Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
July 2, 2007
After 25 years at 208 S LaSalle in Chicago, we are moving our downtown office to 42 South Washington Street in Hinsdale, Illinois.
We must take this action because the folks who now own 208 La Salle
are converting the first 12 floors to hotel rooms and office space our size is unavailable.
In the future, all checks
for deposit to accounts will need to be sent directly to Mesirow
Financial, the folks who hold your accounts. We have envelopes to facilitate this activity and will be happy to
supply them or the address.
350 North Clark Street
Attention: Cash Management
Chicago, Illinois 60610
Two of our toll free phone numbers will remain the same:
Our local 312 numbers will
disappear as will the 800-654-9865 number and so we ask you
to use the toll free numbers above in the future.
The move will be made early in August. Therefore, beginning on
August 1st, please mail all communications to the Hinsdale address.
There will be no interruption of service and you may use our toll
free numbers to reach us. Our branch office at the farm in Wisconsin will remain.
Since we communicate mostly by phone, e-mail “and
snail mail”, we hope this move will be seamless for our clients.
Please call if you have any questions.
30 July 2007 Daily Comments
We’ll be traveling
tomorrow and Wednesday on business and so the next post will be Thursday August
Asian indexes were higher
overnight and Shanghai was up over
2%. European bourse indexes are mixed at
and gold is flat while oil is lower but still has a $76 handle. Treasuries are
Last week the DJIA, S&P 500,
and NAZZ all dropped over 4% and the Russell 2000 ended the week negative for
the year after being up over 8% two weeks ago.
Numbers sometimes do lie. From to on Friday entering the important and usually predicative final hour
of trading the DJIA looked like it was rallying when actually it was dropping.
Dow Jones news service was reporting the wrong number during that time period.
(According to market guru Jim Cramer).
During the phantom rally we decided
to take a few positions for trades into this week because it looked like
the major measures would hold their support and rally into the close.
Friday’s DJIA reporting error may
cost us some money because we wouldn’t have purchased if we had known the DJIA
was going down instead of up as was reported. We have been watching markets for a long time and we should have
realized that the stocks we were buying down were telling us the opposite of
what the DJIA was saying but we didn’t. We are hoping to unwind the
We sold on the
higher opening this morning. We were fooled on Friday and wanted to
eliminate the stocks we bought to trade on the phantom DJIA rally. We sold them
and we are also sold the remaining stocks in most of our accounts. This
involves taking losses including a significant loss in Whole Foods. Over the
years we have done well following our instincts and we don’t own enough stocks
to profit by any sustained rally while a sell off would hurt the remaining
positions. And if we don’t want to hold stocks in which we have a profit we see
no reason to hold stocks in which we have a loss.
As we listen to the young guys and gals on CNBC give their market views
we remember how fearless we were when we were that age. If we were 35 again we
would probably be long stocks on margin. But we aren’t and our main focus now
is to preserve capital. Our trading has been a mish mash lately and we will
await a better opportunity in the fall to get back in the markets.
As we said above our main focus is on the overall value of the
portfolios. As we often say, our clients see all our good moves and all our
mistakes. When a person owns a mutual fund the only thing a person has to watch
is the daily value. The mutual fund shareholder has no idea what trades the
fund is making to obtain that result. With us the client sees everything. *****
Portfolio will be updated later tonight to reflect the all cash position. At
the close the value of the Model Portfolio was $633,189 and it is up 4.7% for
the year. Many of our larger/aggressive accounts are up 3% to 4% which is less
than the Model because of the difficult trading atmosphere. Small accounts are
up 3% to 5%. *****
volume on the New York Stock Exchange was the highest it's been since July 24, 2002.
Goldman Sachs has raised $20 billion to buy lower quality debt. The
fox is entering the henhouse.
As the major measures rallied
this afternoon Treasuries sold off.
The two-year ended at 4.58% and the ten-year backed up to 4.81%.
Gold was up $4 and Oil
lost 26 pennies to $76.83.
European bourse indexes closed mixed while Mexico
were both up over 2%.
The DJIA gained 90 points to end at 13355. The S&P 500 rose 15 points to 1474 and the NAZZ gained 20 points to 2582.
Breadth was 3/2 positive and volume
There were 428 new lows on the NYSE and 23 new highs.
The bulls won the
27 July 2007 Daily Comments
Asian indexes played catch up
overnight and many were down 2% or more and even Shanghai
was down 0.3%. European bourse indexes are trading lower. Early this morning
the S&P 500 was trading lower but it is now positive. Treasuries continued
their strong rally overnight but have backed off some of their gains as preliminary
GDP data was benign and as the major stock measures have pared their losses.
