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Lemley Yarling Management Co
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Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

August 31, 2010

We are taking the next two weeks off from regular posting. As in the past there may be some random posts and the Model Portfolio value will be posted daily. The markets are the markets and the big boys and girls will have their HFT fun whether we are sitting here or away. We own good stocks at good prices and have cash on the sidelines if the markets continue their black swan dive. We will return on Tuesday September 7.

Model Portfolio Value As of 31 August 2010

$ 574,859

August 30, 2010

Model Portfolio Value As of 30 August 2010

$ 577,064



On Friday we added to our Hewlett positions and also initiated a position in J Crew after it reported excellent earnings but was cautious going forward. JCG’s share price dropped 15% on that news. HPQ is priced at less than 10 times forward earnings.

Also on Friday (WSJ) Intel Corp. slashed its quarterly revenue forecast as economic weakness undermines demand for personal computers, heightening concerns that a rebound in technology spending may be petering out. INTC blamed its woes on weaker-than-expected demand for mobile PCs in consumer markets in the U.S. and Europe and said it now expects third-quarter revenue of $10.8 billion to $11.2 billion and a gross margin of 66%, plus or minus one percentage point.

Aug 25 (Reuters) - ... Coldwater Creek Inc reported a surprise second-quarter profit, helped mainly by higher direct sales and lower expenses, and forecast strong earnings for fiscal 2010. The retailer, which competes with larger rivals Chico's FAS and Ann Taylor Stores Corp, had forecast a second-quarter loss in June. For the full year, the company expects to earn 8-12 cents a share, above analysts' view of 6 cents a share. The company, which also sells gifts, jewelry and accessories, earned $1.5 million, or 2 cents a share for the second quarter, compared with net loss of $4.9 million, or 5 cents a share, a year ago. May-July sales rose 13 percent to $253.5 million. Analysts on an average were expecting a loss of 4 cents a share on revenue of $233.7 million, according to Thomson Reuters I/B/E/S. Sales at stores open for at least a year increased 4.8 percent. Direct sales rose 39 percent for the quarter.

(MarketWatch) -- ... American Eagle Outfitters said Wednesday that its second-quarter profit fell to $9.66 million, or 5 cents a share, from $28.6 million, or 14 cents, a year earlier. Sales in the quarter ended July 31 rose to $651.5 million from $646.8 million with comparable store sales decreasing 1%. Excluding the closure of its Martin+Osa apparel business, the company said it would have earned 13 cents a share in the latest period. That met the average estimate of analysts surveyed by FactSet even though its sales fell short of the $662 million Wall Street expected. Month-to-date August same-store sales are up about 1%, consistent with the company's plan for the back-to-school selling period, American Eagle said. The company forecast third-quarter profit would drop to 23 cents to 26 cents a share from 32 cents a year earlier. Analysts estimated an average of 27 cents a share, according to FactSet. American Eagle shares fell 1.6%.

Medtronic dropped 15% on earnings news and is on a two year low priced at 9 times earnings. We added to some accounts that own Hewlett. The medical device maker reported quarterly earnings on Tuesday in line with Wall Street expectations, but weaker global demand for medical implants led the company to slash 2011 earnings expectations. Medtronic said it earned $830 million, or 76 cents a share, in the quarter, up from $445 million, or 40 cents a share, last year, when revamping charges and legal fees hurt performance. Excluding one-time items, the company earned $868 million, or 80 cents a share, meeting the forecast of analysts surveyed by Thomson Reuters. Revenue in the period, which ended June 30 and was the first quarter of Medtronic’s fiscal year, fell 4 percent to $3.77 billion, partly because of an unfavorable foreign currency impact and a $200 million benefit from an extra week in the year-earlier period. Revenue fell short of the $3.94 billion expected by analysts and was weaker than expected across all major divisions, including defibrillators, pacemakers and spinal repair products. “A softer global health care market impacted by decreased utilization and increased pricing pressure made for a difficult first quarter,” the chief executive, William A. Hawkins III, said in a statement. In light of the sales slowdown, Medtronic scaled back its estimated 2011 revenue and earnings guidance. The company said it now expects fiscal 2011 earnings to range from $3.40 to $3.48 a share, with revenue growth of 2 percent to 5 percent on a constant currency basis. For the first quarter, Medtronic reported that global sales of its cardiac and vascular products fell 5 percent to $2.03 billion. Those sales actually increased 1 percent when adjusted for foreign currency and the extra week last year, the company said. Sales of the company’s spinal products continued to slump, falling 9 percent to $829 million as surgeons performed fewer back operations. Spinal devices make up Medtronic’s second-largest franchise. Medtronic spent nearly $4 billion to acquire the spinal implant maker Kyphon in 2007, though the unit has not performed to expectations.

Job Losses over Drilling Ban Fail to Materialize (NYT)

When the Obama administration called a halt to virtually all deepwater drilling activity in the Gulf of Mexico after the Deepwater Horizon blowout and fire in April, oil executives, economists and local officials complained that the six-month moratorium would cost thousands of jobs and billions of dollars in lost revenue. Oil supply firms went to court to have the moratorium overturned, calling it illegal and warning that it would exacerbate the nation’s economic woes, lead to oil shortages and cause an exodus of drilling rigs from the gulf to other fields around the world. Two federal courts agreed.

Yet the worst of those forecasts has failed to materialize, as companies wait to see how long the moratorium will last before making critical decisions on spending cuts and layoffs. Unemployment claims related to the oil industry along the Gulf Coast have been in the hundreds, not the thousands, and while oil production from the gulf is down because of the drilling halt, supplies from the region are expected to rebound in future years. Only 2 of the 33 deepwater rigs operating in the gulf before the BP rig exploded have left for other fields.

Rest of story: http://www.nytimes.com/2010/08/25/us/25drill.html

We added Alcoa to accounts at $9.98.


August 27, 2010

Model Portfolio Value As of 27 August 2010

$ 585,676

August 26, 2010

Model Portfolio Value As of 25 August 2010

$ 578,725

August 25, 2010

Model Portfolio Value As of 25 August 2010

$ 582,988

August 24, 2010

Model Portfolio Value As of 24 August 2010

$ 574,832

We are taking the next two weeks off from regular posting. As in the past there may be some random posts and the Model Portfolio value will be posted daily. The markets are the markets and the big boys and girls will have their HFT fun whether we are sitting here or away. We own good stocks at good prices and have cash on the sidelines if the markets continue their black swan dive. We will return on Tuesday September 7.

And no we aren’t going to the Tea Party/ Glen Beck miasma in Washington this weekend.



(Yahoo/Finance) Domestic stock futures currently point to a sharply lower start that would put the S&P 500 at its worst level in over a month. Meanwhile, Germany's DAX is already down 1.6% to a new one one-month low. It is also below its 200-day moving average for the first time in more than a month. The weak action follows the final second quarter GDP report, which indicated that the German economy grew 2.2% quarter-over-quarter. ....Meanwhile, the yield on Germany's 10-year Bund is down to 2.18%, which is its lowest level in more than a decade. In France, the CAC has fallen to a 2.0% loss. Only Lagardere and Suez Environnement are in higher ground. Britain's FTSE is off by 1.8%. Though all 10 major sectors are in the red, a 3.0% slide by materials stocks has made them the session's worst performers. The British pound is also under pressure; it is currently down 0.7% against the greenback. Weakness in the currency comes after an official from the Bank of England stated that there is real risk of a second recession.

In Asia, China's Shanghai Composite managed to put together a 0.4% gain. Hong Kong's Hang Seng Shed 1.1% to settle below its 50-day moving average for the first time in more than a month. In Japan, the Nikkei fell 1.3%

Diane Swonk, Mesirow Financial Chief Economist:

Home Sales Plummet, Raises Likelihood of Additional Monetary Stimulus

Existing home sales sunk 27.2% to 3.83 million units in July, after being revised down to 5.26 million units in June, and its third drop in as many months. This is a record low for the existing-home sales series, which was launched in 1999. Single family home sales, which account for the lion's share of the sales, slid to their lowest level since May, 1995, which was a year that almost resulted in a recession.

Many blame the end to homebuyer tax credits, which expired in April. It is hard to justify the magnitude of the decline on tax credits alone. Mortgage rates dipped to record lows during the month and affordability soared.

The recent loss in jobs and concerns about the sustainability of the recovery are more likely the culprits. We have also seen a fairly significant tightening of lending standards since the Fed ended its mortgage-backed security (MBS) purchases program last spring. Banks are less willing to lend against the backdrop of uncertainty we face when they can't offload at least a portion of that risk as securitized debt sales.

Concerns about whether housing prices will fall further is also a problem for lenders and borrowers alike, especially in light of the growing backlog of foreclosures that we are now seeing. The rise in "strategic foreclosures" - those who can afford but choose not to service their mortgage - is particularly disturbing, as it is adding insult to injury to home values in neighborhoods which have already seen 30-40% declines in the value of their homes.

What could reignite demand? Jobs are key. Few will lend or want to commit to a mortgage in a market where income is uncertain. It would also help if Fannie and Freddie were buying more MBS, which would allow banks to process more mortgages without worrying so much about the risk.

That, however, would require the Fed to resume its purchases of MBS, which many within the Fed system would loathe to do. The Wall Street Journal reported today that at least seven within the Fed system opposed the Federal Open Market Committee's (FOMC) decision to offset any decline in the Fed's balance sheet due to maturing mortgages with additional treasury bond purchases, let alone something more controversial like MBS purchases.

This issue will be a hot topic at the Kansas City Fed's Jackson Hole, Wyoming meeting, which I am attending later this week. Fed chairman, Ben Bernanke, is slated to speak on Friday morning, and widely expected to underscore the tools that the Fed still has to further stimulate the economy, despite objections in his own ranks. Tom Hoenig of the Kansas City Fed will be particularly interesting to watch, as he is not only the host of the meeting, but has also been one of the most vocal in his dissents to the Fed's current stance on interest rates and quantitative easing.

