Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
Toll free phone numbers:
15 August 2008
We are taking a
vacation from writing and so the next post will be September_2. The Model Portfolio will be
updated on Friday the 22nd and Friday the 29th.
Gold is under $800 as the trading
day begins. Oil is $113 and Asian markets were mixed overnight with European
bourse indexes also mixed. Treasuries are firm. The Georgian/Russian imbroglio
continues and clearly Russia is asserting its influence and staying in Georgia
with the West not being able to do anything but spout words. The Baltic
countries and Ukraine are next on Putin’s list. What was that about Bush looking
into Putin’s soul and seeing it was good?
Triple Witching ends today and
then the unwind will occur on Monday with retail earnings to follow as the
remaining items of the month on which traders can focus.
column today in the NYT is an interesting read: http://www.nytimes.com/2008/08/15/opinion/15krugman.html?hp
Oil is down $3 at $111 and that
is providing a floor on stocks. The Major measures were higher out of the gate
but moved back to even after the first hour of trading. They are now moving
higher in the second hour.
According to the WSJ the
two-year-old hedge fund ($3 billion at start) founded by Jonathan Wood, a
former UBS AG trader, is down about 85% from its inception through July,
according to a person familiar with the matter. Mr. Wood, known as an outspoken
investor, has seen his investments in several high-profile casualties of the
global financial crisis sour, including Bear Stearns Cos., Countrywide
Financial Corp., and U.K. bank Northern Rock PLC. The fund's problems
underscore a lesson for investors: Traders who perform well at banks don't
always fare as well at hedge funds. This year has been tough for many money
managers, particularly those invested in the financial sector and, more
recently, commodities. Hedge funds were down 3.5% for the year through July,
according to data tracker Hedge Fund Research. Mr. Wood generally takes a
long-term approach to investing. His flagship SRM Global Master Fund holds
large equity positions in companies involved in mergers, financial
restructurings and other corporate actions. This year, the hedge fund was down
about 77% through July, which comes on top of a roughly 34% decline last year, the
person familiar with the returns said. From the fund's 2006 launch to the end
of July, the S&P 500 index was down 3.3%. Mr. Wood's company, SRM Fund
Management Cayman Ltd., is registered in the Cayman Islands, with offices in Monaco. (Our offices
are Hinsdale, Illinois and Rolling Ground, Wisconsin.)
The phrase Past performance is not an
indication of future performance comes to mind.
We commented on the
questionableness of Wells Fargo’s
earnings at the time:
From this morning’s WSJ: Wells
Fargo's stock is down just 10% over the past 12 months, a period that has blown
up other banks' balance sheets and sent the KBW Bank Index down 36%. But it is
time to rein in the optimism about Wells Fargo. Second-quarter results, posted
in mid-July, showed that Wells Fargo's bottom line got a sizable boost from
volatile trading income and a write-up of some mortgage-related assets.
Investors shrugged, bidding Wells Fargo's shares up nearly 50% since then. But
new financial disclosures, contained in a quarterly financial filing released
Friday, bolsters the fear that Wells Fargo's earnings aren't all they are
cracked up to be. The first area of concern is illiquid assets, termed
"level three" assets, that the bank values mostly using its own
estimates and models. As markets have dried up, more assets are being
classified as level three. The illiquidity often reflects reduced demand. This
usually leads to banks taking big write-downs on those assets. In the second
quarter, Wells Fargo's holdings of level-three mortgages increased
substantially, but the bank's write-down on those mortgages looked small.
Level-three mortgages jumped $3.3 billion to $5.28 billion, but in the quarter
Wells Fargo booked only a $43 million net loss on them.
We bought more shares of Nvidia, Briggs & Stratton, Ericsson, and Sun Micro in accounts
today. We are awaiting JDSU earnings
next week to add to that holding.
European bourse indexes closed
higher. Gold dropped $20 to $792. Oil recovered from morning lows but closed
down $1.33 at $113.75. The euro was $1.46 and there were 110 yen to the dollar.
Treasuries gained with the two-year at 2.37% and the ten-year at 3.84%.
The DJIA gained 55 to end at
11660. The S&P 500 was up 5 at 1298 and the NAZZ dropped 2 to 2452.
Breadth was flat and volume was
summer Friday Triple Witching light.
Combined new highs about 150 and
combined new lows were about 175.
Today was a draw.
14 August 2008
Greenspan speaks and now nobody
listens. As with prize fighter and baseball players there is a time to move on.
But like Jack Welch and other former business leaders Uncle Alan can’t seem to
leave the spotlight. Today in the WSJ Greenspan castigates the current powers for their rescue of Fannie and Freddie and
offers other bon mots. Yawn.
The Consumer Price Index rose
5.6% year over year in July and was up 0.8% for the month. Jobless claims were
Wal-Mart announced great earnings.
The Russian/Georgian contest
Asian markets were mixed
overnight with India the big mover down over 2%. European bourse indexes are
mildly higher at midday. Gold was up $6 early on but as the NYC markets open it
is down $7. Oil has a $115 handle and Treasuries are firm.
Well, what do we know? The
Financials are rallying today in the face of our diatribe against the powers for not reinstituting the
naked short rule. For today at least we will take the egg in our face since our stocks are also rallying.
We bought Briggs
& Stratton which was off 10% this morning and down 60% over the last 12
months and we also bought Ericsson
the Swedish phone company and repurchased Nvidia
in accounts. NVDA did not back off and we want to own so we now do.
We also added shares of JDSU, Ciena, Sun Micro and Akami
to some accounts. Sketchers made a bid for Heeley’s today and we think that
one of the biggies like Nike or Addidas will eventually purchase Crocs. The
purchase would be minor for them but major for Crocs remaining holders. With
that idea in mind we bought a small amount of Crocs for accounts.