CNBC is trotting out a bunch of
talking heads to clam the markets. He White House is getting in on the claming
game although with their track record on other matters they might want to
re-think their strategy.
economy rebounded in the second quarter as the drag from the housing sector
lessened, businesses built inventories and exports grew, the Commerce
Department said. Gross domestic product rose at a 3.4% annual rate, resurging
from its downwardly revised 0.6% advance during the first quarter. But consumer
spending, the biggest component of GDP, slowed sharply. The personal
consumption expenditure index -- a key inflation gauge -- jumped 4.3% in the
quarter. Excluding food and energy, however, the core PCE rose 1.4%.
1490 on the S&P 500 is the
line in the sand the upside today. Bulls need to get the S&P above that
level by the end of the day. After an hour and one half of trading the S&P
500 is at 1480 and has attempted the 1490 level several times but failed making
higher highs each time. That last item is a positive for trading bulls.
If the S&P touches 1460 and
holds and then closes above 1490, Monday will be a big up day. If, on the other hand, the markets move down
through S&P 1460 and don’t recover then Monday will be a downer. Each if is
a big one and the markets very seldom are so neat.
$1.3 trillion of global market
value disappeared yesterday in the worldwide sell off. Easy come easy go.
We purchased National City in larger accounts at $29.85. At that price it yields 5.5%.
In the coulda shoulda market we shoulda waited till now to buy the stock
in many accounts but on the reality side were are happy we took our $2 loss in
it several weeks ago at $32.25.
We also purchased
Citigroup at $47.777 in these accounts for a trade. Our guess is
that when the rally or dead cat bounce occurs that the beaten down bank stocks
with 4% or better yields will be the stuff that the institutions want to grab.
C is down 10% in the last week
and 20% in the last two months from its high.
In many accounts
we took a position in GM at $31.26. It is down from $38 in the last
week and we like for a trade and/or to own.
As with Kraft we are buying these
stocks for a pop on any rally next week. Our guess is that volatility is here
for a while until a major downturn in September/October. Markets never crash off
the top. The top was just two weeks ago so time is needed.
We didn’t buy the March or June
setbacks (we are back to the levels the DJIA retreated to in June) and we are
tepidly trading this one. Hopefully the third time will be the princess and not
Oil ended up $2.03 at $76.98. Gold
finished down $3 and $660 in NYC. Treasuries
were flat at the close with the two-year at 4.54% and the ten-year at 4.78%
European bourse indexes tempered their losses today after the U.S.
markets semi-stabilized. Mexico and Brazil
managed to gain.
The DJIA closed down 208 points at 13265. The S&P 500 finished down 23.71 points at 1458 and the NAZZ dropped 37 points to 2562. That
was not the way we thought the week would finish. Whatever.
Breadth was 2/1 negative which was an improvement over yesterday’s
10/1 number and volume was active.
There were 380 new lows on the NYSE which is half of yesterday’s figure and 18
The bears won the day and the
26 July 2007 Daily Comments
Treasuries are rallying big-time
as stocks are tanking in the early going Thursday. Today is an important day
because if the bears win the day then tomorrow will be a tough day for the
bulls to turn the markets.
The major measures opened the day
down over 1% and have rallied off their lows as dip buyers entered the fray but
an hour into the trading day the major measures look like they are going to test
their opening lows again.
Breadth was 10/1 to the downside
early on and new lows are approaching 700 on the NYSE which is usually a place
where a rally or at the least a dead cat bounce occurs.
lower overnight except Shanghai
which was fractionally higher. That may qualify as a down day for that on fire market. European bourse indexes
are all down over 1% following the U.S.
markets. Gold is off $3 and Oil is up and touching the $76 level.
Apple reported gang buster
earnings and is higher on the day. In a turn of events, those earnings and the
good action in Apple’s share price which is up $7 haven’t been able to overcome
the negative action in the large banks and brokers.
Ford reported positive earnings for the quarter. or the second
quarter, Ford earned $750 million, or 31 cents a share, a swing of more than $1
billion from the loss of $317 million, or 17 cents a share, in the period a
year earlier. Revenue rose 6 percent, to $44.2 billion, as improvements in
currency exchange rates, sales mix and net pricing overcame a decrease in
overall sales. Excluding special items like a gain from the sale of the British
luxury sports car brand Aston Martin, Ford earned $258 million, or 13 cents a
share. Analysts had expected a loss of 37 cents, although the company no longer
provides financial guidance. Ford posted a profit in all regions except North
America, where it lost $279 million; that number is an improvement
from a $789 million loss in the second quarter of 2006. The company has said it will not be profitable in North America until at least 2009. Revenue declined
in North America, to $18.8 billion from $19.1 billion,
as sales of trucks and sport-utility vehicles declined amid high gasoline
prices. For the full year, CEO Mulally
said Ford will lose money but less than the $3.1 billion it lost last year,
excluding special items. In April, the company had said this year’s pre-tax
loss from continuing operations would be worse. Over all, Ford lost $12.6
billion in 2006. Through the first six months of 2007, it has earned $458
million. The company said it expects to spend $15 billion to $16 billion in
cash between 2007 and 2009, down from its early forecast of $17 billion.
