at $12.50 which was a $1.50 per share loss for most of the accounts. We also have our HAIN position and a very small OATS position that we plan on holding for now. We have the MODEL Portfolio down to only 10% invested from 45% in the last few days. And even with todays down market we are even for the year.

12:41pm and we are taking the rest of the weekend off. As we leave the major measures are down over 1.5%. It will be interesting to see whether the hedgies can rally the markets in the last hour. We hope so because we are leaving our sell orders in.

And tomorrow is another day.

22 August 2002

7:28am and as we wait with bated breath for the weekly jobless claim numbers it look like the stock markets will open a bit higher. Treasuries continue under pressure. There are a lot of corporate bond issues that require hedging in the Treasury market coupled with a very complicated -- for our mind at least -- mortgage versus mortgage backed security arbitrage that is affecting the prices of Treasury issues. Flash! Jobless claims were down 2000 in the latest week after adjusting the week before up 2000 so jobless claims weren't really down. Anyway, in the last week of August only two people in the world care about this number and they are the two people talking on CNBC where we have the volume turned off.

We did some determined selling yesterday and will do so again today if the opportunity presents itself. The rally has helped our accounts and with a good today the Model Portfolio will push to the plus side for the first time since year end. We think the low volume rally will disappear in September and we are going to be back to cash is king by then. We are treating the current 10% to 25% rally in our stock selections as we would a year end rally and moving to the sidelines. We know the market anticipates events six months out. Unfortunately larger deficits, the threat of War, and lousy earnings and sales are still a probability six months from now. And on that upbeat note will go read the morning papers.

8:33am and the stocks are opening a bit softer as the futures sold off in the last half hour before trading started. Footlocker came in with decent earnings and we are hoping to sell the stock today. Right now we have it in to sell at $11. If we get a decent rally today we will let SGP go and also BMY. EMC popped over $8 at the close last night and we would like to sell around $8.10. That's our wish list for today.

10:27am and we've been busy churning and earning for the last few hours so we haven't had time to post. The markets had a nice move higher and so we sold the BMY at $25 for a $2 per share profit, the SGP at $24.50 for $1.75 per share, EMC at $8.10 for 70 cents per share and Z at $11 for a 50 cents per share loss for most although a profit for a lucky few. We sold a big chunk of our Fleming at $12 for a scratch profit to $1 per share gain. That's a good morning's work raising cash. We are following our discipline of selling stocks that haven't worked as well as those that haven't.

10:41am and the markets have stabilized at higher levels and Treasuries remain under selling pressure. We are writing tickets and watching our few remaining stocks move higher.

12:47pm and stocks have turned slightly lower. Oops, now they are higher. The volatility in movement is caused by the thinness of the markets and it will be this way till after Labor Day. We are feeling good with our trading profits and higher cash reserves. As we always say we prefer bunt singles and stolen bases to swinging for the fences.

2:03pm and the stock markets are moving higher. Breadth is positive and volume is summer light. Looks like stocks will rally in the last hour. The S&P 500 has broken through resistance at the 950 level and the DJIA is over 9000. We think the DJIA has another 200 pints of potential upside but we are also glad to be moving to the sidelines. Almost all accounts are now up for the year, and plus 40% to 80% for the last four years which is no mean feat, if we do say so ourselves. We hope to move to an all cash position by Labor Day.

3:02pm and the DJIA closed around 9055 up a bit over 1%. The S&P 500 was up 1.3% at 962 and the NASDAQ gained 1% to close at 1422.

And tomorrow is another day.

21 August 2002

7:10am and thunder storms are on their way while the stock futures are suggesting a slightly higher opening. There isn't much morning news to move any stocks and given the time of year, unless the hedgies are in a mood to play we may have a dull day.

President Bush has called all his military advisors to The Waco Ranch to discuss military matters. All the hoopla about Iraq is taking on the character of the little boy who cried wolf. With 9/11 coming and the potential for media created mania maybe war with Iraq will occur. And if it does we will win it handily. We will also be violating a moral and ethical principle of not striking first. But our take is that the Iraq war talk is on a par with the "WAR" we are waging and the "wartime" footing the US is supposedly on. The time span of the war talk verbiage has exceeded the capacity of most Americans to stay interested. And since only Special Forces troops and their families are sacrificing anything except some individual freedom, which doesn't seem to bother most folks except a few at our end of the political spectrum, we think the current effect on the markets is muted. But come September, the media will begin filling the airwaves with pictures and pundits and it will be impossible to avoid the maudlin coverage that is sure to be presented. At that time, the markets may be much more affected and that is one reason for our cautious attitude.

Another reason is that the Federal and many state budgets are in serious deficit. Deficits are OK in tough times if they are the result of spending or the providing of spendable money. One reason that consumer spending continued to float the economy through the first quarter of this year was the $100 billion tax rebate of last year. But all the tax cuts going forward that are increasing the deficit exponentially are not of the spending variety. And state governments are required to balance their budgets. The only way to do that is to cut spending. It's obvious now that Governors Whitman from New Jersey and Thompson from Wisconsin took cabinet positions to avoid the revenue shortfalls that they knew were coming in the states where they were governors.

Finally, the desire to recover lost profits has once again after a few short months overtaken the fear of losing more. We are coming into that time of year when volatility in the markets increases. So for all these reasons caution is warranted.

7:38am and stock futures remain slightly higher while Treasury bonds are weaker.

8.25am and Verizon is going to sell $1 billion in 10 year bonds. They'll be priced to yield about 7%. We remember when we started the bond desk at the firm we worked for back in the 1960s that AT&T sold 6% debentures due in 1995. All the pundits waxed eloquent about the value of owning that debenture. Unfortunately we were then on the cusp of the rise in Federal deficits and the corresponding rise in interest rates that saw the 30-year Treasury sell to yield 14% in the 1980s and short rates exceed 21%. That can't miss AT&T 6% was priced at less than 50 cents per dollar of par value in the 1980s. In other words, folks who bought that bond lost 50% of their principal in 15 years. Of course if they held to maturity they got there money back. But a lot didn't hold.

8:48am and stocks are higher but volume is light. We aren't expecting much. It's nice to see green instead of red though.

8:51am and it's interesting that by mid-August the birds are no longer mating so their songs of spring and early summer have ceased. Song is replaced by the chirping of crickets that are seeking mates and will keep on chirping till the autumn frost ends their season. Of course the crows can't keep quiet and the barn swallow babies who are learning to catch bugs on the wing keep flying into our windows in their determination to catch their flying food. Happily the hayfields have had their second cutting and so the cows and horses are happily munching on fresh grass shoots. With calm markets and cool weather we are enjoying the last days before the fall.

9:56am and the popular measures have turned negative. Breadth remains slightly positive and volume is non-existent.

11:22am and as the markets rally to positive we have decided that cash is the better part of valor. The idea in this current bear market is to sell when they are buying and buy when they are selling. We aren't sure who "they" are but we are sure that we are in a selling mood. And so we sold our AMR trade of yesterday at $10.18 for a $1 profit. We also sold Great A&P at $12.40 for a $1.25 profit. And we sold AT&T Wireless that we bought at $4 per share two weeks ago at $5.20 for a nice percentage gain. We still own a ton of AT&T Wireless. We just want to have some room in larger accounts to buy on a pullback without over sizing our position like we did earlier in the year. We sold Cox at $24.80 for a $2.65 per share gain. We sold our trading position in FBF at $24.80 for 75 cents per share gain. Beats losing money on a trade. Remember in bear markets all stocks are anchovies.

12:04pm and we can't stand prosperity so we are selling our entire AOL position for $14.15 for a nice 25% profit in a week. We bought it for a trade and we sold for a nice profit. And all the financial shenanigans announced in the paper today reminded us of what a house of cards AOL is. Finally, we sold our small position in Goodyear at $14.60 for a scratch profit except for RBs. We think we'll have a chance to buy all the stocks we sold today at cheaper prices next month. If not, there are always other fish in the sea.

The fish in the sea comments reminds us that up here in God's country we have wonderful trout steams. Our son-in-law Dave the basketball coach is an avid trout fisherman as are most of his family. So the men in the family have started coming up on bachelor weekends where they do chores like splitting wood in return for room and board and the chance to do some trout fishing. After the first day when they didn't come back with any fish we asked how the fishing was going. They said great. It seems that many fly fishermen throw the fish back rather than eating them. For all we know there may only be three fish in the stream that keep getting caught over and over again.

12:46pm and the popular measures are slightly higher. Breadth remains positive and volume remains light.

1:40pm and we are trying to sell our Footlocker position and $10.80. That price would represent a small loss in most accounts but we make it a practice to take losses when we are taking profits. It is a good discipline. Also Z has had a 25% move off its lows. We just bought it too soon. And they have been lowering same store sales projections with regularity so we stand a good chance to get it cheaper in the fall.

1:59pm and selling came into the markets right on queue. We'll now see what the last hour predicts for tomorrow. No luck selling the Z yet.

3:02pm and the DJIA closed up about 1%, the S&P 500 was up over 1%, and the NASDAQ was up 2%. We didn't sell the Z.

And tomorrow is another day.

20 August 2002

7:57am and after urging the cows and horse into new pasture we sit down at the computer for another day of fun and games. The stock futures are indicating a softer opening. Treasury bonds are a bit firmer. The talking heads are in a pullback is good mode.

Home Depot came in with better than expected earnings and Maria the Mouth is talking the stock up. We think it will open higher and then sell off. HD is off our radar screen for a while. We raised trading cash yesterday and we are content to hold most of our purchases even if there is the pullback we expect.

