Yesterday’s sell off was
expected. Or at least if we read today’s market commentary all the bulls are
happy it occurred since it was needed to clear the air. Since the bears were
also happy it occurred we should have a lot of happy folks on Wall Street
Markets never crash off the top. Yesterday’s sell off is the
beginning of a correction. It may also be the end of a correction but only time
will tell. (Back in 1987 the DJIA dropped 20% from August to October 16 before
the Crash on October 19 where it lost another 20%. For the year 1987 the DJIA
and S&P 500 closed up a few percentage points. No harm no foul unless you
were one of the many folks who entered the markets when they were up 20% to 40%
And so there is agreement that a
correction was needed and it is healthy that it is occurring. But it is occurring
in the context of a slowing economy. Housing sales are lower. GDP growth is
It is true that companies have
been reporting record earnings. But the law of the pendulum has not been
revoked. The pendulum exist in nature as areas move between drought and excess
rain etc. The pendulum exists in business as companies to well for years and
then need to retrench. And the pendulum certainly exists in the financial
markets. As certainly as record earnings are reported less than record earnings
eventually follow for most companies except true growth stocks. And true growth
stocks sell at 60 times earnings in bull markets and 30 times earnings in bear markets.
And so as certainly as stocks rise they will fall. The long term uptrend in the
market may remain intact but that doesn’t mean that stocks go straight up. And there
has not been a correction in six months and there has not been a significant (10%)
correction in four years so the markets are due.
We don’t know if this is the
significant correction but we do know that we aren’t yet ready to enter the
marketplace. The huge down volume and number of stocks closing lower yesterday
is a warning that there should be more to come on the downside before any all
clear signal can be sounded. And we still don’t think stocks are cheap. The
only potential purchases in today’s market are relatively valued stocks. That
means that relative the overvalued markets there are some stocks that are under
priced. That doesn’t make them cheap.
Asia was lower
overnight except for Sahnghai (China) which was up 4% or half of what it lost
on Tuesday. And that is interesting because the reason given for yesterday’s
sell off was the drop in China.
But China is in the throws of a speculative mania
and so it is going to be more volatile. Hong Kong and Japan
were both down over 2% and India
was down another 4%.
trading large fractions lower at
and Gold is down $10 with Oil off 60 pennies but still above $60.
Much was made in the media last
night and this morning of the glitch that caused the DJIA to move from down 260
points to down 540 points in an instant at yesterday. At the time we thought it was a mispricing but the reality
is that the components of the DJIA were moving lower all through the contra
hour between and and the computers that disseminate the
second by second calculation of the DJIA to the world were not able to keep up
with all the trading and repricing. So the actuality is that the DJIA was
moving from down 260 to down 540 in the half hour before the large jump. Thus
the sudden drop-off in the market today was due to the fact that their normal
computer system was lagging way behind so they switched to a backup system
which was more caught up. The "sudden" decline wasn't actually so
sudden, the market had been declining but nobody knew. And our guess is that had
traders seen that steady move lower the DJIA would not have bounced back like
it did after .
The dollar edged up against the
euro on Wednesday after Federal Reserve Chairman Ben Bernanke said he still
sees moderate U.S.
economic growth ahead, downplaying the impact of Tuesday's global stock market
What else could he say?
4th Quarter GDP was revised to up 2.2%. The core Inflation gauge
was revised to up 1.9% which was lower than expected. By the by, on January 31 the Commerce
Department reported that gross
domestic product (GDP), the broadest measure of overall
economic activity in the U.S., expanded at a 3.5% annual rate during
the fourth quarter of 2006. Oops, they were off by over a trillion dollars. The
sharp downward turn was due to reduced inventory investment from companies,
with capital expenditures taken down to -3.2% from -1.8%, and slowing
(though still positive) consumer spending *****
Sprint posted a higher quarterly profit on Wednesday and gave a
positive outlook for subscriber growth in the second quarter. Sprint said on a
conference call with analysts that it expected to post another net loss in
postpaid subscribers in the first quarter, but forecast postpaid net additions
in the second quarter. Sprint had said in January it added 742,000 customers on
a net basis in the last quarter, including additions of 876,000 customers from
wholesale providers and losses of 306,000 high-profit postpaid subscribers. Sprint
ended the year with 53.1 million subscribers, up from 47.6 million at the end
of 2005. The company reiterated its 2007 outlook for operating income before
depreciation and amortization of $11 billion to $11.5 billion on consolidated operating
revenue of $41 billion to $42 billion. The company said it was lowering its
capital spending budget for the year to $8 billion from its previous target of $8.5
We are interested in Sprint around
$17. It is up today on takeover rumors that were reported on CNN Money. We
think any takeover will not occur until they have assimilated Nextel and are
seeing growth in postpaid subscribers and the share price is at higher levels.
Wall Street hates to take over stocks on their lows.
Crude oil inventories were less
than expected and distillate and gasoline inventories were down much more than
the major measures are higher after some hesitation at the opening. The DJIA is
up 100 points. Breadth is flat as is up/down volume. Trading is heavy.
Support/resistance levels to watch
in the broad indices based on daily charts: - SPX: 1364/1430 - DJIA: 11,855/12,500 *****
New Home sales fell 16% in January according to the Commerce
Department. The supply of homes on the market has now moved from 5.7 months
supply to 6.8 months supply. Part of that upward move is the result of the
lower number of homes sold.
The Fed reported that the portion of loans on which payments were at least 30
days overdue rose to 2.11%, the highest since the fourth quarter of 2002, and a
jump from 1.72% the previous three months. *****
Intel broke below $20 a few minutes ago. $20 was support for Intel
all though 2004 and 2005. In March of 2006 INTC broke down though $20 support
and it then became resistance until October 2006 when thee share price rose
above $20 where it has remained until today. We are interested in Intel but
think it will break to $18 or lower in a further correction.
The Chicago Board of Trade posted an all-time high in
futures and options trading volume on Tuesday, surpassing 11 million
contracts, the exchange said Wednesday.The new CBOT volume record is 11,196,830 contracts 44% above the previous record of 7,791,833 contracts made on November 28, 2006.
Now even mainstream media and
mainstream analysts regularly speak of the sub-prime “meltdown” or “carnage”
and refer to these sub-prime mortgages as “garbage” or “trash”. Since most of
these sub-prime mortgages were junk that should have never been originated in
the first place, now the new spin in financial markets is to minimize the
nature of the problem by making two arguments: first, sub-prime loans are only
a very small fraction of the housing market, specifically only 6% of it;
second, sub-prime problems are a niche problem that is not affecting other
parts of the mortgage market. Both arguments are utter spin without any basis.
Let us see why.