New home sales were down 6.8% in June with double digit drops in
sales in New England the Midwest
and the West. Year-over-year, sales of new homes were down 22%.
There was no obvious reason for
the market sell off before the open this morning. The rise in the price of oil
and the sub-prime and prime mortgage woes have been know to the markets for
weeks. And so the unknown reason for the sell off is the reason to take the
down turn more seriously.
We would reiterate that there hasn’t
been a serious down market without the up-tick
on short sale rule since the 1930s and so the computer programs really have
no data to program for that new reality. Moreover, hedge funds are just that
and so when they perceive momentum on the downside is working better than
momentum on the upside we would guess that they will jump on the wagon crashing
down the hill.
We think the financials are a prime
area for this shorting. Institutions that own the shares of financials are more
than willing to lend those shares to short sellers because they receive a fee
for doing so. The fee is minor in comparison to the damage done to the price of
the company shares which they lend but in the la la land that is institutional investing one has to remember that
relative not absolute performance is the measure.
Three hours into the trading
session the major measures are testing new lows on the day with the S&P 500
down almost 2% at under 1490.
The ABX is a "credit default
swaps index" created last year to allow investors to hedge or bet against
defaults on sub-prime mortgages. It consists of five sub-indexes that range
from AAA to BBB minus. Each sub-index references 20 bonds backed by sub-prime
mortgages. The table lists the July 24 index readings for credit default swaps
backed by sub-prime loans made in 2006. Each index had traded at or near 100 in
The sub-prime loans that are
souring the fastest are mainly those made in late 2005, 2006, and early 2007.
Loans made in 2004 and earlier are weathering the storm better because lending
standards then were tighter, and because homeowners who bought houses when
prices were surging have equity built into their homes.
By the by, folks and funds are
trading the indexes but the pricing of the underlying assets in the indexes is
an art since there is no listed market for the CDOs. With spreads of 6 points
between the bid and the ask on some loans the whole exercise of trading the
index suggests it is just Las Vegas dressed up as a financial trading vehicle
A man charged with dialing 911 to
chat with dispatchers nearly 300 times in the last month remained in jail
Wednesday. Cheveon Alonzo Ford, 21, was arrested Tuesday night and charged with
making obscene and harassing telephone calls. He told authorities he began calling
911 because "I have no minutes on my phone and 911 is a free call,"
the Escambia County Sheriff's Office said in a news release.
We are taking a position
in Ford again at $8.23. We sold a few weeks ago at $9.08. It is not
a large position and we are not buying yet in our small accounts.Ford sales were much better than expected and
Ford had earnings when a loss was expected. We would guess that there is some financial
jiggling of the numbers occurring but with the major measures down 4% in the last
week from the all time high Ford is selling at a twenty year low. We want to
buy something into the sell off and with Ford shares higher today Ford is good
for a trade or an investment. We don’t’ know which. We have plenty of buying
power to buy lower if the opportunity arises.
European bourse indexes closed 2% or more lower in reaction to the
drop in U.S.
markets. It will be interesting to see what Shanghai
Four hours into the trading day
and the S&P 500 is trading at 1480. Next support is 1460 which, if pierced,
is not good.
Sprint announced a partnership with Google
to provide Web search, interactive communications and social networking services
on devices for the new high-speed wireless network the carrier is building. The
move is a boost for Sprint's nascent broadband technology, known as WiMax, and
a breakthrough for Google in the U.S.
wireless market, where it has sometimes faced difficulty offering new products
The selling in big names like Exxon and Kraft suggest some fund or funds are in trouble and raising cash.
The summer downturn in 1990 comes
to mind with today’s market action. The invasion of Kuwait
by Iraq precipitated
the sell off which didn’t end until the allies began their counter offensive in
January 1991. We began buying as stocks dropped and were way too early. We
eventually had a very good 1991 but 1990 was the only large down year (negative
10%) that we have experienced as money managers.
The DJIA registered down over 400
points in the contra hour which is the hour before the last trading hour of the
day. It is also the hour when margin calls have to be met by providing more
cash or selling stock and that is the reason on days like today there is often
a bounce back in the final hour of trading as the margin selling abates. We
Oil ended down $1.05 at $74.83 and Gold dropped $12 to $661 in NYC trading. Treasuries were higher with the two-year ending at 4.61% and the
ten-year at 4.82%.
At the end of the day we are buying a few shares of KFT for a trade in our largest
accounts. Buffet has been buying the stock and also Peltz and Icahn have
positions. We think that the $1.50 drop in the price today is just a fund or
two raising cash and the share price will pop back up in any rally over the
next few days.
The 150 points rally in the DJIA
in the last hour prevented the washout that may have set a low. It is a signal
that the dip buyers are still feeling positive.
The DJIA closed down 306 points at 13480. The S&P 500 dropped 33 points to 1484 and the NAZZ surrendered 48 points to 2600. There was probably a total
movement of 1000 points up and down in the DJIA today.
