I know you have been inundated with emails and phone calls.
I have been waiting to get updated with you.
I have always had the best confidence in your decisions and
have let the results speak for themselves over the years. You have been
cautious when others have been betting the ranch on companies with senseless
I usually can figure out your strategy and direction and
when I sensed your feeling indecisive about the market direction, you would go
to the sidelines to wait to figure it all out. I believe you have been
successful in those decisions.
I am somewhat concerned as we seem to be waiting this
market out. The losses are growing and the growth required to bring some of
these stocks back to a decent gain seems insurmountable.
I am not being critical, just asking as I am not the
professional at this game. I guess as I get older I am loosing my flexibility.
It is hard to see several months of future income going away, while trying to
calculate the moves needed to regain these dollars.
I am confident we will recover and just wanted to pass on
my observations. I am hopeful you share the same optimism that I do.
Catch up with you later
As we have explained
in our daily posts at http://www.budlemley.com/ the
problems began early last year (2004) when in January the accounts jumped 6% in
value. We then managed to lose those gains through the rest of the year and
were actually down a couple of percentage points in August.
In order to recover
the gains and close the year out well we bought a bunch of speculative low
priced stocks that rallied nicely into year end. That rally in those stocks led
most accounts to be up 7% to 10% at year end.
For the past 14 years
there has been a January rally and we expected to sell into it and go to cash.
Well, the rally never appeared and by the time we unloaded the junk we owned we
were down about 7% for the year which was mainly a give back of what we
made in the November and December run up in late last year (2004).
We then began
the process that we have finally completed of restructuring the portfolios
by purchasing dividend paying big cap stocks along with a very few
lower priced tech specs.
As a former president
used to say, we share your pain. That’s because we own the same stocks in the
same amounts as you do.
Currently we are
between a rock and a hard place. Perceived wisdom says stocks are going down,
down but this time we aren't on that train.
Our gut tells us that
we missed an opportunity at year end but that we now own good quality stocks
that are undervalued in the current market and many pay decent dividends. When
the rally comes we will have the opportunity to recover some of our losses and
then decide on a further course of action.
We managed to avoid
the pitfalls of the last five years only to get caught in this one down draft
that is very painful because we have so seldom had to endure them. We haven't
lost our management ability and we believe the course we are on will yield good
If the stocks we own
go back to their closing prices on January 5, 2005, the accounts will have recovered all their
losses plus be up about 2%. Now that “if” is a big one butthe stocks we now own are not fly by night companies nor are they companies that are
selling on their highs. Most are on
three year or more lows, have improving earnings and good dividends and while
patience may be required we think it will be rewarded.
Keep the peace.
Final GDP was up 3.8%. The personal income deflator (inflation) in the
fourth quarter was 2.1%. That is old news and won’t move the market much.
Friday’s employment number is the big number of the week on which traders are
In some larger accounts yesterday
with larger than comfortable positions ahead of earnings we reducedMicron Tech holdings and in other accounts that didn’t own what is
a cheap stock on a multi year low we added
Micron Tech in small amounts. We did this because while MU is cheap we
didn’t know how the market would treat their earnings announcement. The markets
seemed to like the numbers for now with earnings at 17 pennies versus 15 pennies
expected and sales were up for the fourth consecutive quarter.
9:02am and stocks opened higher but are seeing some selling. Oil is
off 42 pennies. We sold our QQQQ
trade for a small loss because we wanted to put the money into Verizon at $35.22 which is down $5 per
share this year and yields 4.8%.
Crude oil is down $1.23 at $53. Surprise,
crude oil inventories rose for the eight
week in a row. Another surprise, gasoline inventories are down. There are
no gas lines. There is gasoline and the price of oil and gasoline are being
manipulated. The story is that refineries are closing for maintenance which was
the same story with electricity four years ago. Whatever, those inventories
will have to be worked off as gasoline this summer but our guess is that gasoline
inventories will rise this summer and then traders will fret that there won’t
be enough heating oil for next winter. It is always something.
Stocks are higher and Treasuries
are firm. This is a nice rally with the DJIA up 80 points and breadth better
than 2/1 positive but we aren’t excited because the day is long.
and stocks are holding
onto their gains in moderate trading. Breadth is better than 2/1 positive. The
DJIA is up 106 points and oil is now down $1.38 at $52.85. The NAZZ is up 27
points to 2000 and Treasuries are about 3 bps lower in yield. The final hour
will of course be the measure of this move.
and we have to close
early because one very large thunderstorm is about to visit us. Oil rallied
back to close only 24 pennies lower at $53.99. At the DJIA was up 135 points at 10540. The S&P
500 gained 15 points to end at 1180 and the NAZZ jumped 30 points to 2003.