Where did the Mortgage Bankers Association
(MBA) get the “sub-prime is only 6%” figure that it is spinning around in every
possible media? Their trick is to consider all homeowners, even the 35% of
homeowners who do not have any mortgage and then argue that only 6% of
homeowners are sub-prime borrowers. Why is this spin and why is the actual
figure for “garbage” mortgages actually closer to 50% of the flow of new
mortgages in 2005-2006 rather than the “6%” being spinned around? Several
It seems the on line trading
systems didn’t work so well yesterday when volume rocketed higher and the major
measures dropped. But fear not, executives at the firms involved are not
discouraged. Of course they probably weren’t trying to trade on their own
As stocks have rallied today
Treasuries have given back half their gains of yesterday. And at Gold is down $16. Oil is only down a few
pennies at $61.10.
We are interested in four stocks and they are GE, Intel, Sprint and J
Crew. But we are watching. *****
Gold closed down $15 at $672 in NYC trading. Oil was up 33 pennies at $61.80. Treasuries closed weaker with the two-year at 4.64% and the
ten-year at 4.56%.
was up small and Brazil gained better than 1.5%.
The head of the President’s
Council of Economic Advisors says that yesterday’s drop appears to be an
Unless it wasn’t.
The DJIA closed up 50 points at 12266 after swinging many times in a
170 point daily range. The S&P 500
regained 8 points to 1407 and the NAZZ
rose 9 points s to 2417.
Breadth was 3/2 positive and volume
There were 140 new highs and 110 new
The big boys and girls are having
fun and we are too.
27 February 2007 Daily Comment
Stocks are opening 1% lower this morning on a confluence of data and
events. Greenspan’s dour comments over the weekend about a recession late
in 2007 soured the markets mood yesterday. Then overnight the Vice Chairman of
the Chinese People’s Congress mentioned a
bubble in the Chinese market and the need to investigate margin purchases
and new issues and Shanghai proceeded to drop 8% in value.
This morning Durable Goodscamein at down 7% and ex transportation down
3.1%.Capital Spending by
Business was down 6% and that was
all the markets needed for Treasuries to continue their rally and stocks to
open lower. After 15 minutes of trading the up/down issues were 10/1 negative.
Every other sell off in the last
six months has been met with buying and so we will see how the day goes. The
economic data for the last few weeks has indicated a slowing in the economy and
so we think the rally on the down pieces may be muted.
Asia was down
big overnight and European bourses caught
the fever and are down 1% or more across the board at . Gold is down $7 to $682 and Oil is off over $1.
1445 on the S&P 500 is the trend line and the S&P 500 is at
1434 at .
But the day is long.
Existing Home Sales were up 3% month over month for January which
was better than expected. January was warm and the weather was good.
Consumer Confidence for February was 112 when 108 was expected and
versus 110 in January.
sold its sub prime lending operation to Mother Merrill last year for $1.3
billion. NCC management did good. Poor Mother.
After being down over $1 early in
today’s trading at Oil has
reversed and is now at a two month high at $61.78.
NYSE down volume / up volume is 26 to 1. We have never seen it that skewed. But
then hedge funds have only been market controllers for the last five years.
As of trading collars were in effect on the NYSE.
GM's February U.S. sales would likely be down 6 percent to 7
percent, GM spokesman John McDonald said adding that the company expects world retail
sales to be flat for the month. Ford's
U.S. sales in
February would likely slide about 10 percent to 15 percent, with fleet sales
accounting for the majority of the decline, George Pipas, Ford's chief sales analyst
When the S&P 500 closes lower
today it will be five days in a row that it was lower. And that is the first
time in three years that that will have occurred.
Today’s drop in the DJIA and NAZZ
are also the largest since 2003.
Jim Cramer is on CNBC explaining how to play this market collapse.
We don’t have a clue about what is going to occur and neither does he. But we
do think the fact that CNBC gives him this platform during the day and at night
with his show is a symptom of the new cowboys and cowgirls in the market place.
The turnover in folks who get burned by the markets used to have a ten year
cycle. Then it became a five year cycle and now we think the cycle is down to 3
years. By that we mean that collective memory forgets the bad times and greed
overcomes fear a lot faster than it used to.
Many folks who discovered and purchased
stocks in the last three years and held on are geniuses. All the big market
pullbacks of the last four years have been one or two day affairs. But today’s
pullback is occurring at a much higher level of overall market valuation and
individual stock valuations than the levels of a few years ago. And the hedge
fund boys and girls are much more aggressive and in control than they were just
a few years ago.
Finally, the performance that Cramer
shows on his realmoney website must be taken with several grains of salt. He
shows a 31% annualized return. What the site fails to mention is that Cramer
added money at the bottom in 2003 and at another trading bottom a few years
later. If no money had been added (which after all is the way most folks manage
individual portfolios- they begin with a set amount of money and hope for the
best) his return would probably be flat because he was down over 22% in his first
year. the return he is displaying is the magic of
numbers at work.
While we were writing that piece above
we went back to our stock page at
and the DJIA had dropped from down 260 points when we began to down 500 points.
There is a floor broker in CNBC saying that maybe a misprint caused the 200
point drop in an instant as in somebody hit the wrong button. Or maybe there was margin selling by a hedge
fund. Some hedge funds have to be in trouble.
The folks on CNBC say not to
worry this it what the smart guys have wanted to clear out the air. Sure, but
not this way.
This is called how to have a 5% correction in one day. That sure
lessens the pain.
Oil ended up 7 pennies at $61.46. Gold finished lower by $2 to $688. Treasuries closed on their highs in a flight to quality panic with
the two-year at 4.64% and the ten-year at 4.53%.
was down 4.5% and Brazil was down 7.8%
The DJIA closed down 410 points at 12222. But that doesn’t tell the
story. The S&P 500 lost 49 points
to 1400 and the NAZZ dropped 95 points
Breadth was astoundingly negative and volume was extremely active.
Down volume on the NYSE was 100 times up volume. We have never seen
that type of number.
New highs collapsed to 153 and new
lows expanded to 159.
Tomorrow will be interesting.
26 February 2007 Daily Comment
An early spring snowstorm visited
and with 15 inches of snow on the ground and three foot drifts of ‘heart attack’ snow we had an interesting
week-end. Our better half is in Iowa
and she lost all power on Saturday in a devastating ice storm. Mother Nature
sometimes reminds us how human we are.
Poor Jet Blue can’t buy a break now. In the latest storm they cancelled
100 flights and CNBC is all over them for it. Talk TV is a menace to rational
mixed overnight and Europe is small fractions higher.
Gold is up $1 to $688 in the early going and Oil is also 20 pennies higher at
Treasuries have a bid based on
Greenspan’s weekend remarks about recession: Former Federal Reserve Chairman
Alan Greenspan said the U.S.
budget deficit is a ``significant concern'' and a recession is possible by the
end of this year, Dow Jones reported. The report from Hong Kong
said Greenspan spoke via a satellite link to a business conference. “The
American budget deficit is clearly a very significant concern for all of us
that are trying to evaluate both the American economy's immediate future and
that of the rest of the world,'' Dow Jones quoted Greenspan as saying. Profit
margins suggest the economy is in ``the later stages of a cycle,'' Greenspan
said, according to the news agency. Predicting the timing of a recession is
difficult, he said.
