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Happy Holidays & Peaceful New Year!


Christine Lemley, Lisa Lemley Bezold and Abigail Bezold, Katie Lemley, Bud Lemley, Dave Bezold and Tyler Bud Bezold

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31 December 2002

8:43am and Happy New Year from Sydney Australia. The stock markets have opened mixed and bonds are a tad weaker. There isn't much news to move stocks so year end selling and buying is the only game in town today. We are watching.

10:09am and consumer confidence was announced at 80.3. The gurus were expecting a number around 86 and so the market sold off on the news. Selling continues in the low priced beauties we have picked for a bounce and we added AWE to more accounts at $5.75 and also bought Lucent at $1.30 in those accounts where we traded it successfully last month. Finally we added Brocade to accounts that own it at $4.10.

10:38am and the immediate selling fury seems to have abated and we are either seeing short covering or the natural bounce when selling ends. The DJIA remains 30 points lower and the NASDAQ is off 5 points.

11:37am and the cost of the non war with Iraq has been lowered from $200 billion to $70 billion. Larry Lindsey the economic advisor to President Bush who lost his job last month made the higher estimate. Mitch Daniels who kept his job just made the lower estimate. Is there a lesson to be learned?

1:33pm and not much is happening. We are going to beat the DJIA by 23% and the S&P 500 by 30% and hopefully all of our accounts including our small ones will wind up plus for the year. We look forward to the New Year with relief that we survived 2002.

3:02pm and we sold Carpenter Technology in some accounts including the Model Portfolio on the lift into the close.

The DJIA closed up 9 points at 8341. The S&P 500 was up 0.42 points at 879 and the NASDAQ lost 4 points to close at 1335.

For the year 2002:

The DJIA was down 16%
The S&P 500 lost 23%
The NASDAQ dropped 31%

The Lemley Letter Model Portfolio gained 7%.

And tomorrow is a New Year.

31 December 2002 - Morning Post

6:50am and as we turn on CNBC for the last day of trading for 2002 the talking heads are discussing the fact that the rise in truck sales has affected retail sales at Christmas. Somebody must be reading our website since we mentioned that idea here yesterday. Always a day early and a dollar longer is our motto.

We have no idea only hope that the big boys and girls will decide to mark them up this afternoon to finish the year on an upbeat note. With the North Korea brouhaha calming down maybe the bulls will be able to mount one little push.

The stock futures are indicating a mixed opening.

30 December 2002

8:10am and the stock futures are indicating a slightly higher opening. There obviously isn't going to be any rush to buy stocks in the next few days except by folks who might want to mark them up. And we presume there are still some sellers left who have been waiting for a rally to finally take their losses for the year.

Over the weekend we were talking with a fellow who runs a variety/food store in a small town near our farm. He said business had been slow. He attributed the slowness to the fact that many of the young folks around here did not have extra money because they had purchased new pickup trucks with 0% financing. He said even with the 0% the monthly payment which sometimes runs to $700 coupled with the added insurance and gas costs were absorbing the extra Christmas money. While our friend's comments are anecdotal, we thought it might give a reason for the slowdown in Wal-Mart sales growth since the 0% truck buyers are Wal-Mart's main customers.

We are looking for a chance to invest the Kroger sale money in the SPDR Technology Trust sometime in the next two days. We'll see how the sell off after the initial rise this morning goes.

9:58am and stocks have given up their early gains. We see on Reuters that an Irish group is planning on crossing Antarctica on kite drawn sledges.

We purchased SPDR Technology Trust at $14.88 and EMC at $5.98 for those accounts where we sold Kroger last week. We bought additional Elan for many accounts at $2.36 and Hewlett Packard around $17.50 for our larger and aggressive accounts. We also added more Texas Instruments at $15 to accounts holding it. And we are bidding on SPDR Utility Trust at $18.75. Our low priced stocks are getting hit again today but that goes with buying sold out low priced stocks at year end.

12:30pm and the stock markets continue to mark time in slow trading. When we are wondering where the markets are going in the next few years and which investors are going to again start buying mutual funds we are struck by the lack of spendable money available to most folks. On this point we found the following editorial interesting.

The following editorial is from the Minneapolis Star Tribune dated 12/20/02:

Editorial: 'Class warfare' / Who's victim, who's aggressor?

1:28pm and the DJIA is finally higher for the day. We sold some Wild Oats in tax free accounts that had a large position at $10.46. We think a big holder is in the process of marking the stock up or year end. Over $11 we will sell more stock.

2:01pm and entering the final hour of trading the DJIA is slightly higher and the NASDAQ is off 1%. Breadth is negative on the NASDAQ and about break even on the NYSE. Down volume exceeds up volume 3/1 on the NASDAQ and is even on the NYSE.

An example of the volatility on a day like today is NYSE listed PCS which we own. Early this morning it traded at $4.15 down 20% from the close and now it is up at $4.54. Volume on the sell off was about 1.5 million shares and about the same on the rally back. This company has 1 billion shares outstanding. This is an example of what happens in thin markets and why specialists make a lot of money.

3:02pm and the DJIA closed up 29 points at 8332. The S&P 500 gained 4 points to close at 879 and the NASDAQ was off 9 points at 1339. At the bell we bought AT&T Wireless at $5.80 for trading accounts.

And tomorrow is New Year's Eve and the last trading day of the year.

30 December 2002 - Morning Post

7:10am and if we are going to have a year end rally today and tomorrow are the days. With the lousy action of the stock markets last week we hold little hope for the rally so now we are hoping for an after year end bounce. Since the stock markets have not followed our scenario for the past few weeks we are reevaluating our January bounce theory. We may be quicker to take money off the table later this week. For now we are going to watch.

27 December 2002

7:47am and stock futures indicate a lower opening. North Korea is dominating the news but other than as a talking point and savior for a slow media week, the situation can be handled with good diplomacy. No matter what Rummy says we aren't going to war with North Korea because South Korea and Japan Russia and China don't want war.

But the war talk is taking its toll on holiday cheer as well it should and the downer talk is also affecting the usual year end rally. With a down opening we'll bet on a higher close.

8:50am and the stock markets are meandering at lower levels with Treasury bonds rallying on the phony turmoil in foreign affairs.

The problems with Iraq, North Korea and even Venezuela are the result of menopausal men in the Bush administration who never fought a war needing to show their courage by sending other folks to fight a war they believe in just as these same folks did thirty years ago.

We believe that all three of these conflicts could be swiftly settled without bloodshed by some give on the part of the hawks in the Bush Administration. After all, we are the strongest country in the history of the world and we could bomb Iraq and North Korea back to the Stone Age in a matter of days. Of course, several million civilians would be killed but that is a price innocents have paid in the past.

Or we could continue to control the access and egress to North Korea and Iraq as we have for the past ten years with good results. Both these crisis are the result of a desire to test the leadership in Iraq and North Korea on the part of the Bush folks. Since most folks know that the leaders of both countries are dictators, unpredictable and reprehensible we don't know why the hawks want to test them. Usually governments only engage in tests of will when they know the eventual outcome. And the Venezuela oil crisis is being precipitated and directed by Otto Reich at the US State Department with the same game plan Reich used in Nicaragua to overthrow that government 20 years ago. Moreover we now are sending US Special Forces troops to guard oil pipelines in Columbia in the name of the war on terrorism. Will we soon be guarding oil pipelines in Indonesia for the same reason?

These problems are not intractable and it is our belief that after the Bush folks get tired of posturing and prancing and projecting US force that domestic political reality will intervene and attention will be turned to domestic policies. While there may be a short war with Iraq there is not going to be a conflict with North Korea. And nobody cares about Venezuela as long as the oil starts flowing again so we presume the generals will eventually take power and rewrite that county's constitution.

On the domestic front the Bush folks realize that they only need 51% of the vote and so their policies are going to be directed towards that 51%. Thus we think there will be a market stimulating dividend tax cut coupled with a holiday on a portion of FICA taxes. These programs will be announced in January coupled with a speed up in raising the amount of the child tax credit.

Our thought is that the tax package talk and the end of tax loss selling season will allow the beaten down low priced stocks we own to bounce a dollar or two which represents a significant percentage gain. We plan on being in a cash raising mode beginning January 2 and hope that our scenario will unfold and allow us to profitably return to a 75% cash position by month end January.

9:36am and new home sales rose 5.6% in November which was better than expected. Continuing on our scenario for next year we would comment that some gurus are suggesting that the market action this year end is similar to the action at the end of 1990 when the US faced the prospect of a Golf War with a lot less certainty in the outcome. The uncertainty of this war is what terrorist attacks will occur because of it. That unknown is paralyzing investors before the fact. So there certainly is a similarity. And 1990 was the only down year for the Model Portfolio. That down occurred because we hadn't yet adopted the philosophy of going to cash at the first sign of trouble and then reinvesting as the markets bottomed. We were able to time our selling and buying better this year than 1990. And we are hoping that seasonality will allow us to sell before any big sell off in January as war talk increases.

10:01am and the DJIA is off 60 points. One final thought on the stocks we have been buying is that all of them are relatively cheap. At other yearend before the mania, we would have been buying these stocks at these prices.