Breadth was better than 2/1 positive. Treasuries were firm all day. This may be
quarter end mark up time but we’re glad to have an up day.
And tomorrow is today so let the
30 March 2005 Daily Comment
Again we begin the day in a
somnolent mood with nary a thought of where the markets are going. That is probably
a hangover from the Easter fest and the day after feast on leftovers plus the warmer
weather and low expectations for any up move in stocks.
One commentator we were reading remarked
on the low volume as a symptom of the lack of interest and then we read of the Carlyle
Group putting together a $10 billion buyout fund with Goldman Sachs, Blackstone
Group and Warburg Pincus and others right behind with larger groups to come. And
so our surmise is that the big boys and girls are in the mood to buy companies
ala Warren Buffet. Everyone wants to grow up to be Warren Buffet or a friend of
the President and the Carlyle Group certainly is a friend of the President.
Overnight on Monday Japan
had its biggest drop in 4 months and Hong Kong was
lower. The Indonesian earthquake didn’t help matters but we would guess that
the approach of year end in Japan
may have had some effect also.
Europe is lower
and supposedly consumer confidence in business confidence is at its lowest confidence
level in five months and the same is true in the U.S.
Our guess is that a few weeks of nice weather in New York
and Chicago and Boston
instead of snow and rain might get folks in a better mood. Our better half
always says to never make any important decisions in March.
With the airwaves filled with the
Schiavo tragedy and with the soon to be 24 hour coverage of the funeral/burial/cremation
controversy, pictures of the pope dying, the Michael Jackson Circus Trial, and
the goings on of any number of stars and starlets it is no wonder that ordinary
folks are inclined to take a pass on the world of business for a while. Iraq
and Iran and Syria
aren’t getting any better and avoidance of any news sources is the best way to
deal with mindless media.
Earnings season will soon begin
and then we can once again focus on numbers instead of personalities and the
latest business scandal. There are myriad folks going to work, doing their
jobs, producing products and services and eventually the markets may begin to
recognize that there are good things occurring.
The bond markets are suggesting a
50 bps move at one of the next two Fed meetings and if that occurs we think the
Fed will quit for a while. And that may be the spark the markets need to get seriously
moving to the upside. Until then we would not be surprised by a continued sell
off although the April-May good weather time of year usually does see a tradable
rally. Since the 50 bps move is not expected by the bond markets till summer
our current guestimate is an April May grudging rally followed by a drop into
the June Fed meeting and then a rally when the 50 bps move is announced.
10:19am and stocks opened lower but quickly rallied to the upside.
Breadth is positive today and Treasuries are firm. Oil is down 20 pennies at
New York Times gave a forward look to earnings and they were a
penny shy of estimates. We have not liked owning the stock since they announced
they were spending $440 million to buy an obscure website for more
for their web advertising. In one of the stories we read that Sulzberger Jr. who
runs the company was intrigued by the website because he uses it every day. Good
for him and since he and his sisters control the Board of Directors we presume
the others went along for the ride. We are taking a loss on the stock. We would
rather deploy our funds elsewhere.
With the proceeds we are buying National City Corp at $33.40 (a Cleveland
based bank holding company) which is down from $39 in the recent bank sell off.
We don’t think the Fed is going to raise rates enough to hurt banks since the
banks are Alan’s friends. NCC yields
We are also buying Newell at $21.30 for accounts that own Sara Lee. Newell has been restructuring
for the last five years and has a 3.90% dividend yield and our guess is that
CEO Joe Galli who moved there from GE
may finally have the company’s costs under control. We want to own this stock for
awhile with all the usual caveats.
We also added JPM to accounts as it traded under $35
in the early going.
and breadth and the major
measures are exactly opposite where they were when last we wrote. As the contra
hour ends the DJIA is off 65 points and the NAZZ is down 15 points. Volume
picked up on the sell off and oil moved to the plus side. Treasuries firmed.
With quarter end approaching the bulls only hope seems to be mark up time and
that really doesn’t seem to promising since many funds are lower and would just
as soon see the major measures lower for the quarter also.
and oil closed up 18
pennies at $54.23. Treasuries closed higher with the ten-year at 4.58% and the
five-year at 4.28%. Breadth was 2/1negative at the close. The DJIA was down 85
points at 10400. The NAZZ was off 22 points at 1970 and the S&P 500 lost 10
points to end at 1164. Enough already.
And tomorrow is today so let the
29 March 2005 Daily Comment
Lehman says GM is going to $20 and GM doesn’t
know how to do anything right
The WSJ reports that more than a
few execs from AIG are going to be
doing the Martha Stewart interview thing shortly.
