 | ||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
||
 |
 |
Bud's Poem Page |
|
For those folks who have accounts with us, you may now go to: www.aacesonline.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the aacesonline site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed. For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
30 January 2004 - Evening Comment 7:30am and 4th Quarter GDP came in at 4% when 5.0% was expected. Bonds are rallying and stocks are falling. The dollar is giving back its overnight gains against the euro. 9:01am and the Chicago Purchasing Managers Index was 65.9 in January versus 61.2 in December. The University of Michigan reported its final January Consumer Sentiment Reading was 103.8 versus 92.6 in December. The markets opened lower except low priced telecom issues which rose on the back of Nortel’s excellent earnings report last night. We continue to expect a rally later today as the selling dries up. 9:52am and we sold the balance of our PCS at $8.10 for an average price of $7.94 coupled with the shares we sold late yesterday. That’s a 70% profit in one month and we wanted to lock it up. Including debt, PCS is now priced at $30 billion which is a full price. That doesn’t mean that someone won’t pay more for it but it does mean that we are happy to realize our profit and head to the sidelines till we see how the AT&T Wireless auction plays out. 10:49am and stocks remain lower. Breadth is positive on the NASDAQ and negative on the NYSE. Since today is the last day of the month a last hour rally is not out of the question. 10:54am and CNBC has a couple of little old ladies on touting their investment clubs portfolio performance last year. Their club was up 25%. Wonder if they are going to write a book and then find out that they aren’t supposed to consider money added when figuring yearly return. When the Portland ladies replace the Beardstown ladies can a correction be far behind? 1:35pm and now the January Jobs report next Friday has become the all important number on which media talking heads will spend the next week prognosticating. The lower GDP number has thrown a wrench in the recovery scenario and so the bulls are hoping for a big 150,000 plus or better net new jobs number next Friday to rescue the recovery and the rally. We still have the last hour of the month to go yet so a rally is still possible today, but next week may see a meandering market awaiting the retail sales on Thursday and jobs on Friday. 3:02pm and it was like watching paint dry and traders weren’t able to close the major measures up for the day. But the DJIA and S&P 500 are up for the month which is the year. And as January goes so goes the stock markets for the year. Except the Super bowl has one AFL team and one no team so we don’t know what that means as a predictor. At the bell the DJIA was down 23 points at 10487. The S&P 500 was off 3 points at 1131 and the NAZZ was down 3 points at 2066. And tomorrow is another day. 30 January 2004 - Morning Comment In the oops Department we learn in the NYT this morning that the revised cost of the Bush Medicare plan in now $530 billion over 10 years or about 30% higher than originally estimated. And the plan has not yet even been put into effect. And so it is no wonder that Treasury bond traders are worried. The Fed’s 2004 Christmas present is most probably going to be a rate increase of ½%. But till them who needs to worry. On the home front the WSJ is reporting that in the 1990s Coke shipped extra cokes to Japan to inflate revenue numbers. That’s the kind of stuff Enron did, not Warren Buffet’s Coke. Is there no stalwart company left in America in which investors can have confidence? NO. Are CEO’s all charlatans interested in earning 500 times as much as their average workers? Yes. And Pixar is saying no deal to Disney. They won’t agree to a new production and selling agreement with Mickey. 6:39am and an advance look at 4th Quarter GDP is presented at 7:30am today. The guestimate is plus 5.4% and all the Repulicos will be delighted. The 344,000 folks who lost jobs last week won’t be as excited. Overseas markets are mixed and U.S. futures are also. We would guess up slightly at the opening, then down with a rally into the close. So let the games begin. 29 January 2004 - Evening Comment Hypocrisy thy name is Cheney. Maureen Dowd in her column in the NYT today mentions that VP Cheney, the leader and most committed of the Bush Chicken Hawks gave the Pope a crystal dove as a present when Cheney visited him this week. 7:25am and Exxon announced earnings that were better by 10% than were expected. Verizon reported better earnings for the quarter unless one includes ‘special charges’ which turn the profit into a loss. That is what we call smoke and mirrors. Almost all major companies have been using this accounting gimmick for the past ten years or more. It is accepted by the analyst community and so when we talk about TWX using such gimmicks we are only stating the obvious to us but maybe not so obvious to our readers. 7:32am and first time claims for unemployment were down 1000 to 342,000 and continuing claims were 3.13 million. The dollar has strength again today. The employment cost index rose 0.7% in the fourth quarter versus 1.0% in the third quarter. Today’s numbers don’t offer any reason to trade. 8:26am and Sears is going to open $3 lower today. We were snookered by Sears last year and panicked out after which it ran to $56 per share. It is now at $43 and heading lower. We can’t understand that volatility in a retailer that is always reinventing with special charges its style and place in the retail environment. 8:42am and the stock markets have opened higher on moderate volume. We are selling the TWX for a 10 cents loss that we purchased yesterday morning in our trading accounts because we think the correction may be upon us. We are also trying to sell our LVLT holdings to raise cash to place in stocks we want to concentrate on in any downturn. There is no bid for RSTO and so we are stuck in it for the moment. It is important for us to act at turning points we have expected. We have to realize they are occurring and adjust expectations accordingly. We think this is a correction and that the markets are going to rally into March once this 5% downdraft is dealt with. 10:41am and it has taken a while but the major measures are now in negative territory. Breadth is decidedly negative and all the buyers of yesterday morning are now on the sidelines awaiting the end of the corrections. 11:02am and courtesy of a heads up from www.calpundit.com we present the following from the Lou Dobbs Tonight on CNN, the January 21, 2004 show.
Our first question is whether Dobbs follow up question was a joke or whether he too really believes what De Lay said -- that by cutting taxes the government is getting more revenue than if taxes hadn’t been cut. Say what!!!!! And this next stuff is from www.unobserver.com and is as mind boggling as DeLay’s statement. The funny thing about this article is that Katie asked the other day why the Japanese Army were in Iraq and what they were doing there.
And so now we know, Japan are there to help the local economy by paying Iraqis to protect the troops who are protecting the Iraqis. It would be funny, but…. 12:34pm and the DJIA is only down 20 points while the NAZZ is down 32 points and many tech and momentum stocks are off 10% or more. Breadth is now almost 3/1 negative and every rally attempt is being met by selling. We completed the sale of LVLT at $6.20. We bought a few shares of RFMD at $9.50 for some smaller accounts. The last hour of trading should be interesting. 1:10pm and a client called and asked what we think on days like yesterday and today. Our answer was that our first thought is that we wish we sold everything two days ago. Our second thought is that we predicted what was coming and made the decision beforehand to hold the stocks we own right now through any correction. And we continue to remind ourselves of this as the markets continue to take back our unrealized profits. Then our third thought is that it’s too bad the correction didn’t wait till February to occur so clients could have enjoyed the gains we had in their accounts for the month of February. And our final thought is that we continue to believe that the markets will be higher in March than they are now and so we are looking to add to positions and look for other stocks that interest us. But for now we are just placing another log on the fire. One more thought on this subject is that the DJIA is not being hit as hard as the tech and momentum stocks because the DJIA hasn’t done anything this year. Most of the stocks we own are up 30% and more and so it is logical that they will correct more. 2:05pm and entering the final hour the DJIA has rallied to plus 41 points and the NAZZ has rallied 20 points even thought it is still lower on the day. The final hour will tell the tale. 2:52pm and with the late hour rally limping along we decided to sell one half our PCS holdings at $7.80. We have a 70% one month profit for most accounts in this stock and wanted to lock in part of that gain. Our hope is that we are wrong and the shares continue to move higher. 3:02pm and the DJIA closed up 40 points at 11509. The S&P 500 rose 5 points to end at 1133 and the NAZZ lost 10 points to finish at 2067. And tomorrow is another day. 29 January 2004 - Morning Comment 6:49am and that is how some corrections begin. Just three little words from Greenspan and they weren’t “I love you” and the bond markets remembered the trillion dollar plus Bush deficits to come and headed for the hills by selling Treasuries with abandon. And the stock market was miffed that bonds were receiving all the attention and so did its own little flight and fright routine. It was interesting that stock folks didn’t take the Fed announcement as an affirmation of a recovering economy which should have been the take. No, the stock market traders decided-decided is to kind a word-panicked and sold because others were selling and if others are selling some traders first instinct is to sell first and think later. We must admit we were surprised at the speed and comittedness of the sellers since we haven’t seen that kind of selling for a while. The overseas markets were lower overnight is response to yesterday’s action. U.S. futures are higher by a bit and there may be a short lived bounce of a few minutes at the opening but there were a lot of traders who wanted to sell yesterday and weren’t accommodated and so we would guess the selling will resume this morning. And then the bulls may make a stand or just stay on the sidelines to let the correction run its course. Time and trading will tell. So let the games begin. 