There are reports that Daimler Benz is considering receiving a
minority interest in GM in exchange for Chrysler.
In November of 2002 Texas Utilities traded at $8 a share
and all the smart guys were worried it was going bankrupt. Today the smart guys
Goldman Sachs, Kohlberg Kravis, and Texas Pacific have agreed to buy the utility
for $69.50 a share ($46 billion including debt). And these guys are the smart
investors? We would bet they are betting with other peoples’ money.
Oil closed up 40 pennies at $61.54 in NYC. Gold gained $2 to $689. Treasuries
were well bid all day and the two-year ended at 4.76% and the ten-year was
European stocks closed higher.
The DJIA closed down 15 points at 12634. The S&P 500 lost 2 points to 1450 and the NAZZ was down 10 points to 2505.
Breadth was flat on the NYSE and 3/2 negative on the NAZZ and volume was moderate.
There were 450 new highs and 60 new
And there are four more fund days
for the big boys and girls.
23 February 2007 Daily Comment
The major stock measures are
lower this morning in the early going more from a lack of buying pressure than
any great selling pressure. We do think that many traders may want to go home
flat for the weekend.
Asian market indexes were mixed
overnight with India
dropping 3%. European bourse indexes are also mixed at and Gold is down $2 at $681 while Oil has moved
above $61 in early NYC trading. Treasuries have a bid.
Treasuries rallied on Friday,
with New York-based bond traders citing worries in the sub prime mortgage
market as a factor likely to be driving a bid into Treasuries. In addition some
traders cited broad central bank buying of U.S.
The trend line on the S&P 500 is at 1445. The S&P 500 is
currently at 1453.
Oil was up 19 pennies at $61.16 in NYC at the close and Gold gained $3 to $685. Treasuries were
well bid with the two-year closing at 4.79% and the ten-year at 4.67%.
European bourses closed mostly higher while Mexico
The DJIA lost 40 points to end at 12645. The S&P 500 was down 5 points to 1451 and the NAZZ lost 10 points to 2515.
Breadth was flat and volume
was a yawn.
There were 360 new highs and 60 new
And we wish you a warm weekend as
the land of milk and honey experiences a spring snow storm.
22 February 2007 Daily Comment
Today’s merger of the day is the
acquisition of Wild Oats by Whole Foods at $18.50 a share. That is
a bunch more than the price at which we sold it a few weeks ago and we are
humbled to have missed the deal. One salve is that all the analysts quoted said
that they were surprised by the deal also. And we bought OATS for an after year
end pop and when it didn’t pop after a few weeks we sold it when we sold all
our other stocks.
The acquisition by Whole Foods
helps to mask a difficult quarter for them and it is a good acquisition if they
can change the store culture at OATS. They are paying cash and 18 times earnings
while WFMI shares still trade at 30 times earnings even after the large sell
off of the last year.
We have been trading OATS for at
least 15 years with our first purchases and sales occurring in the $30 range.
We would guess we are ahead on the trades over the years and given that the shares
are being acquired at half the price at which we first traded them we are
higher overnight with Japan
up 1% and at a seven year high. Hong Kong also gained
and European bourse indexes are higher at .
Gold is off a few dollars after its big jump yesterday and Oil is off 40
pennies in early NYC trading. Treasuries are weaker.
Jobless claims were 332,000 which are down 27,000 from last week’s
Inventories of gasoline were down 3.1 million barrels and
distillates down 5 million barrels as oil refiners slowed production. Crude oil
inventories rose 3.7 million barrels.
European bourse indexes closed higher as gains in the mining sector
and earnings news boosted sentiment.
Total U.S. debt is 3.5 times GDP, a level never seen before. The
second highest level was 2.9 times in 1929. Total U.S.
financial debt (excludes consumer debt) is 2.1 times GDP, the highest ever and
up from one times in 1987.
Oil ended at $60.90 up 83 pennies. Gold was down a dollar at $683. Treasuries ended lower with the two-year at 4.86% and the ten-year
At the close the DJIA was down 50 points at 12685. The S&P 500 lost 2 points to 1456 and
the NAZZ was up 5 points to 2523.
Breadth was negative and volume
There were 475 new highs and 40 new
And tomorrow is the last day for
fund games at the big casino this week.
21 February 2007 Daily Comment
mixed overnight and European bourses are the same at . Gold is up a few dollars after yesterday’s $11
drop and Oil is lower again early today by half a buck
January CPI was up 0.2% and ex
food and energy and all the important stuff it was up 0.3%. The year over year CPI ex food and energy was up 2.7% and that
has Treasuries nervous and lower because many Fed spoke folks have opined that
the Fed is targeting 2% or lower inflation.
January leading indicators were
up 0.1% when 0.2% was expected but December’s numbers were adjusted upward to
up 0.6% from a reported 0.3%.
We sold our last
position which was Sprint for a profit and now we are all in cash.
If Treasuries get above 5% on the short end we may place some of the funds in
the two-year. But for now we are in the wait and watch and earn
4.3% on cash camp. *****
Japan raised its benchmark interest rate to
0.5%. For many years it was 0%. Traders fear that another raise may dry up
liquidity in the carry trade. The carry trade is an arbitrage strategy where
speculators borrow yen in Japan,
convert the yen to dollars by selling yen and buying dollars, and then buy U.S.
Treasuries. Traders try and squeeze profit out of the difference in the
borrowing cost in Japan and the interest rate earned in Treasuries by using
money borrowed at the very low interest rate in Japan while not losing too much
money on the varying relation between the value of the yen and the dollar, and
the movement in the price of Treasuries. This is not for the faint hearted.
Gold has jumped $25 today to $685. There seems to be no world news to
account for this jump except that a second carrier task force is now in the Persian
Gulf and Iran
is conducting war game maneuvers this week in 20 of its provinces.
Or then again maybe the big boys
and girls caught a hedgie short gold and are having some fund games. There’s
nothing like a Wednesday blow up of a hedge fund to get the juices flowing. Or
maybe yesterday’s $11 drop should have been a buy instead of a sale.
In the coulda, woulda market one
that we did look at was US Steel. US
Steel is up from $15 in 2003 to $90 today. The demand for steel is continuing
as commercial construction around the world is on fire. In past building booms
we have noticed that commercial construction is may be an indication of the top
in an economic expansion. Whatever, buying X at $90 now is a leap of faith when
you didn’t buy at $15 four years ago. Buy the way, US Steel sold at $100 per
share in the 1960s so folks who bought it then still have a way to go to get
even and a very very long way to go if dollar inflation is added to the
oil is up $1.50 at $60.25. Someone
is betting that something is going to occur somewhere.