The Bottom Line: The economy is weak, and flirting with a double dip. Without a more demonstrative pickup in growth in the next few weeks, the Fed could be back in the game of buying assets soon, regardless of dissent in its ranks. The next FOMC meeting is scheduled for September 21, 2010, and it is likely to be a market moving event.

(Bloomberg) -- The Federal Reserve will probably ease monetary policy further as the U.S. economy weakens, said Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York. “The Fed will eventually move to additional monetary stimulus via asset purchases or other unconventional measures,” Hatzius said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” Should the Fed opt for more securities purchases, he said, there is “no point in doing anything less than” $1 trillion.

Fed policy makers on Aug. 10 made their first attempt to bolster the economy in more than a year, saying they will maintain their holdings of securities at $2.05 trillion to prevent money from draining out of the financial system. The Federal Open Market Committee, in its statement, said “the pace of recovery in output and employment has slowed in recent months.”

Sales of previously owned U.S. homes slumped 27 percent in July, the National Association of Realtors said today in a report that pointed to further weakening of the economy. Hatzius, speaking before the home-sales data, predicted gross domestic product will expand at a 1.5 percent annual pace in the second half of the year, and unemployment will rise to 10 percent next year from 9.5 percent currently.

We added to GE and the Major Bank ETF (KBE).

(Bloomberg) Norfolk Southern, the fourth-largest U.S. railroad, sold $250 million of 100-year bonds in a reopening to yield 5.95 percent, Bloomberg data show. The Norfolk, Virginia-based company earlier marketed $100 million of the debt. “People take comfort in the fact that railroad companies have been through many cycles of ups and downs,” said David Tiberii, a money manager who helps oversee $20 billion investment-grade corporate debt at T. Rowe Price Group Inc. in Baltimore. “For me, 100 years is a little long.”

The old stockbroker’s clients made big money by buying at his suggestion bankrupt railroad bonds for pennies on the dollar in the 1940s and also the1970s. Back then the bondholder actually had a mortgage on railroad property which gave the hordes standing in court when the bankruptcy was adjudicated. Now railroads only issue debentures which pace the holders at the rear in reorganization.

Stocks lost ground with the major measures down over 1% and breadth 3/1 negative. Volume was light. The DJIA was down for the 9th time in 11 sessions. Europe closed lower by 1.5% and more with Ireland down 6%. Gold was down large and then popped to gain $4 to $1232. Oil lost $1.74 to $72/30.



August 23, 2010

Model Portfolio Value As of 23 August 2010

$ 581,362


Europe is higher, Asia lower and U.S. futures higher this morning.

The WSJ reports that interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years. In the second quarter, the average interest rate on existing cards reached 14.7%, up from 13.1% a year earlier, according to research firm Synovate, a unit of Aegis Group PLC. That was the highest level since 2001.

Of course funding costs for banks are near zero thanks to the Fed.

The Roger Clemens indictment is a waste of time and resources- as is the Barry Bonds fiasco and the supposedly coming indictment of Lance Armstrong. We are not enamored of famous athletes but the government is wasting its time and our money. It reminds of the late 1990s when the FBI spent its time and resources investigating Clinton’s sex life and missed the 9/11 terrorists.

(Bloomberg) -- Retail investors in the U.S., burned by two market crashes in a decade, have shunned stocks for the longest stretch in more than 23 years, upsetting the balance of power in the $10.5 trillion mutual-fund industry. Bond funds attracted more money than their equity counterparts in 30 straight months through June, according to the Investment Company Institute, a Washington-based trade group. .... Bond funds attracted $559 billion industry wide in the 30 months through June, according to ICI. Investors pulled $209.4 billion from domestic equity funds and $24.4 billion from funds that buy non-U.S. stocks. Stocks fell 26 percent including reinvested dividends during the period, as tracked by the Standard & Poor’s 500 Index. Based on Bank of America Merrill Lynch index data, bonds returned 16 percent.

 The major market measures were positive most of the day until the final half hour when they moved mildly negative. Volume was summer Monday light and Breadth was negative. European stocks closed higher and Gold and Oil were both down about $1.




August 20, 2010

Model Portfolio Value As of 20 August 2010

$ 584,675

Asian markets played follow the leader last night and moved lower and European markets are lower at midday. U.S. futures will head lower at the opening as Hewlett and Dell had good numbers but disappointed analysts. So what else is new?

(WSJ) On Thursday, H-P said its quarterly results were driven by growth across its product portfolio—which includes personal computers, servers, services and printers—as well as across geographies. H-P's income clocked in at $1.77 billion, or 75 cents a share, up from $1.67 billion, or 69 cents a share, a year earlier. Revenue was $30.7 billion, up from $27.6 billion.

H-P had "solid growth," said Robert Cihra, an analyst at Caris & Co. Still, Mr. Cihra added that investors are more focused on H-P's "CEO void and the fact that Mark Hurd left some pretty big shoes to fill with H-P, a company that's historically proved tough to manage." Some of H-P's strongest quarterly growth came from its hardware businesses. H-P's storage and server-computer business reported 19% revenue growth, while revenue at its PC unit rose 17%. The printer business's revenue jumped 9%. H-P's services revenue increased 1% while software business rose 2%. For its full fiscal year, H-P projected revenue of $125.3 billion to $125.5 billion and profits of $3.62 to $3.64 a diluted share.

Dell, meanwhile, said Thursday that the federal government, as well as businesses, would help boost sales in the current quarter. Corporate customers are also replacing aging fleets of computers, indicating a refresh cycle is "well under way and that demand will continue through the next several quarters." The world's No. 3 PC maker posted a profit for the quarter ended July 30 of $545 million, or 28 cents a share, up from $472 million, or 24 cents a share, in the same period last year. Excluding severance-related charges and other items, earnings rose to 32 cents a share from 29 cents. Revenue rose 22% to $15.53 billion. However, gross margin narrowed to 16.6% from 18.7%, spooking investors. Shares declined 1.6% to $11.85 in after-hours trading Thursday. Dell's report follows a rough period for the Round Rock, Texas, company. Both the company and Chief Executive Michael Dell recently settled with the U.S. Securities and Exchange Commission over allegations that the company had improperly reported income. Earlier this week, a company filing said more than 25% of votes cast by Dell shareholders at its Aug. 12 annual meeting opposed Mr. Dell's reelection to the board. In an interview, Brian Gladden, Dell's finance chief, expressed support for Mr. Dell, saying the company's directors remained committed to his leadership. "They publicly came out and reaffirmed their unanimous confidence for Michael and his leadership," Mr. Gladden said.

AnnTaylor Stores. swung to a fiscal-second-quarter profit as the retailer's sales and margins increased, though sales missed company forecasts due to weakness in its Loft brand.

While giving a third-quarter revenue view in line with analysts' expectations, the company expects sales for the year "approaching" $1.95 billion. In May, the company had forecast $1.95 billion to $1.98 billion. For the quarter ended July 31, AnnTaylor reported a profit of $18.6 million, or 31 cents a share, compared with a year-earlier loss of $18 million, or 32 cents a share. Excluding items such as restructuring charges, earnings surged to 32 cents a share from 6 cents, matching analysts' estimates. Revenue rose 2.8% to $483.5 million. Same-store sales rose 6.1%, up 15% for its namesake brand, including online and factory store sales, and flat at the Loft brand. The company in May had predicted revenue approaching $500 million, with double-digit growth in overall same-store sales. Gross margin rose to 55% from 52.4%. Looking ahead, the company forecast third-quarter revenue approaching $495 million, reflecting a mid- to high-single-digit increase in same-store sales

We sold the rest of the Symantec for a plus scratch. We switched JCP for a scratch loss to scratch profit to Dell and raised cash in the process. The 15% drop in JCP last week after we bought it and recovery this week on very low volume suggests quick downside again if the market continues lower. Dell had a very good report and the analysts are nit picking its financials.

The major market measures traded lower all day but managed to recover about half their losses by the close. The S&P 500 dropped 0.5%. Breadth was negative and volume was summer Friday light. Europe ended the wake with another down day and Oil closed at $73.45 and Gold lost $10.



August 19, 2010

Model Portfolio Value As of 19 August 2010

$ 585,958

Asia was higher overnight as is Europe at midday.

The big news this morning is that Intel is buying McAfee for $9 billion. McAfee is a direct competitor of Symantec and Symantec is higher on the news. We are using the pop in SYMC to eliminate half the position since we think analysts will posit that the Intel/McAfee merger is trouble for SYMC. We are selling for a plus scratch. What the price paid by Intel (60% above last night’s close) does say is that industry folks think that software stocks are cheap. Intel is paying 3.5 times revenues for MFE. At that price Symantec would be trading at $25.

Jobless claims for the last week hit 500,000.

The Philly Fed Index was -7 in August and the HFT computers went to town kicking the major measure down 1% in three minutes. The Philly Fed Index?

(Calculated Risk.com)

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 5.1 in July to 7.7 in August. The index turned negative, marking a period of declining monthly activity for the first time since July 2009 (see Chart). Indexes for new orders and shipments also suggest a slowing this month; the new orders index fell slightly, to 7.1, while the shipments index turned negative, declining to 4.5. Indicating weakness, indexes for both delivery times and unfilled orders remained negative this month.

The percentage of firms reporting a decline in employment (23 percent) was higher than the percentage (20 percent) reporting an increase. More concerning was the significant drop in the average employee workweek index from 1.7 in July to 17.1 in August.