We lost internet access for the
Gold was down $20 at $811 and Oil
lost $1.13 to $113.50. European bourse indexes closed higher and Treasuries
were firm and the euro was $1.48 and the yen 110 to the dollar.
The DJIA gained 83 to 11615. The
S&P 500 climbed above the 1290 resistance/support/resistance and now
support level to 1292 and the NAZZ jumped 25 to 2453.
Breadth was 3/2 positive and
volume was summer light.
There were about 175 combined new
lows and about 115 combined new highs.
The bulls stemmed the bleeding
13 August 2008
On August 13 1982 the bear market
bottomed and the bull market of the 1980s began. And on this day in 1998 Robert
Bock, a Peace Corps volunteer in the Philippines who was serving in the same
province as our daughter Christine, was shot to death by a drunken fellow who
killed 10 other people too. Until the Iraq war, i.e. in peace time, the death
rate of over 1% for Peace Corps Volunteers was greater than that of service
The SEC has seen fit to let the
emergency order to enforce the short delivery rule expire. The delivery rule is
still on the books but will not be enforced. The folks at the SEC have
determined that naked short welling will not ruin the markets. We really
thought the SEC was more market attuned and that they planned to continue
enforcing the rule against naked short selling. Because they are not going to extend the rule we are selling
our SPDR Financial position.
Shorting is not wrong and is
necessary to an orderly market. But shorting stocks and not having to borrow
allows bear raids on companies. Naked shorting leads to the anomaly of certain
companies having more shares trading in the marketplace than are officially
outstanding. But because brokers and hedge funds make money on gaming the
system the SEC is wearing blinkers as it judges whether to enforce the rule. We
now expect more carnage in the financial sector.
Gold is up $7 in the early going
and Oil has a $113 handle. Asian markets were lower by 2% overnight and European
bourses are also lower at midday. Treasuries have a bid.
Bulls dropped to 31% in the
latest week and bears rose to 45% according to Investors Intelligence.
announced a large stock buyback to go with lousy earnings and lower sales last
night and the shares are up $1. We took our one day $1 profit and will look to buy back lower.
We are selling stocks at the
opening not because we want to but because the markets are going to go lower
until the SEC wakes up and institutes an uptick rule
and prohibits naked shorting. The fellow running the SEC is a former
Congressman who never had an honest job.
We sold XLF, GE, Verizon, SBUX, UNFI, Sony, Yahoo and a bunch of stocks
in our very large accounts. We did buy British
Petroleum in accounts as an end of the Georgian conflict/oil recovery buy.
BP is on its 12 month low and has bounced off this level before. Quick selling
and buying is how we survived 2000 to 2003 and so far this year. The stocks we sold all were positive
scratches except XLF (what else is new?) and as such are only opportunities
At noon investment banks Goldman Sachs, Lehman, Citi
and Morgan Stanley were downgraded by Mother Merrill. The analyst would
have downgraded his own Company also but then he would have lost his job. Joke.
He can’t comment on his own company.
Our tech guru suggests a move to
1330 on the S&P 500 after it touched 1250 this morning. We will welcome it
as an opportunity to further lighten positions.
To quote the Russian
spokesperson: "A military depot full of battle tanks . . . was traced out
and now necessary actions are being taken to demilitarize the zone," said Peskov. "When we really do not have any confidence
toward the Georgian government . . . we cannot afford a dozen battle tanks
standing next to South Ossetia." The new term
for destroy is demilitarize. As John Stewart said last night, “War is God’s way
of helping Americans learn geography.”
Oil closed at $116.22 up $3.21.
Gold was up $18 at $832. Treasuries were a tad weaker with the two-year at
2.48% and the ten-year at 3.95%. The euro was $1.49 and the yen 109 to the
The DJIA was the trading vehicle
of choice today for the big boys and girls and was much more volatile that the
S&P 500 or NAZZ after the recovery from the morning sell off. With thirty
minutes of trading left in the day the S&P was down 1, the NAZZ was up 5
and the DJIA was down 100 points.
The DJIA closed down 110 at
11533. The S&P 500 lost 4 points to 1285 and the NAZZ dropped 2 to 2430.
Breadth was 3/2 negative on the
NYSE and 5/4 positive on the NAZZ and volume was moderate.
There were combined about 200 new
lows and about 115 new highs.
The SEC gave the day and the financials to the bears.
Market internals were not as negative as the DJIA suggests.
12 August 2008
We note with sadness at our loss, but with happiness for him, the passing of Rev Barnabas Lundergren
of Marmion Abbey in Aurora Illinois. He was first our teacher and then a
good friend to us for many years. We are thankful to have known him.
Russia called off its war with
Georgia but according to reports the war continues in areas. Hopefully for the
folks affected it will end shortly. Russia made its points and demonstrated
that although communism is gone the West has no good means of preventing
Russia’s domination of its neighbors.
Stocks are opening lower today
and trading will be a good test of the rally. Asian markets were mixed small
overnight with no large moves and the same is true for European bourses at
midday. Oil traded with a $113 handle before recovering to $114 and Gold was
down $12 in early trading. Treasuries are flat.
Financial stocks are under
pressure on a larger than expected large loss at UBS and reports that JP Morgan
lost $1.5 billion dollars in this quarter on mortgages. Yesterday the glass was
half full and today the glass is half empty. Or at least this morning the glass
is half empty.
The SEC short delivery rule
expires tonight with no present plans to extend it. The hope is that hedge
funds and traders won’t try to take advantage of the rule. Hope is just that.