In the Good Idea Department:
Sweden's IKEA will charge U.S.
customers five cents for disposable plastic shopping bags in what the
international furniture giant said on Wednesday was a first step to ending
their use altogether. IKEA said the decision to stop giving away free bags to
customers aimed to reduce the estimated 100 billion bags thrown away by all U.S.
consumers each year.
Oil ended at $60.06 up $1.26 in
NYC trading. Gold was up $23 at $681. Treasuries ended slightly lower with the
two-year at 4.84% and the ten-year at 4.70%.
European bourse indexes were mostly lower while Mexico
indexes were small fractions higher.
The DJIA lost 48 points to close at 12740. The S&P 500 was down 2 points to 1455 and the NAZZ gained 5 points to 2518.
Breadth was negative and volume
New highs contracted to 490 after jumping to over 600 yesterday and
new lows were 55.
And there are only two days left
for fund games at the big casino.
We found the item below on www.huffingtonpost.com and since
several members of our family have been flying lately with stories to tell we
though we would share the humor. But the way, Hufington post is an interesting
and informative website.
Travel Trips for Airline Passengers:
With all of all the recent flight cancellations
and JetBlue passengers stranded on the tarmac for ten hours here are some
travel suggestions for would-be air travelers.
Check the weather forecast. If it's not 72
degrees and clear EVERYWHERE in the United
Do not call the airline for a weather update.
You'll learn it's cool and overcast in New Delhi.
Allow two hours before the
flight, ten hours for the tarmac, two hours for the unscheduled fuel stop, and
two hours to retrieve your luggage. And if you're flying from LA to San
Francisco, 45 minutes for the flight itself.
If you print your ticket on one of those
self-help stations realize that the chances of it working are the same as five
cherries coming up on a slot machine.
Best to print your ticket at home the night
before along with the flight schedules of every other airline going to your
destination, airport shuttle schedules, Amtrak schedules, and the 1-800 numbers
for Ramada, Holiday Inn, Hilton, Marriott, Quality Inn, Best Western, and the
Never turn in your rental car until it's the
final boarding call on your flight.
Never fly to, from, or around Chicago.
Always use skycaps. And if you choose to ever see
your luggage again, tip.
Remember: "the white zones are for jerks in
You are allowed several little three-ounce
bottles of something but not one three-and-a-half-ounce bottle of the same
You might want to put that Astroglide into a non
descript little bottle.
Have extra zip lock bags that you can sell to
clueless travelers for ten dollars apiece. If they haven't gotten the word by
now they deserve to pay ten bucks. And tell them FAA regulations are one item
You can usually tell who these nimrods are.
They're the ones who booked connecting flights in the winter. And buying
furniture off the Sky Mall.
Don't have children if you plan on flying anytime
in the next fifteen years. Even if it's one trip.
If they announce they're overbooked and are
looking for volunteers to take a later plane for free trips take it. The flight
is going to be cancelled anyway. And you'll have a jump at getting reservations
at the airport Hilton.
Have your laptop, ipod, cellphone, Gameboy,
pager, Blackberry, camcorder, transistor radio, electric razor, hand held fan,
and pacemaker fully charged. Ten hours on the tarmac is a long time.
Before you get on the flight take Airbourne,
water, Xanex, Oscillococcinum, Clariton, Ambien, and tequila.
Fake a limp so you can pre-board and guarantee
there will be room in the overhead compartments for your stuff.
Bring your own DVD's, music selection, food,
blankets, pillows, reading light, water, magazines, newspapers, coffee, toilet
paper. And just to be on the safe side, your own oxygen masks and floatation
But it's not a good time to catch up on the first
season of LOST.
Play the drinking game. Take a swig every time
you hear "we apologize for the inconvenience". Not recommended for
those unwilling to get completely loaded.
Drinking game #2: "We thank you for your
Don't kid yourself. EVERYONE is flying
The scary part used to be the landing. Now it's
pushing off from the gate.
Beware of free WIFI hotspots in airport
terminals. Hackers use these to break into your computer. Not a joke.
It's quieter and smoother in the front of the
plane. And ignore what they say, if you're in Coach and you want to use the
bathroom go to the ones in First Class.
And finally, always remember:
it's NEVER the airlines fault. It's the weather, air traffic controllers,
mechanical problems, baggage handler strike, FAA rules, homeland security,
airport restrictions, lawmakers, the billy goat curse, lunar eclipses, and most
of all -- the media.
20 February 2007 Daily Comment
The merger announcement of the
day is XM Satellite and Sirius. There are regulatory hurdles to
the merger but the companies say they need to merge to save money and be
viable. Maybe if they didn’t pay $500 million to Howard Stern they would have a
few more dollars in their pockets.
The long weekend is over and it
is difficult getting into the swing of the markets. It is more so because we
are sitting on a pile of cash with no real urge to put it to work. We do own
Sprint and would like to repurchase GE but we are holding off for now. our thought is that eventually Jeff Immelt the CEO of GE is going
to figure out, with the help of helpful investment bankers, that GE is worth a
lot more split into four or five companies than it is as a conglomerate.
mixed overnight with Hong Kong and Shanghai
closed for the Chinese New Year. Europe is lower at and Gold is down $4 at 668. Oil is off a
dollar and Treasuries are a tad lower as the trading day begins.
CPI comes tomorrow and it is the big economic number of the week.
Home Depot reported less than
earrings and is lower today while Wal-Mart’s
were better than and it opened higher.
After an hour of trading the
major stock measures are lower.
The NYT Sunday Magazine crowned Toyota as the
carmaker for the world. Toyota’s culture
is the culture that all carmakers need to succeed according to the NYT. We know
we are perpetual cynics but our memory is probably longer than the writer of
the article and we remember the crowning of Japan
and their industrial might back in 1989 as the leaders of the manufacturing and
economic world. That was right before their market crashed.
Now we don’t think Toyota
is going to crash and burn and they have been in the forefront with hybrid cars
but we have noticed that their big introduction in the Super Bowl and on
commercial TV has been the Tundra which is a big ol’ gas guzzling high horsepower
pick up truck. That’s because that is where the profits are.
And if the automakers and the
rest of corporate America ever get their acts together and convince themselves
and Congress that a national healthcare program is just what the doctor ordered
for the financial survival of economic America then the huge profit advantage Japanese
car makers enjoy will dissipate. The profit advantage exists because Japan's
health coverage is provided by government not the car companies.
We don’t own the auto companies
because we don’t trust that if the economy slows down and auto company sales
slow more that some genius won’t decide that Chapter 11 bankruptcy is the easy way
to go to restructure the auto companies the same way that geniuses in the
airline industry placed a majority of those companies in bankruptcy to help
solve their financial problems by disenfranchising and bankrupting
The Germans don’t want Chrysler but GM or some Asian auto company might. And we are sure investment
bankers who proposed the original Chrysler buyout by Daimler Benz are hard at work convincing Daimler to sell Chrysler
to another company whom other investment bankers have convinced just has to won
this wonderful asset.