28 January 2004 - Evening Comment 7:30am and Durable goods orders were unchanged for December versus November, ex defense they were down 0.4%. Has anyone seen the recovery? Last months numbers were revised upward so this month’s numbers would be positive without the revisions. But last month stocks traded on those numbers so by revising and explaining the revisions traders get a twofer on one set of less than inspiring numbers for an economy that has one trillion dollars of tax cuts coursing through the market place. Treasuries are a bit weaker on the news. Traders’ initial reaction on the seemingly positive TWX smoke and mirror earnings and revenues report is to sell. The stocks is trading at $18.20 down from an $18.70 close. Xcel Energy posted a fourth quarter profit and said that its bankrupt NRG subsidiary will have no effect on 2004 results. The stock is up 20 pennies in the OTC market on that news. 8:55am and stocks opened higher. We are buying XEL on the back of their positive earnings announcement. The share yield 4% and we think there is at least a 20% upside potential in the stock over the next year. We are adding to our larger accounts. We are also taking our lumps by selling our NVLS trade of yesterday and placing the funds in TWX. TWX is down the same percentage amount as NVLS and we are a lot more comfortable with it. 9:54am and the S&P 500 can’t hold above 1150. It needs to pierce that level and move higher to keep the rally going. We are in a decent cash position of about 65% after our purchase of 500 XEL and 500 TWX in the Model Portfolio and so we are situated well for either up or down movement in the major market measures. Breadth this morning is positive and the DJIA, S&P 500 and NAZZ are all higher but without much enthusiasm. 11:44am and Don Nickles of Oklahoma is saying the budget will be balanced by 2012. Of course he isn’t running for office this year. It’s time for him to get out in the private sector and start collecting on all the IOUs business owes him for the tax breaks he provided as Senate Budget Chairman. 12:38am and a client asked why if TWX earnings are smoke and mirrors we are holding the stock. That’s a good question. The first answer of course is that we are magicians. But the actual answer is that many companies have smoke and mirror earnings, among them IBM and GE, but as long as the marketplace accepts those earnings as real the game can go on. We are in the game to make money and TWX has so many assets that we figure the market won’t abandon it and TWX has been a nice stock for us to trade. It is an anchovy and we have been in and out of it for two years with most of the trades being profitable. 1:15pm and the FED left rates unchanged. The FED has changed its language so that it can raise rates sometime. The word change was from a ‘considerable period’ to ‘can be patient’. Treasuries are selling off as are the stock markets. 2:01pm and after being down over 100 points the DJIA is now down 75 points entering the final hour of trading. 3:02pm and we tried to sell some RSTO and LVLT to reduce positions in each stock since their earnings come next month. We weren’t able to sell very much RSTO and so we’ll keep trying. The LVLT is owned at a 30 cents per share loss for many but at up to a $1 profit for some of the larger accounts. The RSTO is held at a loss and we want to reduce our position by one half as part of the discipline of selling losers when we sell winners. The market correction is upon us and we never have enough cash when that happens. At the bell the DJIA was down 143 points at 10466. The S&P 500 lost 15 points to finish at 1128 and the NAZZ dropped 40 points to end at 2076. And tomorrow is another day. 28 January 2004 - Morning Comment Time Warner announced that it actually earned money in the quarter although we think it was probably done with smoke and mirrors. The Fed Open Market Committee announces its thoughts at 1:15pm today and until then the markets will most probably be a non event. After that time we don’t expect much either since we don’t expect much news in the announcement from the Fed. If they would suggest a lean toward tightening then there may be an up reaction in stocks and a down reaction in bonds. But given that it is an election year we would be surprised by such a statement. Whatever, with the S&P 500 moving above and below 1150 resistance for the last two days the answer to whether the rally will continue will be found in the stock markets action for the rest of the week. So let the games begin. 27 January 2004 - Evening Comment Many of the other companies reporting earnings were above the estimates including MCD and Texas Instruments. The TXN number is important to keep the tech rally going forward. The dollar is up against the euro but down against the pound and yen. Our Lucent purchase of yesterday should be hitting accounts tonight. We are also adding a few more shares of our telecom package of CIEN, RFMD, and TLAB to our larger accounts. 9:54am and stocks opened lower. Breadth is slightly negative but it is more profit taking than selling pressure that has the major measures lower. We have taken a flyer on Novellus which had higher earnings but warned and said earnings in the coming quarter will be near the low end of analysts' expectations. The shares are off $4 and this is a true anchovy trade that we are only buying in larger accounts and not even in the Model Portfolio. Consumer Sentiment was 96.8 which was 1% below the consensus estimate but still up from 91.6 in December. 11:09am and more serious selling is coming into the marketplace. The NAZZ is down 28 points which is most of yesterday's gains. Breadth is getting worse and volume is active. 2:02pm and entering the final hour of trading the DJIA is giving back most of yesterday's gain as the NAZZ already has. We are looking for some traders who might rescue the day but the trading tone has been negative for the last few hours and so we will be surprised if the markets stage a rally. One day up followed by one day down is not a pattern we want to have developed but we'll have to see what tomorrow brings before we light a candle for the rally. 3:02pm and the DJIA closed down 80 points at 10620. The S&P 500 lost 10 points to finish at 1145 and the NAZZ dropped 36 points to end at 2118. And tomorrow is another day. 27 January 2004 - Morning Comment We were aggressive yesterday buying Lucent since it has almost doubled from year end. But it is the main name in the telecom equipment area and with the return of the speculator and with LU being under owned by the funds and institutions we think its breakout to new highs and then a 15% pullback last week are a signal of higher prices before March. We are in the game until then and the telecom area is just now appearing on institutional radar screens. Besides that, we think the markets should be traded like they were in the bubble days when we hopped on for a ride and were quick to jump off at any sign of trouble. With Greenspan spouting nice sayings and money flowing into mutual funds the trend is our friend and the trend has been up. We do see calamity down the road and we are not sure when and so we are maintaining our usual large cash holdings and participating by owning high beta stocks. We would guess a pullback this morning and then up into the close again. We sure hope our boy Dean does well today. So let the games begin. 26 January 2004 - Evening Comment Schering Plough announced a loss of 3 cents per share versus expectations of a loss of 1 cent per share. SGP is taking a big write-off to fire 900 more folks and write down some plants and inventory. All in all the report was dismal with revenues down 18% for the quarter. It will be interesting to see how the shares trade today as an indication of how much the bad results are priced into the share price. This is the second write down quarter and we think traders are willing to give CEO Hansen some rope but not a third quarter of write-down without hitting the stock. The 2 year Treasury yield is down to less than 1.70%. Bond traders are looking at a different deficit than we are. Merck was mentioned positively in Barron’s over the weekend and it is up 50 cents per share in early trading. SGP is down 60 cents per share at $17.12. 9:02am and the major measures are all slightly higher as stocks opened mixed this morning. Breadth is slightly negative on the NYSE and the reverse on the NAZZ. Existing home sales were up over 6.9% in December. After opening lower SGP is now trading higher. Stocks are acting well and we are going to re-purchase CIEN at $7.43, TLAB at $9.43, and RFMD at $9.72 in our larger accounts. All three have announced earnings and RFMD sold off 30% on the news, and TLAB was off 15%. We are guessing there is going to be another leg up on the telecom wonders before the end of March. 10:21am and breadth is now negative. The major measures are higher but traders can’t decide on a direction for stocks. 1:41pm and to pay for the purchase of the three telecom stocks we sold our holdings in SGP at $17.70 for a small 5% profit. The next year is going to be difficult for SGP, barring a takeover, and with today’s revenue numbers SGP is selling at four times sales which is expensive. We want to keep our lowered exposure to the markets while increasing our volatility and the switching will accomplish that. Some smaller accounts had SGP but not HPQ and so we didn’t purchase the telecom package in them. And that is OK because most of those accounts were still over 50% in stocks and the sale of the SGP reduces exposure Entering the final hour of trading the major measures are having a difficult getting up a head of steam and we wouldn’t be surprised to see a lower close. 