(thestreet.com) American Eagle Outfitters is the latest retailer in the midst of takeover chatter. The teen retailer saw call trading reach a nine-month high on the speculation. One name being thrown around as a potential acquirer of American Eagle is private-equity firm Blackstone Group. Shares of American Eagle jumped 4.2% to close on Wednesday at $12.84. The retailer is scheduled to report its second-quarter earnings on Aug. 25. While this rumor may catch some investors off guard, Wall Street Strategies analyst Brian Sozzi says it could be a very real possibility. "Given American Eagle's valuation, in addition to the health of its balance sheet, they [are] a prime takeover candidate," Sozzi said. American Eagle's stock has been hammered, down 24% for the year-to-date period. Aside from rival Aeropostale, it also has the lowest valuation of the teen sector, Sozzi notes. The retailer also has a lot of cash, no bank debt, viable concepts in its namesake and children's brands and a management team that hasn't executed properly, all of which add to a possible buyout, Sozzi said. "I see private equity as a buyer here," he said. "Department stores shed teen apparel brands years ago and I am sure are dealing with their own headwinds with the consumer spending backdrop and bloated debt positions from years of over expansion."

If the bears keeping baiting the bulls this may happen to them. http://gawker.com/5616591/raging-bull-to-bloodthirsty-spanish-crowd-im-outta-here






(WSJ) LG Electronics on Thursday confirmed that it would be using a dual-core processor manufactured by Nvidia for its line of Optimus smartphones later this year. That’s a coup for Nvidia, which has been pushing to enter the smartphone market with its Tegra chip and expand beyond its traditional business of providing graphics chips for PCs. So far, the most notable phone to use Tegra was Microsoft’s failed Kin youth-centric device. But LG committing to Nvidia gives the graphics-chip maker something to potentially boast about. Much of the awareness of the faster generation of 1-gigahertz processors for smartphones have focused on Qualcomm Inc.’s Snapdragon processor, found in HTC’s Incredible and Evo, or Samsung Electronics’ Hummingbird chip, found in its own line of Galaxy S phones. Nvidia, however, isn’t the only company packing a dual-core chip. Qualcomm has also talked about a dual-core Snapdragon chip. Nvidia wasn’t immediately available for comment. The company has previously said it expects to have several smartphones, as well as hybrid netbook-smartphones called smartbooks, using its Tegra chip by the end of the year.

Hi mom and dad.

(hullabaloo.com) If young people don't want to pay into social security they probably need to start saving for a very big house with a couple of extra bedrooms for mom and dad and possibly grandma and grandpa too. That's how everyone used to live before social security was enacted --- with most of those that didn't have kids able to take care of them living in grinding, horrible poverty. Perhaps the prospect of that will make people realize that social security is a very good deal.

We have a lot of Dragonflies this year; some facts about them:

From http://www.wsiltv.com/p/news_details.php?newsID=10726

WILLIAMSON COUNTY--At Crab Orchard National Wildlife Refuge, it's hard to take a walk and not see brightly colored dragonflies buzzing about. As a matter of fact, these flying insects are nice companions to have around!

"One adult dragonfly might eat hundreds of mosquitoes in a matter of a few days. So a lot of dragonflies are actually good because it keeps down the mosquitoes and other biting flies," says Park Ranger Kim King-Wrenn.

Since dragonflies' food sources live near water or grassland areas, that's where you can find them catching their prey at more than 25 miles per hour.

"When it gets hot and we head to the water, whether it's a pool or a lake like here on Crab Orchard, we're in the same place that the dragonflies are. So we get to see them and enjoy them," says King-Wrenn.

Females lay their eggs during summer, and hatched larvae survive winter under water. During the following spring and summer months, larvae transform into adult dragonflies; so the number of dragonflies you see does not necessarily reflect on this summer's weather, but rather this past year's.

Some adult dragonflies live from spring to summer or summer to fall or all summer long, making Southern Illinois a great place to see nearly one hundred different species of dragonflies this time of year.

By Katie Walls

Say What? Americans increasingly are convinced — incorrectly — that President Barack Obama is a Muslim, and a growing number are thoroughly confused about his religion.

Nearly one in five people, or 18 percent, said they think Obama is Muslim, up from the 11 percent who said so in March 2009, according to a poll released Thursday. The proportions who correctly say he is a Christian are down to just 34 percent. The largest share of people, 43 percent, said they don't know his religion, an increase from the 34 percent who said that in early 2009.

(NYT)They were revered as the brightest minds in finance, the “quants” who could outwit Wall Street with their Ph.D.’s and superfast computers.

But after blundering through the financial panic, losing big in 2008 and lagging badly in 2009, these so-called quantitative investment managers no longer look like geniuses, and some investors have fallen out of love with them. Read on at http://www.nytimes.com/2010/08/20/business/20quant.html?_r=1&hp

Major stock measures closed 1.5% lower. European bourse reversed midday gains to close lower after the U.S. markets tanked. Gold closed up $2 at $1233 and Oil ended at $74.43 down $1. Breadth was 5/1 negative and volume was all HFT; investors are abandoning ship or on vacation.





August 18, 2010

Model Portfolio Value As of 18 August 2010

$ 588,185

(MarketWatch) European shares declined, with commodity-sector stocks turning in the worst performance as investors took some profits and eyed further developments on BHP Billiton's move for Potash.  See Europe Markets for more. Asian stocks ended mixed, with Japanese shares advancing as technology and automobile exporters rose after strong earnings reports and U.S. industrial-production data spurred a rebound on Wall Street.

(CalcualtedRisk.com) the Federal Reserve Bank of New York today announced the release of a new Quarterly Report on Household Debt and Credit and an accompanying web page. The report shows that households steadily reduced aggregate consumer indebtedness over the past seven quarters. In the second quarter of 2010, they owed 6.4 percent less than they did in 2008, the peak year for indebtedness.

Additionally, for the first time since early 2006, the share of total household debt in some stage of delinquency declined, from 11.9 percent to 11.2 percent. However, the number of people with a new bankruptcy noted on their credit reports rose 34 percent during the second quarter, considerably higher than the 20 percent increase typical of the second quarter in recent years.


The next quarterly reports are expected to be released on November 8, 2010, February 14, 2011, May 9, 2011 and August 8, 2011.


A week ago Goldman raised its price target on gold to $1,300/ounce, an action which judging by the firm’s historical record of putting its clients’ interest in its rightful last place, led us to be skeptical: “The report will likely result in a brief pop in spot as the idiot money rushes into the latest Goldman trap. Alas, it also means that GS is now offloading. Be very wary of market dynamics over the next month.” Today we realize our skepticism was perfectly justified: in the latest Perspectives from Goldman Sachs Asset Management (intended FOR BROKER-DEALER, FINANCIAL INSTITUTION, OR INSTITUTIONAL INVESTOR USE ONLY. NOT FOR DISTRIBUTION TO CLIENTS OR THE GENERAL PUBLIC), in addition to summarizing all the other recent actions presented by the firm’s key departments, way in the back, in very small print when discussing commodities, the letter author notes: “Shifted our stance on gold after years of being long; see gold as vulnerable to Central Bank inactivity in the face of rising deflation risk.” Once again, those who bet that Goldman does precisely the opposite of what it tells clients to do, win.

This guy is sure to unite republicans and democrats:

(Huffington Post) Chris Coons, a Democrat running for Joe Biden's vacated Senate seat in Delaware, wants to freeze Senate pay and to ban former senators from ever becoming lobbyists.

The major stock measures were mildly higher in light trading. European bourses closed lower and Gold was up $2 at $1230 while Oil was down 50 pennies at $75.40.






August 17, 2010

Model Portfolio Value As of 17 August 2010

$ 584,711

Asian markets were mildly higher overnight and European bourses are higher by 1% at midday. U.S. futures are higher on takeover action.

(Bloomberg) China cut its holdings of Treasury notes and bonds by the most ever, raising speculation a plunge in U.S. yields that sent two-year rates to a record low has made government securities unattractive. The Asian nation’s holdings of long-term Treasuries fell by $21.2 billion in June to $839.7 billion, a U.S. government report showed yesterday. Total Chinese investment in U.S. debt declined 2.8 percent to $843.7 billion, the least in a year, following a 3.6 percent slide in May.

Perceived wisdom suggested that when China began selling Treasuries rates would skyrocket. The opposite is occurring.

(Bloomberg) -- Production in the U.S. rose more than forecast in July, easing concern the industry that led the economy out of the recession is beginning to slow.

Production at factories, mines and utilities climbed 1 percent after a 0.1 percent decline in June, led by a rebound in auto making, figures from the Federal Reserve showed today. Factory output rose 1.1 percent after the biggest drop in more than a year. Economists had forecast a 0.5 percent gain in overall production, according to the median estimate in a Bloomberg News survey.

We switched our final lots of Barnes & Noble in our larger accounts to the Major Bank ETF (KBE).

From the NYT:

2 Zombies to Tolerate for a While


Representative Barney Frank was furious.

The Massachusetts Democrat had been watching a morning news program that had me on, and soon afterward he was calling my cellphone to fume about that morning’s discussion. The topic? Why it has taken the government so long to address the fate of the zombie mortgage giants, Fannie Mae and Freddie Mac.

It is an issue that has been talked about a lot of late. On Tuesday, the Treasury secretary, Timothy F. Geithner, will convene a meeting of government officials and executives like Bill Gross of Pimco and Lewis Ranieri, the father of the mortgage-backed security, to delve into future housing policy and the role played by Fannie and Freddie.

On the television program that had stirred Mr. Frank, “Morning Joe” on MSNBC, the prevailing view was that any effort toward a resolution of Fannie and Freddie — government-created mortgage companies that were taken over by the government as the financial crisis mounted — had been put on the back burner during the overhaul of financial regulation. The consensus was that neither Democrats nor Republicans wanted to touch an issue that would dredge up decisions made by both parties over the last decade that looked bad in light of the financial crisis. Fannie and Freddie was now the third rail of American politics.

Mr. Frank was having none of that.