Breadth was over 10/1 negative as was down volume over up volume
and volume was very active.
There were 720 new
lows on the NYSE and 38 new highs. In past markets that kind of new low figure coupled
with the extreme breadth figure is always significant. But the gunslingers
control this market as no group has ever controlled markets in the past. So
maybe it all means nothing.
The bears won the
25 July 2007 Daily Comments
is reprising its roll of 1999-2000 again this morning as 6 analysts raise their
recommendations and the share price is up $20 in the early going. AMZN beat estimates
and was positive going forward. With 20% of the float short as of last night
the stock jumped on short covering and momentum buyers jumping on the wagon.
With Boeing also announcing good earnings
and sales the major indexes have bounced off yesterday’s collapse but after an
hour of trading they are off their highs of the day (the DJIA was up over 100
points) and it looks as if traders are having second thoughts about the rally.
was lower overnight except Shanghai which added 2% and European bourses are lower.
Gold is down $9 at $675 and Oil is moving up to the $74 level. Treasuries have
a bid. *****
home sales slipped 3.8% to 5.75 million units in June, while the median price
rose 0.3% to $230,100. Inventory fell 4.2% from May. *****
The WSJ has a story this morning about the
difficulty the buyers of Chrysler are having in convincing investors to fund
the buyout debt: Chrysler's bankers --
including J.P. Morgan Chase
& Co., Goldman Sachs
Group Inc., Citigroup
Inc., Bear Stearns
Cos. and Morgan Stanley
-- have spent the past month trying to convince investors to buy $12
billion in loans for Chrysler's auto business and $8 billion in loans for its
The underwriters of the debt sale were
yesterday discussing plans to take a half or more of a $10 billion piece of the
Chrysler auto loan, people familiar with the matter said.
The debt to be held by the banks would bear
the first losses if Chrysler has problems repaying. Investors who own the rest
of the loan would be given priority over Chrysler's assets if the company ends
up in default. Another $2 billion piece of the Chrysler auto loan is likely to
be offered at a higher interest rate.
The $8 billion loan sale for Chrysler
Financial, meanwhile, is still on track to be completed this week, though the
company has had to increase the amount of interest it would pay on the debt.
It also needs to raise $42 billion, much of
it to compensate Daimler for existing Chrysler debt it still holds. That sale
isn't expected to be as difficult, because much of it will be backed by healthy
Chrysler auto loans.
The mood of the debt market could also
influence Ford's asset sales, including its effort to eliminate the Jaguar and
Land Rover brands from its portfolio. Ford tapped the debt markets for $23
billion last year, but is still looking to raise cash. Parts suppliers, such as
Delphi Corp., are also in the process of being sold.
In a written commentary this week, Bill
Gross, managing director of Pacific Investment Management Co. pointed to the
Chrysler deal as a landmark for the debt markets, saying it was a sign to
investors "their world has suddenly changed." *****
S&P 500 dropped into negative territory several hours into the session and
now is attempting to reverse the reverse from the rally. *****
is reporting that Kohlberg Kravis Roberts
& Co.'s banks, led by Deutsche Bank AG, failed to sell 5 billion pounds
($10 billion) of senior loans to fund the leveraged buyout of Alliance Boots
Plc, two people with direct knowledge of the deal said.
KKR's eight underwriters will offer higher
interest rates to sell 1.75 billion pounds of junior loans, said the people who
declined to be identified because the discussions are private. The banks will
keep the senior loans on their balance sheets, the people said. *****
According to minyanville.com:
Merrill Lynch is launching a
two-year euro-denominated certificate that pays a return based on the average
temperature in Rome, Italy as measured over the course of a year from
mid-September. If the average temperature is over 16.38 degrees Celsius, the
certificate will pay interest of up to 16 percent, with the full payout
achieved if the average reaches 17.38 degrees, according to Reuters. Data for
the current season, from mid-September 2006 to the present and then forecast
through to mid-September this year, show an average temperature of 17.2 degrees
Celsius. If over the course of the two years, the average temperature does not
rise above 16.38 degrees, then investors do not receive a coupon payment, but
receive 101 percent of their principal at maturity, the article explained. This
deal brings the product to a new audience, including smaller and retail
clients, who have not been able to access the market before, Jens Boening, head
of EMEA weather derivatives structuring at Merrill said.
is the line in the sand for the S&P 500. It is currently at 1504 at noon
thirty. And the major measures are all in
negative territory again. *****
pipeline exploded and so Oil closed
up $2.27 at $75.83. Gold dropped $10
to $674 and Treasuries were firm
with the two-year at 4.74% and the ten-year at 4.91%.
bourse indexes closed lower as did Mexico
the final hour the major measures are now higher as traders are attempting to
take stocks up into the close.
The DJIA closed up 65 points at 13790. The S&P 500 gained 7 points to 1517.