10:18am and it has occurred to us that the lack of money flowing into equity mutual funds is a reason for concern. It is for sure that the bull market of the 1990s was fueled by the flow of funds. The current popularity of hedge funds is a negative for the bull case because hedge funds don't care which way the stock market is going. They just want volatility and the ability to trade that volatility. And if the hedge fund guesses wrong the folks who run it just close it down and start a new one.

1:17pm and the DJIA is down 123 points and through key support of 8325. The S& P 500 is holding at support of 875. But Europe's lousy close and the war talk and rise in oil and gold prices is spooking the hedge funds who are the only folks trading today. We are trying to sell our Kroger position around $15.30 for a slight loss to reposition in more aggressive stocks like Elan and EMC without spending more cash. We sold our trading holding in Advent Systems at $15.74 for an 80 cents per share gain and we bought an equal amount of EMC at $6.08 and Reuters at $17.32 in accounts where we sold ADVS.

1:40pm and CNBC is devoting time to the cloning of a child by folks who believe that aliens first peopled the world. The cloning claim is today's story of the day for the mindless media is better media crowd. Maybe the cloning will take talk media's mind off war with Iraq and North Korea for a day or two and allow the year end rally to begin.

2:18pm and Charles Biederman of Trimtabs.com was just featured on CNBC. He's bullish but he said he would own some oil stocks and gold just in case he is wrong. We have never understood how a rising 20% position in oil and gold is going to make one feel any better when an 80% position in other stocks is tanking.

3:02pm and the DJIA closed down 130 points at 8302. The S&P 500 lost 14 points to finish at 875 and the NASDAQ gave up 20 points to end at 1348. We sold our Kroger position at $15.24 for 10 cents to 40 cents per share loss. We did not redeploy that money today.

For the year the DJIA is down 17%. The S&P 500 is off 24% and the NASDAQ is down 31%.

We have given back some of our gain but for the year the Model Portfolio is still up 7%. The Model Portfolio is posted.

And tomorrow is another day.

27 December 2002 - Morning Post

7:56am and we are having technical difficulties with our DSL line so we will only have an afternoon post.

26 December 2002

7:38am and the weather in New York City will probably dampen trading even more. The S&P rating on Goodyear was lowered 2 notches which isn't good but then that's why the stock is at a twenty year low. AT&T Wireless is going to delay 3G service for a year. That may cause PCS to slow down capital expenditures also.

8:21am and jobless claims were down 60,000 which is better than the 28,000 drop expected. While all these numbers are subject to revision that is a good number to trade off today.

9:06am and the DJIA is up 80 points. Volume is light. Disney is taking an $83 million after tax charge to write off some aircraft leases DIS had with United Airlines. Why is Disney investing in aircraft leases? The $1.5 billion charge that Citigroup is taking in the fourth quarter should allow it to manage it's earnings for the next year.

12:15pm and there is no volume today. We have been napping. We bought Barnes & Noble in a few trading accounts at $17.40, added a bit more Reuters at $17.60, and added Texas Instruments at $15.90 to many accounts.

1:49pm and going into the final hour of trading the DJIA is giving back all its gains of the day. IBM has weakened and JNJ is also lower among DJIA stocks. Breadth remains positive and we have a feeling that today's action both up and down is the result of a few hedge funds trading futures.

3:02pm and the DJIA closed down 16 points at 8432. The S&P 500 was off 3 points at 889 and the NASDAQ dropped 5 points to end at 1367.

And tomorrow is another day.

26 December 2002 - Morning Post

7:27am and as we struggle into work after a day of jollification the stock futures are indicating a slightly higher opening. Our thoughts are that the last four trading days are going to be dull with an upward bias. But that is only a guess. There isn't much new news to move stocks and so we are going to do some reading and resting. We picked up one terrific head cold on our journeys south last week end and will use the slow times to good advantage. There will be a short post after the close.

24 December 2002

6:07am and we are back from our visit and ready for the end of this very troubling year. This is a quote from a recent Washington Post article referring to the $1 billion industry settlement over research.

The securities industry's main trade group praised the settlement tonight, saying it would help Wall Street close an ugly chapter. "This historic settlement shows the deep commitment of our industry to implement the tough solutions needed to help restore public trust and confidence in our capital markets," said Marc E. Lackritz, president of the Securities Industry Association.

So we know the big brokers are on the side of the investor again. And if that's the case can the Santa Clause Rally be far behind. Well, it's today or never.

Not much happened while we were away and we don't expect much today. As a result this will be our only post of the day. We've added to our Brocade, PCS, and Interstate Bakeries positions and we will continue to add to positions into year end or the rally whichever comes first. In the last few days the NASDAQ has been holding up better than the DJIA and we think that action presages a pop after year end in the low priced stocks we have been adding.

Oil prices are at $32 per barrel because of the Venezuela strike or so we are told. Can anyone remember California and the lack of electricity? Free markets are great when they are really free markets.

Markets close at noon today. We'll be back at work on Thursday.

19 December 2002

9:02 am and before leaving we decided to sell our trading positions in Disney at $16.50 and to take our loss on AOL at $13.10. We bought both these stocks for trades and since our rally scenario is not panning out, we decided to take some trading money off the table. On the AOL we lost $1 - $2 per share and on the Disney we had a scratch loss. We also sold the QQQ in trading accounts for a $2 per unit loss because we are unsure how the addition and subtraction of many different stocks will affect the price action tommorrow.

The Model Portfolio as of 12/18/2002 is posted.

19 December 2002 - Morning Post

6:19am and we are heading off for a few days with our grandchildren. We plan to take in a Norse basketball game and enjoy the company of those we love. We hope all you can do the same. The stock markets are not cooperating on our year end rally scenario but given the action of stocks over the last three years we can't be too disappointed. Hopefully a couple of days not staring at the screens and reading every bit of useless information will recharge our batteries for the final five days. We'll be back December 23 for a Christmas Eve post early December 24. By then we should know if the rally is to occur or be delayed till January. We are posting the Model Portfolio as of 12/18 since we have made some changes.

Below we have displayed a letter from our folks in Sri Lanka thanking us for our aid. It's a good feeling to know that the relatively little bit of money we all contribute feeds, clothes, and educates 65 children for a whole year.

From: Better Opportunities for Children

Subject: Thank you for your Help

Dear Marty,

Sampath Bank has intimated to me that they have credited the cheque for $10,000 sent in my favour to my account. I thank you from the bottom of my heart for having favoured me with such a large sum. It is a great pleasure for me to associate with a kind person who sincerely helps an organization outside your country.

I am very happy note that Mr. Bud Lemley and the leadership of WEORC have extended their help to our poor Organization. Please convey my kind regards and thanks to Mr. Bud Lemley and WEORC leadership and all the individuals who have contributed to our well being.

I hope to start to building of the parapet wall after the Christmas and New Year.

We brought new clothing for our children to wear for Christmas Mass. Further I shall go shopping tomorrow to buy clothes for home wear on Christmas day and gifts for children. These days painting and white washing are being done. My main theme is to these children combine with enjoyment with the other outside children. I am able to fulfill due to the help given to me by you which I appreciate very much.

School vacation started on 29th November 2002 and the re-opening will be on 2nd January 2003. It is with great pleasure I wish to inform that all the children of our Orphanage have obtained highest marks and have been promoted. I intend to buy all the books, stationary and new uniforms for the new school year after Christmas.

Your kind regards to the children was conveyed to them where they were very much pleased. In turn they wanted me to convey their kind regards and thanks to you.

May God Bless You For Your Kindness! Neela Pieris.

For folks who missed contributing it isn't too late. You may make a check payable to WEORC. And send it to us at:

                        Lemley Yarling & Co
                        Suite 723
                        208 S LaSalle
                        Chicago Illinois 60604

And soon it will be Christmas Eve.

18 December 2002

8:17am and the NASDAQ futures are down over 1% with the DJIA and S&P futures off half that amount. Sentiment seems to have turned bearish or bored, we can't decide which. It looks like most of our stocks will open lower. We have had a good last few days even with the up and down markets. We are full up with stocks and will be looking only to add to our SPDR Technology position if there is a substantial sell off in the next few days.

We'll be in and out today as it is again time for our horses to have their feet trimmed and hopefully our contractor is coming to deal with an electric problem we are having. Contractors are as predictable at Christmas rallies.

9:12am and the tech stocks are getting hit because of Micron's bad report last night. The NASDAQ is down 2% while the DJIA is off 1%. Breadth is negative and trading is moderate. We have now given back all of Monday's gain. Monday has been an up day for the last few weeks and luckily the last trading day of the year is a Monday.

11:08am and the DJIA remains lower on war talk. Since we will have more war talk tomorrow with the UN announcement of how the inspections are going we don't see any rally till Friday. Investors Intelligence has the bullish number over 50% and that is a negative. But since our time frame is so short we are holding our cards. We did sell the MCD we bought yesterday for a trade for a scratch profit at $26 when the markets turned lower this morning.