“I take offense at the idea that we’ve done nothing,” he told me. Far from dragging its feet, he insisted, the government took the bold step of putting Fannie and Freddie into conservatorship in 2008. “There was no political fear to not do it.”

I asked the question that I hear from so many Americans: Why hasn’t the government tried to unwind and replace Fannie and Freddie, which have so far cost taxpayers $145 billion, more than any other bailed-out firm?

His response was counterintuitive — and as unsatisfying as it may sound, he’s right.

“There is no urgency,” he said.

Come again?

“We’ve already abolished Fannie and Freddie,” he said, referring to the government takeover. “Yes, we waited too long to fix it. But the money is not being lost by anything they are doing now.”

In other words, the sinkhole that is Fannie and Freddie — Freddie just said it needed an additional $1.8 billion and the Congressional Budget Office says the combined companies could cost taxpayers $389 billion over the next decade — is not a function of those firms making new loans that have gone bad, but the continued “bleeding,” as Mr. Frank put it, from previous loans made before the crisis that are still going belly-up.

More important, shutting down Fannie and Freddie and having the private market step in, as politically popular a sound-bite as that may be, is economically unfeasible. For better or worse, Fannie, Freddie and Ginnie Mae were behind 98 percent of all mortgages in this country so far this year, according to the Mortgage Service News. Pulling the rug out from under them would be pulling the rug from under the entire housing market as it continues to struggle.

“Nobody in the private market thinks we’re ready,” he said, adding that whatever legislation is developed, it will be “for a postrecession world.”

That reality, however, is not changing the minds of many who are calling for a return to a private system that doesn’t depend on the government to subsidize housing.

One of the more interesting ideas being floated is that the government-sponsored enterprises, Fannie and Freddie, would subsidize loans only for low-income families by lowering the size of a so-called conforming loan. At the moment, Fannie and Freddie are buying up single-family mortgages for up to $417,000, and in some high-cost areas as much as $729,750, clearly benefiting families that don’t need the subsidy. Even if the size of a conforming loan were reduced — a prospect that troubles Mr. Frank — there will still need to be some sort of support for that marketplace because the big banks say they won’t service it.

“A clear government role will be necessary to support lending to lower-income borrowers because it is likely that underwriting standards will become more rigorous and funding for mortgage lending more difficult and costly,” the deputy general counsel of Bank of America, Gregory A. Baer, wrote in a letter to the Treasury. (Critics of the banks will point to language like that to show why the bailouts are not helping ordinary Americans.)

No matter what the ultimate plan, the transition to get there will be painful.

“Were the G.S.E.’s to cease buying mortgages or guaranteeing mortgage-backed securities, financing for buying homes today would be virtually nonexistent until the banks got back up on their feet. This would result in mortgage prices increasing, causing demand for housing to decrease, taking the value of homes even further down,” Anthony Randazzo, director of economic research of the Reason Foundation, wrote in a letter to Mr. Geithner.

Nonetheless, Mr. Randazzo, whose foundation leans toward libertarian views, takes a much bolder step. “This means that prices have not been allowed to reach their natural bottom, from which a sustainable recovery could begin.” And Mr. Randazzo wants to see housing prices truly bottom out.

But allowing the housing market to collapse simply so it can rise again — a very free-market approach — is politically unpalatable, especially as the nation’s unemployment number still hovers near 10 percent.

“It’s intellectually pretty difficult,” Mr. Frank said.

The major market measures closed off their best levels but were up 1% and more on Tuesday in light summer August trading, breadth was better than 2/1 to the good. European bourse held their early morning gains to ended 1% higher and Gold was up $1 while Oil gained 50 pennies to $75.60.





August 16, 2010

Model Portfolio Value As of 16 August 2010

$ 580,984

The prince and princess are gone and summer vacation is over for them. We are going to take a few days next week but with the change in the weather here at the farm from hot and humid to autumnal we know that fall and market gyrations are on the way.

(MarketWatch) European shares reversed early gains to trade lower Monday. Asian markets ended mixed, as disappointing economic growth weighed on Japanese stocks, while banks in China advanced.

Conditions for manufacturing in the New York region improved a bit in August from July but still remained well below levels of earlier in the summer, the New York Federal Reserve Bank said. The bank's Empire State Manufacturing index rose to 7.1 in August from 5.1 in July. While positive, it is well below the high of 31.9 in April and 19.6 in June and suggests growth at only a modest pace. The details of the report were fairly weak. The index for new orders and shipments dipped below zero for the first time since June 2009.

Bank of America Corp. (BAC) may reduce its 34% holding in New York asset manager BlackRock Inc. (BLK), according to a report in The Wall Street Journal. Bank of America decided that the 64.7 million common and preferred shares of BlackRock that it holds aren't a core asset, the report said, citing people familiar with the matter.

Dell Inc. (DELL) said it will pay $18 a share in cash to buy storage technology firm 3Par Inc. (PAR). The deal, which is worth about $1.15 billion, values 3Par at an 86% premium to Friday's closing price of $9.65 a share.

(WSJ) This month, J.C. Penney Co. is launching a new Liz Claiborne clothing, home and accessories line in all 1,100 of its stores, its biggest brand launch ever.

But while the exclusive collection is considered a coup for Penney, it could mark the final chapter in the story of the 34-year-old Liz Claiborne brand.

Liz Claiborne, once the No. 1 vendor at American department stores, has effectively ceded control of its iconic brand to Penney as part of the deal. The agreement--which calls for Claiborne to give up production and marketing and convert the label into a mass market line in exchange for royalties--was struck only after Macy's Inc. slashed its Claiborne orders last year. The deal gives Penney the option to buy U.S. rights to Liz Claiborne's name in five years.


The Hindenburg Omen is once again predicting a stock market crash, and we don’t know whether to ignore it and relax because (even) the Wall Street Journal has picked up on it this time, or to instead batten the hatches because sometimes even lousy indicators can be right. Over time, the indicator, invented by a blind mathematician named Jim Miekka, has compiled an unimpressive track record. While virtually every crash since 1987 has indeed been signaled by the Omen, there have been so many false signals that the indicator’s overall accuracy has been a dismal 25 percent. Now, according to Miekka, the Omen is signaling a crash in September, having registered two key statistical events. For one, NYSE highs and lows both exceeded 2.5%; and for two, a rising 10-week moving average for the NYSE diverged relative to a negative McClellan Oscillator.

We never heard of it. A coin flip call has a 50% probability. Why the WSJ and Bloomberg also wrote about it is a mystery to us.

With the markets having failed at 1125 on the S&P 500 we raised some cash in our large accounts by selling the income stocks we had purchased for scratch losses and also reduced positions in Intel, Nvdia, Symantec and Walgreen.


The National Association of Home Builders (NAHB) reports the housing market index (HMI) was at 13 in August. This is down slightly from 14 in July and below expectations. The record low was 8 set in January 2009, and 13 is very low ...Note: any number under 50 indicates that more builders view sales conditions as poor than good.

August 15, 1057, Macbeth the King of Scots (Mac Bethad mac Findlaích) was killed in battle by King Duncan’s son Malcolm, likely in retaliation for Macbeth’s having killed King Duncan. Macbeth of course became the subject of William Shakespeare’s great tragedy “Macbeth.”

Since no star has been arrested recently- or politician’s girl friend killed- the Ground Zero Mosque will have to do as the summer obsession of the media. The NY Daily News has an interesting take on the controversy.

Opponents of a proposed lower Manhattan mosque and community center speak in hushed tones about the sanctity of the "shadow of Ground Zero."

Tell that to the patrons of the Pussycat Lounge, a strip club where a photo of a nearly naked woman marks its location just two blocks from where the World Trade Center stood.

Or the Thunder Lingerie and peep show next door, where the marquee sports an American flag above a window display of sex toys and something called a "power pump."

Many come to the scene of the worst terrorist attack on American soil to pay tribute to pain and unspeakable tragedy. They're welcomed by solemn memorials and a visitors center amid the noise of reconstruction.

If they're so inclined, they can also buy porn, play the ponies and take care of all manner of personal business within steps of the former World Trade Center.

In a walk of the streets within three blocks of Ground Zero, the Daily News counted 17 pizza shops, 18 bank branches, 11 bars, 10 shoe stores and 17 separate salons where a girl can get her lady parts groomed.

"There is something for everyone downtown, from mom-and-pop establishments to luxury retailers such as Tiffany's and Hermes," said Jeff Simmons of the Alliance for Downtown New York.

There are at least 10 churches in lower Manhattan south of Canal St., three synagogues, one Buddhist community center and a Hare Krishna facility. There's also a Muslim prayer house that, on its website, denies any connection to "any other organization trying to build anything new in the area of downtown Manhattan."

It may be sacred ground, but the streets surrounding Ground Zero are also a place where New Yorkers work, eat and buy shampoo.

Read more:

The major market measures closed flat in light summer Monday trading. Breadth was negative. European bourses closed flat. Oil closed at $75.22 down $7 from last week and Gold ended at $1226 up $20 from last week.





August 13, 2010

Model Portfolio Value As of 13 August 2010

$ 580,939

 (Bloomberg) -- Germany’s record-breaking (positive) performance in the second quarter is making life harder for European Central Bank President Jean-Claude Trichet. While Europe’s largest economy expanded at the fastest pace since the country’s reunification, the region’s southern periphery is still struggling to recover from a sovereign debt crisis. Greece’s recession deepened, Spain expanded less than economists forecast and investors are turning their attention to their budget deficits again. “This is going to become a very serious headache for the ECB,” Marco Annunziata, chief economist at UniCredit Group in London, said in a Bloomberg Television interview. “If the ECB were the Bundesbank it would be raising rates very quickly. But Spain, Greece, Italy -- they can’t afford it.” Trichet is trying to steer a course that will prevent Germany from overheating while also keeping the euro region’s sovereign debt crisis at bay. In a sign that investors are again questioning the ability of the most deficit-laden countries to cut their budgets, the extra yield that investors demand to hold Greek bonds over benchmark German bunds today rose to the highest since May 7. Today’s reports highlighted the scale of the growth divide in the euro region, which expanded 1% on the quarter. Germany, which grew 2.2 percent, was responsible for almost two thirds of the bloc’s second-quarter expansion even though it only makes up about one quarter of the economy. In Spain, whose government is pushing through the toughest austerity measures in three decades, the economy expanded just 0.2 percent after economists predicted growth of 0.3 percent. Greece contracted 1.5 percent.