The NAZZ was up 8 points at 2648.
was 5/4 negative on the day and volume
were 650 new lows and 140 new highs.
was a win for the bulls. Apple’s earnings and sales come after the close and
will set the tone for tomorrow’s trading.
24 July 2007 Daily Comments
We are aback a day early and it is good to be back in the land of
milk and honey and humidity after two weeks in the deserts of the southwest. The
Grand Canyon is as grand as ever and Flagstaff
is a very nice pace to visit. But home is home.
While we were away the markets popped
higher and drooped lower and are about unchanged for the time period.
General Electric is treating its
sub prime mortgage subsidiary as a for
sale operation and thus will not have to include its losses in future earnings
from continuing operations. The analysts like that move and so the stock moved
higher as it announced earnings. GE will not restate earnings for the last few
years from that subsidiary but that is par for the course.
For the last three weeks
Treasuries have rallied on Monday and Tuesday and sold off on Wednesday and
Thursday while stabilizing on Friday. We used the pop last Friday and
yesterday to take a 1% profit by selling our four year Treasuries in
many accounts and will look for a re entry point at a lower price.
higher overnight except Shanghai.
But Shanghai has had a nifty run
since we left with its index now above 4200. Europe is lower
Stocks are going to open lower on
disappointing earnings news and continuing sub prime rumbles. Also Apple’s
iPhone sales the first two days it was available were disappointing. We presume
the markets will soon be trading on hourly iPhone sales.
Hershey announced disappointing earnings for the third quarter in a
row and the shares are now trading under $48.
Oil closed down $1.35 in NYC and Gold was up $3 at $684. Treasuries
finished firm on the stocks markets drop with the two-year at 4.75% and the
ten-year at 4.92%.
European bourses were lower across the continent as were Brazil
The major measures were lower all
day and totally surrendered to the bears in the last hour.
The DJIA closed down 215 points at 13730. The S&P 500 broke support at 1521 to close down 30 points at 1511
and the NAZZ dropped 50 points to
Breadth was 8/1 negative and volume
There were 585 new lows and 160 new highs.
The bears won the
This will be our
last post until July 25. *****
Asian markets except for Shanghai
were lower overnight as they caught up with the sell off in the U.S. European
bourses are also lower again today continuing the late day sell off yesterday
and U.S. markets move lower.
Gold is up $2 at $666 and Oil is
down pennies with a $72 handle. Treasuries had a good bid early in trading but
profit taking after yesterday’ large move has moved them back to unchanged.
It looks like the sub prime stuff
is going to keep in the news for the next few months. National
City sold its sub prime business last year but had to
keep $1 billion of the worst loans. Unfortunately we thought the sub prime
problem was behind them but they are going to have to take a write-down this
quarter on that portfolio. Since they had to keep the worst loans the write-down
will probably be substantial. With the market near highs but bank stocks taking
it on the chin we sold NCC. We will receive the
dividend but the loss is still over $1 per share.
GE reports on Friday and will
report a $200 loss on the sale of $3 billion in sub prime loans. But GE has a
heck of a lot more stuff on the books and so we are going to sell it also. GE
just hasn’t been able to mount a charge above the $39 level in the rallies of
the last few weeks and that is probably because of the large sub prime
portfolio they hold. GE usually sells a business to offset losses but the
losses on their portfolio may eventually be larger than can be offset. As we
said a week ago when we were being a bit too flip about the sub prime problem
GE does have some control over its auditors but if the banks and brokers are
ever forced to mark their loans to market GE’s auditors may get cold feet and
force GE to also do so. And so we are selling GE for a
50 pennies loss. We also received the most recent dividend.
Finally we are
going to sell Pfizer. We just don’t want to own it here.
The group acquiring Sallie Mae for $25 billion is warning
that they may not be able to close the deal because of pending legislation
before Congress that would lower the rates they can charge on student loans
guaranteed by the government. SLM disagrees. Maybe funding is harder to come
by. There are a lot of other proposed deals that still need to be funded. See http://www.bloomberg.com/ *****
The moves in Treasuries this week
are the same as they were last week. The Treasury ten-year rallied to 4.99%
overnight and then sold off today to 5.09%.
An SEC market regulation official
said that Bear Stearns will be able to liquidate the portfolios of the two in
trouble sub prime hedge funds in an orderly manner. We wrote last week that the
SEC learned from the Long Term Capital debacle in 1998 and wouldn’t let the
same occur again. The next collapse will be from an unforeseen occurrence.
Oil ended down 25 pennies at $72.51. Gold was down $2 at $662 and Treasuries
surrendered yesterday’s gains with the two-year at 4.89% and the ten-year at
European bourses closed above their
lows but still down on the day. Mexico
The long term bull market began on
Friday the 13th of August 1982. We remember that day well since it was one of
the most interesting of our investment career.