1:16pm and stocks remain lower. Breadth is 2/1 negative on the NYSE and the NASDAQ and down volume exceeds up volume 3/1 on the NYSE and 4/1 on the NASDAQ. Every rally attempt has been met by selling. Monday's euphoria has turned to Wednesday's weeping. While we believe our thesis of a higher market we don't fight the tape and so we are going to sell Masco and JP Morgan to raise some cash. Our tech position is losing big time today but we want to keep it for the bang we'll hopefully get after year end.

1:47pm and we sold the JPM at 24.16 for a scratch profit in all accounts. We sold Masco at $20.80 for a $1 per share profit.

Halliburton is paying $2 billion plus to settle asbestos claims and the stock is down a couple of dollars.

The DJIA remains off over 90 points and it doesn't look like it has the stuff needed for a rally today so the markets will probably close down 150 points for the day. As always the last hour will tell the tale.

2:26pm and we couldn't resist buying Interstate Bakeries at $14.90 in a few trading accounts. The stock dropped 8 dollars per share yesterday on disappointing earnings. It may be under pressure through year end. Over the years we have been the largest individual purchaser of their powdered donuts.

3:02pm and the DJIA closed down 88 points at 8447. The S&P 500 lost 11 points to finish at 891 and the NASDAQ dropped 30 points to end at 1361.

And tomorrow is another day.

18 December 2002 - Morning Post

6:41am and according to the WSJ Sandy Weill is going to be allowed to say he's sorry about the shoddy research that Citicorp provided but after Citicorp shareholders pay a large fine he will be allowed to stay on as the Big Cheese collecting his humongous salary and options. HCA, formerly known as Hospital Corp of America is a company that over billed the Federal government by billions of dollars in the 1990s. Their CEO during that time period was a man named Frist who is the father of the soon to be Republican Majority leader Senator Bill Frist, a doctor, from Tennessee. HCA is going to be allowed to say it was sorry and pay a fine and go on with business. Many folks don't remember but during the banking crisis of the 1980s the only large bank in Texas that survived was the one in which Reagan and Bush advisor Jim Baker's family had all their wealth. And so it is ever the same.

But the same can't be said for good ole boy Trent Lott. He can't say he is sorry enough to get the tiger off his back. At last count Trent had apologized 543 times. We guess former cheer leaders don't stick together because George Bush has decided that Trent must go and go he will. That's the difference between money in politics and friendship in politics. With the former there is usually enough to save your soul, with the latter there is no soul.

Conseco has filed bankruptcy. Former GE Capital whiz Gary Wendt wasn't able to work his magic and save a company that preyed on poor folks looking for trailer homes in which to live.

Micron announced numbers last night that were greeted with selling by Wall Street and with Europe down and the White House saying that Saddam hasn't disclosed enough and gold and oil surging, the stock futures are indicating a lower opening. And so we shall see what will be with only 9 trading days till year end.

17 December 2002

7:32am and CPI was up 0.1% and the core rate was up 0.2%. The core number shows no inflation unless one is buying a new house or food. The stock futures are muted.

8:16am and Industrial Production rose 0.1%. That's the first up month in the last four but the per cent gain is still anemic.

8:45am and the stock markets have opened mixed. The bias seems to be to the upside in the early going even though the DJIA is down about 15 points. The Venezuelan oil crisis had put a bid in oil prices and that is acting as a negative for stocks right now. The economic data released today has been benign and should not have a negative effect on the markets. McDonalds released lousy sales and earnings figures and the share price is off $1.25.

10:27am and we completed our purchase of a large amount of SPDR Utilities at $19.32 in most accounts. The units will go x dividend by about 20 cents per unit on Friday. The dividend will not be paid until 2003. We are using the XLU to establish a significant position in utility stocks in most accounts. The XLU contains a number of busted utilities plus a goodly number that have avoided any trouble in the last two years. That is the type of mix we are looking for and we think we have potential 20% to 30% upside in this investment next year. We are also taking a smaller position in the SPDR Technology Trust (XLK) in our more aggressive accounts at $15.90. Those two purchases pretty much complete our buying for the year except for special trading situations.

The DJIA is now down 55 points and the NASDAQ has also slipped into negative territory by about 5 points. Volume remains light and breadth is mixed.

11:24am and we can't resist trying some McDonalds in our aggressive accounts. We know everything is wrong and that they'll never solve their problems but the stock is at a nine year low and we think it has a rebound in it after year end. We are buying down $1.50 per share at $15.85. Breadth is now negative and trading is muted.

12:13pm and we are pleased to announce that in the new NCAA Division II rankings the Northern Kentucky Norsemen are ranked 6th in the nation. Go You Norse!!!

1:28pm and volume is drying up. Recent market action has been very strange but it is probably a positive that stocks are holding on to much of yesterday's gain. We guess it will be another final hour question mark day. We are out of bright ideas and bright thoughts and we have invested the money we care to.

There has been a rally in gold going on for several weeks and some are taking that as a negative indicator for stocks. Our take on the gold rally is that it is a battle among hedge funds and the rally in the metal and gold stocks has nothing to do with the overall stock market. The White House reaffirmed a strong dollar policy today as the dollar was making new lows versus the euro. This may be a case of watch what they do, not what they say.

1:53pm and CNBC has Rod Stewart on singing a love song. Too bad there aren't any economic stories worth discussing. This is surely what would be called a slow news day.

3:02pm and the DJIA closed down 90 points at 8536. The S&P 500 lost 7 points to finish at 903 and the NASDAQ dropped 10 points to end at 1390.

And tomorrow is another day.

17 December 2002 - Morning Post

7:02am and the stock futures are a bit lower which is to be expected after yesterday's up. Japan was higher overnight and Europe is lower. As with yesterday we have no idea what will happen today. We do believe we are in the sweet spot for bullish movement on a time of year basis.

We are hoping to take a large position in the SPDR Utilities in the next two weeks since we believe that utility stocks which have been down for three years and the subject of many scandals are poised to pop after year end. The XLU is like a market traded utility fund and it should participate in any rally. And it offers the advantage of allowing us to not have to pick two or three individual utility stocks and hope that they will participate. The yield on the XLU is 4% which beats the current money market rate of 1 % and we are looking for a 15% bounce in early 2003.

This morning stocks should go down early and then we will see how much strength the stock markets will exhibit.

16 December 2002

8:54am and the stock markets have opened higher but have little conviction. Volume is light and we are watching. We have a bid in below the market for XLU but other than that we have no ideas as to where events will take us today. Time is moving in favor of the bulls as there are only three weeks left to take losses. Friday is triple witching and that should be the final big volume day of 2002.

10:21am and we aren't posting as often because the stock markets are really not doing much. Happily the DJIA is up 117 points but it doesn't feel like the rally is for real. It's too early for year end mark ups so maybe the selling pressure is abating. Or maybe New York fund managers are doing their buying early in case there is a transit strike and they can't get to work. We sold our DIA trade from Friday at $85.33 for a 60cents per unit profit. We bought Cisco in accounts for a year end trade at $13.50. We are going to be placing PCS in accounts at $4.85 and we are buying Hewlett Packard at $18.95, Reuters $19.25, Walgreen at $28.90, Advent at $12.80 and Kyocera at $59.60 in our larger trading accounts.

11:22am and volume remains light. The dollar has firmed, Europe closed higher, and buying is occurring in a vacuum. Oil prices are higher on the political troubles in Venezuela.

12:02pm and Tom Keane of NJ is going to replace Henry Kissinger as head of the Commission to find Nothing regarding 9/11; and Joe Lieberman says he's going to spend a few weeks deciding whether he will run for President. Who's kidding whom?

1:16pm and the DJIA remains higher by 150 points. The NASDAQ is up 27 points. The last hour will tell the tale today. The NADSAQ 100 is being rebalanced with a bunch of stocks being removed and a bunch added.

3:02pm and the DJIA maintained its gain to close near the high for the day up 186 points at 8620. The S&P 500 rose 20 points to finish at 910 and the NASDAQ finished at 1400 up 37 points. Volume remained moderate but we'll take an up day on light volume over a down day on light volume.

And tomorrow is another day.

16 December 2002 - Morning Post

6:47am and Europe is higher. Target is projecting disappointing first week of December sales. Pretty soon the stores will be reporting on hourly sales. The stock futures are higher and this is the week that the broad markets need to stabilize if we are to have our Christmas rally. The fact that Christmas and thus the New Year Holiday are on Wednesdays is going to put a damper on trading for both of the next two weeks.

The big political news is that Gore will not seek the presidency in 2004. No Gore no more not in 2004. And we learned that President Bush must read our website since he has decided to make the extension of unemployment benefits his number one priority when Congress gets to work in January. Better late than never, although this decision was a no brainer.

We are content with the issues we own. We plan to add SPDR Utilities to more accounts on any weakness and also will be adding JDSU and Brocade to more accounts.

13 December 2002

7:20am and the first number of the day for the boys and girls to trade on comes in ten minutes. Spin the wheel and see where the pointer ends. Consensus forecast is that the Producer Price Index will be unchanged. The Michigan sentiment number is called at 85 up slightly form 84.2. That number doesn't come till 9am and will give the second pull on today's wheel of fortune for folks following the fragmentary fulminating fumbling foibles of forlorn but fearless forecasters of frequently useless economic data.