We are buying small in Nvidia Corp - for accounts in which we bought JDSU - ahead
of earnings tonight. NVDA preannounced lower sales and earnings and a $200
million write-off a few weeks ago and the share price dropped 20%. The share
price is down from $36 to $11 in the last 12 months and if the shares move
lower or stay in the same territory after today’s report we will buy more
around. The company has $3 a share in cash and no debt with a billion dollar
plus cash flow and is priced at one times sales and 12 times depressed
NVIDIA Corporation provides
visual computing technologies designed to generate interactive graphics on
consumer and professional computing devices in the United States and
internationally. It operates in four segments: Graphic Processing Unit (GPU),
Media and Communications Processor (MCP), Professional Solutions Business
(PSB), and Consumer Products Business (CPB). The GPU segment comprises products
that support desktop and notebook personal computers, and plus memory products.
The MCP segment consists of NVIDIA nForce core logic and motherboard GPU
products. The PSB segment offers professional workstation products and other
professional graphics products, including high-performance computing products.
The CPB segment provides mobile brands and products that support handheld
personal media players, personal digital assistants, cellular phones, and other
handheld devices. This segment also licenses video game consoles and other
digital consumer electronics devices. The company markets its products to
original equipment manufacturers, original design manufacturers, add-in-card
manufacturers, system builders, and consumer electronics companies. NVIDIA was
founded in 1993 and is headquartered in Santa Clara, California.
We also bought small in JAVA at $10.77 which is the new symbol for Sun Microsystems after a reverse split last year. The company is
valued at one third of sales and has a net $2 per share of cash on hand. The 12
month high was $25. And the shares are actually priced below their 2002
Sun Microsystems develops
products and services for the network economy. It provides network computing
infrastructure product and service solutions worldwide under Java technology
platform, Solaris operating system, Sun StorageTek storage solutions, and the
UltraSPARC processor names. The company also provides solutions for various
business and technical activities, such as software development, mechanical
design, financial analysis, graphics, visualization, simulation, and education,
as well as develops and sells silicon-based chips that facilitate networking,
cryptography, and high-performance computing. In addition, it offers enterprise
infrastructure software systems, software desktop systems, developer software,
and infrastructure management software; data storage products and services,
including tape storage products, such as libraries, drives, virtualization
systems, media, and software; and disk system product line consisting of data
center disks, network attached storage, enterprise archive system, midrange
disks, workgroups disks, a boot disk, and disk device software. Further, Sun
Microsystems offers support and managed services for hardware, software, and
client solutions, as well as provides professional and educational services. It
also offers component products, such as central processor unit chips and
embedded boards on an original equipment manufacturer basis; and supplies
after-market and peripheral products. The company's solutions are used in
technical/scientific, business, engineering, telecommunications, financial
services, manufacturing, retail, government, life sciences, media and
entertainment, transportation, energy/utilities, and healthcare industries. It
has strategic alliances with AMD, Fujitsu, and Hitachi Data Systems; and
collaborations with Perago Systems, Progress Software Corp., Neil Young and
Reprise/Warner Bros., and Samsung Electronics Co., Ltd. The company was founded
in 1982 and is based in Santa Clara, California.
The euro ended at $1.49. The yen
was 109 to the dollar. European bourse indexes closed fractions lower and Gold
reversed a bit of its losses but closed down $8 at $820. Oil finished the day
in NYC at $113.26 down $1.18. Treasuries were better with the two-year at 2.45%
and the ten-year at 3.93%.
Financials are down 6% today as JPM and WB are both down over 10% and we
bought shares of XLF in many accounts to increase our financial exposure.
This week is a Triple Witching
and with option expiration on Friday the volatility mid week is expected. Which
way the trades will go is the unknown. It sure hasn’t been a boring summer.
They go up and they go down.
Today they went down.
The DJIA lost 140 to 11645. The
S&P 500 dropped 15 to 1290 (back at support - that was quick) and the NAZZ
dropped 10 to 2430.
Breadth was 2/1 negative and
volume was light.
There were 195 new lows and 125
Welcome back bears.
11 August 2008
From the Financial Times: An
emergency measure protecting a select group of financial stocks from abusive
short-selling expires on Tuesday, probably leaving at least a two-month gap
before a similar rule, currently being considered, is imposed. The US
Securities and Exchange Commission has said that it would not extend the rule
preventing “naked” short-selling in shares of 19 key financial entities,
including mortgage groups Fannie Mae and Freddie Mac, and big Wall Street firms
that include investment bank Lehman Brothers. Instead, its staff is drawing up
new proposals to guard against abusive short-selling in shares across the
entire market. However, it is likely to be a couple of weeks before they are
proposed, followed by a public comment period of at least 30 days. Several
ideas are being studied, including the requirement that is at the heart of the
emergency rule. Nevertheless, market participants say traders might not engage
in “naked” short-selling in the intervening weeks.
For the year, auto advertising
dollars flowing to media outlets could decline by close to $3 billion,
according to Sanford C. Bernstein & Company, to about $15 billon for the
full year. Auto advertising peaked at close to $24 billion in 2004. Auto sales
are at their lowest since 1993, according to Sanford C. Bernstein. According to
the newspaper association’s own data, the share of newspaper advertising from
automakers is shrinking rapidly: in the first quarter, auto advertising
represented just 2.8 percent of all national advertising in newspapers. As
recently as 2005, the figure was more than 10 percent each quarter.
Asian markets were mixed
overnight with Japan up 2% and China down 5%. European bourse indexes are
higher at midday. Gold is up $4 and Oil has a $116 handle.
Retailers are moving higher
today. It almost seems as if the shorts think the SEC is going to institute a
more restrictive short rule. After opening lower the major measures are in plus
territory two hours into the trading session. Oil is under $114 and Gold is now
We sold some WFMI
to reduce position size in accounts in which we bought shares at $19.60 and
then $18.60. With the money we bought JDSU
ahead of earnings on the 20th with room to buy more and Crocs at $4.55 down from $70 and after earnings and forecast of
break even for the year. The CROX is a spec and will not be added to.