Cingular Wireless which is jointly owned by BellSouth and SBC is in preliminary talks with VoiceStream Wireless concerning a merger. We don't know where those talks will go. The effect of a merger might force AT&T Wireless to join with someone, maybe Sprint PCS.

8:17am and all Martha, all the time, is back on CNBC. Time to turn off the volume. Think we are going to have to go to Reuters or CNN financial for our regular news. The only reason we have CNBC on is that we like their ticker tape the best.

8:47am and the major measures are all down a bit over 1%. We are buying SGP at $23.10 for accounts that don't have it and also QQQ at $25 for the same accounts. We think this morning's pullback will be minor. We are also buying AMR in our trading accounts at $9.08.

10:48pm and the stock markets remain off 1.5% in light trading. We sold our trading position in Reuters for a $2 per share profit. AOL is buying all of the Time Warner Entertainment that AT&T owns. Big price but what is another $9 billion. According to the WSJ AOL would have to part with $2.5 billion in cash and $1.5 billion in stock plus surrender 22% ownership in Time Warner Cable to the new Comcast. AOL would get the right to offer its broadband service on Comcast cable. AOL is up on the news and we are holding for now.

11:10am and Bristol Myers is rising on takeover rumors. We think the rise may be related to the possibility that the Imclone fiasco is coming to a head. Yesterday AstraZeneca's announced its EGF type cancer drug in stage III trials failed to show any improved results over standard treatment. Imclone's cancer drug Erbitux is the same EGF type of drug. The collapse of that drug would save BMY from having to spend $1 billion and maybe allow them to get in line to sue the Waksal brothers.

12:21pm and the markets measures are off 2%. So much for boring, although with the low volume and the fact we have some greens showing, the activity doesn't seem that gloomy. We'll see what the final hour brings. Hope we are awake for it.

2:29pm and it looks like we are going to be wrong today about a higher close and also that HD would sell off. The rally attempts in the last hour have been met by selling. Breadth is negative and volume is anemic.

3:02pm and the DJIA, S&P 500 and the NASDAQ all lost about 1.5% today giving back most of yesterday's gains.

And tomorrow is another day.

19 August 2002

7:38am and we begin the last two weeks of boring in the stock markets and relaxation in real life before folks come back after Labor Day to begin the Fall testing session. The weather up here has turned decidedly autumnal with fifty degree lows at night destroying the flowers on the tomatoes and cantaloupe. The rain is hastening weed growth but it is also keeping the pastures green so that is a fair tradeoff.

The Model Portfolio as of Friday is posted. We are 43% invested which is the highest amount invested since early January. We are accepting a bit more risk because the stocks we are buying are mainly on their lows for the year and selling at reasonable price to earnings or price to sales ratios.

7:58am and stock futures are slightly higher. With probable low volume of the next few weeks, anything is possible. Lowes just announced excellent sales and earnings and we may sell HD on that news if it pops because we don't think HD will have the same good numbers. We bought it for a pop last week and we are leery of holding it thru its earnings announcement tomorrow morning because the comparison with Lowes may not be favorable.

8:47am and the stock markets opened mixed. We tried to sell the HD at $29 and of course the specialist opened it at $28.99. It's now trading at $28.50 and our sell is in at $28.75. And so we will see. Since it is a DJIA and large S&P 500 stock we are hoping for a program trade to lift it. We also have Disney in to sell at $16.20 after missing that price on the opening. The stock has run $3 per share on news that CEO Eisner bought 875,000 shares between $13 and $15 dollars. That ensures his job for a cost of only $10 million. His pay check most years is more. Finally we have an order in to buy Biogen at $34.50 for our trading accounts.

9:12am and short Treasuries are rallying a bit with the two-year at a 2.21% yield down from 2.28% at Friday's close. Stocks are moving higher and we sold the Disney at $16.06 for a nice percentage profit and the HD at $28.75 for a scratch profit. We may look at the HD later this week, but probably only for trading accounts. In these markets all stocks are anchovies for us. And we still have to get through 9/11, a big September triple witch and year-end tax selling by mutual funds through the end of October.

10:30am and we are buying 100,000 shares of Palm at 73 cents a share for a few aggressive accounts. This stock sold at $165 per share. As we used to say in the old days, "far out!" Palm has just been kicked out of the S&P 500 and is going to do a reverse split. We normally don't buy stocks before they do the reverse but Palm is priced at less than sales and has $50 million in cash. Don't go out and bet the house money on this. It is a pure speculation.

We also sold our DIA trade at $89.41 for a $1.50 per unit profit. With the DJIA up four weeks a pullback this week will give us a chance to reset this trade. We are keeping the QQQ for now since they don't involve as much money and they give us tech exposure.

AOL's September 14th filing was cleared by the SEC this morning.

12:07pm and the stock markets continue higher in light trading. All three of the popular measures are up over 1.5%. Treasury bonds are a tad weaker. We sold our JP Morgan trade for a $2 per share profit.

We are sorry but the folks for whom we purchased Home Depot are going to receive a lot of tickets for one trade. Besides the original trade confirmed at $22.55, the cancel of the $22.55 price, and new trade confirm at the correct $28.55, and the sale confirm from today at $28.7546 are all going to arrive at the same time. At least we didn't lose money on the trade. We didn't make very much and we apologize for any confusion.

12:56pm and breadth is good but volume is very light. We are looking at Campbell Soup and Ionics both of which are close to making new lows. Ionics has $10 per share in cash on the books and is trading at $19.90. Because it is heavily owned by institutions we are lowering our proposed entry point to $17.50. We have always thought that at some time it would be acquired. ION is in a highly specialized business building huge water treatment facilities and also ultra pure water facilities. But since most of the mutual funds that own it probably have losses ION may be under selling pressure through October. The same selling pressure will probably apply to CPB. Another interesting stock is Heinz, but as with the other two there doesn't seem to be a need to rush. So we are watching for now.

2:07pm and we sold Southwest Airlines for a $1 per share trading profit. The stock markets continue higher and all our stocks are green today for the first time in a long time. We've sold most of our trading positions with only Fleet Boston which we bought late Friday left. Stocks are getting ahead of economic news but with the light trading volume it doesn't take much to move stocks higher, and it probably won't take much to move them lower.

3:02pm and all our troubles will soon be over, or so the stock markets seemed to say today. The DJIA closed on its high up 212 points, while the S&P 500 gained over 2% and the NASDAQ was up 2.5%.

And tomorrow is another day.

16 August 2002 Special Post

We would like to alert those folks who check their accounts online that we did not purchase Home Depot at $22.55, we purchased the stock at $28.55. Home Depot has sales but not even they have sales that are that good. The trade will be canceled and rebilled at the correct price on Monday.

16 August 2002

5:53am and as we sit down at our desk the stocks futures are suggesting a slightly lower opening. Morning news includes info that Jack Grubman, the analyst who recommended WorldCom till the bitter end has parted ways with Citigroup. $32 million is his goodbye kiss so his lawyers can rest easy. And now Citigroup can point the Feds towards Grubman and say all the bad things are his fault. Ain’t capitalism great?

We are sorry that the website was down most of yesterday. We use a service to provide the actual site and they experienced server problems. Happily such interruptions are few and far between, we hope. As Franciscans say, "Lord; Thank you for the dark, for now we can appreciate the light."

6:46am and it looks like today is going to be all Jack Grubman, all day, in every way. Off goes the volume and we spent a few minutes answering an e-mail from a client who asked how much of his liquid assets should be invested in common stocks at our mutual age (59/61). Our answer follows:

Hi D
You asked what percentage of liquid assets should be in stocks at our age? First of all, we don't run money for folks based on age. We manage money for our clients based on market risk. Our oldest client is 101 and he owns the same stocks and has the same market exposure as our grandson who is 5. Since we tend to error on the side of caution we have on average been less than 50% invested in stocks for many years. But there are times of the year, usually year end when we will raise exposure to 100% if we think the risk reward ratio justifies that posture. Our philosophy presumes active management and the willingness to take losses and realize short term gains. Most folks don't like the activity involved in this approach but we find it works for us and our record gives credence. We can't tell you how much you should invest on your own because we don't know with whom you are investing and what their philosophy and objectives are. We used to try and answer the question and suggest percentages. Now we have reached the point where we say, give us all your liquid assets and let us do the worrying. We will take the responsibility and we don't know anyone who will do better than we. Nor do we wish to vouch for another's investment expertise. Finally your question reminds us of two questions we asked early on in our former life when we were actively engaged in farming. The first question was our asking a farmer how often one should trim a horse's feet. The answer was obvious, "as often as the horse needs it". Our second question was when we were digging a foundation for a chimney for our wood stove and that question was how deep to dig the foundation and the answer was, of course, "deep enough." Hope we have been of some help.

7:17am and we present below a more thorough explanation of our analogy of Ebbers to Chance et al in Wednesday’s post. Our brother Jody found the verse for us. Please note that the verse refers to the pricking of a "bubble", in this case the "bubble" of a pennant race, but the analogy turned out to be more germane than even we remembered.

"Tinker to Evers to Chance!"

Chicago Cubs infielders Joe Tinker, Johnny Evers, and Frank Chance formed the most memorable double-play combination in the history of baseball. Their consistently solid fielding and hitting led the Cubs to four National League pennants (1906-8, 1910) and two World Series wins (1907-8). The Hall of Fame inducted all three simultaneously in 1946. In 1910, New York newspaper columnist Franklin Pierce Adams immortalized the three ballplayers in a short verse entitled

"Baseball's Sad Lexicon"

These are the saddest of possible words:
"Tinker to Evers to Chance."
Trio of bear cubs, and fleeter than birds,
Tinker and Evers and Chance.
Ruthlessly pricking our gonfalon bubble,*
Making a Giant hit into a double--
Words that are heavy with nothing but trouble:
"Tinker to Evers to Chance."