Auto companies are like airlines
in that they have flush times and flat times. The problem is that during the
last flush time in the U.S.
auto industry the companies spent their cash hordes on special dividends, buying
other auto companies and are now shareholders are paying the price.
OK folks we are watching CNBC and
we learn that there is a sneaker with a chip in it that can be followed by
global positioning satellites. Supposedly there are orders for 125,000 of these
sneakers at mere $340 a pair. The purpose of the sneakers is for folks with Alzheimer’s
or other disabilities according to the makers.
Scott’s Miracle Grow is going to use its excess cash to pay a
special $8 dividend instead of doing a stock buy back. The CEO owns 20 million
shares of stock.
Kraft has approved a $5 billion share buyback to be effective immediately
after the spin off of the remaining 89% of shares owned by Philip Morris. That
obviously is to absorb selling by trades who don’t want to own KFT. We are
interested in the food company after it is separated from the tobacco company.
Gold closed down $11 at $661 and Oil was down $1.04 at $58.35 in NYC. Treasuries were better with the two-year at 4.82% and the ten-year
European bourse indexes were fractionally lower as were Mexico
The DJIA closed 20 points higher at 12788. The S&P 500 gained 4 points to 1460 and the NAZZ rose 16 points to 2512.
Breadth was almost 2/1 positive and volume was moderate.
There were 620 new highs and 60 new
And there are three days left at
the casino this week.
16 February 2007 Daily Comment
The markets are
closed Monday February 19 for Presidents Day. Our next post will be on Tuesday
This morning the takeover rumor
is AMR Corp. Business Week which has predicted 50 of the last 5 mergers is saying
that Goldman and British Airways are considering a bid of around $10 billion
for the airline. The share price is up 5% on the news even though the report
has been denied and that is an indication of the speculative juices flowing in
Anything is possible but that
doesn’t mean anything makes sense. And an LBO of AMR is nuts. AMR has $8
billion in debt so the total cost would be $18 billion and with oil prices at
all time highs and AMR at a seven year high only a foolish investment banker
would consider such a bid and only with someone else’s money.
Four years ago AMR was at $3 per
share and no one was interested. But that is always the case in the markets
even among the big boys and girls. Folks and even ‘intelligent’ and ‘sophisticated’
investment bankers only are interested in companies on their highs not their
Asian markets were mixed small
fractions overnight and European markets are the same at .
Gold is off $1 at $670 and Oil is
down a few pennies at $57.95 in early NYC trading. And Treasuries have a bid on
moderate PPI numbers
The Producer Price Index was down 0.6% in January as oil dropped to
$50 per barrel. Ex food and energy and all the important items PPI was up 0.2%.
diesel engine maker Cummins Engines expects North American heavy-duty truck engine
sales could fall as much as 50 percent in 2007, thanks to heavy buying ahead of
new emissions standards, the company's top executive said on Thursday.
"We are expecting sales to be down 30
percent to 40 percent," Chief Executive Officer Tim Solso said. “But if
customers have stockpiled more engines than expected, the sales drop
"could be as much as 50 percent."
The share price of Cummins remained
at an all time high of $140 per share after this comment.
Microsoft CEO Steve Ballmer said on Thursday analysts' forecasts for
revenue from Windows Vista in fiscal 2008 were "overly aggressive."
The preliminary University of Michigan sentiment indicator was 93 for
February versus a final reading of 96 in January.
At there are reports that the Automotive
News is saying that GM is
thinking about buying Chrysler from DaimlerBenz. It is a slow Friday.
Oil has spiked $1 higher to $59.09 at mid-day as the big boys and
girls have some fun on a low attendance trading day when the Treasury markets
are closing early and many folks are on their way to warmer climbs for the long
weekend. We are going to place another log on the fire.
Dell Computer hired Ron Garriques, who had been Motorola's handset chief, to be the new
head of its consumer business. The move is the latest restructuring at the
computer maker since founder Michael Dell returned to the company's helm. The
unit Mr. Garriques will oversee will include desktop and notebook computers, as
well as software and peripherals.
Motorola, meanwhile, named two company executives to serve as interim co-heads
of the handset unit.
The handset unit had
underperformed in the last few quarters so Dell hiring Garriques is curious.
Treasuries closed firm with the two-year at 4.84% and the ten-year
at 4.69%. Oil ended up $1.33 at
$59.32 and Gold was up $1 at $673.
European stock indexes closed small fractions lower as did Mexico
The DJIA after trading slightly lower all day closed unchanged at 12765.
The S&P 500 lost 1 point to 1455
and the NAZZ was unchanged at 2496.
Breadth was positive and volume
There were 355 new highs and 55 new
Enjoy the holiday.
15 February 2007 Daily Comment
The takeover of the day is Budweiser. Brazilian newspaper Valor
Economico reported that the world's largest brewer, Belgian brewer InBev was in merger talks with Anheuser-Busch,
according to traders in Europe, where InBev shares rose
more than 5 percent. There doesn’t seem to be any economic advantage in the
merger since BUD already controls over 50% of the U.S.
Why a Brazilian paper would know
what Belgians and Americans are doing is not a question since everyone
especially traders accepts the fact of globalization. A week ago a European
website said Bristol Myers was in talks with Sanofi and the shares ran to $30
only to back off when nothing materialized. Two days ago a London Paper said
Alcoa was going to be acquired by Rio Tinto.
Today we learn that the CrawfordCounty Independent is reporting that the Chinese government is going spend
its entire dollar surplus by making a bid for the entire DJIA. Not.
Asian markets caught the bullish
fever overnight and were higher with Japan
of 0.8%, Hong Kong up 1.6% and Shanghai
up 3%. European stocks were mixed at
and Oil is down to $57.07 with gold flat at $672. Treasuries have a bid in the
Jobless Claims rose to 357,000 in the latest reporting period.
Hershey is going to fire 1500 folks Caterpillar is going to repurchase $7 billion of shares as soon as
in completes a $6 billion repurchase in the next few months. Hooray for
Carl Icahn and friends sold a large
chunk of their Time Warner holdings.
And so ends Carl’s interest in the long term health of TWX.
Treasuries are continuing their
rally. The tow-year has moved from a 4.97% yield to a 4.83% yield in the last
few days after Fed Chairman’s positive testimony of yesterday.
Oil ended at $57.99 down a penny after touching $57 during the day and
Gold was flat. Treasuries went out on their highs with the two-year at 4.83% and
the ten-year at 4.69%.
European bourse indexes closed mostly lower as were Mexico
The DJIA gained 25 points to close at12767. The S&P 500 rose 2 points to 1457 and the NAZZ gained 8 points to 2497.
Breadth was 3/2 positive on NYSE and slightly so on the NAZZ and volume was moderate.
There were 475 new highs and 55 new
And tomorrow’s close marks the
beginning of the three day President’s Day weekend.
14 February 2007 Daily Comment
We wish a Happy Valentine’s Day
higher overnight with Shanghai up
2.5% and European bourses are also up at .