Perceived guru wisdom has been that Europe is a drag on the world since there was a lack of growth. Now we learn that 2% growth in Germany is a cause of concern and would necessitate raising interest rates. Yet 2% plus growth in the U.S. has been cited in the media and by the Pooh-Bahs as a cause for alarm in that it means that growth is too slow and the Fed has to keep interest rates at 0 to help the U.S. economy. We don’t think gurus can have it both ways. Moreover the Euro Zone should be looked at as an economic whole, a cooperative of countries with some doing better than others. That is the way the U.S. is considered. There are some states doing better than others but the overall U.S. GDP number is the figure that every trader and commentator uses when considering the U.S. economy. The Euro Zone was created so that economic cooperation in bad times would be available as well as celebrating success in good times.

The reality is that there is an election coming in November and that talking points for the folks out of power are doom and gloom and deficit reduction. The folks in power take the opposite side of every argument.

The economy is recovering. Unemployment is too high. But the difference between full employment and the current stage is 4% not 9% since full employment is considered to be 5% unemployment. Go figure. And if unemployment were 5% the out of power folks would still be carping. Our suggestion remains to stop watching portfolios- that is our job- and the skewed news and begin reading books again.

10 August: Fed minutes: According to the Fed, the economic recovery is likely to be more modest in the near term than had been anticipated. The latest statement also indicated that the target range for the federal funds rate will remain at 0.00% to 0.25% and that low resource utilization and subdued inflation are likely to warrant exceptionally low levels of the fed funds rate for an extended period.

Perhaps more surprisingly, the FOMC will keep constant the Fed's holdings of securities by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasuries. That plan has sent Treasuries sharply higher, such that the yield on the benchmark 10-year Note is down to 2.75%, which marks a 16-month low.

11 August: markets open down 200 points. We sold XLF for cash to buy more aggressive BankAmerica.

An hour into the trading day declining volume is 20/1 advancing volume and down versus up issues at 10/1. The HFT computers are having fun today. investors aren’t but then the SEC is more interested in keeping Wall Street happy and profitable.

The major measures closed almost 3% lower as Friday August 13 approaches.

12 August: (MarketWatch) Barnes & Noble is expected to soon announce the settlement of a lawsuit filed by investor Ronald Burkle, who challenged the legality of a "poison pill" plan that would have prevented the company from being sold. As part of the settlement, Barnes & Noble will add two independent directors to the board, in addition to a director affiliated with Yucaipa Cos., the investment firm run by Mr. Burkle.

We are trying to sell Barnes & Noble over $15 for a scratch profit after sitting on a loss because we aren’t interested in a soap opera and we think maybe the three groups that own control of the company will make an agreement to forego fighting to buy the company on the cheap. The settlement may be the first step in that process.

Later in the day it was announced that the settlement of the law suit fell apart. That may mean that Burkle didn’t want to give up the ability to make an independent bid. We were able to sell some shares before the stock price backed off on the second announcement but we will keep trying to sell.

Cisco beat last night and revenues were up 27% but that want’ enough and the shares are down $2 in early trading. It is that kind of market this week. We purchased CSCO in our very large accounts. We also added more Dell in those accounts. Dell earnings come Monday and we are waiting till then to see how the stock reacts before adding Dell shares to more accounts.

(WSJ) Initial jobless claims rose by 2,000 to 484,000 in the week ended Aug. 7, the highest level since mid February, Labor Department figures showed today in Washington. The number of people receiving unemployment benefits dropped, while those getting supplemental benefits surged by 1.34 million reflecting the government’s extension of eligibility.

We repurchased GT at $10.15 in accounts from which we were able to sell at $12.05 on July 29 when they reported earnings. The low on the shares this year is $9.65 with an $18 high.

We sold General Mills in large accounts. We bought as a cash replacement for income and the one week gain is greater than two quarters of dividend income

The major market measures closed down 0.50%.

13 August 2010: (Reuters) - Slowing demand for graphics processors and hefty charges for defective products deepened Nvidia Corp’s quarterly loss, but the chipmaker said profit margins would recover in the third quarter thanks to a new range of products. Nvidia shares, which have fallen 15 percent since the company warned of weakening business conditions last month, rose 1 percent to $9.05 in after-market trading on Thursday. "Think about the sentiment for the stock going into earnings; I'd have to say it pretty much hit rock bottom," said Wedbush Securities analyst Patrick Wang. "In terms of the competitive landscape, the economic status out there, they're in some tough times." Investors are concerned about the broader health of the personal computer market, spooked by weak economic data from around the world and growing evidence seen by analysts of a slowdown in chip demand. And competition is intensifying. Nvidia's business providing graphics chips for PCs is facing stiff challenges from rival Advanced Micro Devices. Investors also worry that a new crop of microprocessors from AMD and Intel Corp that come with integrated graphics capabilities could further hurt demand for Nvidia's standalone graphics chips.

Nvidia's top brass offered a bleak assessment of economic conditions during a post-earnings conference call on Thursday, citing weakness in Europe and China and noting that the company assumes business conditions in the consumer PC market will remain uncertain going forward.

But executives said the company's line-up of higher-end products aimed at corporate customers -- including chips for workstations -- would help boost margins.

Nvidia said fiscal third-quarter gross profit margins would bounce back to 46.5 to 47.5 percent, surpassing an average estimate of about 46 percent, and well above the 16.6 percent margin the company posted in the second quarter. "The reality is Nvidia is winning at the high end," said JMP Securities analyst Alex Gauna. Nvidia said it expected revenue in the third quarter to increase 3 percent to 5 percent from the prior quarter, suggesting a range of $835.5 million to $851.8 million. That's below the average analyst expectation of $884 million, according to Thomson Reuters I/B/E/S. But TK's Wang noted that the third-quarter consensus revenue estimate was artificially high because several analysts had not adjusted their numbers after Nvidia warned of weakening business conditions last month.

Revenue in the three months ended Aug. 1 totaled $811.2 million. Nvidia said last month it expected revenue for the second quarter of $800 million to $820 million, well down from a previous forecast for $950 million to $950 million. Nvidia posted a net loss of $141 million, or 25 cents per share, in the second quarter, compared with a net loss of $105.3 million, or 19 cents a share, a year earlier. The company said the loss included $193.9 million in charges related to problems with the die and packaging material of an older generation of chips. Nvidia also said it took a large inventory write-down in the second quarter, but executives refused to disclose the size of the write down during the conference call.

(WSJ) J.C. Penney Co. reported a fiscal-second-quarter profit Friday but lowered its full-year forecast. Penney, of Plano, Texas, posted a profit of $14 million, or six cents a share, for the quarter ended July 31, compared with a loss of $1 million, or break-even per share, a year earlier. Sales fell 0.1% to $3.94 billion. The company said the most recent quarter included a five-cent charge related to its debt tender offer completed in May. Penney forecast a third-quarter profit of 16 cents to 20 cents a share and cut its full-year forecast to $1.40 to $1.50 a share from a May projection of $1.64 a share, citing its "conservative approach to the second half of the year in what continues to be an uncertain consumer climate."

Nvdia is on its low for the year as is JCP and JCP has a 3.8% yield. We added JCP to accounts that own it and are holding both.

(WSJ) The euro-zone economy grew at its fastest pace in four years in the second quarter, driven by an unexpectedly strong surge in Germany, preliminary data showed Friday. The combined gross domestic product of the 16 countries that use the euro grew 1.0% compared with the first three months of the year, the strongest quarterly expansion since the second quarter of 2006, the European Union's Eurostat statistics agency said. GDP, which measures the total value of goods and services in the economy, was also 1.7% higher than in the second quarter of 2009, the sharpest annual increase since the first three months of 2008.

U.S. retail sales rose 0.4% in July, the first increase in three months. The narrow gain was driven largely by higher sales of automobiles and gasoline, while many other merchants continued to fight the sluggish economy.

Separately, consumer prices in the U.S. rose a seasonally adjusted 0.3% last month. However, the underlying inflation rate that is more closely watched by the Federal Reserve barely rose. Core consumer prices, which strip out changes in volatile energy and food prices, rose by just 0.1%.

We added Micron Tech and KBE to our large accounts.


August 12, 2010

Model Portfolio Value As of 12 August 2010

$ 583,341

August 11, 2010

Model Portfolio Value As of 11 August 2010

$ 584,120

August 10, 2010

Model Portfolio Value As of 10 August 2010

$ 592,425

Two articles while we are away:

Mark Hurd's Excesses Were in Plain Sight

Eric Jackson, the street.com

PALO ALTO, Calif. (TheStreet) -- Almost one year ago, I wrote here that former Hewlett-Packard (HPQ) CEO Mark Hurd was the emperor with no clothes. Most on Wall Street have revered Hurd as the consummate guy who would execute and meet Wall Street's expectations. He sounded good -- always in control -- and he certainly seemed much more together than his predecessor, Carly Fiorina.

In my article, I laid out the case for why Hurd was not as dazzling a CEO as many thought and also why he was a risky asset for Hewlett-Packard moving forward.