Japan was down for the eighth day in a row. We guess it doesn't help to have a member of the Axis of Evil Brotherhood starting up nuclear reactors in your back yard because some dope in Washington wants to jerk a penny ante dictator around.

7:30am and PPI is down 0.4% and core PPI down 0.3%. This is a real shocker- at least that's what the talking heads are saying - but since inflation is not the problem what used to be isn't and now we have the fear of deflation.

Maybe today we'll have the down whoosh that clears the air. The stock futures are selling off on the news.

8:39am and the DJIA is down 66 points but the selling is muted. A consensus seems to be developing that the Christmas rally has been delayed if not eliminated this year. That's good because the markets need the consensus to be negative so the rally can occur. Moreover, we are not buying the market but rather we are purchasing sold out tech and industrial stocks that should bounce ten per cent or more when the selling stops. The techs are sold out but not cheap while many of the industrial stocks are value cheap. We are picking up more Brocade and edging back into EMC.

8:50am and the University of Michigan sentiment number was 87 for December up from 84.2 in November and above consensus estimate. It hasn't given much of a pop to the stock markets.

11:19am and the stock markets are floating at lower levels. We bought Brocade at $4.95, TLAB at $6.80, and SPDR Utilities at $19.05 and EMC at $6.40 for accounts. We also bought DIA at $84.70 for some of our larger accounts. We have no idea where the DJIA is going to wind up the day but as we said above we are buying a year end bounce in depressed stocks, not trying to invest for the longer term.

12:35am and bonds are weaker on the University of Michigan number. That's interesting because the lower bond prices and higher yields means that bond traders are placing more emphasis on the bullish number than the deflationary PPI number this morning. The DJIA is trying to rally but can't get the oomph needed.

1:11pm and we were able to repurchase Sony at $41.80 in accounts where we traded it profitably from these levels last month. The DJIA remains under pressure and is down 58 points at this time.

1:51pm and entering the last hour of trading both breadth and up versus down volume are over 2/1 negative. The DJIA is down over 85 points and the NASDAQ us down 30 points. It looks like today is going out on the downside. The only plus is that volume is light.

3:02pm and the DJIA closed down 106 points at 8432. The S&P 500 dropped 12 points to 889 and the NASDAQ was off 35 points at 1362.

For the year the DJIA is down 16%, the S&P 500 is down 23% and the NASDAQ is off 31%.

The Model Portfolio is up 8%.

And tomorrow is another day.

13 December 2002 - Morning Post

6:38am and we wish all a happy Friday the 13th. In keeping with that spirit the stock futures are down and oil prices are higher. Coca Cola says it will no longer give quarterly earnings guidance. Douglas Daft, CEO, who has a great name, says that it will allow the company to focus on long term objectives.

PPI and the Michigan sentiment numbers come this morning and that will set the tone for the day. We have no gems of wisdom this morning so we are keeping this short.

12 December 2002

7:25am and the stock futures are indicating a lower opening. The numbers of the day come in a few minutes and so we await them with bated breath.

7:35am and initial jobless claims rose 83,000 to 441,000 which were above the forecast range. Retail sales for November were up 0.4%, ex autos they were up 0.5%. Finally, the BOP number for the third quarter was $127 billion. We remember when $5 billion was a big number. So those are the numbers and now the stock and bond markets can digest them.

As Keynesians we are disturbed by the failure to extend unemployment insurance for folks whose insurance is running out. 800,000 folks lose benefits the week of Christmas and 90,000 per week there after. Maybe these folks should be working harder to find jobs but no one gets rich on unemployment payments. And the one million folks would be spending $200 million a week that won't be spent. The economy needs spending in times of recession and extending payments has always been a way of getting money out into the economy.

Investment gurus are now suggesting that the markets are waiting for the Congress to propose tax cuts to get an idea of when the economy will recover. The much ballyhooed dividend tax exemption is a non starter in terms of stimulating the economy. The tax holiday on a portion for the self employment tax is a pure Keynesian stimulative approach, which is why it may not happen. But if it doesn't the other tax cutting garbage that is being proposed will make some folks happy but won't get the economy going. We are Liberals and so have a point of view, but when it comes to managing client funds we are agnostic. We do think we know what is needed to get the economy moving and we have no sense that the new Congress will do anything that is needed. We see the receding of housing prices in the New Year and since rising house prices have been the last support of this economy we are not bullish on the longer term. That's why we are hoping for the year end pop and whether we get it or not we will be moving to a large cash position in early January, probably about the time the new Congress announces the tax measures it thinks will get the economy going. At that time the stock markets will rally on the false hope of recovery and we will sell. That may be too cute but we see that as a likely scenario.

7:55am and the stock futures are slightly higher on news that PG has raised guidance and the decent retail sales numbers. The lousy initial claims number is being dismissed as a seasonal adjustment problem. Halliburton is higher on news that they are close to settling asbestos claims litigation and Honeywell is up a bit in sympathy.

8:42am and after opening higher the DJIA is now off a little in slow trading. With the absence of any market moving news on the horizon other than war, pestilence, famine and political brouhaha, we may edge into holiday trading earlier than usual this year. Or at least that is our hope.

10:03am and the DJIA is slightly positive. Tech stocks are getting a little buying. We repurchased Sun Micro at $3.55 in most accounts and also bought Disney at $16.75 in some of our trading accounts. If Disney gets under $16 we will add to more accounts. We also sold half our QQQ at $26.05 which represents a scratch profit on the units purchased 12/09.

On another subject called world peace, who is the genius in the White House who decided to cut off shipments of oil to North Korea and thus gave them an excuse to restart a nuclear reactor that had been shut down for a number of years? There is no excuse for that decision. It was stupid and dangerous.

By the way, the line forms on the Right for the smallpox vaccine. We'll wait till the ChickenHawks all get their shots.

10:41am and the DJIA is down about 20 points and the NASDAQ is up 5 points. Volume is very light. Sprint PCS is higher on news that PCS announced it will be cash flow break-even next year.

12:55pm and the stock markets continue to drift in light trading at lower prices. We are pretty much set for year end except for some individual utility stocks that we may purchase in aggressive accounts.

1:34pm and OPEC has agreed to cut oil output to keep oil prices between $22 and $28 per barrel. Brent crude jumped to $26.85 and US light crude rose to $28 after the announcement. Saudi Arabia really is a great friend of the US. Really.

2:05pm and looking ahead to tomorrow we have the Producer Price Index and the Univ. of Michigan sentiment numbers. Those two numbers may get the stock markets moving up or down. We don't see much to move the stock markets in the last hour and we remain spectators.

3:02pm and the DJIA closed down 51 points at 8537. The NASDAQ gained 3 points to close at 1399 and the S&P 500 was off 3 points at 901. Volume was light. Near the close we bought Brocade at $5.08 for some of our aggressive trading accounts.

And tomorrow is another day.

12 December 2002 - Morning Post

6:44am and Japan closed lower as is most of Europe. OPEC is meeting today and there are reports that the members are going to agree on production cuts. North Korea is going to restart its closed nuclear reactor and smallpox shots are going to begin to be given in the US.

At 7:30am the Commerce department will release retail sales for November. Initial claims for unemployment also will be reported as well as the current account deficit a/k/a the balance of payments. Unemployment claims are expected to rise after being down for three straight weeks.

The stock markets seem uncertain which is normal for this time of year. One or two pieces of good news are needed to get the year end rally going and we haven't had them yet. We are comfortable with the stocks we own and will keep our bets on the table for now.

11 December 2002

7:45am and the European bourses with the exception of Germany are higher while Japan was down overnight. US stock futures continue to indicate a slightly higher opening. Merrill Lynch is going to lay off 10% of its investment bankers. Merry Christmas. Merrill also sees higher earnings next year. That's the new mantra. Fire folks and thus improve productivity and earnings. Eventually there will be no one working who can buy your product but why worry about two years from now when Wall Street will price your stock and thus your bonus on next quarter's earnings.

The great expansion of the economy after WWII created jobs and raised living standards and in the process and as a result of the expansion the stocks markets rose. The bull market of the 1980s and 1990s resulted from higher earnings that were the result of eliminating high paying blue collar jobs by sending them overseas in the 1980s and then by eliminating high paying white collar jobs in the late 1990s. The bull markets of the last two decades had to do with job destruction not job creation. And that is what the problem is. The parallel is certainly Japan which had a glorious expansion from the 1970s to the late 1980s and then ran into a brick wall as job creation moved overseas for them.

The reality is that unbridled capitalism is a cruel taskmaster and good jobs will not return to the US until the standard of living is raised in all the third world countries. That is the reason to push for increases in living wages for folks in China and Sri Lanka. The African continent is the next area where jobs will flow as capitalism seeks the cheapest price. That flow of work to the cheapest producer has been going on since the industrial revolution began in Britain many centuries ago.