Hank Greenberg of AIG is rapidly becoming another Ken Lay
in the financial media.
Long weekends are mind killers.
We are at a loss for words today because we spent the week-end playing with the
prince and princess and watching four of the best basketball games of the year.
11:20am and breadth is flat to negative even as the major measures are
all higher. Oil is off 64 pennies at $54.20. Treasuries are lower.
and new lows
exceeded new highs today. Breadth was negative. Oil did close down 79 pennies
at $54.05 and Treasuries gave ground. At the bell the DJIA was up 47 points at
10490. The S&P 500 gained 3 points to 1174 and the NAZZ gained 3 points to
1995. Volume was holiday light.
And tomorrow is today so let the
28 March 2005 Morning Comment
After a weekend with the
grandchildren and no financial reading we are blank as to our thoughts for this
week’s market action. Thursday’s trading was positive but there was no oomph to
the buying. There were negative stories bout AIG and GM over the
weekend and so we would guess that the DJIA sees a bit o pressure this morning.
We are going to be observers
until we see the trend and even then we don’t have much to do. The OATS story last week was a positive and
if there is a pull back we will add to more accounts. Other than that we want to
add to Schwab under $10 and Newell
So let the games begin.
25-27 March 2005 Weekend Comment
All major markets in the U.S. are closed today Friday. *****
GE raised guidance a penny a share this morning because of the sale
of Genworth Financial shares. That is GE up to its
old tricks of selling or re-pricing something in its vast organization to
always make or beat its numbers by a penny or two.
AIG has agreed to cooperate with authorities in their investigation
of its financials. Unfortunately none of AIG’s top
officers will offer any insight because they will don’t want a “Martha Stewart” done on them. And AIG
Chairman and Grand Pooh-Bah Hank
Greenberg is trying to decide whether he will answer questions. His problem
is that he has the reputation for running AIG similar to Jack Welch’s at GE and
he would have a difficult time raising the Ken
Lay (Enron) defense of just being the pretty face for the company.
Speaking of pretty faces, we were
reading the SBC proxy statement last
night and we were floored by the take home pay and option grants to officers
and directors of the company. In the past five years SBC has fired over 100,000
folks, its share price has dropped in half; its earnings have dropped by 40%
and all the grand strategies of the late 1990s when the same folks were running
the outfits have fizzled. Yet the CEO paid himself with the approval of the
board about $8 million in 2004 and he has options on about 8 million shares
that he has accumulated over the years.
SBC and how it pays its CEO is really no different than that of any
of the other big companies. We were reading last night that the pay difference
between the average worker and CEO in the U.S. is over 450 times. In Europe
that difference is about 150.
The WSJ reports that JP Morgan guessed wrong by refusing to
settle earlier in the WorldCom case and their guess cost an extra $750 million.
Yahoo is going to repurchase $3 billion in stock. Yahoo has a
market value of $42 billion. AOL is considered
to have no market value to Time Warner.
That’s nuts given that AOL has 15 million or more folks paying it $8 or more
per month plus advertising revenue.
The explosion at the BP Amoco oil refinery in Houston has
oil futures higher this morning. We are hearing reports that the portion of the
refinery destroyed added octane to gasoline. The trading on this news reminds
us of trading in the early 1980s when Resorts International opened a casino in
Atlantic City and any hotel stock was fair game for the speculators who believed
gambling was the next pot of gold.The
same occurred in the 1990s when any analyst placed a buy opinion on any
internet stock. That stock would jump 10% in value. When markets are as
volatile as oil is now it is a symptom of rank speculation.
Durable Goods orders were up 0.3%
when 0.9% was expected. Ex-transportation Durable Goods were -0.2% when +0.3%
was expected. Jobless claims were
325,000. Treasuries liked the lower than expected numbers as did the stock
futures. Less is more right now. The bears are saying STAGFLATION i.e. inflation
with no economic growth.
The Sears/Kmart combo is voted on today and Sears is off $6 on the
news. We guess folks forgot that only 55% of Sears’ stock can opt for K-Mart
stock. The rest has to be taken in cash. This whole deal smells. Will the new K-Mart
be a real estate company formed at the all time high in real estate prices or a
retailer with contracting sales? And the Sears
name will go the way of Montgomery Ward
Yesterday we commented that the
major measures were not reflecting the underlying selling in many stocks. Today
we learn from Jason Goepert at http://sentimentrader.com/ which is a
very good technical trading ‘Pay for’
sight that for the first time in 40 years the S&P 500 closed higher while
the breadth on the NYSE was over 3/1 down.
A California Billionaire, Ronald Burkle,filed that his private equity group, The Yucaipa Cos.,
took a 9.2 percent stake in the natural and organic food chain Wild Oats.