Although most observers seemed to agree that Hurd did a great job turning around Hewlett-Packard, I pointed out that Hurd's magic really ran out after his first two and a half years on the job. In those early years, HP's stock went up 137%. Over the last two and a half years, however, H-P's shares are down 20%. Although that performance beats the S&P 500, it badly trails rival IBM(IBM), where shares are up 20% over the same period.

The media kept showering Hurd with the "halo effect" reputation of being a turnaround genius long after his actual performance had stopped keeping up with what he accomplished at the start of his tenure with the company.

There are lots of good CEOs who suddenly lose their touch. What alarmed me about Hurd last year was the piggish behavior he and his executive team were exhibiting at the expense of H-P shareholders.

What was worse, they were gorging at the trough of lavish compensation and excess perks at the same time that they were hypocritically turning the screws on H-P employees (who remained after a series of layoffs) to accept pay cuts and reduced benefits.

HP's Securities and Exchange Commission filings of the past few years have -- in plain sight of investors and journalists -- detailed this excess:

  • Mark Hurd's total compensation for 2008 (when the global economic crisis reached its nadir) was $43 million, making him the fourth-highest-paid CEO that year, even though H-P's shares lost 29% that year.
  • CIO Randy Mott's total compensation jumped 400% that year to $28 million.
  • Imaging executive vice president Vyomesh (VJ) Joshi's total compensation increased 83% in 2008 to $22 million.
  • Personal Systems EVP Todd Bradley's total compensation went up 263% that year to $21 million.
  • Technology Solutions' EVP Ann Livermore's compensation went up 31% that year to $21 million.
  • Now-interim CEO Cathie Lesjak got a 49% bump in total compensation in 2008 to $6 million.

This management team mandated that year that all Hewlett-Packard staffers would take a 5% pay cut for the year, and they boasted that they -- as executives -- would stand shoulder to shoulder with the staff by taking 10% pay cuts. They forgot to say that the executive cuts would be only on base salary and that they would more than make up for that on options, restricted stock units and other bonus goodies.

In 2008, H-P shareholders paid $7,472 for travel expenses for Mark Hurd's family to accompany him on business meetings. They paid $256,000 for Mark Hurd's personal security detail that year. And each executive was able to use $18,000 worth of financial advice that year on the shareholders' dime.

Where it gets really interesting is that shareholders paid $136,000 for Mark Hurd's personal use of the H-P private plane fleet in 2008. Furthermore, H-P "grosses up" this taxable benefit, so that Hurd -- the guy who made $43 million in 2008 alone -- didn't have to pay any taxes for that private aircraft use. The filings also show that Hurd could take his spouse on the H-P aircraft whenever it was "requested by H-P" and that she got "grossed up" for that too.

Michelle Leder of Footnoted also first reported in 2008 that Hurd had been "grossed up" $79,814 for taxes he had to pay as a benefit on meals with his family that were paid for by HP. Leder estimated that, in order to be "grossed up" by such a high amount, Hurd would have had total restaurant bills paid for by HP shareholders of more than $243,000.

Now, we find out that H-P's board uncovered a pattern where Mark Hurd inflated his personal expenses that involved a series of trips involving him and a female contractor, who worked for the company between fall of 2007 and fall of 2009.

Although I cheer anytime I see a corporate board wake up from a deep slumber and take action where it suspects a violation of ethics, I have to emphasize that this is -- by and large -- the same board of directors that approved all of the egregious compensation and perks laid out above. And those are only the ones relevant for 2008.

We are now hearing that Hurd will receive $40 million to $50 million in compensation as part of his exit because he voluntarily resigned, instead of the $27 million he would have gotten had the board fired him for cause.

It sure seems like the board had plenty of ammunition to fire Hurd. Instead, it chickened out and the played the "it's not you, it's me" golden handshake game to make it all go away as quickly and quietly as possible. H-P's board of directors is getting good at that game: It played it with Carly as well.

The warning signs of Mark Hurd having an entitlement issue have been around for some time. It's just that most people didn't want to believe they mattered. Nothing matters to most investors as long as the guy or gal is delivering the numbers.

Sometimes charisma and tough talk isn't enough. Mark Hurd did good work in getting Hewlett-Packard back on the rails. Yet we were all blinded by that initial success, and we stopped asking tough questions.

Ironically for the H-P shareholders who loved Hurd's execution skills, he's not going to be around to integrate EDS, 3Com or Palm. That could spell "one-time" charges in the future.

In my books, if you're piggish about the small stuff like expense reimbursements, you're going to be piggish about the big stuff. Mark Hurd flashed us warning signs predicting Friday's debacle. Most of us decided to ignore them.

Matt Taibbi http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/189565/83512

Denver Schools Get Whacked

Gretchen Morgenson of the New York Times is single-handedly resurrecting the Gray Lady's reputation as a muckraker of the first order. Having already blown a big hole in the side of Goldman Sachs with her December, 2009 story exposing its crooked deal with hedge fund king John Paulson, Morgenson this week took an ax to Colorado's Democratic Senator Michael Bennet, uncovering a Jefferson-County style scam he helped perpetrate on the Denver School system on behalf of several Wall Street banks (including primarily JeffCo villain JP Morgan Chase) while acting as Denver's school superintendent years ago.

The essence of this deal is that Bennet arranged for the Denver school system to raise $750 million for its pension fund using an exotic transaction that involved interest rate swaps. Had the schools raised money using traditional fixed-rate bond issues, the debt would have featured 7.2% interest rates. Instead, Bennet and JP Morgan worked together to raise bucketloads of cash from investors using variable-rate debt with interest rates of about 5%. The banks then slapped an interest-rate swap on the deal that allowed the Denver school system to mimic a fixed-rate loan -- for a fee, of course.

Again, just like in Jefferson County, Alabama, the basic idea here was similar to a homeowner who buys a house with an option-ARM mortgage instead of a traditional fixed-rate loan. You pay less in interest up front, but you're more exposed if the rates change in the future. So to protect against rate changes, you enter into the interest-rate swap, by which a bank like JP Morgan assumes your variable-rate risk in exchange for a fee.

Imagine Satan's very own credit card contract agreement and you get a sense of how much this borrowing is costing the citizens of Denver; so far, the school system has already paid over $115 million in interest and fees since the deal was struck, or about $25 million more than originally anticipated.

And just like the Alabama sewer deal, where JP Morgan slapped an absurd $750 million termination fee on Jefferson County when the deal went south, in Denver the only way out of the deal is an $81 million termination fee, which Morgenson notes would be roughly 19% the size of Denver's annual payroll.

In Jefferson County, local politicians took bribes to sign off on these crappy deals. There's no such allegation of bribery in the Bennet case per se, but instead what ended up happening is that Bennet, after he left the Denver school system, collected campaign contributions from many of the banks involved, including JP Morgan and Bank of America.

Back in February and March when I wrote about Jefferson County I was told by one federal investigator that there were multiple cases involving toxic interest rate swaps similar to the Alabama deal that were still under investigation. In her piece, Morgenson lists some of the municipalities that are cracking under the strain from these deals -- they can be found in major cities all across the country, and there are hundreds of similar deals in Europe, Italy in particular. Morgenson writes:

Last March, the Los Angeles City Council told its treasurer and city administrative officer to renegotiate interest-rate deals the city had used to try to lower its debt payments with the banks that sold them. “If they are unwilling to renegotiate, then those financial institutions should be excluded from any future business with the City of Los Angeles,” noted a report by the City Council.

In Pennsylvania, some school districts have unwound interest-rate deals, and the state’s auditor general, Jack Wagner, has urged other issuers to follow suit. “For the sake of Pennsylvania taxpayers, I call on the other school districts that have entered into similar swaps contracts to get out of these risky agreements as soon as they possibly can,” he said in a statement in February.

Financial stress from these deals could not come at a worse time for cities, towns and school districts already saddled with high costs and falling revenue. Although it is difficult to tally how many public entities entered into interest-reduction deals, a recent analysis by the Service Employees International Union estimated that over the last two years, state and local governments have paid banks that arranged these transactions $28 billion to get out of the deals, seeking to avoid further crushing payments.

Many transactions remain on public issuers’ books. S.E.I.U. estimates that New Jersey would have to pay $536 million to get out of its derivatives contracts, while California faces $234 million in such payments. Chicago is looking at $442 million in termination fees to unwind its transactions, and Philadelphia would have to pay $332 million.

It's not hard to figure out why these deals are popping up all over the place. X or Y politician gets into office and is faced with budgetary problems. He is then approached by Wall Street hustlers who make him a fancy offer that sounds impossible to refuse: sign on for a bond-and-swap deal now, we'll give you upfront cash to help your immediate budget problems disappear. And if the deal blows up, the blowing up will happen on someone else's watch, long after you've left office. In the meantime, here's a bribe/batch of campaign contributions/donation to your favorite PAC to help soften up your conscience.

It's a formula that allows current politicians to look like heroes even as they're sticking future politicians with irresolvable financial burdens. The problem mimics the bonus issue on Wall Street, where bankers look to score big bonuses this year by doing deals that may look good now, but in the long run may go south, affecting not them, but their company's bottom line. The geniuses at AIG who made millions in bonuses building up the world's biggest gambling debt is a classic example of this phenomenon. And when you get politicians and bankers who are both mercifully free from the ravages of conscience and are both operating on the same pitifully short time horizons, the result will be deals like this Denver thing, where it's a temporary win-win for the dealmakers and an unspeakably huge loss for taxpayers down the road.

At least in Jefferson County the principals on the government side -- in particular then-County Commissioner Larry Langford -- had the excuse that they didn't understand these intricate swap deals, as most normal human beings do not. They could at least say they thought it might all work out in the end. Not so with Bennet; he worked for years as a structured finance guy under loony Christian billionaire Phillip Anschutz (who is probably best known for having helped fund religious films like the Sam Rockwell instant non-classic Joshua and the Christ-as-lion epic The Chronicles of Narnia). So he should have known better, but clearly did not.