The markets were correct in the late 1990s that tech land and the Internet are the true frontiers for growth in this country until industrial jobs start returning in fifty or one hundred years. The only problem was that the euphoria of the times discounted any real growth by pricing stocks at levels of earnings that would not be achieved for twenty years. And that mania allowed hundreds of phony non productive shell imitators to raise oodles of cash from uninformed mutual fund and institutional investors (?). But in time capitalism cruelly corrected the problem as it did with the canals boom in the 1820s and the railroads in the 1850s and the automobile and the radio in the 1920s and the color TV craze of the 1960s. History does offer clues to avoid huge mistakes if one is willing to look for them.

8:45am and the DJIA is down 60 points. Breadth is negative and the opening bias seems to be to the downside. The markets are back in a pattern of up a day, down a day, which isn't healthy given the sell off of the past week from resistance. But bearish sentiment is returning and the time of year favors rising stock prices. We are edging back into Sprint PCS under $4.90 per share. We have wanted to get back into the shares since we sold them a few weeks ago at $5.15. We are also repurchasing JDSU at $2.85 in our larger and aggressive accounts.

9:34am and the DJIA is clawing its way back from negative territory in slow trading. We have to go feed the cows and will be back in a bit.

1:20pm and we are back from cattle duty. The DJIA has been up or down 50 points in the last few hours. The stock markets seem to be looking for direction. We are watching and waiting.

2:18pm and the DJIA is rallying. Maybe it's because the Scud Missiles that were being shipped from our Evil Enemy North Korea turn out to belong to Yemen, our new friend in the War against terrorism.

3:02pm and the DJIA closed up 18 points at 8659. The S&P 500 gained 1 point to finish at 905 and the NASDAQ rose 6 points to end at 1396. Breadth was slightly positive and up volume versus down volume was flat.

And tomorrow is another day.

11 December 2002 - Morning Post

7:15am and we got a late start this morning. We participated in yesterday's rally but this morning it looks like we are going to test the bullish move of yesterday. Since our brother who is the head geek has to go and have his teeth cleaned this am we have to make this post short. We look for a small rise, then pullback, and then who knows?

10 December 2002

7:41am and we have the feeling we are going to have a very quick rally this morning and then pullback. There are still some gains from the October low left in trader accounts and the bears have been emboldened by the failure of the DJIA and S&P 500 to crack resistance last Monday a week. We think the shorts will start pushing their bets early in today's trading.

When we were walking to the office this morning we were remembering December three years ago when we gave back most of our gains for the year in a December sell off and then had a rousing five days in January where our accounts zoomed 20% and we locked in profits.

After buying Yahoo yesterday we realized that Yahoo, the company, was selling for about $9 billion. We have read that Mary Meeker, the Internet guru, has issued a report extolling the business models of Yahoo and EBay. But if Yahoo is worth $9 billion then AOL must be worth $15 billion because of its assured revenue stream of plus $7 billion per year that AOL has from subscription revenues. And since stock market analysts are pricing AOL at less than half that price we came to the bleated conclusion that Yahoo is overpriced. With this realization we are trying to ease out of our Yahoo position without much of a loss. As we always say, when we change our mind we act. This is a lesson we have learned over the years and luckily this change of heart is not costing us much. This is the third time we have owned Yahoo and gotten cold feet quickly so hopefully it is the last. We know we changed our mind on JPM after swearing off that stock but the two stocks are entirely different situations. All JPM needs is a better CEO and some civic common sense.

8:50am and the stock markets opened higher and now are giving back the gains. GMH called off its merger with EchoStar and will receive a $600 million payment from EchoStar. Now News Corp can come back with its bid. We think Murdoch will play hardball since he is the only game in town.

9:04am and we sold Yahoo at $16.26 for a 12 cents or less per share loss. We sold our trading position in Fifth Third Bank at $58.25 for a scratch profit. We have taken a large position in JP Morgan Chase and we are content to own one bank for a trade.

11:14am and in reading the story of John Snow in the WSJ his resume is that of many of the folks in the Bush II administration. Snow served in the government and left in 1977 to become a lobbyist for the Chessie System the railroad company of which he became CEO in 1989 that became CSX after its merger with Conrail. We keep harping on the Bush folks having used government service to land lucrative private sector jobs because the Republicans are always bashing government workers. By our addition Snow is going to get something in excess of $8 million plus a $30 million lump sum pension payment for leaving CSX to become Treasury Secretary. He also owns about $30 million in CSX stock which he will probably have to sell. But there is a provision in law that allows him to place the proceeds in mutual funds to defer any tax consequences. And so we can have another man of the people sacrificing all to join government service.

11:22am and the DJIA is stuck at up 50 points awaiting the non results of the FOMC meeting at 1:15pm.

12:31pm and Kroger announced in line earnings of 34 cents per share for the third quarter and said earnings in 2003 will be the same as 2002. Kroger shares have already dropped 35% this year and are selling at ten times earnings so the share price has already accounted for the short fall. We sold our HAIN position today at $15.25 for a $1.50 to $2.25 per share thirty day gains.

1:15pm and the Fed leaves interest rates unchanged, and the stock and bond markets yawn.

2:08pm and the DJIA is slowly surrendering its gains. We are looking at Sprint PCS Wireless again. PCS traded down to $4.50 earlier today and we missed buying it because we were busy selling out HAIN position. Hopefully we'll get another chance today or tomorrow. Breadth is positive and up volume exceeds down volume 2/1 on the NYSE and 4/1 on the NASDAQ. Trading volume is light as it was yesterday.

3:02pm and the bulls won the final hour of trading today just as the bears did yesterday. The DJIA closed up 100 points at 8573. The S&P 500 gained 12 points to close at 904 and the NASDAQ tacked on 23 points to finish at 1390.

And tomorrow is another day.

10 December 2002 - Morning Post

7:11am and the European markets are a bit higher as are our stock markets. Everyone is getting on board the dividend tax exclusion. Rather everyone on Wall Street is in favor of the dividend exclusion in the hopes that stocks will rise. The talk about a tax holiday on the payroll tax is also gaining some steam. The payroll tax holiday makes sense since it would put immediate money in every workers pocket. But then we are Keynesians.

The pundits are weighing in on John Snow and whether he is a good choice for Treasury Secretary. Since he isn't going to be making policy we don't think his choice means anything. But we are amused by the fact that the folks who are dismissive of the value of government workers are again choosing a fellow who started out in government and then moved to the private sector. By the way, CSX the company he ran for 14 years, is selling at the same price it sold for when he took over as CEO. We think he is a bit wealthier though.

Gloom has again descended on Wall Street and we ourselves have given back a good chunk of our gains. But we are playing with the houses money for this year and we think the time of year risk/reward ratio still favors adding stocks in this sell off. If the DJIA breaks on the downside we may become a bit worried, but so far the scenario we propounded last month is playing out, and we are doing our year end buying.

We were wrong in our prediction of an up day yesterday so we will predict a down one today with the rally starting tomorrow.

9 December 2002

7:48am and Roone Arledge, the creator of Wild World of Sports died last week. The TV and print media had pretty good spreads on Arledge's life and his influence on American life. Last week Phillip Berrigan, war hero, Josephite priest, husband, father and anti-war activist also died. NPR had a two minute mention. The present media is filled with the opinions of talking heads that are never identified as to political affiliation or financial sources. These experts are sure War with Iraq is imminent and necessary.

With the UN resolution and inspections the U.S. has Saddam's number. But if the U.S. keeps running up the score, the U.S. will ruin its own economy or at least set back the recovery of that economy. Economics 101 teaches that spending money on war weapons is inflationary and non productive unless the war wins goods or services that will generate future income. We are continually reminded that this war is not about oil, but if the U.S. follows the war course it is only Iraqi oil that will provide the financial benefits to offset the loss of growth from dropping bombs and destroying productive facilities.

We continue to believe that Secretary of State Powell will win the day and that Bush will play stern statesman rather than warrior king. One measure of how popular this would be is for Bush to have Ari Fleisher make a comment that maybe, just maybe, there seems to be some cooperation on Saddam's part. The stock market would jump 300 points if that statement were made. We surmise that is what is behind the Treasury putsch of last Thursday night.

Back to economic news. BankAmerica has downgraded IBM because they are buying Rational Software for $2 billion. We are no fan of IBM but we are impressed that IBM has the guts and maybe smarts to start buying a company at a price 1/5th of where it sold in the go-go days of the last century.

Bank One has a large credit card operation tied into UAL and UAL air miles and so it will be interesting to see "the Streets" reaction to the bankruptcy filing. We were mistaken last week when we said air miles would disappear. From what we read UAL air miles will continue to be honored.

We have been informed by our brother that when a computer user downloads free Real Network software that the download places stuff in a computer that send back info to REAL on what the computer is doing and where sites it is visiting. Sort of like John Poindexter's Defense Intelligence agency with the all seeing eye. In computer geek land such activity is considered bad form, so we aren't going to buy any more stock and will sell when we have a profit. We have principles but we don't like to take unnecessary losses, and we don't view this transgression in the same vein as war or tobacco stocks.

8:36am and the stock markets are opening lower in light trading. We are looking for an up close.