* The term "gonfalon" refers to a flag or pennant, and Adams uses the phrase "pricking our gonfalon bubble" to describe the repeated success of the Chicago Cubs and their celebrated infield against their National League rivals, his beloved New York Giants.

7:37am and the CPI was up .1% and the core (non food and energy) was up.2%, a non event. The talking heads are debating a further Fed rate cut. Boring and so we turn off the volume.

7:48am and we have to go off for an hour which will cause us to miss the opening.

8:45am and news arrives that Michael Eisner purchased 725,000 shares of Disney in the open market on Wednesday. We just purchased AOL at $11.75 in all accounts owning Footlocker. We are also buying some QQQ at $24.28 for our larger and more aggressive accounts. We bought 500 QQQ and 1200 AOL in the Model Portfolio. We are getting closer to 50% invested. Interestingly, we are buying stocks at prices significantly lower than they were when the DJIA made its low in July.

10:33am and the stocks are struggling to turn positive. The Treasury bond market has tanked. There is a rumor on the trading floor that Osama has been captured. More likely, some large institution has decided to cash in its chips after the fantastic rally that has occurred in Treasury bonds over the past month. Corporate and high yield bond prices are rising and the spread between Treasuries and other bonds is narrowing today as it seems folks are selling Treasuries to buy corporate bonds. Housing starts fell 2.7% in July. From CNBC we learn that a new mutual fund is being formed called the Vice Fund which will invest in tobacco, gambling and alcohol stocks. Next to come will be the Bomb Saddam with Aplomb Fund. Since the techs are starting to move we are buying EMC at $7.30 to place in our more aggressive accounts. And we have begun picking up Goodyear Tire around $14.10 which is at a 20 year low. Since it is a heavy cyclical we are going to buy in smaller quantities to leave room to add more at lower levels. We bought 1000 EMC and 500 Goodyear in the Model Portfolio.

12:10pm and President Bush says he is looking to lower capital gains rates and the rate of taxation on dividends. What capital gains?

2:01pm and the DJIA is trying to follow the NASDAQ and S&P 500 into positive territory. Breadth is positive but volume is very light as befits a Friday in August. We paid $23.90 to buy Fleet Boston for our aggressive trading accounts. The stock yields 6% and with the IMF loan to Brazil FBF’s Brazilian loan problems are at least under control. We have a bid in at $19.80 for Ionics, the water treatment folks that we have owned off and on for the past twenty years. We’ve never last money buying the stock under $20.

3:02pm and the DJIA and S&P 500 couldn’t hold the high ground and both closed slightly lower. The NASDAQ gained almost 1%.

For the year the Model Portfolio is down 3%, the DJIA is down 12%, the S&P 500 is down 19% and the NASDAQ is down 30%. The Model Portfolio is about 55% cash after today’s purchases. We will post the revised Model Portfolio by Monday Morning.

And tomorrow is another day.

15 August 2002

8:22am and the stock futures indicate a higher opening. Haven't had time to read the morning news yet because we had to get the horses in the barn so the grandchildren could say good-bye to them before they head back to Kentucky later today.

The suggested bankruptcy of UAL is not a surprise although the maybe we will, maybe we won't attitude is the one that got the last CEO fired. Many pundits are blaming 9/11 for the demise of the airlines but few recall that The Treasury already provided a pretty good piece of change and indemnification to the majors. The airlines were headed for trouble before the tragedy, which only speeded up the process. We are looking at Delta and Southwest and Atlantic Coast, but we are only looking

The move higher yesterday by the markets seems to want to carry over into today but we think that the 9200 level on the DJIA will be a sticking point. Since that level is still 400 points higher we could see some good upward action in the next few days. We will continue are hunt and peck acquisition process although we will wait now for a correction or a move through resistance on the upside.

8:43a and stocks are slightly higher as Treasury bonds are weak. The hesitation moving higher is positive as selling is being met by buying at slightly higher levels. We are no going to dismiss out of hand the possibility that July may have been the low. We are inclined to watch a bit this morning and then we may commit a bid more money for some trading/investment plays.

CNBC has Representative James Greenwood from Pennsylvania on as its guest host this morning. We think he looks like Artie Johnson. He is reprising the NYT, WSJ, CNBC garbage about Martha Stewart. She can afford to defend herself, unlike the scientist Lee who was in the NYT crosshairs a few years ago. But the print press's pillorying of her is a smokescreen for ignoring the real, bad actors in the corporate world. Because she has been successful is a lousy reason to after her in a case that cannot be made.

9:27am and this market is going higher. This move is going to be the bear trap that destroys all the novice short sellers as they learn how painful shorting can be. We have repurchased the BMY at $22.74 that we sold for a profit at $22.53 a few weeks ago. We had been hoping it would back off but we want to own it and so we are paying up. It is down $1 from yesterdays close on old accounting news. We bought 500 shares of BMY for the Model Portfolio.

For trade/investment we also bought Cox Communications at $22 for accounts that hold Disney and Home Depot at $28.55 and Ford at $11.65 for those same accounts. Thus we bought 500 shares of each of the three stocks mentioned for the Model Portfolio. In our large accounts we bought some DIA at $87.86 to play the potential breakout today above 8850 on the DJIA.

We also bought LUV at $11.89 and JP Morgan at $24.50 and EMC at $7.20 in our aggressive trading accounts.

1:13pm and the kids are off to Kentucky, the horses are in the fields, and life returns to normal. Grandchildren are a true blessing.

With today's purchases we are betting that the DJIA will break out to the upside for a pretty good bear trap run that will drag along the out of favor stocks we own. If we are wrong, we are paying prices that may be 10% to high over the next few months but they are prices that will provide good returns after year-end. And we are still in possession of a great deal of cash.

3:02pm and at the close the DJIA was up 73 points, the NASDAQ gained 10 points and the S&P 500 also gained 10 points. Breadth was slightly positive and volume was light.

And tomorrow is another day.

14 August 2002

7:26am and as we get a late start the stock futures are a bit lower. Treasury bond yields continue to drop this morning. Theoretically the drop in yields will force folks into the stock market, and not theoretically but in reality the drop in yields is helping the banks recover from some sour loans. The WSJ reported that IBM laid off 15000 folks in the second quarter, twice the previous estimate. The WSJ also reported that Verizon is going to take $2 billion charge relating to the GTE merger of several years ago. It's a wonder how special charges occur every quarter for these companies as they try to manage reported operating earnings.

Oil prices are at two month highs as interest rates fall. Most of this morning's news seems negative, so we'll see how the markets react.

7:47am and Nicor says that it won't be able to certify financial results for 2002. Share price of GAS is down $4. That's the fear we have with all the utilities that were involved in the deregulated energy field and why we fled to the sidelines when we belatedly recognized this fact. We haven't lost interest; we just want the dust to settle and the markets to settle before we decide to venture back in to this area.

Household International is reducing earnings by $386 million since 1994. Ooops. We have never believed in HI and its' financials.

8:01am and the stock futures have turned positive. For the bull case we think a smash down to DJIA 8250 this am would clear the air and set up a good rally. A rise this morning will muddy that picture.

9:10am and the stock markets have turned lower as the ten-year Treasury breaks 4%. We have placed a bid of $9.01 for GMH. Echostar is down on Reports that Vivendi may sell its' ten per cent stake. In the merger proposal Echostar is offering .73 shares DISH shares for each GMH share. With DISH at $14.50 that works out to $10.58 for GMH. Our only worry is that if the merger deal falls through, GMH will be under selling pressure from the arbs. We'll have to add more if that happens so we only will only be establishing half a position in larger accounts to be ready for the possibility.

10:02am and the markets are rallying back slightly. GAS opened at $24 and is moving back to unchanged. So I guess no certification is a non-starter. Nevertheless we are avoiding the utilities for now.

The NYT reported today that the Federal Energy Regulatory Commission (FERC) has issued a report that says there is evidence that there was price manipulation in the California energy crisis of several years ago. Maybe by 2010 they will have figured the whole mess out. No fines, indictments or refunds are expected in our lifetime.

10:35am and the stock markets continue to meander at lower levels. Breadth is negative and volume is light. Short term Treasuries have given back a little. Once the yield dropped under 2% on the two year, some folks awakened to the fact that with Fed Funds at 1.75% there isn't a whole lot of room let for short Treasuries to rally without bumping up against the 1.75% ceiling.

Southwest Airlines, the most profitable airline and supposedly best run has been dropping of late. Seems institutional investors have finally realized that the faux socialist solution to the airline crisis being allowed by the courts with the assistance of former free market Congressional leaders and the White House are going to infringe on LUV's profitability. We don't understand why the folks who want free markets and open competition now feel the need to interfere and thwart the real effect of deregulation in a capitalist system.

Cox Cable is down from $52 to $19 but still is priced at three times revenues if debt is included. GMH including debt is selling for 1.2 times revenues.

11:17am and in our morning reading we see that News Corp is taking a $1.7 billion write-down to adjust the value of its Gemstar-TV Guide stake. NWS is happy to report that operating income grew 25%. According to Value Line in 1997 News Corp took special charges of-in round numbers-$500 million; in 1998 only $90 million; in 1999 $300 million; in 2000 $400 million; in 2001 $500 million; and in fiscal 2002, including the above special charge, over $5 billion. But operating earnings grew 25% in the fourth quarter.