And so when any Friday the 13th
comes along we always wonder if it will mark the end. This Friday is also the
The DJIA closed up 75 points at 13575. The S&P 500 gained 8 points to 1518 and the NAZZ rose 12 points to 2651.
Breadth was positive and volume
In a reverse there were 230 new lows and 226 new highs.
With the new lows
exceeding new highs we will call the day a draw between the bulls and bears. *****
10 July 2007 Daily Comments
For all who are
worried that our daughter in moving to a furnace in Arizona we are pleased to say that Lemleys are smarter than that. The
temperature in Flagstaff, which is at 7000 feet elevation above sea level, is usually in the
80s during the summer with lows at night in the 50s. Humidity is low. So we
will survive the trip.
A stray afternoon t-storm
A p.m. thunderstorm
Very warm with some sun
Asian markets were fractionally
mixed overnight with Shanghai down
0.7%. European bourses are higher at .
Gold is flat and Oil is off a few pennies but still above $72.
Treasuries are well bid with the
ten-year back at 5.07% as both Sears
and Home Depot announced
disappointing negative same store sales comparisons that are negative. Sears will
miss earnings by 50% (oops!) and is off 5% and Home Depot is unchanged because
it has a $22 billion Dutch auction in progress. Just yesterday Goldman Sachs
upgraded Home Depot although it was lower on the day.
Uncle Ben speaks today and the
bond folks are hoping he says inflation is under control. Alcoa was the first
DJIA Company to announce earnings last night and they were less than expected.
The bond bulls are hoping for an intimation of a rate cut from Bernanke if the
economy continues to falter.
has tripled its oil imports in the last five years. The Chinese use 2 barrels of
oil per year per person. The U.S.
uses 25 barrels of oil per year per person.
After an hour of trading breadth
on the NYSE is 4/1 negative. But the DJIA is holding its own at down 50 points
and looking like it doesn’t want to surrender.
Charles Prince, the CEO of
Citigroup on the LBO and sub prime stuff:
"When the music stops, in terms of liquidity, things will be
complicated. But as long as the music is playing, you've got to get up and
dance. We're still dancing …
The depth of the pools of liquidity is so much larger than it used to
be that a disruptive event now needs to be much more disruptive than it used to
At some point, the disruptive event will be so significant that instead
of liquidity filling in, the liquidity will go the other way. I don't think
we're at that point." *****
The U.S. dollar is at a record
low against the euro and a 26 year low against the yen.
Oil gained 51 pennies to close at $72.70. Gold gained $2 to $664. Treasuries
closed on strong with the two-year at 4.85% and the ten-year at 5.03%.
Most European indexes were down 1% on the day after the U.S.
markets turned south. Mexico
and Brazil were
also lower by over 1%.
Uncle Ben didn’t help today but
we aren’t sure he hurt. Our guess is that the Sears and Home Depot and Alcoa
news set a sour tone and with the indexes at highs profit taking was an easy
decision for some.
The DJIA lost 150 points to close at 13500. The S&P 500 dropped 20 points to 1510 and the NAZZ gave up 30 points to 2640.
Breadth was 3/1 negative and volume
There were 270 new highs and 205 new
The bears won the
9 July 2007 Daily Comments
The stock markets were higher
last week even as the Treasury market gave back its risk premium.
Gold is trading with a $72 handle
and Gold is up $3 in the early going in NYC.
Uncle Ben gives a speech tomorrow
and that maybe the highlight of the economic news for the week. There will be a
question and answer session after the speech at and the subject is inflation.
Asian indexes were higher
overnight with Shanghai up 2.6% and
Hong Kong up 1.2%. European indexes are fractionally higher
Two brokerages are suggesting
that losses on sub prime loans could top $100 billion. But Credit Suisse is
saying that the losses will only be
about $50 billion.
Also $ 2.8 billion in California
real estate was auctioned in May because of foreclosure. $2.6 billion failed to
get the minimum bid and is now owned by the banks that foreclosed.
Also some folks are questioning
the BLS employment statistics on construction. According to the BLS,
residential construction jobs have dropped by 3.5% in the last twelve months.
If we may be permitted to mix metaphors that low per cent drop seems to fly in
the face of the fall off the cliff in new residential housing construction. The
reported numbers don’t jibe with usual practices in the construction industry
where laying off workers is a custom not an oddity.
The WSJ has an article about
foreclosures in Atlanta. These
sentences were thought provoking:
For example, a three-bedroom house near Turner Field, where the Atlanta
Braves baseball team plays, fetched a high bid late last month of $134,000 at
an auction by the bank that tookpossession
of it. Almost three years ago, the new home was bought for $330,000.
Though Atlanta has added jobs in recent years, they pay less
than the jobs the region lost after the technology boom of the late 1990s
ended. The median household income was only 7.6 percent higher in 2005 than in
2000, according to the Census Bureau. That is about half the rate of inflation
during that period, and it mirrors what has occurred nationally.