10:56am and there isn't much happening. The DJIA is down 115 points in languid trading. As the markets give ground we continue to buy. We are bought Yahoo at $16.30, JPM at $23.50 and Siebel at $7.85 in the same accounts and amounts that we sold last week at $9.06.

The pause that stocks are experiencing is what we expected and we continue to expect a rally to higher prices in the next two weeks.

1:45pm and in the words of a famous person, let us be perfectly clear that we think that sometime within the next month President Bush is going to declare victory over Saddam, promise to keep a wary eye on Iraq, and announce it is time to get to work on a stimulus package for the economy. When he does the stock markets will in the words of another famous person rally "big time" and we will sell. At least that is the scenario we are asking of Santa for Christmas.

3:02pm and the DJIA lost it in the last hour of trading to close down 172 points at 8473. The S&P 500 gave up 20 points to finish at 892 and the NASDAQ dropped 55 points to end at 1367. It seems like only last Monday that the NASDAQ was over 1500. In fact it was just last Monday. Keep the faith, we are, Christmas is right around the corner.

And tomorrow is another day.

9 December 2002 - Morning Post

7:01 am and UAL filed for bankruptcy this morning. So ends a mess and begins a new saga of talk TV overload. AMR is asking employees to give up $3 billion in pay raises and management says it will do the same. So continues the unwinding of the airline industry. What we'll get anyone knows. Airline stocks have always been anchovies and now they are more like mackerel.

Our new Treasury Secretary, John Snow, recently CEO of CSX Corp the East coast railroad. The economic council replacement for Larry Lindsey is Steven Friedman, the recent Co-Chairman of Goldman Sachs. Yawn.

CNBC wants to go to war if the talking heads they have on today are to be believed. They are even quoting Jack Welch as war guru.

Japan was lower over night. And the stock futures are indicating a down opening by about 1%. We are in a reacting mood today so it's wait and see for us.

6 December 2002

7:21am and it seems that McDonald's Restaurants have become the new place for terrorists to set off bombs.

7:30pm and the weekly employment numbers came it at down 40,000 and unemployment is back to 6% from 5.7%. Oops! The booboisie in Washington will have to go back to the drawing boards and figure out how to get the top 1% to give more jobs to the lower 99%. The stock futures are selling off on the number.

Larry the Lip Kudlow, the economist of Jack Welch & Co sees nothing wrong with this number since as businesses lay off workers productivity increases. And as we know, productivity is the mantra of the supply side, trickle down folks. Their hope is to only have 10 people working in this country and then the productivity number would be super. And they want to be one of the ten people working of course.

Whatever, it's time to go get a hair cut. We shall be back for the down opening.

8:45am and Secretary of the Treasury O'Neill has resigned. That is good. He was the wrong man in the wrong place. The DJIA is down 114 points and most stocks are lower. Delphi was raised to in line by Goldman.

8:55am and now we get to spend a few hours/days listening to talking heads guess who is going to replace Paul O'Neill as Treasury Secretary.

The DJIA has stabilized down 70 points. This is the same action as yesterday. With the December 8 Iraq deadline approaching - at which time nothing will happen - the stock markets are going to be in a mood of let's wait till Monday.

8:58am and now Larry Lindsey, the Economic Adviser to the President has resigned. Guess someone in the White House didn't like our reference to the booboisie making economic policy in Washington that we made yesterday. Do their resignations mean that the economy is not really recovering and that it isn't Bill Clinton's fault?

Maybe the new tax cuts proposal will go to the folks who need it. With both these folks resigning we think Carl Rove may now turn to the economy and stimulative tax cuts for common folks as a way to get Bush re-elected. It also is a recognition that the Iraq dog isn't going to hunt past a few more months no matter whether there is war or not.

9:46am and we are doing some buying on the O'Neill news. The two reasons stocks aren't up on the news is UAL and Iraq.

11:47am and the DJIA has edged into positive territory. We know we promised to never buy JP Morgan again, but with anchovies sometimes you have to break a promise because times change. All the talk of exempting dividends from taxation is going to place a premium on dividend paying stocks. That's why we continue to buy the XLU. JPM has a big fat dividend that they will probably maintain since the current yield on the stock is more a function of price drop than earnings failure. And so we bought shares of JPM for our larger accounts today at $23.85.

We also added more Elan at $2.85, some Delphi at $8.15, XLU at $18 and we are trying to initiate a position in Real Networks. RNWK are the folks that provide Real Player on computers. They haven't figured out how to make money doing this but the stock has no debt and $2 per share in cash and is priced at $3.85. That prices the whole company at $600 million with $200 million in sales and a loss every quarter. For some reason we think there may be something to this company and even if there isn't it is a wonderful after year end bounce candidate.

12:53pm and we detected a note of conciliation in Ari Fleischer's news conference today. Coupled with the resignations of the economic team we think Karl Rove has decided to change the focus back to the economy from War with Iraq. After all, the election is over and it's time to start worrying about 2004. Also the talking heads are over doing the story as in their want, and the push on the story is that this is the start of economic recovery. That will last for the year end rally we want. The DJIA is now up 50 points.

2:10pma and in the last half hour the DJIA has dropped from up 50 points to down 10. The rally had the looks of a program trade and given the week end it is logical to assume a flat closing. We'll see how things work out.

3:02pm and the DJIA managed to eke out a gain of 23 points to close at 8646. The S&P was up 6 points at 912 and the NASDAQ closed the week at 1422 up 12 points.

For the year the DJIA is down 14%, the S&P 500 is off 21% and the NASDAQ is down 28%.

The Model Portfolio is up 10% for the year.

And tomorrow is another day.

6 December 2002 - Morning Post

6:51am and first we must congratulate the NKU Norse Men and Women basketball teams for their wins over Kentucky Wesleyan last night in Owensboro, Ky. The NKU Men defeated the number one team in the country in NCAA Division II on that team's home court. Go you Norse!!

The stock markets action this week has been less than encouraging to the bulls. Of course Lemley Letter folks expected this pull back since LL had been forecasting an early December retreat for a month. Surprise or not, when the pull back does occur it is gut wrenching to see hard earned profits disappear in the blink of a trading day. But markets usually climb a wall of worry and when everyone turns bullish, Mr. Market has a tendency to bring everyone back down to earth.

For the same reason, as bearish and correction sentiment waxes and tax selling wanes we expect the year end rally to appear. Our theory is that we have two rally periods in the fall now. The first occurs toward the end of the mutual fund year end date of October 31, and the next occurs just as winter begins at the end of December or in early January.

The one negative to this scenario is the Iraq situation. That is a short term negative. And one of the longer term negatives is the looming bankruptcy of UAL and the disruption of hundreds of thousands of lives and the economy of Chicago. And as UAL sheds debt the pressures on Delta and AMR will build. There is also the matter of the economy recovering and the tax packages the Republicans are going to push through Congress. But those are long term considerations. The talking about the tax packages which will begin in earnest in early January will have a positive effect on stocks. Coupled with the relief of pressure from tax selling we continue to look for a decent rally.

In morning news Intel raised revenue numbers. IBM is buying Rational Software for $2 billion which we think is a rational thing to do in a sold out tech market. The street disagrees and Salomon has lowered its rating on IBM and instead recommends owning Hewlett Packard. So maybe the big boys are going to accept Carli as one of their own. Can membership at Augusta be far behind?

5 December 2002

6:45am and the ECB cut its discount rate to 2.75% which is a 50 basis point cut. Britain left its rates unchanged at 4%. That placed European rates more in line with the Fed.

7:32am and jobless claims dropped 15000 and continuing claims also dropped. We aren't sure how the failure to extend claims in December will affect the numbers but we would guess the markets will react positively when unemployment payments stop for folks who were hoping for an extension. This will be a fitting Christmas present from Congress and The White House and compassionate conservative economists.

8:04am and Katie's Aunt Beth turned 100 yesterday. Another fellow named Strom Thurmond turned 100 today making him the oldest and longest serving segregationist in the U S Senate. Much love to Aunt Beth.

8:29am and we were thinking that the rejection of the UAL loan by the folks in Washington is an example of the booboisie who are making economic policy now. As far as we can remember, assistance by Washington to large companies in financial trouble has paid economic and social dividends 100 times over. We think of Chrysler and Lockheed and the TVA and all the water projects in the west and all the other supposed giveaways that became huge financial and social successes. Contrasting the bailouts with the rape of electric and gas end-users over the past few years by Enron et al arising from deregulation of the utility industry and the gas and oil exploration fiasco and the savings and loan scandals in the 1980s arising from fooling around with tax rates and deregulation and we'll choose government help every time. But then we are liberals and believe that government is good and government workers are as capable as those in the private sector. Actually one would think conservatives would also think that way since folks like Dick Cheney and Paul O'Neill cut their teeth on government service as did Dandy Don Rumsfeld. They left government service to take over major corporations which we would think gives the lie to the worn and tattered bugaboo that government workers are lazy slackers. Or maybe not.

10:04am and the DJIA is off 86 points. Stocks are mixed but the blue chips that rallied yesterday are giving back their gain which suggests that yesterday it was program trading moving the markets. We just have to get through this nebulous period of the next week and then we think the rally will resume. We have a bid in for Elan at $2.60 and are looking to pick up more SPDR utilities under $18. We sold FHRX in our speculative accounts at $6.08 for 50 cents to $2 per share gain.