12:01pm and as we watch UAL cross the tape at $2.20 per share we can't help but think of 1989 when the collapse of the proposed UAL buyout at over $180 per share caused the October mini-panic.

As the stock markets continue weak, we have lowered our GMH bid to $8.90. Ford is weak today and we think that is one reason that Goodyear Tire is weak off $1.60 at $13.21. We are interested in GT but are waiting for Ford to bottom. Both the stocks may go below $10 in this crazy market. Jim Cramer on www.thestreet.com reports that Ford bonds are off 4% today, a big drop. Cramer has been negative on F for a while and has been right. Of course we have been negative on the stock markets for three years and have been right, but that hasn't saved us from losing money this year.

12:49pm and another of our daily predictions bites the dust as an S&P buy program helps the stock markets turn positive. And back we go to snoozing.

1:44pm and the NASDAQ is now up 3% as the tech stocks regain the ground lost yesterday. The DJIA is up 100 points but it could just as easily be down 100 points and may be before the end of the day. We don't have any inclination to be buying. Our trading bug is hibernating and we really are looking for values that we can hold into next year. We don't want to shoot all our bullets now which is why we are pulling bids and treading softly.

2:40pm and today is the mirror of yesterday. Today's action may have something to do with options expiration on Thursday and Friday. Breadth today is not a good as it was bad yesterday. And volume is light. But this rally seems to have a bit more oomph than the pfft (that's air escaping from a tire) of the sell off yesterday. The S&P 500 has penetrated upside resistance and that is a real positive.

3:02pm and the DJIA closed up 260 points. The NASDAQ gained 5% and the S&P 500 rose almost 4%. We decided to buy GMH at $9.19 for our larger accounts. That was higher than our earlier in the day bid, but 50 cents less than our bid yesterday.

Something about today's move was too pat, but the bulls carried the day. And tomorrow is another day.

13 August 2002

7:02am and as we celebrate the 20th anniversary of the beginning of the late great bull market we prepare for the results of the FOMC meeting at 1:15pm and also the President's Economic Forum which is occurring in Waco Texas. At the forum the economic problems of the US will be dissected and corrected. Fear not help is on the way.

The stock futures are suggesting a down opening and from then on anyone's guess will work. We presume trading will be as desultory as the weather. Our big challenge today is to find our horses scattered by the one inch rain we had last night so the farrier may give them a pedicure.

American Airlines is laying off 7000 workers, in addition to the 20000 announced earlier, and reducing flights and services to save cash. Surely that will make flying even that more wonderful. This action is a continuation of the fallout from the bankruptcy of US Air. Can UAL be far behind?

Wal-Mart is lowering same stores sales forecasts to 4% to 6% from 5% to 7%. July retail sales were up 1.2%, without autos and their 0% financing retail sales were up. 2%. those numbers were expected. The two-year Treasury is yielding 2.07%.

7:47am and Merrill Lynch upgraded Neuberger Berman today. The shares are selling at $30.50. Could that upgrade have anything to do with the fact that last month Merrill was one of the underwriters of a sale of 3.8 million shares to the public by insiders? Do insiders usually sell when then think the price of their stock is going to rise?

8:19am and Ralph Bloch, a guru we like, still wants a retest before he will call a bottom. He says September/October is the scary but profitable time. He thinks the techs need to start moving higher for a reasonable rally to occur. The semis are the key. We don't have any desire to play the techs and we will stick with our old name stocks with assets and earnings,

10:35am and as the paint dries the stock markets have moved to the plus side in light trading. Really isn't much occurring.

1:40pm and the Fed does nothing. We are back from the barn for the rest of the day and not much has happened. Treasury bonds continue to rally and stocks are meandering. We have no great insights at this time.

2:23pm and as we doze to the finish there isn't a catalyst to move stocks either way. Just as we wrote the last line the markets began to head lower with alacrity. Looks like the DJIA may have to head back to the 8400 area get a bounce. We just canceled all our orders for today mainly because we don't want a fill in a down last hour. We think the hedgies may carry the sell off onto tomorrow.

2:35pm and the CEO of US AIR is on CNBC talking about how great the new airline is going to be after it emerges from bankruptcy. The US government is going to guarantee $900 million in loans. Wipe out the common shareholders and hooray for free enterprise.

3:02pm and the DJIA closed down 206 points. The NASDAQ lost 3% to close below 1300 and the S&P 500 was down 2.5%. There were twice as many down issues as up on both the NYSE and NASDAQ and down versus up volume was 5/1 on the NYSE and almost 7/1 on the NASDAQ. The only saving fact was that volume was light and the DJIA closed above 8450.

And tomorrow is another day.

12 August 2002

6:45am and so the airline bankruptcies begin. Yesterday US Air filed. They already have the financing to emerge from bankruptcy after wiping out the equity holders and reducing the debt. So the company officers, who were installed for the purpose of filing bankruptcy and the investment banks putting up substantially less money than most shareholders lost, now have the chance to wreak havoc in the rest of the industry. This is deregulation run amok. By US Air choosing the bankruptcy route all the other teetering airlines are going to have to file and wipe out their equity holders in order to be able to compete. Sorry folks, this is not capitalism at work.

The stock futures are indicating a soft opening. While this week is an expiration week and the FOMC meets tomorrow we have a feeling that the next two weeks are going to be slow. We'll see.

Several clients have mentioned that they have tried to trade one or two of the issues we mention on the website. We mention our actions to disclose what and why we are doing things in customer accounts. We would suggest that it is impossible to trade without being in constant contact with the markets. Thus we do not encourage day trading of our trading stocks because the variables involved are too numerous to explain. We don't day trade in our Model Portfolio and so those stocks could be considered for investment. But even then, we buy stocks as a package and as a complement, so we would discourage buying just one or two of the stocks we own, unless that is all that is in the portfolio. The one you buy may be the dog of the group. If you are going to follow us buy the package.

By the by, on Friday we purchased 1000 Great A&P and 1000 GMH for the Model Portfolio at the prices mentioned. That places the Model Portfolio at 23% invested. Our focus is on depressed stocks that have reasonable long term prospects. AT&T Wireless is selling for less than one times sales and the slowing in subscriber growth has positive implications for cash flow. AWE is the third largest wireless phone network and while debt approaches $10 billion, the need for continued huge capital spending is diminishing. Disney is on a multi year low and is totally discredited on Wall Street. CEO Michael Eisner is supposedly washed up and needs replacement. At present level the company's equity is priced at 1.3 times revenue. We will continue to add DIS to accounts thru the fall. Fleming Cos. is the largest wholesale food distributor in the nation. Owns 110 stores which it is considering selling. Stock earned $2 and sells at$12. We've owned FLM many times over the years, Footlocker is the old Venator which was the old Woolworth. New management has reorganized and closed underperforming stores and transformed the company into a seller of athletic shoes and equipment. Company is selling at less that ten times projected earnings. These projections have been lowered in the past few months which may be the reason the stock price has dropped from $18 to $10. That's a severe haircut for a few pennies of miss. We own as part of a package of out of favor stocks. Great A&P is a major grocery chain. Share price has dropped drastically. We made good money buying Super Valu and Kroger in the same type of sell off several years ago. Hughes Electronics is Direct TV, the satellite TV provider that is in merger negotiations with Echostar, Dish TV. Merger has been slowed but even if it falls through GMH is in a good position. We have owned twice before and realized a nice profit. Shares are at a multiyear low. Hain Celestial is also at a multiyear low. Hain sells natural food products and also Celestial Seasonings tea. Shares are priced at one times sales. Heinz owns 18% of company and something may happen next year when Heinz completes divestiture.

News Alert! Sam Waksal, former Imclone CEO has arrived at court. The way CNBC and The WSJ and NYT are playing this and the Martha Stewart non story is ridiculous. By overplaying this minor story the imminent bankruptcy of two or three major airlines, the highway robbery of Enron and WorldCom and Global Crossing investors by insiders and Wall Street investment banks are relegated to page 10. The media is purposely missing the big story because Wall Street banks and brokers pay the media's bills through advertising. Same goes for Congress and the White House.

Schering Plough has been under selling pressure for a year. SGP's blockbuster drug Claritin goes off patent at the end of the year. That will result in a loss of $3 billion in sales and big profits. SGP still as a stable of products and while they can't make as much selling Claritin over the counter, smart marketing can recoup the brand and create a Tylenol type money maker. We own a small amount of Wild Oats, the natural foods grocery chain that is being eaten alive by Whole Foods. We will keep any investment small while the share price is in the teens. They do seem to be getting their act together under new management that came in a year and one half ago. We are also following the three RBOC: Verizon, Bell South, and SBC and will continue to trade them as conditions warrant. We are also following Tiffany, Bristol Myers, Delta, EMC, Hewlett Packard, Goodyear, Estee Lauder, and Burlington Resources. If there is another large drop in the markets, we will trade the S&P 500 and DJIA Trusts listed on the ASE that mirror the movement of those measures. We may even trade the QQQ.

8:03am and stock futures are looking more down with Treasuries a bit stronger.

8:35am and already the DJIA is down 145 points. Scratch our no action comment at the top of the page.

8:57am and the CNBC guest expert this morning was Mark Cuban. He is a hero because he sold his tech company at the top and made a gillion dollars. Since he wasn't around to preside over the eventual dismantling of the company or the firing of employees or the investor losses, he is considered a hero by the money obsessed media. Can't figure out what makes him different from Ebbers to Naccio to Chance. There really isn't a chance, but I wanted to make the connection work.