3:02pm and our morning guess was better than our afternoon guess as the major measures closed higher on the day. Treasuries continued Friday’s sell-off. At the close breadth was positive on the NYSE and the NAZZ. At the bell we purchased Lucent at $4.45 in accounts that own Qwest. The trade will not show up on AACES until Wednesday. The stock had a positive mention in Barron’s over the week-end and Jim Cramer also mentioned it positively today on his website. We think a LU trade goes well with our purchase of the three telecoms this morning and will be added to some of our smaller accounts also. It is a spicy anchovy as are the other three stocks we purchased today. Our guess is that the rally in the last 15 minutes Friday and the big rally today will embolden the bulls and scare the shorts in these low priced stocks. The DJIA closed up 135 points at 10702. The S&P 500 gained 14 points to finish at 1155 and the NASDAQ rose 30 points to 2154. And tomorrow is another day. 26 January 2004 - Morning Comment This morning will be down and then we would guess an afternoon rally. So let the games begin. 23 January 2004 - Evening Comment We would guess that the DJIA will close lower for the day and the NAZZ and S&P 500 will be unchanged. Whatever happens, we’ll be home Sunday and ready for work bright and early Monday morning. And tomorrow is another day. 23 January 2004 - Morning Comment While we were driving down the NAZZ decided to swoon as day trades jumped ship. The low priced stocks that were moving higher by 10% a day decided to head south at a 20% per day rate. Large cap stocks slowed their advance. Volume fell off so this may be the beginning of the long called for correction or just a one or two day pause like most of the sell offs have been for the last six months. Today marks the end of the multitude of earnings announcements and most of them have been within the range of expectations. The last few days have seen the NAZZ surrender leadership to the DJIA and that is a positive for a continuation of the rally. Time will tell. Asia was slightly higher overnight and Europe is also higher. U.S. stock futures are up a bit. We expect a lower opening and a blah day. We are content with our holdings and stock exposure and will see how the markets react today and Monday before making any more buy and sell decisions. So let the games begin. 22 January 2004 - Evening Comment But capitalism as a cruel taskmaster is not just a slogan it has always been a reality. And the beauty and the beast of capitalism is that profit is its only aim. It is not an economic theory that exists for social goals or comfort, it is theory that says the strongest, most innovative, and most ruthless survive. 7:40am and we will repeat our post from yesterday about Merrill Lynch and ABN AMRO. ABN AMRO the broker who clears trades for Lemley Yarling & Co has sold its clearing operations to Merrill Lynch effective March 31, 2004. Merrill is currently doing “due diligence” which is like kicking the tires but it is our expectation that the sale will go through and that our trades will be cleared by Merrill. We are pleased with this change not the least because Merrill is a ‘can not fail’ broker (because MER is so big the FED can’t let them fail similar to Citigroup) and so the excess SIPC coverage provided by Merrill will add the last degree of comfort we need in managing accounts. We will keep clients informed of the process as we learn more details. 7:41am and AWE announced disappointing numbers this morning but also placed itself up for sale. We would guess that that will eventually if not sooner give a boost to Sprint PCS because it too will be acquired soon. 7:45am and one reason we are thinking of all cash is that there is major technical resistance on the S&P 500 at 1160 which is just around the corner. Moreover we have been in the business since 1965 and it very seldom that we have seen six month and more moves in the major averages without 5% corrections occurring. It may be that there is just so much money on the sidelines wanting to get in and recapture some of the losses of the last three years that the momentum won’t slow. But we do have the 10% up in January figure still in our mind and if we get the pops we need discipline will move us to the sidelines. That is much more hoping that prediction. 8:02am and EK is letting another 15,000 workers go. These high paying job losses will mean difficult times for those who lose them and also loss of tax revenue for the local and federal tax coffers. It will also mean more self employed folks who will probably earn one half of what they were making. But that is the reality of capitalism which the real state religion of the U.S. 8:10am and yesterday we were reading of corrections to come from an overextended market. Now with the push higher yesterday by the DJIA we are reading that the way is open for much higher prices. It’s an interesting comment of where the markets are going that Dick Arms, who is a respected and successful technician, has a buy on Ciena and PMC Sierra this morning and a short recommendation on 3M and Illinois Tool Works. These recommendations come from technical formations but we have noticed a tendency among folks who have been correct on the latest market move to be placing most of their money in more speculative issues. That is one reason for our increased caution because such actions suggest that the momentum game is in full force. We are off to get the mice problem fixed. We will have a wrap post and further comments in the morning. And tomorrow is another day. 22 January 2004 - Morning Comment The Model is up over 6% for the year and we are itching to go all to cash but are biding our time for the present. Today we would guess a pullback in the morning and then a rally to the close. So let the games begin. 21 January 2004 - Evening Comment 7:57am and we could only listen to one half of Bush’s speech last night. When he got to the part of giving the taxpayers back their tax payments we gagged. Is it possible that Bush doesn’t understand that when the Government runs a $500 billion deficit that any tax credits that create or exacerbate that deficit are coming from our children’s and grand children’s pockets and not ours? Because the government is running a deficit when dollars are sent to citizens, those dollars are not tax payments returned, they are IOU’s printed by the Treasury that require future repayment with interest. The bottom line is that the Bush Treasury is giving away our children’s future at the rate of $500 billion per year. It is no wonder that Bush failed as a businessman and had to be rescued by a few of his father’s Arab business friends and steered into a “pretty face” job with the Texas Ball Team. The reality is that the tax cuts are not saving the government any money; they are creating a time bomb for future generations. Then Bush had the temerity to brag that the deficits that his administration created will be cut in half in five years which is when he will be out office collecting retirement and other benefits from the government largesse he and his father say poor folks shouldn’t share. And the suggestion that part of social security payments be shifted to individual retirement accounts for folks to speculate in low priced stocks is the worst canard of the speech. Any switch of that nature would create a multi-trillion dollar hole in Social Security funding that would have to be filled by deficit financing. We were also bemused by Bush’s proud remark that women have obtained their Freedom in Afghanistan. The statement surely does prove the point that he doesn’t read papers or magazines. Finally it is interesting that Bush and the Republican yahoos who whooped and hollered at this line are very comfortable with strong labor unions in Iraq, or so they say, while in the U.S. these same folks view strong labor unions are anathema. So no, in case you are wondering, we didn’t find the State of the Union Address to our liking. 8:35am and the NAZZ is down 14 points while the DJIA is up 5 points. JP Morgan raised its rating on Sprint PCS to overweight from neutral. The share price is at $8 up from $4 at year end. Please remember these upgrades and Merrill advising AWE on its sale at $12 a share (while Merrill’s telecom analyst has a reduce rating on the stock placed when the share price was $7) when we are buying stocks like these next year end and the JP Morgan’s and Merrill’s of the world are telling folks to avoid them. 8:58am and we are heading for Chicago tomorrow for a meeting on Friday. There will be a morning post and then we are off. We’ll be back Sunday but we will be posting from Chicago so readers won’t lose the train of our thoughts on the markets. We have to leave early because we have to stop at the Volvo dealer in Madison to have the hood on our car fixed. The hood won’t latch securely because the plastic gee-gaw that we pull to open the hood broke in the cold. This is a $40,000 car that has windshield wipers and washers on the head lights but they have a lawn mower pull cable to open the hood. That’s how Ford is saving money on building Volvos and annoying long time Volvo owners in the process. We guess Ford is betting on the fact that Volvo owner’s seldom open their hoods since the oil is never low between oil changes. In fact our twelve-year old Volvo with 175,000 miles never needs oil between changes. Anyway we have been opening the hood because mice have chosen to use the warm engine under a closed hood in our closed unheated garage as a wonderful place to build their winter nests. But they aren’t satisfied just building the nest with paper and leaves. For some reason they think they need car insulation and plastic wires that run things in the car to tie their nests together. And so we have been forced to sprinkle dried fox urine on the ground around the car and place bags of spearmint and peppermint on the engine block to drive the mice away. So far one or both of these remedies are working. And that is our nature tip for the week. 9:10am and profit taking is beginning to be more prevalent. The NAZZ is leading the markets lower with it being off over 1%. The reality of the overpricing of speculative low priced stocks may be hitting home, although we doubt it. 9:17am and housing starts and permits and mortgage refi applications all rose in December. And so the borrowing binge that has financed the economic recovery continues. But since the Federal Government, run by conservative Republicans, has been doing the same in borrowing huge amounts of money to finance the expansion who’s to argue with individuals doing the same. 11:47am and it must be a bubble market. CNBC is interviewing Elaine Garzarelli whose claim to fame is that the mutual fund she was running was in cash during the 1987 Crash. As we understand it and seldom mentioned is that it was in cash because it had just been created and had not had time to invest the cash. The DJIA is up 40 points and the NAZZ is down 16 points. Volume is moderate. And breadth is positive on the NYSE and negative on the NAZZ. 1:24pm and every guru on CNBC today is calling for a correction and we are agreeing. Perversely, stocks have turned higher with the DJIA up 97 points and the NAZZ almost even on the day. Volume has picked up and breadth remains positive and negative respectively. Intel has doubled its dividend to 4 cents per share quarterly. 