This is the catalyst we have been looking for to get OATS sold or
radically revamped. In our quick reading Burkle has made big money in
grocery stores having owned and sold Dominick’s to Safeway and also selling Fred
Meyer of which he was Chairman to Kroger.
lists his fortune at $2.8 billion. A 10% position in Wild Oats is about $30 million or chump change to him.
Burkle is 52 so maybe he wants a
new challenge. We are betting he is going to increase his position to make the
investment meaningful to him in relation to his assets. His record is as a
seller of grocery store chains. We are going back into the stock above where we
sold it. We don’t think he will sell his position for a $1 profit and we are
happy to ride along with him.
Here are some past statements by or about Burkle:
"The company (OATS) should have substantial opportunities for
future growth due to the fact that recent developments in the supermarket and
general retail sectors are likely to create attractive opportunities for the
company to acquire new stores and expand into new geographic locations,"
Burkle wrote in the filing.
When as Chairman of Fred Meyer which he sold to Kroger in 1998 Ronald
Burkle said, "I have been a longtime believer in consolidation in the
supermarket industry.Kroger and Fred
Meyer represent the ultimate strategic combination, creating a truly national
Burkle has been interested in buying one of
Safeway's chains. He sold Chicago-based Dominick's to Safeway for $1.8 billion
in 1998, a nice flip after buying it for $700 million in 1995. *****
New home sales were gangbusters
with them up 20% in the Northeast, 10% in the Midwest and 9% in the rest of the
The major measures opened higher in early trading with breadth running
2/1 positive. There was certainly no buying panic and after an initial burst
the trading became tentative. Oil was higher by 49 pennies but below its highest
level. Our guess is that if the Houston fire was a big deal enough of the traders
would know by now to push oil futures much higher. Short Treasuries were flat
and the ten-year was about 3 bps firmer at 9am.
At 11am stocks were still higher
and breadth remained 2/1 positive. We boughtWild Oats in small amounts in many
accounts at $10.40. Burkle’s cost looks to be about $8. Oil has turned lower. Bonds
quit trading at noon.
Entering the last two hours of
trading the markets looked tired and volume was drying up as the bonds closed
and the boys and girls began sneaking out early. Breadth was 2/1 positive. The
Treasury ten-year went out at 4.60%, the five-year at 4.29% and shorter
maturities were off about 2 bps on the day. Europe closed higher. Oil had moved
back to the plus side by 74 pennies to $54.55.
At the bell the market statistics
were the reverse of Wednesday with Breadth 2/1 positive but the DJIA was down 9
points at 10447. The S&P 500 lost 1 point to end at 1171 and the NAZZ rose 2
points to finish at 1991 which is 2% below where it closed 15 months ago at
year end 2003. Crude oil ended up $1.03 at $54.84.
And tomorrow is today so let your games begin.
24 March 2005 Daily Comment
The dollar hit a one month high
against the euro yesterday. Oil is off a buck again this morning.
To make it clear from yesterday’s
post, the rising price of oil does the
Fed’s job of slowing the economy and negates the need to raise interest rates
to the stratosphere. The Fed can concentrate on getting to a neutral position
on inflation probably around 3.5% on Fed Funds and then quit.
Another overlooked fact is that many state and local gasoline taxes are fixed
in percentages of the price rather than like the Federal tax which is a
price per gallon. As a result, the rise in the price of oil raises revenues for
the local entities.
Also, it is interesting that traders are worried about inflation in
everything except in land and home prices where they are busily buying and
selling with all the other land speculators. Land speculating in this country
has a long and interesting history and the only difference now is that the computer
and telephone have made it possible to conduct speculation from the comfort of
your living room.
The overseas markets were lower
overnight in response to U.S. markets dropping yesterday. We view the current sell down as
an opportunity to add to positions. There is going to be a rally but it
may not occur till after month end. A drop to 1113 on the S&P 500 would set
up a good rebound that might gather enough momentum to get through the 1125 resistance
wall that grows stronger instead of weaker as it should with every attempt to
move above it.
CPI was up 0.4% in February and
core CPI was up 0.3%. Stocks are lower on the news. Traders are saying that the
markets are going to price in a 50bps move at one of the next two Fed meetings.
If the Fed does do that we would guess it would be the second meeting and then
the markets would breathe a sigh of relief that the Fed Funds rate was at the
3.50% number and that the Fed was finished for at least a while.
The Bond markets close at 1pm on Thursday (today) and all markets are
closed tomorrow. That is going to force a lot of trading into fewer hours.
Investors Intelligence has bears rising to 27% with bulls at 54%.
Bulls are still too high but that’s the highest bear number for a long time.