Oil is off in the early going at $58.50 and Gold is up $5 at $673. Treasuries
are flat awaiting Benanke’s testimony today.
Chrysler will can 13,000. The markets are delighted with the Chrysler
news as the share price is up $2. Who cares about good paying jobs since it is
the share price that is important to executives and Wall Street.
had 51% bulls versus 21% bears and 28% for a correction.
Ben Bernanke expressed confidence
on Wednesday in the health of the U.S.
economy despite a housing slowdown, but warned of risks to the current
generally benign outlook for inflation. "The U.S.
economy seems likely to expand at a moderate pace this year and next, with
growth strengthening somewhat as the drag from housing diminishes,” Bernanke
said in remarks prepared for delivery to the Senate Banking Committee.
Merrill Lynch said it raised its
S&P 500 12-month target to 1,553 from a target of 1,531 last month, because
of the index's advance in January.” We continue to believe that 2007 will
ultimately be a year of PE expansion," it said in a statement. "Higher
quality stocks have outperformed during every period of PE expansion in the
past 20 years."
benchmark IPC stock index jumped to an all-time record high on Wednesday after
the U.S. Federal Reserve chairman said U.S.
growth should strengthen and that there were signs of easing U.S.
distillate supplies fell less than expected last week while gasoline and crude
stocks posted surprising declines, according to a government report issued on
Wednesday. Oil prices have recovered a bit on the news but remain lower on the
Soon hedge funds will be able to
bet on Hurricanes. The Chicago Mercantile Exchange said on Wednesday it would
launch CME-Carvill Hurricane Index
futures and options on futures contracts on March 12.
Oil ended down $1.01 at $58.07. Gold gained $3.50 to $672 in NYC trading. Treasuries closed with their gains with the two-year at 4.87% and
the ten-year at 4.73%.
European bourses were higher by big fractions and Brazil
The DJIA gained over 80 points for the second straight day to close up
85 points at 12740. The S&P 500
rose 10 points to 1455 and the NAZZ
jumped 28 points to 2488.
Breadth was 2/1 positive on the NYSE and 3/2 better on the NAZZ and
volume was moderate.
New highs expanded to 565 and new
lows were 60.
And the bulls won the day and
they are way ahead for the week.
13 February 2007 Daily Comment
mixed with Japan
up and Hong Kong down 2%. European bourses are higher at
and Gold is up $4 to $671 and
Oil is above $58 in early NYC trading.
The DJIA is going to be higher at
the opening because there was a report in the London Times that there is going
to be a takeover bid for Alcoa and
it is trading 10% higher in the pre-market and Mother Merrill has raised GM to a buy from a sell and it is $1
higher. The Merrill analyst downgraded GM in March of 2005 when the shares were
at $30. Subsequently the shares traded at $18 and now they are at $35. Mother
also lowered Ford to a sell.
The trade deficit in December was
$61.1 billion which was greater than expected.
Korea has agreed to shut its nuclear
facilities in return for economic aid. That is a positive for the world if not
An hour into the trading day the
DJIA is up 80 points and all the major stock measures are higher. After the
three down days this bounce was needed by the bulls. Now it must be maintained
for the bulls to get comfortable heading into expiration.
Oil ended up $1.25 at $59.06 in NYC. Gold closed at $668 up $2. Treasuries
were weaker with the two-year at 4.94% and the ten-year at 4.81%.
European shares closed higher as did Mexico
and Brazil which was up 1.8%.
The DJIA closed up 100 points at 12652. The S&P 500 gained 11 points to 1444 and the NAZZ rose 9 points to 2458.
Breadth was 2/1 to the good on the NYSE and 5/4 better on the NAZZ
and volume was moderate.
There were 310 new highs and 70 new
And a lot of folks are going to
get snowed for Valentine’s Day.
12 February 2007 Daily Comment
After a week-end of exciting
basketball games and client visits we are back in the land of milk and honey.
While we were away stocks drifted
lower as earnings season tailed off and no other market moving news arrived.
Fortress Investments, a hedge funds manger, went public in an IPO
and shot up 60% in price on the first day of trading.
Fortress is paid to manage the
funds and the new shareholders will only share in whatever profits fall the
bottom line after the folks who run the fund take their salaries and bonuses.
Hedge fund managers are not noted for taking small bonuses.
Fortress is priced at $12 billion
with $30 billion in assets under management. That is nuts.
Oil is off a couple of dollars
today as the Saudi Arabia told Asian refiners to expect more shipments next
month and the nation's oil minister said OPEC has no need to further rein in
production. Saudi Arabia
will ship 7 percent less-than-contracted volumes to the refiners in March
compared with a cut of as much as 14 percent this month, said officials who
received notices and asked not to be identified because of confidentiality
agreements. Saudi Arabia's
oil minister, Ali al-Naimi, said OPEC may not have to make additional output
cuts, the Wall Street Journal reported.
Gold is at $668 which his higher
than it was when we left last Thursday morning.
Bristol Myers is down $1.25 as some market moves are reporting that
any talks about a takeover are off for now if there were any talks.
Blackstone Group is going to do a
$1.2 billion buyout of Pinnacle Foods, the maker of Vlasic Pickles and Duncan
Hines cake mix. The money Blackstone manages is certainly burning a hole in
Intel has designed a computer chip that is so fast that there is no
known operating system that can use it.
Treasuries were lower on Monday,
extending Friday's losses, as traders guessed that Federal Chairman Bernanke
might stress inflation risks when testifying before Congress this week.
Bernanke reports on Wednesday and Thursday. Also Fed member William Poole said
on Monday that the core inflation rate at above 2 percent was unacceptable and
the central bank would have to take action if it remained at these levels.
Size of Capital Markets 2005 ($ trillions)
(Public / Private / Total)
/ 17.9 / 23.8
/ 35.9 / 59.0
Oil ended at $57.81 down $2.08 in NYC trading. Gold dropped $4 to $667. Treasuries
were higher in yield with the two-year at 4.92% and the ten-year at 4.80%.
European stocks closed lower and Mexico
were also lower.
The DJIA lost 25 points to close at 12555. The S&P 500 was down 5 points to 1433 and the NAZZ dropped 10 points to 2450.
Breadth was negative all day and 2/1 to the bad at the close with volume moderate.
There were 245 new highs and 80 new
lows. On Wednesday last week there were over 500 new highs.
And the new week began with a
yawn. This is a Triple Witching week.
8 February 2007 Daily Comment
We will be
traveling today and tomorrow and our next post will be Monday 12 February. Stay
7 February 2007 Daily Comment
Cisco beat consensus estimates last night and is up $1 in the early
going but that action has not had much effect on other big cap tech stocks in
early trading today.
Asian stocks were higher
overnight with Shanghai up 1.5% and
European bourse indexes are mixed at .