3:02pm and the DJIA closed up 96 points at 10625. The S&P 500 gained 8 points to 1147 and the NAZZ was off 8 points to 2140. And tomorrow is another day. 21 January 2004 - Morning Comment One of the disappointing stocks was RFMD which we sold last week ahead of earnings. It is off $2 from yesterday’s close but we are not tempted since it was basically a year end trade. After selling our speculative stocks we planned on sticking with big caps or stodgy stocks for trading till the turn down comes. That’s because we have found over the years that the risk/reward is best on speculative low priced stocks at year end when we understand what pressures are pushing down the prices. After year end we don’t have as good a handle. We have Fifth Third Bank (FITB) on our trading radar since it’s off about 10% from a recent high but we aren’t going to do anything in most accounts. The Model is 28% stocks and the rest is cash and up 6.4% for the year, which is right on plan. Speculative low priced stocks comprise about half of the invested portion and we have reduced positions in Q, and CHTR and CBB and are treating them as one package now which approximates 5% of the portfolio. Sprint PCS has been a stock afire since year end but we are holding for now. Our larger caps stocks have been boring but they’ll have to report earnings to stimulate any action. We are content to sit with the ten stocks we now own which is a manageable and followable number. Hong Kong has continued on its tear higher adding over 1% on top of yesterday’s 3% gain. Japan was off almost 1% and the rest of Asia was mixed. Europe is mixed. Today is a question mark for us but it looks like profit taking may move the low priced stocks down. So let the games begin. 20 January 2004 - Evening Comment 8:45am and speculative stocks are higher while the DJIA is lower. Our strategy coming into this year was to sell the speculative low priced stocks we bought at year end 2003 as they moved higher and to hold the larger cap stocks for any sustained market move. The only stock that hasn’t worked is Restoration Hardware. Instead of bouncing it has punted. We would like to reduce our position in the stock because it is outsized relative to our sold speculative positions and the ones we are continuing to hold. We are hoping that a rotation to retail will give it some life in the next few weeks or that some fund like Janus Venture might decide to mark it up at month end. We want to own shares for eventual recovery but we own too much and discipline requires a reduction so the shares we own are more in line. Of course if the price keeps dropping the percentage owned as a percent of the portfolio will also. But we would much prefer a pop and a sale even at a loss. 12:02pm and the major measures are lower. Breadth is positive on both the NYSE and NAZZ and combined new highs exceed 900. This seems to be a pause rather than a pullback. We have been catching up on phone calls and paper work and thus we are a bit behind in our posting. We are through selling for now barring some unforeseen rise in one of our stocks. PCS is higher on the AWE takeover rumors and we are enjoying the gain which assuages our pain over our bad karma with AWE. 2:03pm and entering the final hour the DJIA is down 48 points while breadth remains positive and the NAZZ and S&P 500 are higher. All this is occurring as the dollar continues to sell off and the deficit to rise. Reuters is reporting that JDSU is higher on takeover rumors. The story is that Alcatel will buy JDSU, and the bubble is getting larger. 3:02pm and the DJIA closed down 65 points at 10538. The S&P 500 fell 1 point to 1139 and the NAZZ was up 8 points to 2148. The speculators don’t give up easily. And tomorrow is another day. 20 January 2004 - Morning Comment Overseas market were higher yesterday. And this morning Asia is higher with Hong Kong up over 2% while Europe is mixed. Expirations on Friday removed some technical considerations and now the major measures can confirm or reject a move higher. We have no idea what will happen and we are reacting. We may be selling too quickly. That usually is our pattern. But with speculation rampant in low priced stocks we want to take advantage of the next guy to unload some or all of our holdings. As long as we stick to our plan we can't be disappointed. We know in the late 1990s that the speculation went on for a years, but something tells us that this time the pattern won’t be the same. If it is so much the better. We will try to catch some rising knives but not until we see a reason to do so. Our plan at year end was to sell the New Year’s rally and that is what we are doing. For today up early and up late with everyone feeling very smart. So let the games begin. 16 January 2004 - Evening Comment 8:14am and ALL MARKETS are closed Monday and so will we. Tuesday is the State of the Union Address and also the results of Iowa will be in the news. Wall Street has been counting on Dean against Bush and factoring that into stock market prices. If our man Kerry makes it to the top we think that is going to cause some rethinking the Bush win scenario. Politics does matter in the markets when the unexpected occurs. Goldman Sachs upgraded PCS and AWE and FON to in line from under perform. Another two points higher on any of them and GS will go to buy. 8:32am and stocks are opening higher. The new mantra is that the weak dollar will bring foreign investors into our stock markets because they can buy 1.25 worth of dollar denominated U.S. stocks with the euro due to the recent collapse of the dollar. 8:51am and the U of M sentiment survey was 103.2 in January versus 92.6 in December. That was a tad better than expected. 9:29am and the dollar is rallying against the euro on rumors of an interest rate cut in Europe. 10:38am and in our desire not to give anything back we sold BRCD at $6.70, CIEN at $7.38, and TLAB at $10.35 for nice trading profits in most accounts. All three were up 10% today on the Juniper news and the moves in these stocks remind of the good old bubble days. All three are anchovies and TLAB just let its CEO candidate take a hike. That news came out two days ago and we are happy for the opportunity to unload at a profit. We also reduced positions in SGP at $18.17 and PCS at $7.45 in our larger trading accounts for nice profits. We told a client this morning that we have been on the markets for the past month and in that time our accounts have risen over 10% in value and the philosophy we’ve followed for the last five years encourages us to continue to take money off the table. 1:45pm and the major stock measures are meandering while some individual stocks are hot. At today’s prices the Model is up over 6% and the last six years including this year, January has been very good to us. 2:30pm and we sold one half our position in CBB at $5.75 for 50 cents profit and one half of our Q holding at $4.20 for a 50 cents profit also. We are attempting to sell one half of our CHTR at $5.30 for a $1 plus per share gain and would do the same with RSTO but the bids aren’t there this afternoon and so we’ll wait for next week. The discipline is to sell our non-winners also when we are reducing positions. Actually the only non winner is RSTO and we plan on holding the half we wind up with next week for eventual recovery. These three sales (CBB, CHTR, and Q) of one half of positions won’t show up in accounts until Tuesday night (Wednesday AACES) because we can’t get them entered today in a timely fashion. 3:02pm and the DJIA closed up 46 points at 10600. The S&P 500 rose 8 points to end at 1139 and the NAZZ gained 31 points to finish at 2140. The next post will be on Tuesday morning. And tomorrow is another day. 16 January 2004 - Morning Comment Today completes options expirations and with the activity on Wednesday being down maybe today will finish on an up note. But there is the MLK holiday on Monday and the stocks exchanges will be closed and trader types may not want to be long over the extra day. We’ll see. Yesterday we sold AVX and RFMD in the Model Portfolio for nice trading profits and we have moved the Model to 58% cash. We have no great expectations for today. We think stocks are nearing the end of a fantastic run and that a correction or more is in the offing. But the when is always the question and we are willing to assume the risk with our remaining positions to hopefully obtain the reward of higher prices. We will continue to lighten up as stock prices move higher. We have no intention of giving these gains back. And so let the games begin 15 January 2004 - Evening Comment On the takeover front other bank stocks now become fodder for the rumor mill as folks try to catch the next rising star which is as hard as catching a falling star. 8:31am and economic numbers are muted with jobless claims down 11,000 to 343,000, retail sales up 0.5% and ex autos 0.1%, CPI up 0.2%, ex food and energy up 0.1%. 