Crude oil inventories rose today for like the sixth week in a row.
Gasoline inventories dropped as refinery shutdowns for switchovers for summer affected
gasoline reserves. Where are the gas lines? There are none which gives the lie
to the idea that gasoline is in short supply. The boys and girls are having
more fun at the consumers expense the same as they did in 2001 with
electricity. There is no longer any watchdog or enforcement action so the games
go on and on and on.
We want to place some more money
to work and so on Wednesday we bought back Time
Warner at $17.90. It ran to $18.75 after we sold it at $18 and we like the
cable and AOL internet portion of the stock. We were a little quick on the trigger
selling it but we are buying back for less than we sold. We also re-purchased
at lower than we sold: Coke at
$41.30, JP Morgan at $35 and QQQQ at $36.40 in larger and more
We bought Xcel Energy the old Northern
States Power in larger and some aggr3essive accounts at $16.80 for the
dividend (over 5% in the next twelve months because we will get 5 dividends if
we hold) and/or hopefully a dollar or more a share gain when rates settle down.
Finally we added more shares of Maytag
to many accounts at $13.75. It is priced at 10 times earnings with a 4% yield.
The company has confirmed that earnings will be higher and the research outfit
that placed a sell on the stocks at $22 went from sell to neutral two days ago.
With the Model Portfolio now at 75% invested we have only one more stock to
buy and that is Newell but it still
is a bit high for us. We would like to get it close to $20.
CNBC’s marathon GM bashing reminds us of IBM bashing in
the early 1990s. According to the media gurus IBM had lost it and was going out
of business. Back then there wasn’t much cable business news available but the
print media did the job. There was a writer for the WSJ who even wrote a book about
the downfall of IBM that was a best seller. Don’t see his name around anymore.
We guess he made enough money from the book. We remember clients screaming at
us to sell IBM because of all the bad press.
GM is no IBM but it will survive.
Stocks opened lower with the DJIA
down 20 points at 9am. The NAZZ was higher amid some talk of rotation to
biotech and selected tech names. Supposedly they are not affected by oil
prices. Breadth on the NYSE was 3/1 negative and on the NAZZ was flat a half
hour into the trading day. Crude oil was down $1.28.
The hedges were trying to decide
whether they want to be long oil over the week-end (although they can trade and
hedge elsewhere in the world). Our guess is no and that oil will move lower
since the price of oil is basically a game of chance right now and bears no
relation to actual supply/demand.
After two and one half hours stocks
still couldn’t move higher. Oil is off $2.33 to $53.70. There is agony in hedge
land as bonds aren’t firming and stocks aren’t rising on the drop.
In the afternoon the major
measures finally made it to the plus side. At 1:30pm breadth on the NYSE was
still 2/1 negative and it was negative on the NAZZ also. New lows versus new
highs had expanded. There were over 100 new lows on the NYSE against 10 new
highs. We haven’t seen that kind of disparity for a couple of years. The
averages are masking the damage done in the last few weeks to many stocks. With
oil down $2 it would be positive if stocks rally in the last hour. If they
don’t, the bears will be happy.
At the bell the DJIA lost 14
points to end at 10455. The S&P 500 gained 1 point to 1172 and the NAZZ
rose 2 points to 1991. Treasuries firmed into the close with the ten-year
finishing at 4.60% after trading as high at 4.66%.
And tomorrow is today and it is
the last trading day of the week so let the games begin.
23 March 2005 Daily Comment
Buy fear, sell exuberance.
GM bonds and commercial paper and shares are trading lower and AIG
is also lower. Those two events are leaning on the DJIA this morning. The
troubles of these two stocks may lead to some climax selling toward month end
that may clear the road ahead for a decent rally from lower levels.
The rally has had trouble getting
through S&P 1250 and needs to pull back to a level where buyers can reinvigorate
the markets with some momentum. GM’s problems are real but GM has been in worse shape and survived. The media folks writing and
talking about GM now don’t remember because their memories are about one day
long and the macabre of bankruptcy is much more exciting that the mundane of
working though a problem.
GE pulled their credit facility
from GM and that isn’t helping GM debt holders’ confidence.
AIG is a mystery because insurance company books are a mystery. And
as rumors are spread the less strong holder and traders who own the stock head
for the hills and the whole rumor mongering mess feeds upon itself.
AIG is lower because it is reported that the CFO was terminated for
refusing to cooperate with the probe of the financial shenanigans.
With the focus on the Fed and
Greenspan the markets are continuing their obsession with inflation and oil
prices. our take is that the rise in oil prices is a tax on consumers that will
slow down the economy and that rather than continuing to raise rates the Fed is
going to understand this fact and stop raising
rates sooner than folks think.