We also bought United
Foods in accounts at $17.60. Earnings come at month end and we will buy
more if the shares sell off as they did last time. We had a nice trade in the
shares a few months ago on the sell off and rebound.
We also added shares of Barnes Group at $22.20 to some
accounts. We want to buy more around but it is thin trader.
Barnes Group manufactures and distributes aerospace and industrial
products. It operates in three segments: Barnes Aerospace, Barnes Distribution,
and Barnes Industrial. Barnes Aerospace segment produces precision-machined and
fabricated components and assemblies for original equipment manufacturer
turbine engine, airframe, and industrial gas turbine builders worldwide, and the
military. It also provides jet engine component overhaul and repair services
for various turbine engine manufacturers, commercial airlines, and the
military. In addition, this segment also supplies designated aftermarket parts
for the life of the related aircraft engine program. Barnes Distribution
segment distributes maintenance, repair, operating, and production supplies, as
well as provides inventory management and logistic services. It also offers
replacement parts and other products, including fasteners, electrical supplies,
hydraulic components, chemicals, and security products to small repair shops,
railroads, utilities, food processors, chemical producers, and vehicle fleet
operators. Barnes Industrial segment manufactures high-precision punched and
fine-blanked components used in transportation and industrial applications;
nitrogen gas springs and manifold systems used to precisely control stamping
presses; retention rings that position parts on a shaft or other axis; reed
valves, which are custom-engineered components used in compressors; and
injection-molded plastic-on-metal and metal-in-plastic components and
assemblies used in electronics, medical devices, and consumer products. It also
distributes die springs and nitrogen gas springs, and mechanical struts and
standard parts, such as coil and flat springs. In addition, this segment
provides engineering solutions, including product design and development,
product and material testing, and rapid prototyping. The company was founded in
1857 and is headquartered in Bristol, Connecticut.
Insiders own 20% of the shares
which at one half their 12 month high. The company pays a 3% dividend and is
selling at one times sales and 11 time earnings.
At 1pm the DJIA was up 125 points
but then gave back most of the gains into the 2 o’clock hour.
Oil finished down 36 pennies at
$114.85. Gold dropped $32 to $832. European bourse indexes closed higher.
Treasuries were weaker with the two-year at 2.56% and the ten-year at 4/03%.
The euro was $1.49 and the yen was 110 to the dollar.
Both presidential candidates and
the current President want to drill offshore and in currently restricted areas
to produce more oil in the U.S. Is that so the oil companies can ship more oil
out of the U.S? From Reuters:
A record 1.6 million barrels a
day in U.S. refined petroleum products were exported during the first four
months of this year, up 33 percent from 1.2 million barrels a day over the same
period in 2007. Shipments this February topped 1.8 million barrels a day for
the first time during any month, according to final numbers from the Energy
From Hullabaloo.com: most of you
who are reading this know that we are dealing with a world market in oil and
that this whole argument is brain dead. That's one of the reasons why it's so
depressing to have "drill, drill, drill" be such a success. But it
seems to me that this would have been a good line of attack against McCain
and/or Obama, even though it's equally stupid: "why are the oil companies
selling off our good American crude to foreign countries when we need it so
Rally Monday faded in the last
hour but programs in the last fifteen minutes made the day positive but
The DJIA gained 47 to 11781. The
S&P 500 was up 9 to 1305 and the NAZZ gained 26 to 2440.
Breadth was positive and volume
For the first time in the rally
new highs exceeded new lows with a combined 195 new highs and about 190 new
The bulls held on to win the day.
Extra reading from http://www.taylormarsh.com/ HISTORY: On Georgia, Russia, and South Ossetia
by Mark Allen Haverty
United States being as new as it is in the greater scheme of things makes us
think of wars being based on relatively recent matters – after all, all of ours
are. Europe of course shows us over an over again that the roots of wars run
very deep, often centuries of hatred. An assassination might have launched
World War I, but the reasons behind it were ages old hatreds. That war never
really ended, either, with the Treaty of Versailles doing little more than
clamp down some of the hatreds temporarily – most erupting just decades later
in World War II, others taking nearly a century to boil over, such as the
former Yugoslavia and the current situation in Iraq.
ethnic hatreds and feuds of Eastern Europe and Central Asia follow a similar
pattern, with centuries of hostilities kept under wraps by brutal
dictatorships, with the rage boiling over in to violence with the yolk of
oppression finally removed. With the fall of the Soviet Union, rather than
working together to advance mutual goals, too many of the peoples of this
former empire have instead chosen to try to once again kill one another.
conflict boiling over in South Ossetia
today is far from a new one. A Persian people surrounded by ethnicities with
nothing in common with them, Ossetians have found
themselves trapped for centuries between the Russians and Georgians. In 1801,
the swallowing of Georgia by the Russian Empire would temporarily reunite Ossetians under one rule – albeit not
their own – and conflict would be stifled, for now.
the fall of the Empire, the tensions would flare up again, and rival Communist
forces would use the two sides to fight their battles, with the Menshevik
Georgians facing uprisings from 1918 through 1920 in the region now known as
South Ossetia, with the Ossetians
receiving support from the Bolsheviks. In 1921, Georgian independence would
come to an end, with Ossetians being a contributing
force to this, as they would aid the invading Red Army. If the Ossetians could not be free, neither would the Georgians.
reward for the Ossetians would be a modicum of their
own autonomy, as the Soviets would carve out the South Ossetian
Autonomous Oblast for them, although autonomy under Soviet rule is far from
true autonomy. Still, this semi-independence would last until 1990, when the
Georgian SSR would dissolve it, shortly before the Georgian SSR itself would
dissolve, transforming in to the Republic of Georgia, which officially declared
its independence from the USSR on April 9, 1991.
declaring their independence, Georgians would first declare war on the Ossetians. Conflict would continue from January 1991
through June 1992, with the result being over 1,000 dead and approximately 110,
000 refugees. [i] The result of the war would be the
creation of a semi-autonomous region of South Ossetia
within Georgia, operating as a de facto state of its own, with peacekeeping
forces consisting of Russian, North Ossetian (which,
technically, would also be Russian), and Georgian forces.
a semblance of peace and semi-autonomy were established, it was not enough for
the South Ossetians, who voted in 1992 for
independence and who have continued to press for it. A second referendum,
monitored by international organizations, saw 95% of the populace vote in favor
of secession from Georgia. However, there were questions about the legitimacy
of this vote, based on the lack of involvement by ethnic Georgians.
fact, many Georgians, along with a minority of Ossetians,
participated in counter-elections, forming an opposition government to the
opposition government already operating within South Ossetia.