First Solar, FSLR, has a market
cap of $8 billion with $200 million in revenues and 733 employees. It is a
favorite momentum play and short squeeze stock which has traded over 8 million
shares today and is up $21 today to $117. The company has 72 million shares
out. This morning FSLR announced it had received a billion dollar contract over
five years from two companies of which we have never heard. Free cash flow is negative. When we go back
and look at the prices at which some of the internet stocks sold in 1999 and
2000 we wonder how anyone could have paid that price. And so to will it be with
this company sometime down the road.
The no up tick needed on short sales rule change became effective today. Since
there is not market price history with this rule since 1934 it will be
interesting to see how the computer jocks and jockettes do with this new twist
in the next major correction.
Europe closed mostly higher and Mexico
was down while Brazil was up on the day.
Gold jumped $8 to $662 and Oil
was off 62 pennies to $72.25. Treasuries
had a slight bid with the two-year at 4.97% and the ten-year at 5.15%.
The DJIA closed up 40 points at 13650. The S&P 500 rose 1 point to 1531 and the NAZZ was up 3 points to
Breadth was slightly to the good on the NYSE and flat on the NAZZ
and volume was moderate for a summer
There were 555 new highs and 115 new
scratched out a win on the day.
5 July 2007 Daily Comments
are going to be in and out this month since the grandkids are here. Next
Thursday July 12 we are going to Arizona to help our daughter move and to take the grandkids
to see the Grand Canyon. We will be
traveling but available by cell phone from July 12 to July 24. The phones will
be forwarded to our cell phone and so we will be reachable. The posts this week
and next will be sparse as we are already in the vacation/holiday mode.
The Employment Report said the
132,000 jobs were created in June and that was more than expected and placed a further
damper on Treasuries. The problem for stocks is that if the ten-year Treasury revisits
the 5.25% level (it is at 5.16% this morning) the stock markets may react
Oil has a $72 handle this morning
in early trading and Gold is down $1.
mixed overnight and Shanghai recovered
4.5% of its 7.5% loss this week. Hong Kong was also
higher. We don’t know if the moves in those two indexes were related to the
news that another highs official in the equivalent of the Chinese Food and Drug
Administration was sentenced to death for corruption.
The WSJ reports that UBS is
removing 49-year-old Chief Executive Peter Wuffli; Marcel Rohner, the
42-year-old deputy CEO, is expected to take his place. UBS Chairman Marcel
Ospel, 57, plans to extend his term in that job by three years. The Swiss
financial giant has been buffeted by a series of setbacks recently, including a
costly blow-up of an internal hedge fund, and the shuffle appears aimed at
heading off any move to break up the firm. This action shows that there is some
accountability in this country although UBS is controlled by Europeans and so
that may be the reason for the dismissal. We presume Wuffli is glad he is not in
Oil ended at $72.69 up 88
pennies. Gold was up $4 at $654. Treasuries
rose in yield again today with the two-year at 4.99% and the ten-year at 5.19%.
closed higher as did Mexico and Brazil.
The DJIA gained 50 points to close at 13615. The S&P 500 was up 6 points to 1531 and the NAZZ jumped 10 points to 2666.
Breadth was 2/1 positive and volume
was active fro a summer holiday week Friday.
There were 455 new highs and 110 new
The bulls won the
day and the week.
5 July 2007 Daily Comments
only matters when it matters and in this month’s market scenario China
doesn’t yet matter. Shanghai was down 2% on July 4th and over 5% last night.
The rest of Asia was mixed and European bourses are
fractionally lower at . Treasuries
are under pressure with the ten-year back above 5.10% after trading under 5%
three days ago. Gold is up $2 in the early going in NYC and oil is also higher
with a $71 handle.
Two of Blackstone’s funds are going to buy Hilton Hotels for $46 per share ($28 billion including debt). Six years
ago HLT sold for under $7. The Blackstone guys are smart and will surely make
money on this deal for their ‘other people’s money’ funds. And of course they
will make money for themselves with the 2% plus 20% fees and the ability to place
whatever value increase on a yearly basis they want on the private company. But
wouldn’t it have been smarter for all these LBO folks to be buying these
companies when they were much lower and everyone was afraid to buy stocks.
GM’s sales were down 21% in May and Ford’s were down 8%. Toyota was up 10% and Nissan was up 25%. The GM and F sales were down because they have
cut out fleet sales. So who is getting the fleet sales?
Investors’ Intelligence finds bulls at 49% down from 53% but bears
also lower at 18% from 20%. The correction camp has absorbed the difference.
The correction folks are those that will be correct whichever way the market go
as in, “I was looking for a correction but the rally doesn’t surprise me.”
The Bank of England raised its
key rate to 5.75% over the 4th.
The value of the British pound is
at a 26 year high versus the dollar.