We know that oil prices may cause
inflation in reported numbers but if the price rise also slows down consumption
of other goods the need to raise interest rates is lessened.
We’ve been looking at Sara Lee since they announced that they
are going to downsize by selling off their apparel (Hanes and Champion) and a
bunch of other businesses to concentrate on being a food company with $12
billion in sales from a conglomerate with $20 billion in sales. Sometimes
smaller is better. Go here for the full story:
The person behind the change is
the new CEO Brenda Barnes. Brenda C. Barnes is president and
chief executive officer of Sara Lee Corporation. She has been a member of
the board of directors of Sara Lee Corporation since joining the company on
July 1, 2004.
Barnes was president and chief executive officer of Pepsi Cola North America
from 1996 to 1998 and Chief Operating Officer since 1994. During her 22-year
career at PepsiCo, Barnes held a number of senior executive positions in
operations, general management, sales and marketing. Prior to joining Pepsi
Cola North America, she served at other PepsiCo divisions, including Frito-Lay
as vice president, marketing, and Wilson Sporting Goods as business manager.
From November 1999 to March 2000, Barnes served as interim president and chief
operating officer of Starwood Hotels & Resorts.
Sara Lee was made into a conglomerate by John Bryan who ran the
company for 20 years. SLE came to be a bunch of disparate companies and we
think the concentration on one area will focus and increase shareholder value.
At its present price the shares yield 3.75% and the stock is selling near its
yearly low. With the divestitures earnings are going to be confusing and so the
street will have varied opinions on the outcome. We are going to initiate a
position in accounts that own Tribune today.
We sold Seibel at $9 a few weeks ago. SEBL jumped when SAP made a bid for Retek another office software maker. Oracle then entered the fray and bid for Retek.
Today SAP pulled its bid and conceded to Oracle.We think that places SEBL back in play and so
we re-purchased the stock at $8.90. SEBL has held its price during the three
week sell off and we want it in our accounts.
This morning we are buying an initial position in the SPDR
Technology (XLK) at $19.53 which
gives us MSFT and INTC and others without having to make
individual purchases. We have traded this index before and it is a quick means
of getting money to work in large tech. If there is to be a rally we believe
that large tech will participate.
7:32am and the Producer Price Index (PPI) was up 0.4% while the core (ex food and
energy) PPI was up 0.1%. Year over year PPI was up 4.7% and core PPI was up 2.8%.
9:32am and the major measures are higher. Breadth
is positive and there is a more positive tone to the markets. With seven down
days that is to be expected and stocks are certainly
not out of the woods. Oil is of a few pennies and bonds are firmer ahead of the
Fed announcement this afternoon.
1:45pm and the Fed raised rates 25bps and used the word ‘measured’
so all should be right with the world. Unfortunately traders are taking this as
a sell the news event. The ten-year was at 4.48% and the DJIA was up 40 points
and the NAZZ was up 9 points right before the announcement.
The ten-year is now at 4.60% and
the DJIA is down 40 points and the NAZZ is off 5 points. All this is happening
with oil down 150 pennies at $55.95.
This is the FED statement (The
bolded italicized part of the statement is new and what caused the sell off in
bonds which led to the sell off in stocks immediately after the announcement):
Federal Open Market Committee decided today to raise its target for the
federal funds rate by 25 basis points to 2-3/4 percent.
The Committee believes that, even after this
action, the stance of monetary policy remains accommodative and, coupled with
robust underlying growth in productivity, is providing ongoing support to
economic activity. Output evidently continues to grow at a solid pace despite
the rise in energy prices, and labor market conditions continue to improve
gradually. Though longer-term inflation expectations remain well contained, pressures
on inflation have picked up in recent months and pricing power is more evident.
The rise in energy prices, however, has not notably fed through to core
The Committee perceives that, with appropriate
monetary policy action, the upside and downside risks to the attainment of both
sustainable growth and price stability should be kept roughly equal. With
underlying inflation expected to be contained, the Committee believes that
policy accommodation can be removed at a pace that is likely to be measured.
Nonetheless, the Committee will respond to changes in economic prospects as
needed to fulfill its obligation to maintain price stability.
3:02pm and crude oil closed down $1.43 at $56.03. The DJIA dropped
95 points to end at 10470. The S&P 500 lost 12 points to end at 1170 and
the NAZZ dropped 18 points to 1990. Breadth was 2/1 negative at the close and
there were more new lows than new highs on both the NYSE and NAZZ today. The
ten-year ended at 4.63% and the five-year at 4.30% with the two-year at 3.83%. The
stock markets were sorry but the bonds saw a massacre.