Neither government has received international recognition, but many Ossetians had seen the newer of the two, led by Dmitri Sanakoev, who had formerly
been a minister within the initial breakaway government, as a further
interference by Georgians in their affairs and a puppet government of the
Georgians. Georgia did itself little good in this regard by later giving
semi-recognition to the latter of the two governments, dubbing them the
“Provisional Administrative Entity of South Ossetia.”
As the International Crisis Group observed, “The establishment of Dmitri Sanakoev and his
alternative power centre in the Georgian-administered areas in the zone of
conflict is alienating the broader Ossetian
recognizing the government more friendly to their cause, Georgia attempted to
use the carrot rather than the stick in attempting to rein in the South Ossetians. Georgia would invest heavily in the development
of Kurta, the capital of the Sanakoev
government, during 2007, with $10 million in Georgian funds going towards
shops, a movie theatre, and a hotel. [iii]
trigger for the latest violence is not anything occurring in the Caucasus but
in the Balkans. As Kosovo pushed for independence, Russia, which opposed such a
move due to their historical alliances with Serbia, warned that what was good
for Kosovo would be good for other areas as well. Former Russian President and
current Prime Minister Vladimir Putin has stated, “If
people believe that Kosovo can be granted full independence, why then should we
deny it to Abkhazia and South Ossetia?” [iv] The Russians warned of this again in February, as the
Russian foreign ministry released a statement saying, "We will, without
doubt, have to take into account a declaration and recognition of Kosovo
independence in connection with the situation in Abkhazia and South Ossetia.” [v] Further angering Russia were overtures from
NATO that they would welcome Georgia in to the organization. This move, which
Russians felt was an intrusion upon their sphere, led to a further supporting
of separatists within the breakaway regions of South Ossetia
and Abkhazia. [vi]
skirmishes kicked off the beginning of August, and Russia began allowing
refugees from South Ossetia to evacuate into North Ossetia on Sunday, August 3. By Friday, over 2,000 had done
so. [vii] By Thursday, these minor skirmishes became a bombardment of Tskhinvali, the capital of the separatist government, by
Georgian forces, and a ground invasion on August 8. While Georgian forces early
on would take the city, the tide turned quickly.
the end of Friday, joint Russian/Ossetian forces
would retake Tskhinvali, with Georgian President
Mikhail Saakashvili stating that 150 Russian tanks
had crossed the Georgian/Russian border. As far as the Russians are concerned,
they acted to defend citizens that have become more likely since 2006 to carry
Russian passports than Georgian, and who were under an unprovoked attack by the
Georgian government. To the Georgians, this violation of their border by the
Russians is tantamount to a declaration of war by the Russians, and they are
calling for international support.
became more severe on Saturday, and there are significant civilian casualties
mounting in South Ossetia and, to a lesser degree,
Georgia proper. The BBC reports that Russian and South Ossetian
officials are reporting at least 1,400 dead, the majority civilian, while there
are around 37 – 50 dead civilians on the Georgian side.
now has this erupted as it has? Clearly, the provocation for the conflict comes
from the Georgians, but it is doubtful that the Russians do not welcome it. The
Georgians likely felt that the presence of Prime Minister Putin, considered the “true”
head of the Russian government, at the Olympics rather than in Moscow might
make the Russians less likely to respond. In addition, there is some belief
that the Georgians might have thought they had the support of, at the very
least, the United States, if not all of NATO, in pacifying the rogue region.
What reason did they have to believe this? American forces have been operating
within Georgia for months now, helping to train Georgian forces. Georgian
military have been participating as one of the states in President George W.
Bush’s “Coalition of the willing,” and they have 2,000 soldiers currently in
Iraq. The United States has significant interests in Georgia, both in having
them join NATO and also the significant oil pipeline that runs through the
state, allowing the United States and other Western states to pump fuel through
the Middle East without Russian or Iranian involvement. [viii]
the Georgian government has lobbyists in highly important positions. How
important? Try Randy Scheunemann, Senior Foreign
Policy Advisor to Senator John McCain, the presumptive nominee for the
the Front Lines in the near Abroad: The CIS and the OSCE in Georgia's Civil Wars,
S. Neil Macfarlane, Third World Quarterly, Vol. 18, No. 3, Beyond UN
Subcontracting: Task-Sharing with Regional Security Arrangements and
Service-Providing NGOs (1997), pp. 509-525
South Ossetia Conflict: Make Haste Slowly International
Crisis Group, June 7, 2007
[iii] Georgia tries
diplomatic approach to lure back Ossetians, International
Herald Tribune, August 16, 2007
[iv] Why Georgia's enclaves would love to follow, but will probably
, The Economist, November 27, 2007
[v] Russia warns of Kosovo repercussions, International
Herald Tribune, February 15, 2008
[vi] Q&A: Violence in South Ossetia,
BBC.com, August 8, 2008
[vii] Refugees Flee to Russia to Escape War in the Caucasus,
[viii] US has political, economic stake in far-flung spat,
Associated Press, August 9, 2008
8 August 2008
8/8/08 8:08AM and we just ate. And yes, the Olympics
UBS is going to buy $20 billion,
Mother Merrill $12 billion, and Citi $7 billion of auction rate securities from
clients. And as these financial behemoths announced their settlements with the
respective governing agencies they all said they were buying back the
securities to do the right thing for their clients. And if you believe that
they all have other exotic securities with no risk that they would like to sell
We bet that, in a few months,
auctions for auction rate securities will resume and work. How else will these
banks get rid of the bonds they bought back? And yes there are new suckers born
every day. The securities won’t be called auction rate securities. The suckers
may not be that dumb. Maybe the term will be covered bonds, endorsed by the Secretary
of the U.S. Treasury.