9:01am and the market measures are all down over 1%. Maybe the week-end in the Northeast was lousy. Probably the hedge boys and girls are playing today.

9:10am and we are off to move a couple of loads of hay today before our son-in-law heads back to Kentucky. We have a bid in at $9.50 for more GMH and $10.50 for more GAP. We also are bidding on Reuters in small amounts for larger accounts.

1:10 pm and taking a break from the heat of haying. Stock markets are where we let them. We think the US Air bankruptcy may have reminded some folks of the lousy business climate. Basically though we think we are in the August doldrums and at a market level where no one has much conviction. We'll have a final post after our next load of hay.

6:33 pm and it looks like we didn't miss much today. FOMC tomorrow as the markets closed mixed in light trading.

And tomorrow is another day.

9 August 2002

6:23am and as we begin the day the stock futures are indicating a softer opening. CNBC is wallowing in the Martha Stewart story. Their next story is on Best Buy, which was clobbered yesterday by an 11-dollar decline. We used to trade BBY but quit doing that when we decided we couldn't understand their financials and how they were doing so well in a cutthroat business.

The last two days of rally have been because the IMF saved Brazil and in the process saved the US from unwanted financial crisis. In effect the US government has been bailing out the US banks for the past thirty years to rescue them from defaults on South American debt. We think that's OK, since we need growing economies south of the border and we are glad to see the Bushies choose reality over orthodoxy.

But Citicorp and JP Morgan still have a lot of answering to do for their participation and enabling of Enron and its financial scam. As more information is exposed it is obvious that these two banks and Merrill Lynch were integral parties in the criminal conspiracy. Yet these three entities cannot be properly punished since to do so would endanger the financial system. But the heads of these three outfits should be held responsible. And horses will soon start whistling.

As we watch the Enron soap opera unfold we think often of Roger Lowenstein's book When Genius Failed. When we reported on this book in our daily comments last autumn, we mentioned that we were struck by the banality of the characters that lead the major financial institutions on Wall Street. They were risking billions of dollars of other folks' money so that they could ride on a private airplane to a private golf course in Ireland. The underlying tone of the book forecast the Enron scandal and the continuing emergence of financial chicanery as long as there wasn't a sea change at the top tier of Wall Street leadership. There wasn't, isn't and won't be and so we expect these kinds of machinations to continue until change occurs.

7:34am and government numbers released this morning show that productivity improvement slowed from 6%in the first quarter to 1% in the second quarter. Unit labor costs rose from a negative number to up 4%. Productivity has been revised downward for the late 1990s. Funny thing, by revising those 1990s numbers downward we can expect current and future numbers to be better and better for the bull case.

8:47am and the DJIA dropped 100 points on the opening but has stabilized at that level. The sentiment is bullish and we along with many expect an assault on 9000 by the DJIA. We are buying Schering Plough, which sold off several dollars yesterday on an adverse court ruling on Claritin. The ruling was not unexpected and if there is going to be a further run higher in the averages, SGP should participate. Since it was on our list to buy we are only doing it a bit early and 15 dollars below where we last sold the stock. We are also trying to buy GMH at $9.60, which is 50% below our last sale. Finally we have a bid in for AON at $13.60 and for BGEN at $34.50. Those two bids are away and will only be filled if our rally thesis fails. We've been wrong all week on the direction of the market so that's why we have the bids in.

9:17am and bought Home Depot for trading accounts at $27.20. That's up from where we sold it yesterday but today HD is up in a down market. Yesterday t was down in an up market.

10:34am and the DJIA and S&P are in positive territory. The NASDAQ is still slightly negative. We are starting to buy Great Atlantic and Pacific Tea Co., GAP, at under $11 per share. They had some problems a few years ago but were supposed to have cured them. The share price is down from a yearly high of $27 and a high in July of $18. The stock dropped because when announcing earnings they also announced they were going to have to restate some earlier results. We think this a Kroger, Super Valu situation where we bought the stocks in the low teens and sold a few months after year-end for a nice profit. Also the current "street" wisdom is that Walmart is going to put all the grocery chains out of business. We are also picking at HAIN under $13 ahead of earnings.

11:15am and breadth remains negative as the major market measures turn down again. Fridays in August mean early to the beach and volume is slowing accordingly. Will the hedgies come out to play this afternoon?

12:15pm and the NASDAQ is down 1% while the DJIA and S&P are off ½%. Volume is light and breadth is bad. We were able to purchase some of the GMH at $9.60 and some GAP, which is A&P grocery stores not Gap clothing stores at $10.85. We placed these purchases in our smaller accounts and we plan to hold them for recovery after year-end

1:09pm and the markets meander. Jim Cramer of www.thestreet.com has just suggested that one event that might make the markets rise is for the US to seize the Iraqi oil fields and start pumping oil to bring the oil price down. We think Jim's mouth has outrun his brain on this one. America does not invade foreign countries so our stock market can go up, at least not in the 21st century.

2:03pm and the markets look like they are going to the beach too. Pepsi is trading at $44 and we would like to say we really missed the ball on that one. We bought and sold it at $42 before the July swoon, but we were too smart to buy it back at $36 preferring to wait until it got to $32. Ah well, maybe the September swoon will give us another chance.

2:20pm and a person from Schwab is on CNBC announcing a hedge fund for small investors. OKEE-DOKEE. We sold Home Depot at $28.25 for a nice $1 trading profit. We are buying small amounts of Reuters, the financial news folks in some of our larger more aggressive accounts at $24. We haven't owned this stock since 1987 when Don bought it at about the same price in August of that year. It's priced at ten times earnings. Since RTRSY is down so much in price, we wonder what Mayor Bloomberg's privately held business has lost in value?

3:02pm and the DJIA closed fractionally higher at 8745 above the recent July high of 8736. The NASDAQ closed 1% lower at 1306 and the S&P 500 gained 3 points.

For the year The Model Portfolio, which is currently 80% cash is down about 3.8%. The DJIA is down about 13%, the S&P 500 is off 21% and the NASDAQ is down 33%. We will post the Model on Monday.

And tomorrow is another day.

8 August 2002

6:27am and the stock futures are fractionally higher as we sit down at our desk for another day with the markets. The tone of the talking heads and Internet gurus seems much less frantic in the last few days. This can be ascribed to the fact that the markets have been rising rather than falling. All hope that the down days are over and sunny skies are ahead. While we are doubtful, we are open to whatever happens. We are willing to take positions in stocks that over react to news and AON's fall from grace yesterday is a good example.

AON is the second largest insurance broker in the country. The SEC is investigating past revenue recognition and may require them to restate earnings. The CEO of AON, Pat Ryan, has been around a long time and has a sterling reputation. We are betting on that reputation. At current levels the stocks has a 5% yield. In volatile markets opportunities arise and we think AON may be one. For the present we have only purchased the shares for a trade, but we may buy more in the next month if we become more comfortable with the recent news. By the way, the stock symbol for AON is AOC.

7:04am and our, one day up next day down, theory will be tested today. We are giving ourselves leeway on this theory. We have been positing that the stock markets are not going significantly higher until after a wash out in the September/October time period. Until then we believe that the myriad hedge funds that have sprung up in the last few years will remain in control of the vacation vacated stock markets. Since the DJIA is back above 8400, today should be a down day for our up/down thesis to have validity.

7:10am and Talbot's same store sales were down 19%. This was better than expected. Maria, the mouth, says these numbers are great because even worse numbers were expected. This comment shows that bad news is now good news again.

7:21am and courtesy of Bill Fleckenstein at www.realmoney.com we learned today that Fed Chairman Alan Greenspan has been knighted by Queen Elizabeth. So now he is Sir Chairman. In early trading Treasury bonds seem to be under some selling pressure. Three days up in a row would probably kibosh on any Fed rate cut at next week's FOMC meeting. The IMF provided a $30 billion loan guarantee for Brazil. So Chase and Citi are safe for another year.

7:31am and PPI fell .2% with core PPI down .3% and continuing unemployment claims were down 15,000. S&P Futures are holding their gains. Talking heads on CNBC are saying that the bottoming process is occurring as in 1973/74. Goodbye easing. Lots of media, lots of young folks trading, lead to a lot of volatility. The PPI number is the result of companies firing folks to bring costs down. Hooray! That tactic is the opposite of the great growth period after WWII and it's the reason we never believed the boom of the latter 1990s, for the supposed productivity increases were based on replacing workers with machines. Job growth was in the service area and from folks taking their retirement pay and buying McDonald's franchises. Fast food joints and other franchise establishments allow folks to work twice as hard for half the money with no hope of saving enough for retirement.

7:43am and we are reminded by technical analyst, Gary Smith, at www.thestreet.com, that the Depression low price for the DJIA was made on July 13, 1932. So have faith, the worst may be over. In our mind, the imponderable for the markets is war with Iraq. We think the military is going to try a limited Special Forces operation. We presume all the articles and news leaks about a major action are for the benefit of obfuscating whatever action is being planned. Even so, until the operation is completed, whatever it is, there is a lid on how far up stocks can go

8.10m and the stock futures are giving ground. Maybe the no rate cut reality if stocks rise is bumming the hedge fund jockeys. Short end of bonds are giving ground.

8:46am and after initially opening a bit lower the DJIA is now higher by a bit less that 1%. The NASDAQ is flat and the S&P500 is up 1%.