The stock markets are closed on Friday so the boys and girls will have
to cram all their trading into the next two days.
And tomorrow is today so let the
22 March 2005 Morning Comment
market action was lousy. Stocks are in a funk and the price of oil is ruling
the minute to minute movements of stocks. When oil rises stocks fall. When oil falls
stocks rise. The media is consumed by the oil speculation and that is affecting
the psychology of investors. Since investing even by professionals is 90%
psychology the wall of worry continues to grow along with the gains in the
price of oil.
Today the Fed meets and is expected
to raise the Fed Funds rates another 25 basis points to 2.75%. And in our
listening and reading over the weekend the use of the word ‘measured” by the
Fed is going to be the big news. The Fed has been using ‘measured’ to refer to
the pace at which it will raise interest rates and the markets are worried that
with the oil price threatening to exacerbate inflation that the Fed will drop
the term giving them the ability to hit the markets with a 50 basis point
increase if need be.
In pre-market trading stock
futures are lower. Asia closed lower and Europe is trading lower too.
So let the games begin. It should
be an interesting day.
19-21 March 2005 Weekend Comment
Through wind and sleet and six
inches of a St Patrick’s Day snowstorm we wend our way to work having fed the
dog and cats and horses and filled the feeders for the birds. It is pretty and
it is March so we know the snow will be gone by next week end. And we are happy
the cows have not yet begun to calf.
We noticed this morning that Wachovia upped Ann Taylor to ‘market perform’ from ‘under perform.’ The same thing
occurred yesterday with Fifth ThirdBank. But if the markets are dropping
like a rock as they have been, why doesn’t ‘market perform’ mean that ANN and FITB are going to keep dropping. It’s just a question which
demonstrates our frame of mind. In fact FITB
has been dropping like a rock for the last two weeks and we wish it would stop
‘market performing’ and get around to ‘market outperforming’.
GM announced on Wednesday that is
will be $2 billion cash flow negative this year versus the expected $2 billion
cash flow positive that the street was expecting. The corporate bond markets except
for GMAC paper has taken it all in stride. Our guess is the acceptance is
because there is such demand for income that it will take a major economic
downturn coupled with a tightening (right now there I a tightening going on but
the economy is supposedly OK) to have an effect on corporate bonds as a whole.
And that type of event is not yet in the cards.
We were reading about mansions
and came across the following fact. We think it is interesting even thought we
never liked Stone. It was something abut the mustache.
The Stone mansion has been on the
market for two months, following the
death of Stone's wife, Jessie, at age 100 in September. Her husband died two
years to the day earlier, also at age 100.
Friday’s Witching Markets
7:51am and Asia was up overnight and Europe
is mixed. U.S.
futures are up and today is quadruple witching or quintuple witching as well as
S&P rebalancing partway day. So there will be a lot of currents running
through the markets as well as the ever present price of oil hovering at all
time highs. Treasuries are firm in early trading and will react to what happens
elsewhere. The mini-rally of the last few days is more a flight to quality then
a call on interest rates since the Fed has given no indication that it is
worried about the economy and that it will not continue to raise the Fed Funds
rate. Lehman is suggesting that the Fed Funds rate will be 3.75% by yearend and
if they are correct it will pay to stay in cash with the amount of many we want
to commit to Treasuries and earn a bit less than Fed Funds until right before
the ‘current wisdom’ suggests that the Fed will stop tightening. Will someone
please let us know the day before ‘current wisdom’ changes? Thank you.
9:06am and stocks opened higher on active volume. Interestingly
there was Coke to buy at the opening
and there will be a ton to sell at the close.
10:54am and we sold our OATS
at $8 for a nice one month gain. The folks who owned OATS also were the folks for
whom we made our higher priced purchase of ELN
and the gain on the OATS offsets the loss on ELN. With the extra money we
made on the second purchase of ELN it
turns a sow’s ear into a silk purse. Well maybe a cotton purse. OATS is up on
the Prudential upgrade and in the
past such upgrades have been good for a few days and then the stock usually
sinks back down. If it does we will be there. If it doesn’t so be it.
One of our problems with owning OATS as opposed to trading it
like we do is that we think their stores stink. Every time we visit one we
wonder why the folks who run the company don’t go visit a Whole Foods Store and then model their OATS stores on Whole Foods.
We know that would be ‘me to’ but in
the case of OATS they need to do something and we don’t think that means to
become another Jewel Foods as the Prudential analyst suggested yesterday. But
then that’s what makes a market.