Russia and Georgia, the country
and not the state are shooting at each other. Now that Russia has oil revenue
it can throw its money away on war.
Obviously, stocks didn’t break
out to the upside yesterday and so there is more work to do.
Asian markets were mixed and
China dropped 4.4%. At some point the drop in the Chinese market is going to
matter. The drop (crash?) already has been a calamity to those rushing to buy
last October who have lost over 60% of their investment if they were buy and
European bourse indexes are
higher small at midday and U.S. futures are flat in early trade. Today may be a
summer Friday. That would be a novel experience for this summer.
Oil has a $117 handle (down $2)
and Gold is also lower by $7. Treasuries are unchanged as the trading day
Fannie Mae lost $2.54 a share in the second-quarter as it booked
$5.35 billion in credit-costs from boosting loss provisions and charge-offs.
FNM cut its dividend to five cents a share which will save the company $1.9
billion in capital through 2009. Fannie said that 2008 will be its peak year
for credit-related expenses and that it plans to cut annual operating costs 10%
by the end of 2009, increase its guaranty fees and manage its balance sheet to
McCain and Obama are on track to
receive -- and spend -- nearly $1 billion between them this political season.
In 2004, candidates Mr. Bush and Sen. John Kerry, along with their parties,
spent about $675 million collectively on their campaigns.
Oil is now down $4 (John McCain
is one powerful fellow, all he has to do is suggest offshore drilling
and.... or see Krugman’s take on the
) and the DJIA is 150 points higher after 30 minutes of trading, so much for a
quiet day. Financials are leading the
way up as they led the way down yesterday. Retailers also have a bid and
Commodity plays are sucking wind.
The euro has dropped to $1.50
today. A week ago it was $1.60. that is a huge move.
The yen was 110 to the dollar up from 98 a few months ago.
Akami was trading lower this morning
as the markets moved higher and we added shares to accounts.
In the spirit of sell
when you can, not when you have to, we eliminated Motorola and Sprint. MOT
is up 25% from our purchase price and Sprint has been rising recently on
Fridays in anticipation of a weekend bid and falling in the early part of the
week. We didn’t like the action after we purchased it and are using the Friday
pop to get out with a minor gain.
Oil ended down $5 at $115. Gold
dropped $25 to $8440. Treasuries were flat with the two-year at 2.50% and the
ten-year at 3.96%. European bourse indexes closed the week higher.
The S&P 500 closed above 1290
resistance (not yet support unless there is follow through Monday) that ii failed
at yesterday. To accomplish that close on Friday is a first for the rally off
the July 15 lows. The DJIA was down 40 on Monday, up 320 on Tuesday, up 40 on
Wednesday, down 40 on Thursday and up 350 on Friday, just a typical somnolent
summer week of trading.
The DJIA closed at 11700 up 300
points. The S&P 500 gained 30 to 1296 and the NAZZ jumped 58 to 2414.
Breadth was better than 2/1
positive and volume was brisk.
There were about 225 new lows and
125 new highs. (Combined)
The bulls won the day and the week.
7 August 2008
AIG announced a huge loss and the
shares are off $4 or 20% in early trading. Jobless claims were up 7,000 to
455,000 for the latest week. Those two items have the major stock measures in a
funk and socks are going to open lower. That may set up a rebound to break
though the 1290 level on the upside and continue the rally. More likely is that
the 1290 top on the S&P 500 will remain resistance and stocks will retreat
towards the bottom of the range.
Asian markets were mixed small
overnight and European bourse indexes are mostly higher small at midday. Gold
is up $8 and Oil has recovered to the $120 level. Treasuries are flat.
We added more CIEN
down 10 % from last buy to a few accounts. We also increased American Eagle positions in some
At 11am the DJIA is down 140. The DJIA was down 150
points as the markets opened and then tried to rally but never made it to
better than down 75 points. We are going to raise cash and hope we are wrong.
We sold Cisco, Merck, Texas Instruments
and Intel for profits and up on the day.
It really is amazing the screwy
things financial companies did in the credit boom of the last five years. We
hear folks bemoan that government never does anything right but the government
has never made as many bone headed decisions as major financial corporations
did over the bull run.
As another add on to Citigroup’s myriad problems today the
bank agreed to buy back more than $7 billion in auction-rate securities and pay
a $100 million fine to settle U.S. regulatory claims it improperly saddled customers
with untradeable bonds. Citigroup will repurchase securities from individual
investors, charities and small- and mid-sized businesses by Nov 5, New York
State Attorney General Andrew Cuomo said in a statement today. It must also
take steps to ``expeditiously provide liquidity solutions to all other
institutional investors,'' he said.
Oil closed at $119.81 up $1.23.
Gold lost $3 to $880. Treasuries were better. European bourse indexes closed
The DJIA lost 220 points to end
at 11435. The S&P 500 dropped 23 to 1266 and the NAZZ was down only 22 to
Breadth was 2/1 negative on the
NAZZ and 3/1 on the NYSE and volume was active.
There were 215 new lows and 75
The bears rebuffed the bulls at important resistance.
Joe Granville was on CNBC and he said he turned bullish on July 15 when the
NYSE recorded 1300 lows. Joe is a good technician.