Gold is flat and Oil is over $59 as the trading begins in NYC. Treasuries are
also flat with a ten-year auction today and a thirty-year auction tomorrow.
Yesterday’s three-year auction was well bid and was the reason for the Treasury
rally into the close.
Crude oil inventories were lower
than expected for the latest week but gasoline and heating oil inventories were
higher. Oil remains a few pennies higher several hours into the trading day.
Today is the fourth day in a row
of volume lighter than the fifty day average and the fourth day in a row of at
least a fifty day high in price for the DJIA. According to minyanville.com the
only other time in modern market history that has occurred was March 24, 2000.
As we read of all the deals
between Google and you name it or the
wonder of myspace.com and all the social websites and how much money they are going
to generate and look at the valuations that talk and dreaming is engendering we
think of the dot.com boom of the late 1990s. We aren’t saying that companies
won’t advertise on the dot.coms we are just of the opinion that the pot of gold
will not be a great as the market values of some of these companies would
The reality is that one never
knows till afterwards that prices on stocks were unreasonable.
Oil reversed course late in the day to close down $1.17 to $57.71. The
hedge fund boys and girls are having fun with our heating and gasoline bills.
What is different today than yesterday or two weeks ago when the price of oil
Gold was up $2 to $660 and Treasuries
were better at the close with the two-year at 4.87% and the ten-year at 4.76%.
European bourse indexes closed higher on the day with Spain
up 1% and Mexico
up while Brazilwas lower by over 1%.
The DJIA was up 40 then down 30 and unchanged at 12666. The S&P 500 gained 2 points to 1450 and
the NAZZ gained 18 points to 2490.
Breadth as 5/4 positive and volume was moderate.
There were 615 new highs and 50 new
And it is still cold here in the
land of milk and honey.
6 February 2007 Daily Comment
Asian markets were higher
overnight with Shanghai up 2% and European
stocks are also higher. Treasuries are weaker and Gold is up $3 with oil up $1
at $59.74 in the early going in NYC
Cisco earnings come tonight and
that is the focus of the day as earnings season winds down. The cold weather
and hedge fund activity has placed a bid in oil. The markets don’t want to go
lower but positive catalysts to move stocks quickly higher are absent from the
mix- or so it seems.
We moved some hay for the horses
and wrote some notes but haven’t been much interested in the markets. We have
cast our lot with cash for now and will await a correction before we decide to
revisit stocks again. Our great thoughts are few and far between these days and
that is the reason for the sparse comments.
The results of the three year
note auction announced at were
strong and that has placed a bid in treasuries with all maturities higher in
price and lower in yield.
Hedge fund management companies
are now being offered to the public as holding companies with freely traded
shares of stock where the ordinary investors can share in the profits of the
managers of the funds. The first to be offered in an IPO is Fortress Investments.
As we understand it the share purchaser will share in the fees the manager
earns, not in the gross profits of the funds it manages. When Wall Street decides
to let the little fellow in it may be time to run for the hills.
European stocks were mixed at their close and Mexico
and Brazil were
Oil ended the day in NYC up 14 pennies at $58.88 after being over
$1 higher during the days trading. Gold
gained $3 to close at $659. Treasuries
were better with the two-year at 4.90% and the ten-year at 4.78%.
The DJIA gained 3 points to 12665. The S&P 500 was up 1 point to 1448 and the NAZZ gained 1 to 2471.
Breadth was positive all day and volume was moderate.
There were 495 new highs and 60 new
And there are three more fund
days at the casino this week.
5 February 2007 Daily Comment
The Bears lost the Super Bowl and
the bears are losing on Wall Street. And winter has arrived with a vengeance in
the land of frozen milk and solid honey.
lower overnight with Japan
down over 1% and European bourses are mostly lower at . Gold is unchanged and oil is down a few pennies in
early NYC trading. And Treasuries are flat.
Michael Dell is going to fire
some folks and has cancelled 2006 bonuses in the hope of shaking Dell Computer back to a growth story.
The markets are meandering this
morning with breadth negative and volume moderate.
The cold weather and Super Bowl
have sapped our thinking power for today.
Gold ended at $656 up $4 and Oil
was lower by 28 pennies to $58.74. Treasuries
caught a bid with the two-year at 4.92% and the ten-year at 4.81%.
European bourse indexes closed mixed to higher and Mexico
were up small fractions.
The DJIA gained 8 points to close at 12660. The S&P 500 was down 2 points at 1445 and the NAZZ dropped 5 points to 2470.
Breadth was 5/4 negative and volume
There were 470 new highs and 55 new
2 February 2007 Daily Comment
The Employment Report this morning
reported 110,000 jobs gain versus the 150,000 expected number. But December’s
number was revised upward by 40,000 so the net net was a wash. The other
economic numbers were benign and so Treasuries now have a bid and are a few
ticks higher in price while the stock markets are mellow.
Asian markets were higher
overnight except for Shanghai which
was down 4% and is down 12% since Tuesday. European bourses are higher and Gold
is flat and oil is up 21 pennies at $57.50 in early NYC trading.
of Michigan confidence Index was
96.9 versus 97.8 expected.
We moved some hay today for the
horses and have been watching the markets with one eye waiting for .
Oil closed up $1.72 at $59.04 in NYC. Gold was down $11 at $651. Treasuries
were firm with the two-year at 4.93% and the ten-year at 4.83%.
European bourse indexes closed mostly small fractions higher as did
and Mexico. *****
The DJIA lost 20 points to end at 12653. The S&P 500 gained 2 points to 1448 and the NAZZ was up 8 points at 2475.
Breadth was 5/4 positive on the NYSE and flat on the NAZZ and volume was moderate.
There were 525 new highs and 50 new
And the casino is closed for the
week-end as all the gambling actions turns to Miami.
1 February 2007 Daily Comment
Jobless claims dropped 20,000 to
305,000 in the latest period. Core inflation is under control and treasuries
are firm on this morning’s economic news. Gold is up $2 in early NYC trading
and Oil is off a few pennies.
Asian markets caught up to
yesterday’s rally in the U.S.
by rising overnight and at
European bourse indexes are mostly higher.
Stock Market Strategy
Our portfolio management follows
an investment philosophy that buys good quality stocks when they are out of
favor. This investment philosophy infers that all companies, no matter how
smart the people in charge, eventually have problems with earnings or sales -
either because of incorrect internal business decisions or because of external
market forces. When this bad news hits the marketplace, selling occurs and the
price of the stock drops. After a period of time, those who run the company
usually solve the problem, earnings start to improve, institutions become more
aggressive buyers on the good news, and the price of the stock goes up. Just
because a stock is down is not a reason to buy. Rather, it is a reason to begin
looking at the company's fundamentals. We stress book value, cash flow, low
debt, insider ownership, previous market performance, and patience. Because of
the volatility of the stock markets that we have experienced over the years
during many market phases, we usually dedicate at very large percentage of a
portfolio to short term U.S. Treasury notes or cash equivalents.