11:27am and the stock markets are acting like they did before October 9. Good news is bad and bad is worse. Actually the UAL almost bankruptcy should have caused the markets to dive, but we surmise that Enron and Tyco have inured investors to such calamities. In fact a bunch of other airline stocks are rallying on the demise. The talking heads on TV seem almost disappointed that war is not going to commence on Sunday. We still hope to see Bush put on the statesman's mantle and not pick up the warrior's sword as this scary charade plays out.

11:44am and the NYSE says it is reviewing the continued listing status of UAL Corp. The company hasn't even filed for bankruptcy protection yet. Talk about dancing on the sickbed!!

11:54am and while we think we know what is going to happen in the next few weeks we are in the frame of mind to raise some cash. The UAL bankruptcy is bothering us more than the markets. But its bankruptcy is going to affect millions of people. Just think of the hundreds of millions of dollars of earned airline miles that will be lost. That's non checkbook but real money to many folks. And so we are going to let our Home Depot position go. We sold HD at $25.90 for a $1 per share gain. On a percentage basis the other stocks we own have more upside.

1:45pm and the markets are stabilizing. The last hour is a question mark. We would be buying now instead of treading gingerly if we could get a better read on The White House anti-Saddam rhetoric. It was just announced that Jack Greenberg, the CEO of McDonald's, is going to retire at year end and that gave the share price of MCD a pop. Now if Eisner of Disney and Case of AOL would both quit we might see a pretty nice rally.

2:15pm and we bought TLAB at $7.60 in many accounts for a trade. We have had good luck trading it for 15% one week gains and on any market strength we think it will move back to the $9 area.

2:45pm and we have to run out a little early today. The DJIA is down 110 points at 8627. The NASDAQ is off 17 points at 1413 and the S&P 500 is down 10 points at 907. Volume today was light and down volume exceeded up volume almost 2/1. Breadth was negative 13/8 on both the NYSE and NASDAQ

And tomorrow is another day.

5 December 2002 - Morning Post

6:19am and today we learn that several reputed mobsters who are in prison have been indicted along with their wives for smuggling their own sperm out of prison so that their wives could be artificially inseminated. The wives, if convicted could be sentenced to seven years in prison. No word on how long the children conceived by the AI will have to serve for being part of the conspiracy.

The Feds turned down a loan for UAL, so bankruptcy is next. Even so, the stock futures are higher. We remember the mini one day crash in 1989 that occurred because the buyout of UAL at some number like $180 per share fell through. Our skinny on the Feds approval was wrong. To our thinking the markets should be reacting negatively to this news. But since the only folks who are out money are the shareholders it's yawn time for now at least.

Merck is raising guidance for 2003 by about 5 cents per share so the markets may like that news. Retail sales are coming in on estimate so that too will be a non event.

Our guess for today is a higher close.

4 December 2002

6:56am and the NYT reports that the White House is restoring bonuses for political appointees who are government workers. Such bonuses had been outlawed by the Clinton administration. This awarding of bonuses comes at a time when the White House is reducing the pay raises of career government employees that had been approved by Congress. Again we pose the question of whose gore is oxed?

12:51pm and we are back from our shopping trip. Stocks opened lower and have stayed their all day. We bought a position in Ford at $10.16 and we are also adding more Elan at $2.93 to accounts. We have bids in below the market for Disney at $16.75 and QQQ at 25 and DIA at 85. We don't want to buy too quickly since this reaction may last a week or so. The institutional guys and gals continue to show their disappointment with AOL by selling. Kroger has bounced back. We missed most of this morning's action so we need to do some watching and reading before we write more.

3:02pm and in the last hour there was a rally that took the DJIA into positive territory. We used the rally to sell our trading position in DIA at $88 for a scratch loss. Our prediction of an up day almost occurred but at the close the DJIA was down 5 points at 8737 and the NASDAQ was down 19 points at 1430. Tech stocks were under selling pressure all day. The S&P 500 lost 3 points to finish at 917.

And tomorrow is another day.

4 December 2002 - Morning Post

6:06am and stocks are looking to open lower. Hewlett Packard and Disney are both off about $1 from yesterday's close on uninspiring news announced after the close. The talking heads on CNBC are discussing a Wall Street Journal article about hidden bombs arriving in Chicago and the subsequent wrecking of the global economy by terrorists so it's obvious that Monday's boom has become Wednesday's gloom.

Yesterday's call by Richard Bernstein, chief equity strategist at Merrill Lynch, to lower equity exposure by 5% to 45% had to have a negative effect given Merrill's large sales force. Also the Merrill analyst who recommended buying, selling and holding Merck all in one day set the one day record for a confusing analyst call. He was just trying to get ahead of the curve but instead was hit by the curve boomeranging.

We would like to buy a bit more Elan if it comes back down and Disney and Hewlett Packard are both of interest at slightly lower prices. It looks like AOL is going to open lower again today but we are full up on AOL stock and will just have to wait for the selling to dry up. We are heavy in AOL because it gives us exposure in a lot of areas. It is a fallen institutional darling and so we can understand the pressure on the stock. We obviously think the stock is undervalued at these prices. Kroger was under pressure yesterday because of a negative Morgan Stanley call on Albertsons but we will be happy to purchase more share a few points lower.

Our current theme is that the year end tax selling, recent rally profit taking, and end of the world get me in cash time of year is now - and we have the cash to take advantage of the sell off. We may revisit some of the tech stocks we've traded in the past month but for now the QQQ are our main means of playing tech. We believe the risk/reward of trading stocks at this time of year after a three year downtrend favors owning stocks for a one to three month relief trading rally after yearend. There is always event risk but trading is about measuring risk and reward and making decisions to be in or out accordingly.

We are off to do some shopping this morning but hope to return by 1pm to catch the final few hours of trading. Our guess is that we close higher today.

3 December 2002

7:25am and it is such a beautiful winter morning that we are taking a moment from market talk to share cold inspired thoughts.

             Winter Trees

This morning from the trees we hear
the pop of limbs and snort of deer
as winter again claims the land
and takes all firmly in its hand.

The horses hobble on icy hoof
as snow packed turns to ice,
the pigeons cling to barnyard roof
waiting for the sun to rise.

Frosted fields beckon us
to wander in the diamond land 
since hunting season now is past
walk we will with staff in hand.

All the trees unclothed to show
the cuts and sores of seasons past,
some strong, some weak, some firmly 
planted, others leaning on their last.

Up on the knoll where cutters came
the battlefield assaults our eyes
the stooped and scraggly underbrush
mourn the mighty trees demise.

How needed was the one new house
that came from maple strong and swell
progress is the calling card
of loggers seeking trees to fell.

Artists use the fallen log
They seldom take a living tree
They understand the pact they make
To create life from death and free.
            BL 12/03/02 

8:40am and stocks are lower including the techs. Bonds are stronger. AOL is off $1.25 and we are buying a bit of stock. Any professional shareholder who didn't know that advertising revenue at AOL was dropping to the point on extinction should be looking for another job.

We view 8400 on the DJIA as the downside risk from here and will be adding DIA to trading accounts as DIA drop starting with a first buy at $88.

9:10am and neutral news has again become bad news and bad news is worse news. This is a reversal of the 8 week trend where any news was good news and signals that we are in a correction of the rally in the bear market. As we said many weeks ago we expected a correction in the first two weeks of December with a year end rally to follow. So far, so good. We expected the run up and this pull back and so we are acting on our forecast since it seems to be occurring. We are buying additional shares of AOL, more Kroger, and bidding on Wild Oats at $9.75 and looking for Hain under $14 per share.

9:26am and as quickly as we say oops, safe stocks are back in vogue as the buying has returned to PG and MMM and PEP.

10:25am and from the ticker we learn that car sales in Portugal are down 12%. Stocks remain lower in desultory trading. AOL has stabilized at lower prices. HAIN is higher on news they are buying Imagine, a maker of non dairy milk. Imagine that?

11:28am and Merrill has cut Merck from a buy to a sell. The stock is down $3. MRK's research chief is stepping down and MRK has reaffirmed guidance for 2003. The stock has had a good run and we think the Merrill analyst is trying to catch a top in the stock. The DJIA is attempting a rally here but it looks like it will fail. The DJIA was down 136 points and is now down 100 points.

12:42pm and CNBC is reporting that Merrill has turned cautious on the stock market and is changing its asset allocation. Richard Bernstein, chief equity strategist has cut his equity allocation to 45% from 50% saying the whole market looks very speculative. We question why he wouldn't be raising more cash if he thinks the up cycle is at an end.

We bought AOL at $14.77 and we are now full up on that stock. We added Kroger at $15.33 to more accounts and also bought QQQ in our larger accounts at $28. We will trade or hold as the spirit moves us. We are buying OATS under $9.75 and a few shares of Carpenter Steel at $12.80. In aggressive accounts we are adding a bit more First Horizon Pharm at $5.41. We picked up Elan at $2.42 and we also added some DIA at $88 to larger accounts.