9:35am and the DJIA is flat while the NASDAQ is down 1%. The major banks are strong with C up $2 and JPM up $1.50 on the Brazilian bailout. We'll be looking at them in the next pullback. Don't know why the markets are meandering except for the fact that the more the markets rise the less likely the rate-cut, which is why the markets are rising.

We bought more AON at $14 to add to accounts for a trade. We are bidding on some HAIN ahead of earnings and would like to add Disney to more accounts if DIS comes in just a bit more.

10:09am and reports of mad cow disease in Canada have McDonalds and Wendy's dipping a bit.

10:21am and the NASDAQ is lagging the DJIA. We think one reason for this reversal of the recent trend is that most of the tech companies are refusing to expense options, while more of the old line blue chip companies are going to expense options. Obviously, expensing options would have a mush greater effect on earnings of tech companies. But we think institutional investors are guessing that at some point some pension fund and non-profit investors are going to tell their money managers to avoid companies that don't expense options.

11:05 and we bought Home Depot at $26.80 for our trading accounts. We also picked up a little HAIN at $13 including 500 shares for the Model Portfolio.

12:34pm and the stock markets are climbing steadily higher. The DJIA and S&P are both up 2% and the NASDAQ is close behind. We've been adding a little Wild Oats to larger accounts at$12.07 including 500 shares in the Model Portfolio. OATS came in with decent earnings and modest same store sales growth with their most recent earnings report. The company does not plan to open any new stores this year and we think that is wise. We are not going to make OATS a big item in accounts because the last time we did that we were blindsided. We also are trying to buy Direct TV a k a Hughes Electronics at $9.65.

1:54pm and we sold our trading position in AOC at $15.18 for a $1 per share gain. Since the stock traded at $13.50 today, and we had a quick no sweat profit we decided to take what the market gives. We weren't able to get the GMH at our price so we have cancelled the order waiting for a better day with a lower price. Entering the final hour the major measures are up 3%. We are having yearly moves in stocks in the space of a few days. Most folks seem to be joining the bull camp and the opinion that a bottom has been formed. We haven't and we don't.

2:27pm and with the DJIA up 200 points Home Depot has not rallied and so we are selling our trading position at $27 for a scratch. If HD won't rally more than 20 cents on a 200-point move in the DJIA we'll sell now and look again tomorrow.

3:02pm and the stock markets are closing on their highs. The DJIA, S&P 500, and NASDAQ were all up over 3% for the day. We have retired our up/down theory and are now going bike riding to develop a new theory of market behavior. Maybe the random walk theory is for real.

7 August 2002

7:23am and as we sit down to a new computer on another glorious day the stock futures are again pointing to a strong opening. The futures are all up over 1%. We remain about 10% to 15% in stocks and we have no desire to invest more at this time. We'll await the next sell off.

Cisco's earnings were better than expected but sales were a little less according to a few of the analysts we read. NASDAQ stocks have been stronger than the DJIA for the last few days and it looks like that will continue today.

8:43am and stocks are up 2% on good volume. All the talking head talk is of Cisco. We have no interest at these levels. Market value is $90 billion less $20 billion in cash equals $70 billion. That market cap is about 3.5 times stagnant sales. With a share price of $13 and real earnings of about 40 cents a share the company still sells at about 35 times no earnings growth. Sales are shrinking and may do so until Lucent and Nortel go broke. If those two companies don't go broke the stock is overvalued. That doesn't mean Cisco isn't a good trading vehicle but we just don't have the inclination to trade it at this time of year since we think the upside/downside is equal.

9:09am and profit taking is shrinking the market's gains.

10:17am and on cue the stock market measures have moved to the negative side. Now we will see if the bulls or bears are stronger.

We read today in the NY Times of AON having trouble with their financials and that they are being investigated by the SEC. AON is a Chicago institution and it is really striking that Pat Ryan's company would do anything untoward. In this kind of market we will avoid the stock, but the shares are intriguing given Ryan's reputation.

10:56am and both President Bush and V.P. Cheney are talking at the same time on CNBC. Talking Heads two. Bush wants to cap medical malpractice awards. Cheney is saying that the vast majority of CEOs are honest. Also that with the revisions that occurred last week it is obvious that the recession that all the White House was denying last year actually began in the first quarter of 2001. Thus the recession is Bill Clinton' fault. Cheney wants to make the tax cuts permanent. Also give terrorism insurance to real estate so that building can continue.

What about the folks losing their jobs? What about the poor? What about rising medical/drug/insurance costs for ordinary folks? Our own medical insurance just increased 20% and our daughters the same. While we can afford it we are now paying $5500 a year for a policy with a $2500 per person deductible and a 90/10 share of the next $5,000. The maximum lifetime benefit is $2 million per person. We are happy to have the policies, but the cost of our policy prices it out of the reach of most folks making thirty to fifty thousand a year. End of our soapbox diatribe.

11:11am and the markets are in a meandering mood moving plus and minus in light trading.

12:35pm and the markets are negative again with breadth figures also deteriorating. There doesn't seem to be a pattern to the weakness although some stocks like the RBOCs have given up all their gains of the past week.

1:04pm and the Martha Stewart saga is back on CNBC. We saw an interesting TV clip yesterday during a negative piece on Gary Winnick, the former CEO of Global Crossing who walked a way with hundreds of millions of dollars from share sales before the company filed bankruptcy. The clip showed Winnick playing golf with Bill Clinton. Certainly a cheap shot, maybe even out of bounds, but then typical of smear TV. Wonder if these same folks have a clip of Martha bussing Clinton at some White House function. If they do we're sure we'll be seeing it.

1:30pm and AON is off $7 per share. We couldn't resist a trading buy and just bought shares for our trading accounts at $14.

2:08pm and entering the last hour the stock markets have rallied. Advancing issues outnumber declining issues on the NYSE. And up volume is greater than down volume on both the NYSE and the NASDAQ. These measures are the breadth of the market that is often referred to in financial reports. When there is more up volume than down volume - which means that there are more shares of stock are trading at higher prices for the day than shares of stock that are trading at lower prices for the day, we say that up volume exceeds down volume. Since one company could trade a billion shares and be trading higher, while 1000 companies could trade 900 million of their shares at lower prices the up volume would exceed the down volume. The up/down volume measure would thus be on the plus side even though 900 issues were trading lower and only 1 was trading higher. So the other measure that goes hand in glove with up/down volume is that of how many companies are trading at higher prices versus the number of companies trading at lower prices. This is called advancing issues versus declining issues. This measure does not care how many shares of each issue are traded, it only cares whether the stock's price is higher or lower than yesterday's close. To say the stock markets had a bullish day one also wants to see more advancing issues- those at higher prices - than declining issues, coupled with more up volume than down volume.

2:24pm and the stock markets are now up over 1%. So much for our up day followed by a down day theory. But today the DJIA is stronger than the NASDAQ.

3:02pm and the DJIA closed up a very strong 2%. The NASDAQ was up a bit less than 2%, while the S&P 500 gained 2%.

And tomorrow is another day.

6 August 2002

6:43am and as we settle in on a gorgeous August morning we find the stock futures higher. European bourses with the exception of the UK were up overnight and coupled with a little bargain hunting that has given a better tone to the opening. Supposedly there is a German asset allocation program occurring as reported on CNBC. But it also means that if the rally fails, which we think it will, it is look out below day.

7:02am and CNBC is back on Martha Stewart's trail. Must be a slow news day. We thought Barton Biggs, guru from Morgan Stanley, had give the all clear signal to the markets. CNBC is reporting this morning that he is saying that the markets have to retest the July lows.

7:50am and the stock futures are smoking higher with The DJIA and NASDAQ both up almost 2%. Don't know why. If the rally holds all day then yesterday morning's early comment that the markets were going to be subject to a series of 200 point up and down days courtesy of the hedge fund folks not on vacation again becomes operative.

9:04am and our brother Jody has arrived to install our new computer. So we have been a little out of the loop for the last half-hour. The markets are up 2% as forecast by the futures. We have our Biogen trade in to sell at $36 if we are luck enough to catch a two-point pop. Now we have to see what will happen for the rest of the day.

9:29am and today the screen is money green as bulls are holding sway, but fear not bears for we all know it is a long long day.

11:02am and we sold the BGEN for $35.53 or a $1 profit. BGEN is back to $34.25 but we aren't going to press our luck. Tomorrow is another day. Also, our Monday morning surmise of up 200, down 200, is holding so tomorrow should be a down-200 day. In keeping with this thesis, we sold the BMY at $22.56 for a $2 per share profit. Bristol Myers is cheap but so are the other mainstream stocks we sold last week. We maintain our low in September/October belief and so we think we'll have a chance to buy the BMY cheaper. The money raised pays for the purchases of yesterday in most accounts.

11:58am and the stock markets continue to surge higher. Stocks are now up more than they lost yesterday. Correspondingly, the imminent loosening of 75 basis points by the FED that was widely predicted yesterday has now been placed on hold by the rise in stocks. Do folks really believe that the FED makes decisions based on the daily movements of the market?

3:02pm and the stock markets closed up today as much as they closed down yesterday. Tomorrow is the rubber day to tell if the hedge funds are in control.

5 August 2002

7:20am and the stock futures suggest a slightly down opening. On our way down to the office this morning we were thinking that the markets might go into a holding pattern for the next few weeks. That's because many of the major players will be on vacation. We wouldn't be surprised by 200 point up and down days because the hedge funds remain active, but while hedge funds seem to be in control of the day to day action of the markets, the overall trend is still determined by the outlook for the economy.