9:54am and the DJIA opened 50 points higher and then the sellers arrived. There is a snowstorm in NYC and that may be inhibiting trading with folks at home or stuck in traffic. We sold RFMD for a $1.25 per share or better profit. RFMD announces earnings on Tuesday and we don’t want to own the stock ahead of the earnings given the way INTC acted last night. RFMD should have bang up earnings but we don’t know what the street reaction will be. Also, insiders sold a good chunk of option stock at this level in early December. This sale gets us over 50% cash. Tellabs is saying goodbye to its President of North American operations who was in line to become CEO and we think that presages more negative earnings news. We are going to stick with the stock for now. We continue to winnow our holdings to those issues in which we have the greatest degree of confidence. Most of them are speculative and will move lower if stocks sell off but we are trying to eliminate our holdings in an orderly manner as the markets rise. 12:19pm and Lucent and Nortel are moving up which is an indication that the speculative folks are back at play. After being off for most of the morning, the DJIA rallied on a Fed governor’s positive statement on job growth exceeding 200,000 per month and because the bears couldn’t get stocks to stay down. HPQ has overtaken Dell as the largest seller of computers. Way to go Carli. Breadth remains negative while up volume exceeds down volume on the NYSE and the reverse on the NAZZ. The positive up volume on the NYSE is being helped by the huge volume (10% of total volume) in Lucent and Nortel. 3:02pm and near the close we sold our trading position in AVX at $18.31 for a profit. It is a very thin trader and we wanted to use the strength in it today to close out the holding in our continuing effort to raise cash. At the close the DJIA was up 15 points at 10555. The S&P 500 was up 2 points at 1131 and the NAZZ was down 2 points at 2109. And tomorrow is another day. 15 January 2004 - Morning Comment To muddy the waters, IBM has moved up the date of its earnings announcement to this morning and so we’ll see how their obviously good numbers will affect the profit taking that has been going on since last night. Moreover the big mega news is that JP Morgan is buying Bank One and so now the city of Chicago has no major home town bank. The media folks are entranced by the merger but our take is that it is just one big bank merging with another to be able to take another round of write-offs to clean up their balance sheets in the name of merger efficiencies. The merger will also allow the new entity to fire another 10000 people. Eventually there will be one bank in this country with 500 officers making jillions of dollars a year, one teller, and five million cash stations. The wireless stocks were higher yesterday on news that Cingular is serious about buying AT&T Wireless. On that news AWE move up to $10 per share. We have a dismal record trading AWE and we ascribe that to bad karma. But our experiences with AWE have allowed us town own a good chunk of Sprint PCS where we are making up for our misadventures with AWE. Our take on the AT&T Wireless/ Cingular deal is that is may not be as easy to make as the media thinks. NTT DiCoMo owns 15% of Wireless and the cheapest they own the stock is at $15 per share. Placing a $15 per share price on AWE with 2.7 billion shares outstanding and including $10 billion in debt places the total purchase price on AWE over $50 billion. We hope they do pay that price because if they do Sprint PCS is worth at least $14 per share. Both AWE and PCS have about the same number of customers and PCS has the better reputation for service. PCS was assigned debt of $20 billion by the original Sprint (FON) when the letter stocks PCS for the wireless and FON for the local service were created. But we think an argument can be made that not all that debt applies to PCS. But even if it does the equity portion of PCS is now priced at $7 billion since there are about one billion shares outstanding. Adding in $20 billion in debt has PCS debt and all trading for $27 billion. PCS revenues are about $14 billion versus $18 billion for AWE so applying a 30% discount PCS should be worth about $35 billion. That works out to $14 per share. Now the attention is on AWE but we think a PCS deal would be easier for a larger acquirer to make. Time will tell One final note on the AWE subject. We sold one tranche of AWE in late December when a Merrill analyst lowered his outlook for the stock. Yesterday we read on Reuters that Merrill Lynch had been hired by AWE to give them advice on any merger. Nothing has changed. 6:30am and it is mainly the NAZZ that is getting hit this morning with the DJIA and S&P 500 futures off nominally. So we will see how much hunger the bulls have left for techs. There is a lot of news this morning coinciding with heightened expectations and coupled with Friday’s expiration and so today and tomorrow should be interesting. Asia is lower and Europe is mixed. IBM just announced earnings of $1.56 versus $1.50 expected. How they got those numbers is going to be the question. It should be an interesting day. So let the games begin. 14 January 2004 - Webmaster Comment HAPPY BIRTHDAY KATIE 13 January 2004 - Evening Comment January 14th is Katie’s 60th birthday and we are heading to Madison for a wild day of Sushi and movie going. 8:02am and no good deed ever goes unpunished in the World of the Chicken Hawks. No sooner had former Treasury Secretary O’Neill suggested that the Pretender had an attention deficit disorder and that in meetings “he seemed like a blind man in a room full of deaf people” than the Treasury Department announced that the Inspector General’s office is investigating how a document marked “Secret” was allowed to be shown during O’Neill’s “60 Minutes” interview. O’Neill should remember that the rule is that only when “secret” document defame Democrats or Bush bashers are they allowed to be used without clearance from VP Cheney. By the way, according to Dandy Don Rumsfeld regime change in Iraq was Clinton’s idea. 8:15am and the employment report last Friday was less than encouraging. One problem is that the Labor Department has added so many adjustments over the years to smooth the reports that a true picture is harder to come by. Releasing raw numbers would be a better approach because over time the markets would adjust and understand much better what is happening. But the reality is that companies are probably improving their earnings by the mere fact that they have fired folks and moved production to overseas markets. Thus the markets face the prospect of improving earnings as a result of cost cutting and have to make the decision whether the cost cutting and tax stimulants and deficit spending by the Government are enough to create a sustainable recovery. With the huge number of retirement payments that are locked into the economy there is little fear of a 1930s type depression. In fact the figures from the recession of three years ago don’t suggest any real suffering by the majority of folks. But folks on the edges are in big trouble right now and that 10% to 15% of the population that always suffers in recession is hurting. Since most of them don’t vote or if they do, they vote Democrat, there is little incentive on the part of the all Republican government to address their needs. And until those folks get the energy to go to the polls the two tiered economic and health system that has developed will continue. That’s the way our system works and has always worked. 11:02am and stocks are lower this morning. There is some serious profit taking/selling in our telecom stocks and the cyclicals. SUNW popped up this morning and since we didn’t have a major position in it we decided to take our 55cents per share profit. We are rounding out our RSTO at a cost of $3.98 per share. We are also picking up more TLAB at $9.78 and a few shares of AVX at $17.95 on the sell off to add to various accounts. It is days like this that make our almost 50% cash a comforting item. 1:38pm and with the punk action of stocks today we decided to take our profit in MOT and sold it at $16.30 for a $2.25 per share or less profit. In the Model Portfolio we sold 1000 MOT and 2000 SUNW and bought 1000 RSTO. That moves our cash position to 50%. 3:02pm and the DJIA closed down 57 points at 10428. The S&P 500 lost 6 points to end at 1121 and the NASDAQ dropped 16 points to finish at 2096. And tomorrow is Katie’s 60th birthday. We’ll be back on Thursday. 13 January 2004 - Morning Comment Yesterday we added 2000 LVLT to the Model Portfolio and also increased our positions in HPQ and AVX from 500 shares to 1000 shares. We are going to add 500 shares of Restoration Hardware at $4 per share this morning. Restoration is the main problem stock we own right now and that is because ‘retail’ is in the dog house as traders await the first Fed tightening and RSTO is in the doghouse because it is missing its market. But the company sells for $130 million with sales of over $500 million this year and a growing internet business and we are buying/holding this one for the longer term. We bought with the idea that it would be a one to two year turnaround and we will only abandon that thesis if debt rises and/or sales begin dropping by 10% on a monthly basis. The tech stocks we own had a bid yesterday while the markets meandered before finally closing higher in a last hour semi-rally. The NASDAQ again was the day’s leader and we remarked last week that this is a departure from the end of 2003 when the DJIA was leading. Our take is that tax loss selling in NASDAQ stocks abated and some buying has returned to beaten don telecoms and moving micro chip stocks and that now the momentum folks are riding the NAZZ for their action. Whether that will end in disaster is anyone’s guess For today we would think lower early and then a rally into the close. The trend is still higher as the fear of not making money is overwhelming the fear of losing money. That is always a dangerous sign but we are taking our chances with one foot on the brake. And so let the games begin. 