Crude oil and gasoline
inventories were above expectations in the latest week. That has taken the pop
out of oil today and it is down 50 pennies with a $79 handle after trading over
Whole Foods can’t purchase Wild
Oats for a measly $500 million and control less than 10% of the organic
foods market but Coke is unchallenged
by the FTC as it throws billions of dollars around to buy up beverage makers.
Oil ended up 40 pennies at $71.85 in NYC trading and Gold was down $4 at $652 Treasuries dropped in price with the yield
on the two-year rising to 4.98% and the ten-year to 5.15%. Tuesday the yield
was 4.99% on the ten-year.
Shares declined Thursday in Europe, hemmed in as the
European Central Bank's president hinted at further interest-rate hikes and England
raised its interest rates. Mexico and Brazil
were also lower.
The DJIA closed down 12 points at 13565. The S&P 500 gained 1 point to 1525 and the NAZZ rose 12 to 2656.
Breadth was negative o the NYSE and flat on the NAZZ and volume was light.
There were 425 new highs and 140 new lows.
Today was a draw
for the bulls and the bears.
3 July 2007 Daily Comments
The National Association of Realtors said its
index of pending home sales was down 3.5 percent in May to 97.7, its lowest
level since September 2001. The forecast had been that the May index would
instead rise, by 0.2 percent. The Commerce Department reported that new factory
orders eased 0.5 percent in May which was less than had been forecast.
Asian indexes were higher
overnight with Hong Kong up 1.7% and Shanghai
up 1.6%. European bourse indexes are also higher at and gold and Treasures are unchanged while oil has
a $70 handle.
The markets close at today.
From wonkette.com: Think about the kind of world we’d live in
today had the Iraq War not happened. That’s exactly the kind of world that madman Joe
Wilson envisioned for America. Scooter Libby just wanted to ruin Wilson’s wife’s life as a very small payback. Is
that so wrong? *****
Folks have to make a living and
it is a great living collecting 2% management fees even if you can’t collect
the 20% carried interest: From Reuters: United
Capital Asset Management said on Tuesday it will continue operating its Horizon
Strategy group hedge funds that invested in sub prime-mortgage bonds after
temporarily halting payments to investors. The company said it received an
unusually high number of redemption requests from investors, including one from
an investor who put up nearly one quarter of the funds' money, due to
volatility in the structured finance market in June. The funds hold most of the
firm's assets under management, which stood at about $619 million as of March.
Gold ended a shortened trading day in NYC down $4 at $655. Oil was down 14 pennies at $70.96. Treasuries were lower in price higher
in yield with the two-year at 4.90% and the ten-year at 5.05%.
European markets closed higher and Mexico
were also up.
The DJIA gained 41 points to close at 13578. The S&P 500 rose 5 points to 1525 and the NAZZ gained 12 points to 2645.
Breadth was 2/1 positive on the NYSE and 5/4 to the good on the
NAZZ and volume was light.
There were 425 new highs and 100 new
The bulls won the
day and are ahead for the week.
The next post will be Thursday July 5, 2007.
2 July 2007 Daily Comments
We are going to be in and out this month since the grandkids are here. Next Thursday July 12 we are going to
Arizona to help our daughter move and to take the grandkids to see the Grand Canyon. We will be traveling but available by cell phone from July 12 to July 24.
The phones will be forwarded to our cell phone and so we will be reachable. The posts this week and next will be sparse as we are already in the vacation/holiday mode.
Asia was mixed
overnight with the Shanghai index
small fraction higher after a 7% loss the previous two days. European indexes
are small fractions lower and Treasuries are flat. Gold is up $2 and Oil continues
to hold the $70 level.
The word is that Apple sold over 500,000 iPhones since
Friday. That is twice analysts’ estimates but both AAPL and AT&T are lower
in early trading.
The ISM Manufacturing Index was 56 for June versus 55 for May.
AT&T is buying wireless company Dobson communications for $2.8 billion. Dobson has 1.7 million
wireless subscribers. At that price Sprint would be worth $ 80 billion. It is
currently valued (including debt) at that price in the marketplace.
The bulls are back with a
vengeance today and usually when the markets are thin as they are this week the
big boys and girls can have their fun. Treasuries are also strong today as the
terror stuff helps the bid. Observing Treasuries move higher as stocks move
higher also does not make economic sense but then we haven’t understood the
bullish sentiment for a while. We are taking the markets day by day and our
first half performance of up 4.7% was satisfying.
Gold closed up $8 at $659 and Oil
was up 41 pennies at $71.10. We guess that the hedge funds have weathered the
sub prime crisis for now and are getting back in. there is also first of the
quarter buying and this is a new year for many non profits and so they are
moving money that was raised last week and will be invested this week. European bourse indexes were lower as
the terror stuff is closer to home over there. Mexico
Treasuries were strong all day with the two-year at 4.85% and the
ten-year breaking under 5% to close at 4.99%.
The DJIA rose 125 points to end at 13536. The S&P 500 gained 16 points to 1520 and the NAZZ jumped 30 points to 2632.
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