6 August 2008
Whole Foods disappointed last night and is 20% lower. We have been
in and out of the company since the $40 level down from $70. Under $20 we are
staying in and will be buying more today. We trust CEO Mackey and think
suspending the dividend and reducing store openings is prudent. WFMI acquired
several years’ worth of store openings in the Wild Oats merger and they need to
consolidate that buy.
Cisco didn’t disappoint and is higher this morning on a relief pop.
Sprint lost subscribers, but the number was less than expected.
With write-downs there was a loss and the shares are back at the $7.70 level.
Hong Kong was closed overnight
because of a typhoon and the rest of Asia was higher with Japan up 2% and China
up 1%. Gold is up $4 after yesterday’s $20 drop and Oil has a $119 handle as
the trading day begins. Treasuries are flat. European bourses indexes are
Investors Intelligence had 34% bulls up from 30% and 43% bears down
from 50% in the latest reporting period.
We added shares of Whole
Foods on the predictable sell off this morning. In the coulda market we woulda waited
for the sell off to repurchase the shares we recently sold and bought back.
We bought shares of Sprint
in accounts that own GE. We also added more GE to accounts.
And we bought Rite
Aid at $1.30 in accounts that own Micron. At that price the shares are like
buying an option on the company. There is the risk of bankruptcy but as we
mentioned the last time we owned the shares at much higher prices 30% of the
common shares are owned by a Canadian drug store company (Jean Coutu) that took
shares valued at $5 in return for stores they sold to RAD. With their 30%
ownership we would have someone fighting for the interests of equity
shareholders if bankruptcy occurred. We are not making a major bet but the
upside is much greater than the downside. at these
prices and thus justifies the speculative risk.
Oil ended the day at $118.31 down
55 pennies and Gold gained $1 to $886. The yen was over 109 to the dollar and
the euro is back down to $1.54. European bourse indexes closed higher and
Treasuries were flat with the two-year at 2.55% and the ten-year at 4.05%.
The major measures absorbed
morning selling and managed to close higher on the day. A breakout on big
volume tomorrow is what is needed to keep this rally going.
The DJIA gained 40 points to
close at 11655. The S&P 500 was up 5 at 1290 and the NAZZ rose 30 to 2380.
Breadth was 5/4 positive and
volume was light.
There were about 195 new lows and
105 new highs. (Combined)
The bulls held serve.
5 August 2008
Stocks are strong out of the gate
as the bulls are in a moving mood since the bears weren’t’ able to break their
spirit over the past week. The Fed announcement comes at 1:15pm and until then
the bulls look like they plan on romping.
Oil was a couple of dollar lower
in early trading and now has a $120 handle. Gold is at $884 as commodities take
it on the chin. Treasuries are flat ahead of Fedspeak.
Cisco earnings come after the close as do Whole Foods.
Asian markets were mostly lower
overnight with China down another 1.5%. the Shanghai index is now at 2600 down
from 5500 in October last year and the question now is whether it is basing or
getting ready to break though long term support to the downside. India was up
Europeans bourse indexes are
higher by 1% and more at midday in celebration of Société Générale not
having earnings as bad as expected.
We bought Akami
and Hologic in accounts in which we
bought VMware yesterday. Akami share price is down $10 in the last week to $23 on
disappointing earnings. Akami provides services for accelerating the delivery
of content and applications over the Internet. Hologic share price is down $5 in the last week to $18. Hologic develops,
manufactures, and distributes diagnostic and medical imaging systems for
serving the healthcare needs of women.
Fed leaves rates unchanged and
continues to worry about inflation. The DJIA was up 210 points at the time of
the Fed announcement at 1:15pm.
European bourse indexes closed
better with many more than 2% higher and Oil was down $2.87 at $118.45. Gold
dropped $24 to $883. Treasuries were unchanged on the short end with the
two-year at 2.55% and weaker longer out with the ten-year at 4.01%.
The DJIA gained 325 points to
close at 11610. The S&P 500 tacked on 35 to 1284 and the NAZZ jumped 65 to
Breadth was 2/1 to the good and
volume was active at 5 billion on the NYSE.
There were about 220 new lows and
120 new highs. (Combined NYSE and NAZZ)
The bulls won the day.
4 August 2008
Financials are opening loser and
the major measures in negative territory as the trading day begins. Asian
markets were lower overnight with China down 2% and in bear territory. The
Shanghai index ahs retraced more than 60% from its October 2007 high. China was
the had to own market of 2006-2007.
European bourses are mostly lower
and Gold is at $906 with Oil sporting a $125 handle.
HSBC said earnings were down 28%
on mortgage write downs in the U.S. and the CEO said conditions in the lending
markets are the worst they have been in several decades. He still plans on taking
his bonus though.
The first of the major
homebuilders filed Chapter 11 over the weekend. WCI, of which Carl Icahn is
Chairman, filed after it said it would not be able to refinance $1.8 billion in
debt coming due. Icahn will eventually come out smelling like a rose since he
will figure out how to participate in the bankruptcy but folks who followed his
lead and bought common shares in a me too following
of Icahn will lose their investment. Several years ago Icahn offered $22 a
share for the entire company.
The Fed meets tomorrow.
Corporate executives strike
again. From the WSJ:
At a time when scores of companies are freezing pensions for their
workers, some are quietly converting their pension plans into resources to
finance their executives' retirement benefits and pay.
In recent years, companies from Intel to CenturyTel collectively have moved hundreds of millions
of dollars of obligations for executive benefits into rank-and-file pension
plans. This lets companies capture tax breaks intended for pensions of regular
workers and use them to pay for executives' supplemental benefits and compensation.
The practice has drawn scant notice. A close examination by The Wall
Street Journal shows how it works and reveals that the maneuver, besides being
a dubious use of tax law, risks harming regular workers. It can drain assets
from pension plans and make them more likely to fail. Now, with the current
bear market in stocks weakening many pension plans, this practice could put
more in jeopardy.