12 January 2004 - Evening Comment 7:11am and CSFB has raised BMY to neutral while dropping MRK to under perform. So MRK may be lower this morning while we would guess that BMY will not move much higher. 7:38am and Clementine A.K.A. Pooper has been doing a lot of barking on the perimeter of our farm this morning. Accompanied by her trusted sidekick Luna the Tuna she had been running around the fields in a state of apoplexy. We were a bit worried because we thought that Paul O’Neill, former Treasury Secretary for Bush Jr. might be trying to hide out from the Rove Rangers who have been on his case since the contents of his soon to be published book had been leaked to the press. Mr. O’Neill had the temerity to suggest that President Bush didn’t pay attention when he was being addressed, that in a meeting he once suggested that maybe the rich had received enough payback from the first tax cut and that now it was time for the middle class to get something. He was promptly shushed for having that thought. O’Neill also suggested that Saddam was a target from the first days of the Pretender’s reign, and that when Bush was in a large meeting he seemed on a different page most of the time that the folks at the meeting. And this news is from a friend who doesn’t think the Rove and company will be mad at him. Right! Anyway the intrepid patrollers only turned up a squirrel not O’Neil so we would like to let VP Cheney know that we have no idea where O’Neill is. 7:50am and Lehman is saying that Nortel is ahead of itself in price. We would expect a pullback if the markets sell off in some of out telecoms we own also, but since these issues are under or not owned by many funds we also expect them to lead in any resumption of the upward move. 8:29am and we had to take ten minutes to get our 20 Organic beef cows back into their pasture after they decided to take a stroll around our gardens because some dopes, us, left the pasture gate open. There is nothing like a roundup to get the blood moving. We must say we do it a lot better now than we did it thirty years ago. 9:06am and stocks opened slightly higher but are now moving to the downside. Royal Dutch Shell announced on Friday that it was restating its proved reserves and marking them down 20% which amounts to billions of barrels of oil and dollars. Exxon Mobil and other large oil companies say they have no need to restate reserves although they are reviewing their calculations. Given the shenanigans of the last few years this 20% overstatement is a big deal and we are taking the immediate denials of the other major oils with a grain or more of salt. We have a few longer term accounts that hold some oil stocks whose prices are in part determined by reserves and so we are selling a portion of those companies or all. The Royal Dutch Shell story isn’t over and may spread. 10:31am and Treasuries were off a bit in early trading but now are adding to gains made in Friday’s strong rally. Stocks have stabilized with the major measures slightly positive and many stocks pennies higher, but volume has slowed from last week’s frenetic pace. 11:51am and we are adding Level Three to accounts. LVLT is involved in voice over internet protocol which gives it some glamour but its main business is providing communications services using the internet and optical means. It trades at a bit over one times revenues and has a good chunk of debt ($6 billion). The shares were over $100 in the bubble years and it now has come down to earth and survived any bankruptcy trouble but not bankruptcy talk last year. It is speculative but as part of the telecom package we are comfortable adding it at $6.70 per share. 12:31pm and beans are at $8.61, a six and one half year high. Wheat is over $4 and corn is at $2.65 and the hedge funds are having a field day in the grain pits. Supposedly world supplies are shrinking but our guess is that the ultra large hedge funds have found a new toy to play. Beans in the teens are on their way. 3:02pm and the DJIA closed up 32 points at 10490. The S&P 500 gained 6 points to end at 1127 and the NASDAQ jumped 25 points finishing at 2112. And tomorrow is another day. 12 January 2004 - Morning Comment
6:54am and companies are going to start listing on both the NASDAQ and the NYSE. That is going to have a negative effect on price execution. We keep hearing and reading about how great executions are on the NASDAQ and that is just a pile of hooey propounded by those folks who don’t have seats on the NYSE and want a piece of the pie. One of the first stocks to dually list is going to be HPQ and we admit that we have never been enamored of the HPQ specialist so that will be a good test of whether the NASDAQ can improve the market. 6:58am and U.S. futures are a bit higher. Japan was up and Hong Kong lower overnight and Europe is mostly in the red. With Friday’s action we would expect a move higher this morning to be met by selling and then we don’t know. Stay tuned. And let the games begin. 9 January 2004 - Evening Comment The unemployment rate dropped to 5.7% as 300,000 more folks left the job market. That’s a truly Republican way to lower the unemployment rate. And with Bush’s new three year and your out immigrations plan those folks who have left the job market will be replaced by minimum wage contract workers from foreign countries. That’s what they do in Saudi Arabia. But our golf courses and back yards will remain mowed and fertilized. 8:42am and the UBS upgrade on TLAB was from Reduce to neutral with a $10 price target. Stocks are down but the selling is rudely and buyers are around. Our guess is that there will be rally back to at least even sometime today and then the battle will be joined. We are picking up more TLAB on the sell off since it is the kind of stocks that the fund folks can take a liking to. 9:17am and a reader suggests that Bush must have read the book and discovered that men are from Mars. Another reader suggested that since Bush only reads the Washington Times, which is published by the Moonies, he is confused as to where the moon actually is. The terror alert has been reduced and Tubby and Pooper and Luna are off perimeter patrol for tonight at least. The Homeland Security Department has ruled that passengers on airplanes may line up for the toilets but may not congregate around them. Now we don’t fly much but when we do we have never seen folks congregate. And the Bushies were the ones who were going to get rid of government regulation. 11:08am and the NASDAQ continues to lead with it up 10 points today while the DJIA is off 50 points. We think tech leadership is a sign that speculators are at play which is encouraging for our holdings and a warning of the fragility of the move. But after the bad employment number wears off we would guess that stocks will resume their upward move as the only game in town. With the lousy employment number the Fed will be in no rush to raise interest rates. 1:52pm and entering the final hour it looks like the bears and correctionists are going to win the day. Friday is the day to take profits after a big tech week. We’ve taken the profits and raised the money we wish to for now and so we are watching and adding a few shares of TLAB, and RSTO and AVX and LVLT to accounts. Treasuries closed on their highs with a very strong rally as traders celebrated the disappointing employment report. Merrill Lynch raised its rating on Cincinnati Bell from neutral to buy. Thank you MLFPS. U.S. Bancorp raised its rating on RFD Micro to outperform and its price target to $14. Thank you U.S. Bancorp. Merrill also raised its price target on Motorola to $18. Thank you MLFPS. 3:02pm and the DJIA dropped 130 points to end at 10462. The S&P 500 lost 10 points to finish at 1121 and the NASDAQ closed 12 points lower at 2087. And tomorrow is another day. 9 January 2004 - Morning Comment U.S. Futures are lower ahead of the 7:30 employment report. UBS is upgrading Tellabs to neutral from avoid be they are seeing an increase in demand. Overseas Japan was up over 1% and Europe is mixed. This morning’s trading will be determined by the jobs report and so we are going to wait to post until after the report is announced at 7:30am. Our Model Portfolio is now up 4.9% this week which we want to enjoy while it lasts and most client portfolios are back to over 50% cash which is a much more comfortable position. We are relatively content with the companies we hold and are not feeling the compulsion to raise cash we did earlier in the week. We continue to believe the markets are in a very strong rally in a bear market and that the recent action is the result of the sucking in of those folks who just can’t stand not playing the game. Even the stocks we own are stretched on a value basis but they are the types of stocks that the day traders and dollar speculators want to own. And the traders will stay with them as long as the momentum is moving them. But as always it is necessary to sell into strength and so we re open to letting any stock go if the price is right. 7:31am and 1,000 new jobs were added to the economy in the month of December. That is a “by by” market number and we would expect the stock markets to drop like a rock at the opening. After that we’ll see where the bulls are. Also the November number was reduced to up 43,000 from up 58,000. So let the games begin. 8 January 2004 - Evening Comment Low priced tech stocks are on fire this morning as Nokia announced good numbers and Verizon announced its broadband plans. We have scale sell orders in on one half our CHTR and JDSU holdings. They are the least attractive stocks in our portfolios- or rather the most speculative in our view. We pulled our offer on CHTR. Our problem with CHTR is the huge amount of debt which is over $20 billion. The equity (shares outstanding times price per share) is worth about $1.5 billion so the leverage is enormous. Insiders own the company and that is why it didn’t file bankruptcy which is the same story with Qwest. We are going to give the stock a little more room before we take some money off the table. That still may come today with the way these tech stocks are acting in early trading. The speculators are back in force and upgrades on Nortel and Sun Micro are fueling the fire. 8:52am and the early opening tech rally is fast fading. The DJIA was up 50 points and the NASDAQ over 20 points and they have now halved those gains. That is not a good sign but we’ll see if the bulls can regain the upper hand after the selling dissipates. 10:02am and we decided to sell all the JDSU at $4.13. We made a nice 30% profit on most of the shares we own and JDSU is our least favorite of the low priced stocks. Also the $4.10 area has been a good sell area for the last year with the share price having failed to break out twice before from here. We also sold AEOS at $17.68 and Oracle at $13.85 and Schwab at $12.58 for profits. We are in a cash raising mood as the speculators get more wound up. 11:56am and the rally is back in tech stocks. Restoration Hardware is taking it on the chin or else we would be having a super day. As it is the day is very profitable for us and the Model Portfolio is over 50% cash. We will wait till tomorrow to do more selling unless prices go nuts this afternoon in anticipation of a good employment number tomorrow. 1:20pm and in case you missed it the NYT reported today that the Bush is withdrawing the 400 folks from Iraq who have been looking for the WMD since the war ended. And in Iowa the “Club for Growth” a conservative advocacy group is running an ad which refers to Dean supporters thusly:
Except for the body piercing that is a pretty good description of us. By the way we like Clark for President and Dean for V.P. 2:12 and entering the final hour stocks are moving back up. Our low priced tech specs are holding their gains so tomorrow’s employment report is going to be a big number for the markets. Less than 100,000 gains and it’s down, more than 250,000 and it’s up and away. 3:02pm and the DJIA closed up 60 points at 10590. The S&P 500 gained 5 points to end at 1130 and the NASDAQ rose 20 points to 2098. And tomorrow is another day. 8 January 2004 - Morning Comment If AEOS pops this morning we may unload the rest of the stocks we held overnight. Wal-Mart continues to almost miss their numbers and that is having a negative effect on the retail area in general. As always individual stories react to their own individual news... Asian stocks were higher overnight and so is Europe. The NASDAQ has been leading the markets higher in the New Year and that held true yesterday. It seems as if the speculators want to play the low priced tech stocks and we are happy for the action. But even at these low prices a move of $1 adds a lot of value to a stock like JDSU which has over 1 billion shares outstanding. Our problem always is that the techs give us nice moves but they exist in realm where no one talks about earnings, rather the talk is of multiples to sales. Right now JDSU is selling at 8 times sales. That’s not bad when one considers that in the big bubble years it sold at over 20 times sales. But 8 times sales is rich for our blood and as with most of the low priced stocks we bought we are only borrowed them for an anchovy trade not a marriage. So any pop today is going to allow us to sell half our position. The same thinking applies to CHTR and a few other stocks. Happily we are in the position to take profits and we don’t want to do it too quickly but we also don’t want to be on the boat when it begins to sink. That is always the dilemma for traders like us. The muted action yesterday was another win for the bulls and the markets consolidated gains, but too many days without higher prices will turn into churning which is a negative for the bullish case. Today we guess up early and then we don’t know. So let the games begin. 7 January 2004 - Evening Comment 9:03am and DUK opened $1.25 higher on the maintaining its dividend news. We decided to sell the news and take our 50 cents to $2 per share profit and raise cash and hold on to our dicey tech stocks. In that vein we purchased Ciena at $6.75 in accounts where we sold DRI yesterday. Since DRI is down $2 per share today we are pleased as punch with the trade. Too much hubris may be bad, but it’s nice to be ahead of the curve every once in a while. 9:33am and www.minyanville.com is reporting that the Japanese Government bought $30 billion in U.S. Treasuries to support the yen against the dollar in the first two trading days of this year. On a 300 day year that amounts to a $ 4.5 trillion dollars to support the yen. We don’t think so. There has been some selling in the markets this morning as we expected. It will be interesting to see if the bulls have enough ammo to turn the tide this afternoon. 10:01am and Bush is proposing to allow undocumented workers to become legal. Sounds like a good step but nothing will pass before the election and then the proposal will die. One part of the proposal is that workers must work in the U.S. for ten years before they qualify for Social Security benefits. If they leave or are sent home at 9 years they have no benefits even though they have paid in for nine years. We know that now undocumented workers in many cases pay into social security using phony numbers and are not entitled to any benefits so maybe the ten year threshold is at least a start. But they should earn 1/10th of the benefits every year so that they can’t be cheated by being sent home in the tenth year. The ten year waiting period is the Republican way to get the Dems to shoot themselves in the foot by opposing the bill. Hopefully the Dems are smart enough not to take the bait. We aren’t holding our breathe. 12:12pm and stocks after rallying on rumors that the terror alert is going to be lowered are now heading back down. We guess the Homeland Security Department caught the woman in the ‘Maidenform’ bra who set off the bells and whistles on the flight from Paris to Cincinnati yesterday. 1:29pm and sell programs are taking stocks down. Breadth is negative although the NASDAQ still remains in positive territory. We are just watching. 3:02pm and ahead of same store sales we sold some of our AEOS at $16.75. This is a volatile stock and we wanted to reduce some larger positions ahead of the news. At the bell the DJIA recovered but still closed off 12 points at 10527. The S&P 500 gained 2 points to finish at 1126 and the NASDAQ rose 20 points to 2077. And tomorrow is another day. 7 January 2004 - Morning Comment The digestion phase yesterday of Monday’s up move was bullish but there should be some carry forward today if the January rally is to continue. We raised money again yesterday by selling the slower moving big cap stocks. We weren’t sure at year end whether the low priced stocks or depressed big caps would move. Since we have had a nice move in the low priced stocks we decided to raise cash in the other area. We are going to keep the two utilities we purchased in large and trading accounts. Duke Power declared its dividend today and that was a surprise. There had been expectations that they would reduce it. We don’t know whether the markets will take that declaration positively but it seems that DUK is trying to say that they are going to keep the dividend at this level. We expect and up day after a sell off early. So let the games begin. 6 January 2004 - Evening Comment Please notice that we don’t refer to the stocks that we own as ‘cheap’, we refer to them as low priced. That’s because in most cases on a price to sales ratio basis, let alone the fact that most of them have minimal or no earnings, none of the stocks that we own can be considered cheap. Charter and Sprint PCS are cheap on an equity basis but both have $20 billion in debt so that add a leavening to the consideration. But we do believe that all the stocks we own are ‘relatively’ cheap to the overall market and to their peers and that is why we own them as anchovies to trade and not as keepers for our grandchildren. The reality is that keepers are few and far between and one usually doesn’t find them at the top of a 30% to 50% market run. The WSJ reports that the Lt. General Robert Flowers, head of the Army Corps of Engineers, has cleared Halliburton of any wrongdoing in the Iraq fuel contracts while at the same time Pentagon auditors say that Halliburton overcharged the Army by $100 million. Guess who gets the Executive VP job at Halliburton when he retires from the Army? 8:35am and PCS announced that it added 1 million customers in the fourth quarter with a churn rate of 2.7%. Wall Street likes that number. The adds had to come from somewhere and we are guessing that was the news that moved Merrill to lower AWE yesterday. 8:40am and with Mulanovich from Merrill raising SUNW we are going to jump on the bandwagon in our larger trading accounts. Merrill has a lot of clout and the public are looking for low priced stocks to buy. SUNW is a good salesman’s story stock. 9:02am and factory orders were down 1.6% in November. That’s old news and the markets will ignore it. Treasuries have a bid I the, this morning and while stocks are lower there is not much downside pressure. All the gurus are saying stocks are in overbought territory but that info doesn’t seem to matter- until it does. 9:11am and Lehman upgraded Brocade and raised it price target to $7 from $6. That was probably because BRCD was trading at $6.25. 10:19am and the NASDAQ is higher while the DJIA remains 20 points lower. After yesterday’s run the lack of a sell off signifies buyers around. We sold the ADCT at $3.38 for a 60cents per share gain and placed the proceeds in SUNW at $4.90. That is an aggressive switch but then we only bought ADCT for an over year end move. 10:55am and before year end we bought some big cap stocks to go with our low priced stocks because we had no idea which would move. With the move we are getting in the low priced we inclined to take money off he table in chunks by selling the big caps. That’s why we sold MRK and KMG yesterday and today we sold KFT at $32.25. We made a few pennies on the trade but the sale raises cash in trading accounts. 2:11pm and we are selling BMY at $29.36 and buying an equal amount of Motorola at $14.95. This raises cash and places half the money in a more volatile stock. We are also selling Darden at $20.70 for a slight loss on stock we just purchased to a $1 per share profit because the action is not in this kind of stock right now and we would rather have the cash. The DJIA is trying to rally now to keep pace with the NASDAQ which is up 10 points. 