A client wrote and suggested that Footlocker and AT&T Wireless and Fleming should not be considered investments. Fleming shouldn't be considered one because it pays no dividend, AT&T Wireless because it has no earnings and Footlocker because it sells at 18 times earnings.

To us an investment is what we own in the portfolio. It may not work out, but as long as we own a stock, it is an investment. We make no claim that the stocks we own are going to change the world. We own stocks for the purpose of earning a return over the short or long term. In volatile times such as these we sometimes wonder why we try. It would be easier to sit on cash and go to the beach. But we are paid to use our judgment. And it's our belief as we try to pick and chose in the next few months, that non nifty fifty issues will offer the best reward since they are being kicked out of portfolios with abandon. These issues are more volatile but we are sticking with stocks we know and have traded over the years. Hopefully a year from now, with hindsight, our purchases will make some sense.

7:37am and the economist for CNBC is discussing whether two recessions back to back are double dip recessions or two recessions back to back. And can a camel pass through the eye of a needle?

8:37am and the market have opened a little lower on light volume. There is not much news to move the markets and the only remaining major earnings announcement is Cisco on Tuesday evening. We are adding more Footlocker at $9.50, and may try our Biogen trade at the $34.50 level in a while.

9:04am and we bought the Z. We have a bid in for AT&T Wireless at $4. We are going to try the Biogen since the markets look like they are going to be plus or minus 1% all day. At the present the measures are off 1%.

9:10am and the five-year Treasury is yielding 3.16%. Unless we are in depression that yield entails a substantial risk to principal for those who are buying to hold for a couple of years. The risk/reward ratio didn't seem reasonable when the notes were yielding 4.5% so that risk is greater now. The Treasury is going to sell $22 billion of the five-year tomorrow.

10:04am and bought the Biogen during a sell program. Also bought the AWE at $4 to spread around in accounts, including 1000 shares for the Model Portfolio. We purchased a bit more Footlocker at $9.50 including 300 shares for the Model Portfolio. We believe that we need to invest as the markets sell off if we are to have the ability to trade these rallies. Also some of these stocks are going to make their lows early and while we aren't trying to catch the absolute low, as investors we want to invest when we see stocks we like at attractive valuations. We were doing that several weeks ago when the abrupt 1200-point rally intervened and put us in a sell mode.

11:15am and the major stock measures are down about 1.5%. Breadth is bad and volume is light. We are buying stocks at what we consider to be good value whether the DJIA is at 8000 or 5000. We are buying slowly and with the knowledge that it may be a while before we see any significant gain. Since Fleming and Footlocker and Hain are out of the mainstream they will tend to stabilize at investment value rather than program related value. That's OK. Fleming is down because analysts are questioning the quality of its earnings. Fair enough. We think the sell off is overdone. AWE is down because no one wants to own any telecom stock. Fair enough, we think that at less than one times revenues AWE is a good value. Hain is selling at one times sales. BMY is a down and out drug company with a good dividend, lousy CEO and problems. The definition of the kind of stock we have always bought.

11:56am and the markets continue their low volume drop. We are adding Disney to accounts at $14.20 including 500 share for the Model Portfolio. We may be early on some of this stock, but we are buying to own at these levels, not to trade, unless we get a 1000 point run as we did last week. As we said two weeks ago, we like buying the low volume sell off because we have time to bid and make up our minds.

12:38pm and we just read that an analyst at Soundview has upped his rating on three optical stocks from under perform to neutral. Now that is a ringing endorsement. With most of these former high flyers priced at less than five dollar stocks we think the analysts should just rate whether or not they are going bankrupt.

1:02pm and the DJIA is approaching 200 points down. There are no rallies today. The cable stocks are being decimated; in fact so many stocks are down our screen looks like the Red Sea.

1:50pm and we are coming up to crunch time. If we don't rally this last hour, tomorrow is going to be a real tester. A rally in the last hour will postpone the inevitable, but our timetable calls for the inevitable to occur in September/October.

1:57pm and a young guy is on CNBC talking about his book about how to make money flipping real estate properties. The author says there isn't much risk because the "flipper" only holds the properties for a few weeks or months. HA!

3:02pm and no rally occurred. Don't know how those folks in the Hamptons and the Capes are enjoying their vacations, but we would guess they have had better. If we were down as much as some of the mutual funds are, we wouldn't be on vacation. In fact we aren't on vacation but then we never are. The DJIA, S&P and NASDAQ all closed over 3% lower. So much for our morning prediction of plus or minus 1%

And tomorrow is another day. Should be an interesting one.

2 August 2002

6:36am and this is a bad way to start the day. Larry, "I am an economist", Kudlow is on CNBC as the guest of the day pontificating about how the tax rate on corporations is too high. Since he also thinks the tax rate on individuals is too high we wonder whom he thinks should support the budget needs of this country. We know, cut spending unless it is anybody's favorite program.

We raised a lot of cash the last two days and we are a bit ahead for our trading; by no means back to even for the year but this is a stingy market unlike the markets of a few years ago. Had we not had our brief unprofitable foray into the electric utility stocks, we would have had a better trading result. But hopefully we learn from our experiences. It's one thing to buy a can of worms to go fishing, and it's another to buy a can of worms as an investment. We know the difference, but sometimes we forget.

On this subject we were reading the New Yorker last night and came across an article by James Surieowki in which he wrote about the confidence that investors used to have in "white shoe" firms such as Goldman Sachs. He mentioned that investors formerly believed that if Goldman or Salomon or maybe even Merrill were placing their names on an IPO and vouching for the value represented that an investor could be reasonably assured that the company being offered was a real company. No longer is that the case. We mention this article because we learned that lesson back in the IPO boom of 1983 when we bought a company whose name we have long forgotten. It proceeded to head south with alacrity and we questioned our investment decision to buy, We remember thinking that the company must have some value since Salomon Bros., which was among the top firms back then, with Henry Kaufman as guru, had underwritten the company. Sorry to say we were mistaken and we received an expensive but long lasting lesson in the perfidy of the two sides of Wall Street. Actually that's why we quit being stockbrokers and became money managers. A stockbroker works for the firm that employs him/her. The stockbroker sells the products the firm says to sell and the stockbroker uses his/her clients acquired as a means of distribution of the firm's products. A stockbroker's earnings depend on the firm and his/her clients belong to the firm not the stockbroker.

A money manager works for his/her clients. The money manger's earnings come from the clients. If the money manager does not perform for the clients, the clients leave, and the money manager becomes a cab driver. This is Capitalism at work in its best form.

7:10am and Disney is trading down $1.50 on lousy earnings. National Semiconductor is warning. And the probe of AOL by the SEC has been expanded. Rioting in Uruguay, Brazil is a basket case, Colombia is an armed camp, Argentina is bankrupt and the US is trying to overthrow the government in Venezuela. South of the border's economic problems are being ignored by the US at our peril. What ever happened to the One Americas hoopla?

Even Kudlow sounds a little worried about the dreaded double dip recession bogey person.

By the by, Cisco said it would sign the affirmations but not till September, which dispels one of yesterday's rumors. If Cisco required the expensing of options, reported earnings would be 40% less.

7:31am and the unemployment rate is unchanged at 5.9%. The average work week shrank, and involuntary part time workers increased to 4.1 million from 3.9 million. Non farm payrolls up only 6000. And all these numbers will probably revised downward next month. Can anyone say Japan circa 1990.

The Treasury bond futures are suggesting a Fed rate cut in one of the next two meetings. The S&P futures are under 883.

The FED meets on August 13th, which marks the 20-year anniversary of the start of the bull market that ended in March 2000.

8:11am and the futures are not as bad as would be expected given the lousy economic numbers this morning. Don't know what that means for the day. Disney is probably going to test the $15 low again made when the Bass brothers sold their stake.

We are off for a haircut and will be back at 9:15am.

9:16am and the markets are doing well considering the negative economic news of the morning. Yesterday's sell off may have been the result of the artificial push higher in the DJIA on the last day of July.

10:06am and we just finished talking with a valued client. He had asked our opinion of Lucent's bonds earlier in the morning. We have an aversion to high yield bonds to begin with. We learned that the Lucent 7.25% due 2006 are trading in the low $60 range. We were surprised because we thought that with Lucent's problems they would be trading in the $30 range. One reason they aren't is that those bonds are owned by a lot of junk bond funds and if they were valued in the $30 range the funds would be showing even greater losses than they are. We assure you that if Lucent files bankruptcy those bonds will lose half their current value over night.

At $62 the bonds yield 21% to maturity. If an investor really believes they will mature, the investor would realize a much better return buying the common stock at $1.50 per share. For if those bonds are paid at maturity the common stock will be trading at least 200% higher. Ah, we hear the naysayers saying not to buy the common because the company is going bankrupt. We don't disagree that the company might go bankrupt. But if it does, the bonds will lose half their value and the holder will face a one or two year ordeal of waiting for Lucent to emerge from bankruptcy. And when it does emerge, the current bondholder will probably receive a blend of bonds and equity not worth much more than $30 to start.

The phony pricing of junk bonds is one of the great unspoken realities of mutual bond fund investing. The controlling of the pricing and concentration of the bond holding is similar to the concentration of stock buying by Janus and Fidelity funds which causes huge run ups in stock prices when they are buying, and startling collapses in stock prices when they are selling.

And when stock futures on individual stocks begin trading in September, the volatility is going to be even greater.

10:31am and the markets are off across the board about 1.5%. Uh oh, President Bush is on CNBC live. DJIA is down 120 points. Think he is off on vacation for a month.