Factory orders increased 1.7% in June, a
percentage point more than expected, and May's gain of 0.6% was revised to a
0.9% gain. The "strength" was because of increases in orders for
nondurable goods, which was the missing portion of this report (data on durable
goods were released on July 25). Orders for nondurable goods increased sharply
for a fourth month, increasing 2.5% and bringing cumulative gains for the past
four months to 10.8%.
The increases in orders of nondurable goods are the result of price
increases: of the roughly $6 billion increase in orders of nondurable goods,
$3.8 billion was for petroleum and coal products and $1.6 billion was for
chemical products. Some of the roughly $360 million increase in orders for food
products almost certainly was because of prices, too.
Even if there were strength in factory orders, some of it need be
dismissed because of the impact of income tax rebates, which is forcing
factories to raise output in order to replace sold items. The only good news is
that by boosting factory output, the rebate checks have helped keep incomes
from being weaker than they would otherwise be by keeping more people employed
than would otherwise be the case.
Citi reported its first loss
since at least 2005 on credit-card securitizations, signaling that risks may be
growing in a business that generated $3.5 billion of revenue in the past three
years. Citi lost $176 million in the second quarter
packaging card loans into securities, the company said in an Aug. 1 regulatory
filing. The New York-based bank completed fewer deals and was forced to mark
down its own $9 billion stockpile of the debt instruments and other stakes the
company amassed while selling them to investors. Citigroup manages about $202
billion of credit-card loans worldwide, about $111 billion of which have been
turned into securities and sold, according to the filing. Delinquencies on the
securitized portion have jumped by 16 percent since the end of last year to
$2.16 billion as of June 30, Citigroup said. The firm's results may portend
similar losses for rivals.
Strong consumer electronics
results and demand in emerging markets continued to boost semiconductor sales,
with June figures up 8% from a year ago.
The semiconductor-chip industry
is driven by sales of consumer products such as personal computers and cell phones.
Though higher energy costs have lowered disposable income, consumer electronics
spending has been holding up, as June's results show. The Semiconductor
Industry Association said higher energy costs have had "little
impact" on growth in sales of electronic products so far. During the
month, sinking prices for memory continued to restrict revenue gains. Excluding
that segment, semiconductor sales would have increased 12% on the year,
according to SIA. SIA said price attrition caused a 6% decline in total memory
sales despite sharply higher unit sales.
Obama must be reading our posts.
He wants to release 70 million barrels of oil over six months from the
Strategic Petroleum Reserve to bring down oil prices. We agree but our idea is
to release even more over a year’s time. Let’s see how the reserve works and
whether the oil from the reserve can enter the distribution system easily. In
fact let’s find out if the oil is really there.
comments are given as the reason for the $4 drop is the price of oil this
morning although we think the drop is the result of the mystery sellers
returning ahead of the Fed meeting tomorrow.
The oil drop rescued the stock
markets which were headed south with the DJIA down 100 points. At 11 am the
DJIA is back to the positive side.
The action last week was negative
but outside of the financials we thought the breadth numbers were OK and there
didn’t seem to be any panic selling. Maybe the markets need panic selling to
clear the air but we doubt that will occur until autumn. We continue to expect
a rally into Labor Day.
We added shares of VMware to larger accounts and
shares of EMC to accounts that own Cisco. EWC is majority owner of VMware and the shares of VMW have fallen from $100 per
share in the nutty days of last year to $35 per share. That is still expensive
but the company is on the cutting edge of software that expands the use of
computers. Any more explanation is more than we can explain. EMC owns 86% of
VMW and there is talk that some large company is interested in EMC for its VMware subsidiary. REMC surprised with better than earnings
a couple of weeks ago but the shares sold off on news that VMW had missed
Oil closed down $3.92 at $122.18
and Gold was down $13 at $904. Treasuries were flat and European bourse indexes
were fractionally lower.
The DJAI closed down 42 at 11283.
The S&P 500 lost 11 to 1250 and the NAZZ was down 25 at 2285.
Breadth was 2/1 negative and
volume was light.
There were about 265 new lows and
90 new highs. (Combined)
The bears won today.
1 August 2008
The Monthly Employment Report
showed a drop of 51,000 folks employed. The unemployment rate rose to 5.7% from
5.5% as more folks stopped looking for jobs. This is truly an immeasurable
amount of folks except if you happen to be one but the markets need numbers to
trade on and this is the biggie of the week. Before the number Stocks were
flat. Asian closed mixed overnight with India up 2%, China up 1% and Japan down
2%. European bourse indexes are mixed at midday and Oil has a $122 handle with
Gold down a couple of dollars. Treasuries are flat.
After the number U.S. futures
moved higher indicating an up opening and at least a few minutes of rising
GM announced a $15 billion loss including $9 billion on special
Elan/Biogen’s Alzheimer’s drug
caused two more brain illnesses and Elan is back down to under $10 after
trading at $30 on Monday. Biogen is down $15 on the news. The value of Fidelity
Investment's massive 15% stake in Elan fell more than $900 million after the bapineuzumab
data were presented. Based on Elan's after-hours swoon Thursday, the value of
Fidelity's Elan investment fell $1.5 billion. Even for Fidelity, that's a lot
The last two years the markets
have bottomed around this time of year before rallying into at least October.
In 2006 the rally continued until January. Last year the rally ended on October
The rally on the Employment
Report lasted about ten minutes.
Stocks were lower most of the day
but the major banks and many financials rallied into the close.
At the bell the DJIA was down 51
at 11326. The S&P 500 dropped 7 to 1260 and the NAZZ lost 15 to 2310.
Volume was active and new lows
were twice new highs.
won the day.
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Summary of Business Continuity Plan