3:02pm and the DJIA lost 8 points to 10536. The S&P 500 gained 2 points to end at 1124 and the NASDAQ rose 10 points to finish at 2057. And tomorrow is another day. 6 January 2004 - Morning Comment One client asked our plans this month and we suggested that we would like to be up 10% and all cash by the end of the month. If that happens we are going to Florida for February and will wait till next December 15 to get back into stocks. Since we don’t think it will be that easy we plan on reducing position and holdings if and when our individual stocks get to what have been resistance points over the past year. Till then we are going to enjoy the rise Overnight Japan was off a touch and Europe is mixed and U.S. futures are weak. It looks like there will be some profit taking at the opening and then we will see if the bulls want to come back for more today. Our guess is a lower close. So let the games begin. 5 January 2004 - Evening Comment Drugs are higher but Lilly’s missed its number. Seibel surprised to the upside with a corresponding push to low priced tech stocks. AWE is back under $8 per share on the MLFPS lowering of rating from buy to neutral. That is the last major brokerage to downgrade AWE. Too bad AWE isn’t doing some financing because if they were all the brokerages would be raising recommendations ahead of the blue sky window of quiet. 9:01am and construction spending was up 1.6% in November. Stocks are higher on good breadth with the DJIA up 80 points and the NASDAQ up 20 points. Treasuries are a bit weaker. 9:10am and over the weekend we were thinking about the weak dollar. Companies who have moved some or all of their production facilities overseas such as Newell would seem to be hurt by the weakness of the dollar. They can produce goods more cheaply over seas but then they have to bring those goods back to the U.S. and sell them to Wal Mart and Home Depot. The rise of the mega-stores has also hurt NWL which is of course why it is selling where it is. In keeping with our desire to raise cash daily we sold Newell for pennies per share profit at $23.10. We also sold our flyer on Corvis at $2.03 that we bought on last Tuesday last at $1.71. All our other low priced stocks are moving and so we are selling at the edges the least attractive stocks we own in that category. 10:48am and we sold some Brocade at $6.13. This is a wash on shares we purchased last month at $6.06 and leaves us with shares we purchased at $5.70 and below. We also sold our KMG holdings at $47.60 for a $2.50 per share profit and our Merck at $47.70 fore a $3 per share profit. We sold a portion of the Q we hold at $4.37 for an 80 cents per share profit. 1:10pm and as the markets continue to rally we are now watching. We are inclined to sell our remaining holdings in AWE because Merrill is seldom wrong in the short term when it reduces a rating. We are expecting a bad quarter from AWE and we think the MLFPS downgrade supports that view. The DJIA is up 98 points and the NASDAQ is up 35 points. A couple of our stocks are hot with CHTR up 60 cents per share and RFMD up 30 cents per share. Market breadth is 2/1 positive and volume is good. Since the trend is our friend we are probably going to head to the sidelines today except for AWE. We have begun the job of raising cash but we don’t want to move too quickly. But then again we don’t want to be greedy. 2:40pm and we sold the balance of our AWE at $8. We may be too cute on this one but we are hoping to buy it back cheaper in February. If not, we are going to make a lot of money on our other telecom stocks and we will have or AWE adventure to thank for awakening us to the potential in this area at year end 2003. 3:02pm and the DJIA gained 134 points to end at 10544. The S&P 500 closed up 14 points at 1123 and the NASDAQ rose 40 points to 2047. And tomorrow is another day. 5 January 2004 - Morning Comment
And not to be outdone the Bushies have given information to the NYT on how the 2005 budget will look and where cuts will be made. The NYT reports:
And so we have the real truth. Nobody of importance got hurt when the bubble burst, at least not any of Alan’s friends. And with the stock markets recovering all is golden in America again. And the Bush administration is not going to balance the budget but for kicks the Bushies are going to get to the heart of the overspending by trimming jobs programs, Veteran’s health benefits, and housing vouchers for the poor. None of those folks are going to vote for Bush anyway so why care about them, especially if born with a silver spoon and sporting a pair of oversize cowboy boots for riding in SUVs in a ranch bought and paid for by folks who wanted friends in high places. 6:55am and back to the stock markets. The dollar is hitting new lows and so goes our New Year rally thesis. Soon this dollar flopping will become serious and affect the stock markets. Japan and Hong Kong were up over 1% overnight while Europe is mixed. U.S. stock futures indicate a higher opening but we think today may be sold like Friday was. Our plan is to do some more selling as we did buying every day until we get down to a more comfortable exposure under 50%. We aren’t in a rush since we want to give the markets some time, but we are where we are as traders and we have decide to continue that approach. So let the games begin. 2 January 2004 - Evening Comment For the year 2003 the Model Portfolio was up 14.1%. The DJIA gained 25.3%, the S&P 500 rose 26.4% and the NASDAQ jumped 50%. We don’t think we’ll see the last three measures have those kinds of numbers this year end. For the two and five year period ending 12/31/03 the S&P 500 is down 1% and basically unchanged for the five year period. For those same time periods The Lemley Letter Model Portfolio is up 22% for two years and 114% over the five years. We are proud of those figures and hope to continue to manage accounts in a prudent and profitable manner but as we all know, past performance is no indication of future performance. 8:25am and it was all about oil. But then what else is new. No we are not referring to Iraq although we continue to believe that war was in large part a control of oil price war. We are referring to the article in the NYT this morning in which they report that Libya wants the oil sanctions lifted by May or all deals are off. Oil rules foreign affairs as will become obvious when the U.S. though Otto Reich’s nefarious work is finally able to overthrow the duly elected Venezuelan government of President Chavez this year so the oligarchs in that country through the military can again assert control. 8:49am and stocks have opened higher but are stabilizing now as selling comes in. Treasuries are somewhat weaker and volume is holiday light. 9:02am and the Institute of Supply Management Index was 66.2 in December versus 62.8 in November. That has put a bid in stocks again. 9:06am and in a continuation of the ‘bubble days’, the WSJ reports in today’s paper that Pacific Gas & Electric is emerging from bankruptcy with special payments amounting to $83 million for 17 current and former executives of the utility’s parent, PG&E Corp.. The paper further states that two investment banks will receive $100 million in fees for arranging financing of the reorganization. So much for change in today’s real world. 9:44am and Reuters is reporting that a meteorite hit in Iran. Coupled with the earthquake last week maybe ‘Someone’ is trying to send a message? 10:27am and we are using the strength this morning to sell the rest of the SCMR we own. We are happy to lock in a nice short term profit and since it was the least enchanting of the year end stocks we bought we are happy to let it go. It will probably move higher but we are sticking with the philosophy that got us to this point which is to take one week 30% profits as a gift. We are also letting the ANDW go at $12.25. It is a very thin trader and since we took a position in it we have expanded our inventory of telecom stocks. We are uncomfortable with the 40% up and down moves in the stock on no news. We know the low priced stocks we own do the same thing but we have more diversification and bang for our buck with them. We reduced the ANDW position earlier and are comfortable selling the balance on this nice pop even thought it will mean a loss in many accounts. It’s a New Year with new ideas and the karma isn’t right for us on this stock at this price. 12:16pm and Treasuries are under pressure as stocks are levitating. The NASDAQ has taken the relative lead again up 14 points while the DJIA is only up 15 points. 12:43pm and it is interesting that IBM can’t break above $93 and that MSFT is mired below $30. 2:06pm and entering the final hour the DJIA is down 50 points and the NASDAQ is also negative. We guessed this morning that stocks would open higher and close lower and it looks like that guess will be correct. We see no reason for anyone to want to buy the last hour and the sellers are probably also through so it remains for day traders to close the day. 3:02pm and the DJIA closed down 48 points at 10406. The S&P 500 lost 4 points to end at 1107 and the NASDAQ gained 3 points to finish at 2006. And tomorrow is another day and Kathy is back on Monday, Hooray, Hooray! 2 January 2004 - Morning Comment Stock futures are higher this morning and Asia and Europe are also higher. Some gurus are looking for profit taking today from folks who wanted to throw their tax obligations into this year. We are agnostic on the future actions of the markets. We are going to complete adding a few stocks to a few accounts to get them to the exposure we want and then watch. We sold the SCMR in our large tax free accounts on Wednesday because the $1 per share move in three days on a $4 stock was too much to pass up. We will keep the stock in all but a few accounts which are on margin or in need of sales to pay for the JDSU we bought. We would guess up early and then some profit taking into the close. So let the games begin. |
 | ||
| | ||
|