1:10pm and Siebel has jumped over $9 per share while all the other tech cheapies are down. Tom Siebel said today that he sees positive signs. We are selling over $9 because of the way the other techs are acting. Every stock is an anchovy to us.

1:37pm and Merrill is now neutral on Merck not at a sell. They changed their recommendation after the conference call. So today Merrill started the day with a buy, went to sell and now is neutral. That's more action than even we do in a day.

2:19pm and stocks are edging back to even. We'll see where we are at the close.

3:02pm and the DJIA closed down 119 points at 8742. The NASDAQ dropped 35 points to end at 1448 and the S&P 500 gave up 14 points ending the day at 920.

And tomorrow is another day.

3 December 2002 - Morning Post

7:03am and the stock futures are predicting a down opening. Texas Instruments announced improved guidance last night but that improvement was in the form of less negative sales declines. Nevertheless the stock rallied last night and seems to be holding those gains this morning.

AOL is holding a meeting this morning and its news is negative and the shares are down 75 cents from last night's close. On-line ad revenues continue to evaporate as subscriptions continue to rise. We don't think that is new news but the stock markets are treating it as such. Hopefully the share price will sell off a couple of dollars so we can add more shares. We are sticking with our $20 or bust by year end. This two day talk fest about AOL will clear the air for the year end push.

We continue to believe that the tough White House talk on Iraq is setting the stage for Bush to claim the statesman's mantle of insuring that Saddam has no weapons. We are betting that December 8 will be a non event and that the inspections will continue.

The reversal yesterday has presented the pause that will refresh and inject doubt where it is needed. A lot of folks except those short the markets were becoming complacent with the gains of the past few months. Actually in the last three weeks the DJIA is only about 1% higher but a ton of low priced tech stocks were up 50% in that time period. We are happy with our cash position and continue to look for trading opportunities for the year end bounce.

2 December 2002

7:01am and on Friday we sold UAL in our trading accounts for the second time in two weeks. We had a $1.50 loss per share and have been cured of trying to catch that falling knife. When the machinists rejected the pay cuts the stock tanked more than it already has. The implications of a UAL bankruptcy are being ignored by the marketplace and so who knows what will happen to the markets if the bankruptcy filing actually occurs. We stand by our theories that if UAL files so will AMR and maybe Delta. Since management of all three have little share ownership and can grant themselves options at wonderful prices in the recreated company there is little for them to lose by filing. Hopefully the union will accept the pay cuts and there won't be further turmoil.

The Iraq inspections seem to be going better than expected and may allow Bush to don the statesman's mantle and claim victory without bloodshed. We certainly hope so.

It is always interesting that after stocks double in price off the low the analyst community finds reason to begin recommending the shares. There is some logic to that type of analysis since once stocks come up off their lows information surfaces that paints a rosier picture.

8:08am and the ten-year Treasury is hitting a three month low. Stock futures remain strong. We are going to try and buy Kroger under $16 today. We made good money in KR a few years ago and it looks like it has put in an inverse head and shoulder on the charts. Also the shares are under 10x earnings. And if GMH rises over $12 we may let it go. The insider talk is that the Echo Star merger won't be approved and that will open the door for News Corp. but that process will be long and we don't think News Corp will pay up. If the stock markets move higher GMH will also but we have a nice gain of 25% to 50% in a few weeks and our long term outlook remains bearish.

8:48am and the DJIA is up 130 points. The rally lacks volume and we will see if folks will chase stocks with the DJIA over 9000, the S&P 500 over 950 and the NASDAQ over 1500. This is the place for the pause that refreshes.

8:58am and we are trying to sell the GMH at $11.80. The stock has a cap on it until the merger is resolved and so we believe this rally is a good place to raise more cash. We are bidding below the market for Kroger but we are in no rush to buy stocks. We have added some Fifth Third Bank stock to larger accounts for a year end trade because Morgan Stanley upped its recommendation and the stock is right on its yearly low.

9:08am and the retailers are strong on weekend sales. This mindless chasing of stocks reminds of the good old days and is one reason for our caution. Also the ISM number was under 50 and bonds have cut their losses on the number and stocks are giving ground.

10:21am and the DJIA moved all the way back to down 30 points before stabilizing. As we watch the tech and telecom stocks we sold move higher we don't have any pangs of regret. In fact we are thankful for the money we made in them. Those stocks have never been our forte and we view ourselves as lucky to have survived our travails with AT&T Wireless in the spring and to still have had the ability to catch the bottom October in the techs we bought. Now we'll let others decide how much is too much to pay for stocks with declining sales and no earnings. The rally in them today is not on actual earnings but on the faint smell of maybe earnings in the future. Surely these stocks will again earn money but their valuations already discount earnings five years out. In their hey day several years ago the tech favorites were discounting 100 years of earnings so 5 years is probably cheap. But that is someone else's game not ours.

11:56am and we sold the GMH at $11.74 for a nice $2 to $3 per share gain. We also bought a bunch of Kroger at $15.77. We bought Fifth Third Bank at $57.60 in a few larger accounts for a year end trade and we added SPDR Utilities at $18.50 to tax free accounts to catch the December dividend and because we think utilities will rally after year end tax selling abates. Utility stocks are thin traders and many individuals are taking tax losses so utilities will probably be under pressure through year end. But then we should get a nice pop. We may even buy a few individual utility stocks back in larger accounts but not till the last week in December. We also bought QQQ at $28 for a week or more trade in a few accounts and will add to more accounts if the QQQ move lower. The NASDAQ has been strong in this rally and the QQQ are the way we are going to trade techs through year end unless there is a bigger correction than we expect.

12:14pm and Venezuela is in turmoil as a general strike takes hold. Some folks are again trying to overthrow the elected president who happens to be a socialist. The US is going half way around the world to fight terrorists but since the opposition to Chavez is US sponsored the folks seeking to topple Chavez are patriots not terrorists. The oil companies want the oil to keep flowing and the US State Department is involved on the side of those seeking to overthrow the duly elected president. Guess it all depends on whose ox is being gored, or is it which gore is being axed?

12:57pm and we are taking a flyer on Elan Corp. ELN is an Irish drug company that used to be the largest capitalization stock on the Irish Stock Exchange. ELN has dropped from $42 to $2.38 after making a low of $1.03 in early October. So it is 100% off its low. But since October the company has raised about $1 billion in cash to apply towards its $3 billion in debt. The company is under investigation by the SEC, but who isn't these days? We are only buying a small dollar amount because it is a speculation. We are using a little over half the profit from our Gap trade to make the purchase.

1:18pm and the DJIA is down 93 points. The NASDAQ is holding in positive territory. Breadth and volume figures are mixed and trading is active.

1:24pm and the White House is making noises about the accuracy of Saddam's list of weapons of mass destruction. If it isn't accurate we are going to bomb. Of course the Catch 22 remains since how are we to know if the list is accurate. And today Britain released a list of torture activities that Saddam has conducted that sounds a little like the torture that our allies in Indonesia and China inflict on their prisoners. We do think the threat talk and the Venezuelan situation coupled with profit taking at a key resistance point on the S&P 500 is the reason for the reversal at midday. Treasury bonds have rebounded from their early losses as the stock markets have reversed their early gains.

2:45pm and after being down over 120 points the DJIA is now rallying and we may close in positive territory today. The DJIA is down but breadth is positive on the NYSE. The NASDAQ is higher but breadth is negative. Volume is active. It's been an interesting day but even in the sell off stocks didn't look like they wanted to go down. Pre-closing imbalances on the NYSE seem to have a bias towards the buy side.

3:02pm and the DJIA closed lower for the day at 8853 down 42 points. The S&P 500 was also lower at 934 off 2 points while the NASADAQ gained 6 points to close at 1485.

And tomorrow is another day.

2 December 2002 - Morning Post

6:44am and it must have been something in the Thanksgiving Turkey but all the talking heads and print media are sounding the all clear signal and speaking bullishly again. Morgan Stanley has upped the wireless industry to attractive from cautious and Lehman has placed a buy on Intel. Wal-Mart reported record one day sales last Friday and most retailers reported good sales numbers for the weekend.

The stock futures are indicating a strong opening and we should see a good push higher. The rise in the prices of speculative stocks last week is an indication that the buy juices are flowing again and that maybe the individual investor is again beginning to feed at the trough. The manufacturing index is coming today and is expected to be slightly expansionary with a number at 51.

All in all a bullish day shaping up and the stock we own should participate. Stocks are now up eight weeks in a row. We still think this may be a correction week, and we have enough cash and enough invested and enough gains that we are going to watch. We survived our travails with wireless stocks and made enough trading the tech area and so we plan on staying with our boring cyclical recovery plays for now.

December 2002 Thoughts

November 2002 Thoughts

October 2002 Thoughts

September 2002 Thoughts

August 2002 Thoughts

July 2002 Thoughts

June 2002 Thoughts

May 2002 Thoughts

April 2002 Thoughts

March 2002 Thoughts

February 2002 Thoughts

January 2002 Thoughts

December 2001 Thoughts

November 2001 Thoughts

October 2001 Thoughts
The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.