From 2000 to early 2005 we altered our investment strategy
because of the extreme volatility in stock prices that resulted from the tech
bubble and its aftermath. As a result, we were very quick to take profits and
losses and turnover in the accounts increased greatly. We maintained an
unusually large cash position at times when we believed there was above average
market uncertainty and risk. This rapid trading was not our preferred method of
managing money since it places stress on us and on our clients. But we believed
the stock and bond markets had become more of a casino than a place to invest
for the long haul, and as long as the controlling interests in the stock
markets are hedge funds and traders we were compelled to adjust our style. As a
result we generated mostly short term profits. This fact has no effect on tax
free accounts but it does affect taxable accounts. Our philosophy is that any
gain is better than a loss and our rapid trading enabled us to enjoy great
success over the 12/31/1998
to 12/31/2003 years. The
Model Portfolio more than doubled in value while the S&P 500 was basically
unchanged during that time period. Even many of our most conservative accounts
rose over 50% during that time period. But times have once again changed.
We were taken aback by the swift
downturn of our portfolios in 2004 and early 2005 and so reexamined our trading
philosophy. Times change and so do markets. Upon review, we noticed that our
portfolio gains in January 2004 and in November/ December 2004 were in the low
priced speculative stocks like those that had provided outsized returns the
previous three years. But it was obvious that we were not quick enough in our
selling to lock in those gains in 2004 and 2005 before the roof fell in. That’s
because the markets have become a casino where day to day trading is controlled
by hedge funds. Thus we decided it was prudent to adjust our trading
And so that is why the portfolios
- when we are in a trading mode - contain mostly big cap
companies. We are neither prescient nor brave enough to catch by trendy
stocks nor do we usually want to trade stocks making
new highs or backing off new highs. We think that buying out of favor big caps
is a more prudent trading approach. We continue to attempt to time the
markets as we have for the last eight years; the difference is the quality of
stocks we are using for this endeavor.
Managing a portfolio requires a balancing act between client hopes and market
risk. The Lemley Letter Model Portfolio stock selections
usually perform as well as or better than the popular averages. But sometimes,
most often when the markets are in a speculative phase, our total portfolio under
performs the popular averages. So too with the performance of our managed
accounts. That is because for the last 20 years since the 1987 crash we have
always maintained a large cash/short term bond position in accounts. Portfolios
that we construct for clients are meant to: participate in stock market rallies
(stock portion); survive stock market collapses (cash, stock and bond portion);
and allow the client to sleep nights.
Our investing method differs from money managers who are given funds and told
to seek the highest return by being fully invested in common stocks at all
times. Those managers have a different objective than we, for they are trying
to outperform the markets, period. Thus, if the markets are up 30% and the
mutual fund is up 35%, that manager is a success. Correspondingly, if the
markets are down 30%, and the mutual fund is down 25%, that manager is also
successful. We, on the other hand, manage client funds with the intention of
earning a satisfactory return on a risk-reward basis while hopefully mitigating
the pitfalls of serious market declines.
It's important to understand that the spectacular returns of hedge funds that
are mentioned in the media may have been derived by taking spectacular risks,
and/or because the time period shown encompasses a market low to market high.
For example, the advertised 30% + annualized returns on "hedge funds"
are obtained by being highly leveraged (investing with borrowed money).
Leverage in these funds sometimes exceeds 10 to 1 ($10 borrowed for every $1
In an investment account that contains
all a client’s available investment monies, an annualized return over 10%
for any long period of time (five years or more) is a goal to strive for rather
than a result to be expected. Again, the time period shown in advertising
usually involves a market low to market high. Such a return is attained by
being fully invested in common stocks
in a roaring bull market. We take a much more conservative approach for most
accounts that we manage that need monthly income checks, college tuition or are
retired. Also the money in our managed
accounts is treated as all the investment money that a client has to invest.
We do not attempt to match the performance of aggressive capital appreciation
funds, since we would have to be fully invested in common stocks that do not
meet the requirements of our investment criteria during speculative market
phases. We take a risk avoidance approach to investing rather than trying
to "beat the market."
Investing involves assuming risk. We tend to be cautious traders. In reviewing
our conduct and willingness to assume exposure to market risk, it is obvious that we were more willing to
assume risk for clients when we and they were younger than we are now. We
raise cash whenever we perceive excess volatility and speculation entering the
Back in December, 1983, we added a Model Portfolio to the Lemley Letter. Unlike
many stock market writers, we actually buy and sell and charge commissions and
fees in our "Model Portfolios", rather than use the S & P Index
as a proxy for stocks. We do this because our clients and most investors don't
and shouldn't use futures, options, etc. Because all portfolios are
"living" investments, they reflect the time period in which they were
started and subsequent changes. Thus, when we open a new account we do not
construct the new portfolio exactly as the Model because of various factors
including, but not limited to: 1) A portfolio up 12 times in value over time
and under our management can psychologically accept more risk than a new one
now coming under management. 2) A long time client is more accustomed to our
trading strategy than a new client. 3) No money is ever removed from the model
portfolio while most of our clients have monthly, semi-annual, or annual income
needs and 4) risk tolerances vary among clients.
We use the Model Portfolio to show the performance of our investment advice.
The Model Portfolio is an actual account funded with our own money. The Model
is usually more aggressively managed than most of our client portfolios. When a
client asked us why the Model Portfolio always seems to be more fully invested
than his account, our answer was that the Model Portfolio never calls and asks
for money, or why we bought or sold something. The Model Portfolio always loves
us, appreciates everything we do, and understands that we can't always be right.
PAST PERFORMANCE IS NO INDICATOR
OF FUTURE PERFORMANCE. *****
Housing numbers were strong today
and manufacturing numbers were weak. Housing trumps manufacturing when it comes
to the Fed and so Treasuries are having a hard time continuing their rally.
After opening higher on 3/1
breadth the major measures are pulling back after ninety minutes of trading but
remain positive with breadth now 2/1 positive.
What is never mentioned in the
Enron mess is that the folks who worked for Enron and lost their life savings
when the share price of Enron in their 401Ks collapsed wouldn’t have had nearly
so much money to lose if the executives who ran Enron hadn’t committed fraud to
pump up the share price.
20% of the population of the U.S.
owns 85% of the private assets of the United
Oil closed down 84 pennies at $57.30. Gold gained $5 to finish at $663 in NYC. Treasuries gave ground late in the day with the two-year at 4.96%
and the ten-year at 4.84%.
European bourse indexes closed higher with many up over 1%. Brazil
was fractionally higher and Mexico
The DJIA gained 50 points to 12672. The S&P 500 rose 8 points to 1445 and the NAZZ jumped 4 points to 2468.
Breadth was better than 2/1 positive on the NYSE and 3/2 on the
NAZZ and volume was brisk.
There were 600 new highs and 60 new
And there is one more hedge fund day
at the casino before the big boys and girls turn to gaming the Super Bowl on
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