10:49am and all of a sudden bids are evaporating. Maybe it's beach time in the Hamptons and on the Capes.

10:52am and they just had a story on the Hershey Foods imbroglio on the tube. The Foundation wants to sell to diversify. The town, the governor, former trustees and school students all want the company to stay in Hershey, Pa. We are on the side of no sale. Wouldn't want to be buying our Hershey Bars from Nestle. They already own Ben & Jerry's which we had to stop buying when Nestle bought Dreyers Ice Cream which owns B&J.

12:02pm and we are back from chasing some cows out of a pasture in which they didn't belong. We let the bull jump the fence to get back to the cows.

Markets are now down 3%. CNBC has some inane golf tournament on. Interviewing golfers as the markets crash is a wonderful metaphor for the current budget dilemma. Glad we did our selling before the rush. Can't see a big rally on a Friday in August in a bear market. But who knows. We are back in Fleming for a trade/hold depending on the afternoon. The AT&T Wireless and Fleming and Footlocker or Woolworth (Z) as we still call it are suffering along with all the other stocks. But we do like them as investments. Z is at 9 times earnings, AWE is at less than one times sales and FLM is as 4 times earnings. And in most accounts we are back to 15% or less in the market. We still own BMY and Hain also in many accounts.

The interest rate gurus are now predicting 1% FED FUNDS by October. These are the same gurus who last spring were predicting aggressive tightening as the economy recovered. Can anyone say Japan circa 1990?

Interest rates are not the problem. All the goofiness of the late 1990s is the problem. Out here in the Kickapoo Valley a lot of folks work construction. And up until a few weeks ago many of the construction workers were still laying fiber optic cable in various parts of the country.

Aggressive easing is in the cards. Two-year Treasuries are under 2%. The Fed keeps rescuing banks and business from bad decisions by taking money out of the pockets of savers. Low rates are forcing folks who live on interest income and don't want stock risk to buy bond funds. That's bad news in the long run for them. First folks lost money in stock funds and they are going to lose in bond funds because they are buying the higher yielding funds, which entail the most risk. The fleecing of Americans continues.

12:36pm and a story about disposable cell phones is on CNBC. Our disposable society may cause our grandchildren to pay a high price for our own temporary and ephemeral conveniences. Or maybe recreating diapers and real china and glasses will become the new business mover of the 22nd century.

12:41pm and the stock markets need Listerine or Scope for their bad breadth. Can't seem too rally much as volume dries up. The low volume is the only plus today, but these 200 point a day DJIA drops are going to get us back to the 7500 test too fast for a successful test to succeed.

2:04pm and the markets are heading lower in the last hour. We are setting up for the Monday Tuesday crash scenario again.

3:03pm and the markets closed lower but off the bottom. All three major measures were down over 2% at the close.

In the last two days we gave up our gains for the week in the Model Portfolio. The value of the Model Portfolio is approximately $409,800 and so it is down $20,000 or 4.8% for the year. We are 88% cash and 12% in stocks. For the year the DJIA is down 17.3%, the S&P 500 is down 25% and the NASDAQ is off 36.7%.

We are taking the weekend off and will post the Model on Monday.

Tomorrow is another day.

1 August 2002

7:03am and as we stumble in from the birthday party chuckycheeseover we see the stock futures fractionally lower. Maria, the mouth, is on CNBC talking about Cisco and not saying much. Qualcomm is under pressure because CS First Boston is negative and Adobe is trading off $5 because of bad news. Yesterday the NASDAQ did not recover at the close and the action money seems to be concentrated in the DJIA. We are hoping for another 500 points from the DJIA before the rally rests.

7:31am and the number of the day -- jobless claims -- has just been released. Claims were up 20,000 to 387000 which is about the four-week average. This number causes no reaction in the markets.

8:15am and back from helping the birthday boy take his early morning ride on Sylvia the horse. Nothing much has happened with the futures to give an indication of the day. We guess that the NASDAQ will continue underperforming and since we are in a new month it will be interesting to see if any of the folks not at the beach are in a buying mood.

8:57am and the markets are off fractionally but looking to go higher. The NASDAQ remains in a funk. The seller in Fleming is still around and so we are placing a bid a $1.50 below the market. The seller is dumping stock into a vacuum and when they are through there should be a nice pop. Earnings estimates for the company are in the $2 range. It's a volatile stock. High for the 12 months is $37 and low is here. The announcement of selling the discount grocery stores seems to have disturbed the market for the stock. The reality is that there are few buyers for this kind of stock in this kind of market.

9:03am and we are selling the ABS at $28 we bought a few days ago because we are building a position in the Fleming and we don't want to over concentrate in any area.

9:07am and the DJIA is down over 100 points. We are entering bids at $34.50 for Biogen and $16.50 for Disney for our trading accounts. Those bids are below the market price but we are trying to trade the volatility in those two issues.

9:47am and the DJIA is now down 168 points and the NASDAQ is off 2%. The 883 level on the S&P 500 remains important in that according to the technical folks that level can't be breached without significant damage to the rally. The S&P is currently at 891.

Several clients have called expressing concern that their realized losses are quite large this year. Our response is that we never look at realized gains and losses till year-end and then we hope we have losses rather than profits to mitigate tax consequences. We are not being flip with this answer. The most important number to be aware of is the total equity figure, which is the overall value of the account. You'll notice that that is the only number we refer to when mention the performance of the Model Portfolio.

Thus if at the end of last year an account was worth $429,800 and it is currently worth $416,000 that account is down $13,800 or 3.2%. ($13.800 divide by $429.800). Another example is if an account was worth $1,400,000 at year-end and has taken out $85,000 we adjust year-end value by subtracting the $85,000 removed from the account from the value of $1,400.000. That would give the account an adjusted year end value of $1,315,000. If the account is now worth $1,275,000 it has lost $40,000 in value. $40,000 divided by $1,315,000 shows the account is now down 3% for the year. The actual realized losses for tax purposes may be greater than the $40000 drop because some of the lost value may have occurred in prior years and thus the some of the loss would be accounted for in the year end value.

We would note further that an account down 3% that was up 18% in 2001, and 1% in 2000, and 42% in 1999 is performing better than 95% of all accounts being managed in the world. So while we don't like being in a loss position anytime, we are very proud of our long and short-term record.

10:10am and we learn that Morgan Stanley has cut its rating on Fleming and changed its price target from $28 to $22. They did that yesterday. Morgan Stanley estimates Fleming will earn $2.50 this year and $3.40 next year. UBS Warburg cut its rating on Fleming today and cut its price target from $22 to $12. UBS estimates Fleming will earn $2 in 2002. So Fleming is selling at five times earnings or below. CNBC is saying the earnings revisions are revolving around a discussion of the quality of earnings. Whatever, we are buying.

10:25 and a rumor is floating that Cisco is not going to certify its financials. Down goes the stock market with the DJIA off 212 points or 2.5% and the NASDAQ down 3%.

10:40am and we bought the Disney at $16.95 (we raised our bid) and the Biogen at $34.50.

11:23am and CNBC has Jim Glassman the author of Dow "36000" on to tell us that stocks are less risky than bonds. For long term investors stocks were not and are not wildly over valued. Doesn't make any difference when the DJIA hits 36000 to Glassman. Guess he is going to live forever. It will happen in his lifetime. Japan anyone? Young folks shouldn't worry about the ups and downs. He reminds us of the politicos who are saying now that yes they knew we were in a recession last year. Even though last year they said we weren't.

11:38 and the markets continue lower because the ISM number was 50.1 which means that manufacturing is slowing. This places the growth folks in a bind. Also news reports have President Bush and Chairman Greenspan having lunch today. For the last five days bad news has been ignored but today bad news and good news are bad news again.

12:36pm and the stock markets remain lower but the selling pressure seems to be abating. We've completed our purchase of Fleming and we own the stock at $11.87. We think the selling is overdone in this issue. We are buying it for a trade to reduce the higher priced stock we own. We sold all our SBC $27.30 for a nice profit and now our only remaining telecom stock is Verizon. We sold Biogen at $35.40 for an 80 cents per share profit.

1:15pm and the rumor mill is rumbling about Citicorp and Jack Grubman the analyst and Sandy Weil the CEO and what was said to whom about AT&T to get Grubman to upgrade. Don't like the rumor mill so we are selling all our Verizon for a profit or loss as the case may be. That raises a nice bit of cash. The RBOCs have been active and playing catch up and we think they may back off again.

2:06pm and a mini rally is underway. We are using it to reduce our Fleming position by trading out of most of what we bought today for a 45 cents profit. We would like to hold a large position in the stock but the market is too dicey. We finished selling our Verizon and our average price was $32.21. We sold the whole position in the stock. We also sold Disney trade for a scratch.

2:42pm and we bounced off 883 on the S&P 500. Not rallying off that number but bouncing so the jury is still out.

3:02pm and the markets close on their lows. GM announced July sales up 24% and the share price dropped 75 cents and the DJIA sold off another 100 points. At the close the DJIA was down 229 points or almost 3%, the NASDAQ was down 4%, and the S&P 500 managed to close at 884, thus avoiding the dreaded 883 technical breakdown number.

Easy come, easy go, and tomorrow is another day.

August 2002 Thoughts

July 2002 Thoughts

June 2002 Thoughts

May 2002 Thoughts

April 2002 Thoughts

March 2002 Thoughts

February 2002 Thoughts

January 2002 Thoughts

December 2001 Thoughts

November 2001 Thoughts

October 2001 Thoughts
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.