Bennet now looks dead as a national political figure. It will be interesting to see what other consequences this story might hold for the Democratic Party, as (and this seems mainly to be a coincidence) is this just the latest in a long line of similar rate-swap scandals that have all in one way or another been tied to Democratic pols. The bigger question is, how exactly do we stop these deals from happening? If Wall Street keeps making it easy to push today's debts into the laps of tomorrow's politicians, when exactly does that stop being a tempting situation for our current leaders?


August 9, 2010

Model Portfolio Value As of 9 August 2010

$ 596,945

August 6, 2010

Model Portfolio Value As of 6 August 2010

$ 595,427

August 5, 2010

Model Portfolio Value As of 5 August 2010

$ 596,928

August 4, 2010

Model Portfolio Value As of 4 August 2010

$ 596,833


We will be taking the next ten days off returning to posting on August16. The Prince and Princess and Dave and Gerald are arriving for a week at the farm.

Asian markets were lower as are European bourses at midday. U.S. futures indicate a slightly higher opening as the ADP reported that 50,000 non government jobs were added in July.

The HFT computers are active today. They helped the major stock measures pop higher with the release of the July ISM Service Index, which came in at a better-than-expected 54.3 (a sample of economists polled by Briefing.com had expected, on average, a reading of 53.0 following the prior month's reading of 53.8). The rally lasted all of ten minutes as the e HFT computers then went the other way.

“It’s called the American Dream because you have to be asleep to believe it.” (George Carlin)

Morning walk thought: What did redwing blackbirds do before there were telephone and electrical wires to sit on?

The static kill seems to working. That is good for investor psychology..

We added XLF, the financial ETF. Rather than picking individual banks and brokers we feel it is safer to use the ETF.

Barnes & Noble has put itself up for sale.

(NYT Dealbook) Now that Barnes & Noble has officially put itself up for sale, it’s time to ask: who may place a bid for America’s biggest brick-and-mortar bookseller?

Barnes & Noble’s market value is now just $755 million, its shares having slid almost 37 percent since June when it warned that its 2011 profits may suffer. (It was that stock drop that propelled the board to finally consider running a sales process, a person briefed on the matter told DealBook.) Its shares jumped 24 percent in premarket trading on Thursday, to $15.94.

A battle for Barnes & Noble may come down to two of its wealthiest shareholders, who happen to have clashed repeatedly over recent months: Leonard Riggio and Ronald W. Burkle.

The most obvious bidder is Mr. Riggio, Barnes & Noble’s founder and its largest shareholder with a roughly 30 percent stake. Mr. Riggio will probably seek backing from private equity to mount a bid, this person said, though he hasn’t yet hired advisers.

“Regardless of whether I participate in an investment group that buys the company, I, as well as the entire senior management team, am willing and eager to remain with the company and see it through the challenging years ahead,” Mr. Riggio said in a statement.

But then there’s Mr. Burkle, the billionaire whose efforts to buy up Barnes & Noble stock in huge chunks have alarmed the company’s board and management over the past year. He currently holds about 19 percent.

After the bookseller instituted a shareholder rights plan intended to stop anyone from acquiring a stake of more than 20 percent without board approval, Mr. Burkle sued the company in Delaware’s Court of Chancery to force the removal of the poison pill.

At the trial this month, Mr. Burkle testified that in November, he had considered making a $25-a-share bid for Barnes & Noble, which was then trading above $16 a share. But he deemed it “a waste of time” — because of Mr. Riggio’s blocking position. (Mr. Burkle also said he was considering nominating three directors for the company’s board.)

While Barnes & Noble didn’t put itself up for sale specifically to address Mr. Burkle’s campaign, it could be trying to call what it sees as the activist’s bluff, a person close to the company said.

Private equity firms may also see value in Barnes & Noble, which still retains a strong brand name despite losing market share to bigger competitors like Amazon.com and Walmart.

Riggio will probably get the company but the problem is that Burkle’s cost is about $20 per share so Riggio would have to pay $30 to take him out unless he lets Burkle in on the deal. Riggio did himself a favor two years ago by selling the Barnes & Noble College Book operations back to Barnes & Noble for $500 million. That $500 million is now the only long term debt on Barnes & Noble’s balance sheet. Riggio knew that notebooks were coming and that college kids will be the first to abandon expensive textbooks for the notebook.

But Riggio now has $500 million plus retains 30% of the company so he is in the driver’s seat. He can take it private for $20 a share and wake the magic and then bring it public in a few years. There is no risk for him and there is the potential to double our triple his money if he can make the Nook a popular item.

At $30 per share Riggio would only have to come up with $1.2 billion (BKS has $5 billion in yearly sales). A hedge fund called Athena owns 16% and if they go along with Riggio in the buyout the money needed drops to under $1 billion and if Burkle went along for the ride the money needed drops to less than $700 million at $30 per share. If Burkle and Athena go along then Riggio would probably offer only $20 per share which would mean only $400 million in new cash. We are holding for now since they're 12 million shares (half the float) short at the present time and we think the minimum price on a buyout is $20.

The major market measures closed higher. Breadth was positive and volume light. European stock markets finished a little higher Wednesday, with the help of better-than-expected economic data from the U.S. The dollar battled back from recent lows. Oil ended down 5 pennies at $82.55. Gold gained $11 to $1197.


August 3, 2010

Model Portfolio Value As of 3 August 2010

$ 591,956


(MarketWatch) Asian markets were higher overnight while European bourses are lower at midday. U.S. futures indicate a lower opening after yesterday’s big day. Consumer spending, adjusted for inflation, rose 0.1% in June, the Commerce Department reported. Personal income was flat in the month. Wall Street economists had expected a 0.2% gain in income and a 0.1% rise in spending.

GE is acting well and so we are repurchasing for accounts owing BKS. We need an industrial stock. We also are buying Intel in those accounts. Both GE and Intel yield 3% (cash yields 0%) and will participate in any broad move higher while being solid enough to own in a downturn. We bought to own.

In a few very large accounts we added General Mills, AT&T, Verizon, and Proctor& Gamble to go with the Kraft and BB&T Bank they already own. Our view now is since all have 3% to 6% yields we may as well sit in them for the duration as in cash. Long Treasuries have a 3% yield and we think there is much more long term risk in Treasuries at current yields than in these stocks. We expect the markets to move higher eventually and these are all blue chip entities.

Gizmodo.com is reporting that if you visit a web page and load a simple PDF file, you may give total control of your iPhone, iPod touch, or iPad to a hacker. The security bug affects all iOS 4 devices and the iPad. The vulnerability is easily exploitable. In fact, the latest one-click, no-computer-required Jailbreak solution for iOS 4 devices uses this same method

We have always thought that the reason Apple devices haven’t had the security/crash problems that Microsoft has is that Apple was about 10% of installed computer base and thus not worth it for hackers to mess with. Moreover, Apple was the David to Microsoft’s Goliath and the geeks were on Apples side. Now Apple is becoming a second Goliath and its installed base of computer/ iPhone, iPads is approaching 100 million devices. It is now large enough for hackers to feel hacking is worthwhile.

Who believes Trump?

(NY Daily News) The Donald trumped his SoHo Grand with great fanfare on the last episode of The Apprentice in 2006, but condo buyers now say he snookered them.

Lawyers for 15 buyers contend Trump lied about how many of the units were sold in a federal lawsuit filed in Manhattan Tuesday morning.

They claim Trump and his three famous children owe the buyers millions after claiming the condo/hotel was as much as 60% sold, when only 15% of the units have been sold.

The buyers want the $175 million they put down for deposits, punitive damages - and to get out of the purchase contracts.

The Trumps, according to the lawsuit, told buyers the 46-story hotel on Spring Street that opened in April was much more popular that it actually is.

"The defendant's false, deceptive and misleading statements were aimed at inducing consumers to enter into purchase agreements," the lawsuit says.

"Had the defendants not engaged in these fraudulent and deceptive practices, the plaintiffs would not have entered into their purchase agreements, would not have made their initial deposits, and would not have made their additional deposits."

The 391 units start at more than $1 million for a small studio - and go up from there.

"The Trump Organization is not the developer of the project but merely the manager of the hotel, which has done exceedingly well since opening four months ago," Trump said in a statement to Reuters.

"Despite this, I know that numerous people have closed on their units and this case is simply a matter of buyers' remorse."

Donald Trump, his three children, and the project's "sponsor" - a company owned by Trump and two business partners - are all named in the 180-page lawsuit.

The building is "a signature project of Trump's three children, Donald Trump Jr., Ivanka Trump and Eric Trump, who have both an equity interest in the project and have publicly used the project to try to establish some independent credibility in the real estate business beyond their mere status as Trump's children," the lawsuit says.

"The Sponsor and its affiliates and sales agents - the defendants - stood to make substantial profits if large numbers of the Condominium Units could be sold, but could face disaster if they went unsold," the suit added.

PRNewswire-FirstCall/ --

  • Ford, Lincoln and Mercury July sales totaled 166,092, up 5 percent versus strong year-ago sales; year-to-date sales up 24 percent
  • Fiesta eclipses 3,000 sales in its second month in America
  • New 2011 F-Series Super Duty and Mustang continue impressive starts; Super Duty sales up 63 percent in July versus year ago; Mustang retail sales increased 43 percent year over year
  • Last year’s new products also post sales gains; Fusion nearly matches last July’s sales record, Taurus sales up 187 percent, and Transit Connect posts best sales month ever
  • Ford’s retail market share appears to have increased for the 21st time in 22 months as buyers turn to Ford’s fresh lineup of high-quality, fuel-efficient vehicles

Ford’s newest vehicles helped the company continue to grow as Ford, Lincoln and Mercury dealers delivered 166,092 new vehicles in July – a 5 percent increase versus a year ago, when “Cash for Clunker” sales started to surge.

Year-to-date sales totaled 1.12 million, up 24 percent, with growth across Ford’s full family of cars (up 21 percent), utilities (up 19 percent) and trucks (up 32 percent).

“Customers are rewarding Ford for providing the performance they want and the fuel economy they need,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “New class-leading powertrains are the ‘secret weapon’ in every new product we are bringing to market.”

The Ford Fiesta, which offers 40 miles per gallon EPA highway fuel economy, eclipsed 3,000 sales in its second month in America and has been well-received by California customers. Highly acclaimed in Europe, Asia, and North America, the Fiesta is the first car developed under the ONE Ford global product development system.

Sales for the 2011 F-Series Super Duty were 63 percent higher than a year ago, capturing more than 50 percent of the heavy duty pickup segment. Ford announced today it will begin production of the most powerful diesel engine ever installed in a heavy-duty pickup (best-in-class 800 lb.-ft. of torque and 400 horsepower). In addition, the Super Duty’s 6.7-liter Power Stroke diesel will provide improved fuel economy – a full 20 percent better fuel efficiency than the 2010 model.

“In an industry-first customer loyalty program, Ford will provide the power upgrades free of charge to all current owners of a 2011 Super Duty diesel pickup,” said Czubay.

Retail sales for the Mustang were 43 percent higher than a year ago. Since the arrival of the 2011 model featuring new V-6 and V-8 engines with more horsepower and improved fuel economy, Mustang’s share has climbed to levels not seen since January 2009.

“With our broad range of products – from Fiesta to Super Duty – Ford is connecting with consumers,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “Ford and its dealers continue to offer customers the strongest value proposition in the industry – class-leading fuel economy, quality and growing resale values.”

In July, Ford retail sales were up 5 percent versus a year ago, and Ford appears to have gained retail market share for the 21st time in the last 22 months. Fleet sales were up 2 percent, reflecting higher sales of Ford’s hard-working trucks to commercial customers.

Other Sales Highlights

  • Demand for the Ford Fusion, Motor Trend’s Car of the Year, remains strong as sales of 17,406 nearly matched last July’s sales record. Ford Taurus sales totaled 5,046 in July, up 187 percent.
  • With sales of 50,449, Ford’s F-Series posted a 39 percent sales increase in July. It was the first time since March 2008 that F-Series sales eclipsed 50,000. Year-to-date, F-Series sales totaled 290,794, up 35 percent.
  • Ford Edge set a July record with sales of 9,342, up 19 percent versus a year ago. The redesigned 2011 Ford Edge and Lincoln MKX now are in production, featuring new powertrains and MyFord and MyLincoln Touch driver connect technology.
  • Lincoln retail sales were up 7 percent versus a year ago with higher retail sales for the Lincoln MKZ sedan, Lincoln MKT crossover and Lincoln Navigator sport utility. Soon, Lincoln will offer a hybrid version of the Lincoln MKZ at the same price as the gas version, making the MKZ the most fuel-efficient luxury vehicle in America.


The major market measures closed lower in light trading. Breadth was 3/2 negative. Oil ended at $82.55 up $1.18. European stocks closed mildly lower. Gold gained $4 to $1189.



August 2, 2010

Model Portfolio Value As of 2 August 2010

$ 596,244


Asian and European markets were plus 1% and higher overnight and U.S. futures are also indicating a higher opening. And then traders will begin obsessing over Wednesday’s ADP employment number and Friday’s government employment number and the trading range will resume or so we presume.

1115 (200DMA) on the S&P 500 (now at 1114 on the futures) is the line in the sand. Stocks pulled back from it last week but the bulls must leave that number in the dust to move higher. We don’t think the test will be over till Friday at the earliest.

(Yahoo Finance)  Impressive earnings growth from both BNP Paribas and HSBC (HBC) has helped send Europe's shares sharply higher. As such, Germany's DAX is up 1.8%. Commerzbank is among the bourse's primary leaders, but materials stocks (+3.0%) make up some of the strongest movers. In France, the CAC has climbed to a 2.2% gain. BNP Paribas is a primary leader there; the stock is currently testing multimonth highs on the French index. HSBC has been a leader in Britain, where the FTSE is up 1.9%. Lloyds Banking Group (LYG) has benefited from the interest in banks. Solid European PMI readings have also helped prop up the tone of trade - Norway, Hungary, France, Germany, and Britain all had solid to stronger-than-expected PMI readings for July. In China, financial issues led the Shanghai Composite to a 1.3% gain. Declining issues were limited to less than 2% of the index's 911 members. As for data, China's PMI came in weaker than expected, but the number still showed expansion in the country's manufacturing sector. Almost all 42 members of Hong Kong's Hang Seng climbed - Ping An Insurance was the primary laggard as it finished flat. Such broad-based strength helped the index put together a 1.8% gain. In Japan, the Nikkei booked a 0.4% gain, even though advancers and declining issues traded in near even balance. Honda Motor (HMC) and Fast Retailing were key leaders in the session, but Shionogi and Konica Minolta represented an offsetting force.

--> Link to image http://www.discoverynews.org/wildlife-monkeys-hear-no-evil-see-no-evil-speak-no-evil1.jpg removed

Out of the mouth of babes.... a stopped clock is right twice a day.... why would anyone pay money for this guy’s opinion when he was so wrong?.....

(Huffington Post) Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.

In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.

"They do not," said Greenspan.

"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," he said. "And at the end of the day that proves disastrous. My view is I don't think we can play subtle policy here."

The comments from the former Fed chief were an elaboration of a position he outlined in an interview earlier in the week. Speaking with PBS' Judy Woodruff, Greenspan expressed his opposition to passing legislation that would hold tax rates steady (under law the tax cuts Bush passed ten years ago are going to expire, thereby bringing rates back to Clinton-era levels). President Obama has pledged to continue the tax breaks for those individuals making under $200,000 and those families earning less than $250,000.

But Republicans want the entire package kept in place. Even so, they have declined to say how they would pay for it, saying, in part, that keeping the Bush tax cuts in place will pay for itself.

In addition to throwing cold water on that theory, Greenspan also weighed in on broader economic issues and trends. The former Fed Chairman relayed some sobering economic predictions, saying he expected the nation's unemployment rate to remain at its current level, mainly because there were few tools left to change it.

An hour into the trading day and stocks remain strong with the S&P 500 at 1120. The bulls need to hold this rally.

(Yahoo Finance) The ISM Manufacturing Index for July was just released. It came in at 55.5, which is greater than the 54.2 that had been expected, on average, by a sample of economists polled by Briefing.com. However, the latest figure marks a pullback from the 56.2 that had been posted for June.

Separately, construction spending for June increased 0.1%, which is stronger than the 0.8% decline that had been widely forecast. Spending figures for the prior month were revised downward to reflect a 1.0% decrease.

(NYT) In September, Barnes & Noble will begin an aggressive promotion of its Nook e-readers by building 1,000-square-foot boutiques in all of its stores, with sample Nooks, demonstration tables, video screens and employees who will give customers advice and operating instructions.

By devoting more floor space to promoting the Nook, Barnes & Noble is playing up what it calls a crucial advantage over Amazon in the e-reader war: its 720 bricks-and-mortar stores, where customers can test out the device before they commit to buying it.

“I think that’s everything,” William Lynch, chief executive of Barnes & Noble, said in an interview. “American consumers want to try and hold gadgets before they purchase them.”

Amazon’s Kindle e-reader is for sale on Amazon.com and in Target and HMSHost stores.

Barnes & Noble has already installed small counters in its stores where customers can test out the Nook. The new display space would be much larger, and it would be located next to each store’s cafe, to encourage customers to stop by the Nook space, coffee or tea in hand. It would also sell more than 100 accessories for the Nook, like padded covers designed by Kate Spade and Jonathan Adler.

While in the store, Barnes & Noble customers can read entire e-books free, just as they can with print books. “We’ve tried to replicate the physical bookstore experience,” Mr. Lynch said.

To make room for the new Nook displays, Barnes & Noble plans to clear out some of its music merchandise, which in its superstores takes up 3,600 square feet, and to arrange its books more efficiently. Mr. Lynch said that the number of books on display in Barnes & Noble stores would not decrease.

All summer, Amazon and Barnes & Noble have been locked in a fierce battle over their competing e-reader devices. In June, Barnes & Noble lowered the price of the Nook to $199 from $259, and Amazon quickly cut the price of its Kindle to $189 from $259. On Wednesday, Amazon announced plans to introduce two new versions of its Kindle e-reader, one for $139, the lowest price yet for a Kindle. Barnes & Noble also sells a version of the Nook, without free 3G and Wi-Fi, for $149.

According to the Codex Group, a consultant to the publishing industry, nearly two million Kindles had been sold as of mid-June and more than 600,000 Nooks. The Nook has been on sale since October 2009 and the Kindle since December 2007. Of course, both Nook and Kindle are looking over their shoulder at iPad, the newest e-reader on the block.

Analysts said the 2010 holiday season might be the first time that most consumers become aware enough of e-readers to seriously consider buying one, given their greater visibility and lower price.

“Most people have never read an e-book,” said Michael Norris, senior analyst at Simba Information, which provides research and advice to publishers. “Most people still don’t know much about these devices.”

Stocks were higher all day but don’t get too excited since tomorrow is Turnaround Tuesday and the HFT gals and guys are the only ones paying attention to the market these days. At the close the major measures were up 2% with the S&P 500 closing at 1125 thus closing above 50% of the bear market move which was 1120. Only the 1130 level needs to be surmounted for our guru to have to rethink his bearish tendencies. But that is a large hurdle. Breadth was very positive and volume was summer Monday light.  Europe closed higher and Oil gained $2.50 to $81.47 while Gold closed unchanged at $1185.















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