11:22am and breadth is 2/1 negative and crude oil is unchanged. The
major measures are mildly lower and not reflecting the damage to individual
stocks. European stocks finished higher on the day. Treasuries are giving up
some of Thursday’s gains. We are buying some Xcel Energy in larger accounts for the March 29 x-dividend and/or a
move higher in the share price. XEL
has bounced off the $17.30 level four times in the last 12 months. We have been
trading 10 pennies and 15 pennies moves in the share price in very large
accounts for the last month.
and as the contra
hour draws to a close the major measures are all lower with the NAZZ back to
its 12/31/2003 closing
price. So is Our Model Portfolio and it is a humbling experience.
and the DJIA closed up 1 point at 10627. The S&P 500 lost 1 point to end at 1189
and the NAZZ drooped 8 points to 2007.
Breadth was 2/1 negative at the bell; Treasuries close a bit lower with the
ten-year at 4.51%, the five-year at 4.16% and the two-year at 3.70%. Oil closed
higher at $56.72 up 32 pennies.
We will be traveling Monday bringing the Prince’s dog Luna back to the
farm to live and so the next post will be Tuesday morning March 22.
And tomorrow is the week-end so
18 March 2005 Daily Comment
Oil is at $57, do we hear $58? As we said yesterday oil looks to
make $80 by the end of March. Maybe that is what March madness is all about.
Fear not though, Congress in their Republican wisdom passed a bill to allow
drilling to begin in Artic National Wildlife Refuge within the next few years
and oil should be flowing from there by the year 2015. What we don’t understand
is why oil prices continue to rise when Congress has taken such decisive
The pundits agree that GM is a basket case never to rise for
the ashes. It reminds of the death of IBM
in 1993 and 1994 that was widely predicted and a certainty according to the
gurus and seers. Where is Lou Gerstner when we need him? Jimmy the mouth Cramer
who is a cousin to Maria the mouth has been all over the CNBC tube predicting
the ultimate demise. We think he is also plugging a new show since he split
from the dope head Larry Kudlow. His take is that GM is the steel industry of
the 1980s and the airlines of the 1990s.
We aren’t that certain. Steel is
a commodity. Airlines were killed by low cost airlines. Autos are an oligopoly
and much of GM debt is related to selling cars. The auto business is a mix and
match business. And it is cyclical. We have had difficulty understanding how GM
would make money in a slowdown when it has record sales and doesn’t have record
earnings but that may be how the business is changing. And there are other auto
companies in the same boat. Two year sago Ford was supposed to be going broke. And
GM did earn $5 per share last year and has been profitable for many years. Even
in its bad years is has a cash flow that other companies envy. Health care expenses
for pensioners are about 80 pennies after tax. We really don’t think health care
is the bugaboo that Jim Cramer makes it to be. GE handles Cramer’s health care
costs just fine by the way.
And a smart Democrat running for
President on a National Health care platform to relieve all these companies of
their health care costs could make common cause with companies loaded down by
health costs. And please no ranting e-mails from Republican seniors enjoying
the benefits of National Health Insurance for seniors called Medicare.
We aren’t going to pull the trigger on GM anytime soon but a $24 or
less share price would peak our interest. That is where it sold in the 1974 bottom. *****
Hooray, Hooray, Friedman Billings
upgrades Fifth Third to market
perform on valuation.
In the present market with most
stocks it pays to let the price come to us. Our ABS purchase yesterday was an example. We have been watching the shares
for the last 6 months but wanted to buy under $20. The markets are certainly
not in a rally mood and with the end of the quarter approaching there may be a
rush to sell losers. That’s why we raised cash from our market type stocks
yesterday so we would have funds for shopping at month end in more interesting
names. That doesn’t means low priced speculations although at the rate some
share prices are dropping there may be some good quality stocks in single
digits before this miasma end. Survival
comes first, prospering again later. *****
Viacom is going to split in two with the broadcasting in one
division and entertainment production in another division. Investment bankers
have the greatest jobs. They spend a decade putting companies together for big
fees. They earn fees for combining and selling low quality bonds to the public
with the more secure tranches going to the hedge funds. Then when some of the companies
get in trouble or go broke their friendly investment banker is at the ready to
give advice and earn a fee. And now in this decade investment banks have
convinced CEOs that now is the time to take conglomerates apart because then
the real value can be realized. Of course there are more fees. And the public
and the new mutual fund managers who replaced the old and have no historical
memory beyond business school three years ago want and believe these charlatans
and rush to buy.
6:54am and Asia was lower overnight and Europe
is flat to lower. U.S.
futures are below fair value, oil is over $57 and Treasuries are firm.
7:21am and like clockwork, on St Patrick’s Day a redwing blackbird appears
outside our window to wish us good morrow with a cheerful song. Unfortunately
he is going to endure a bit of snow today.
7:32am and jobless claims were 318,000. The economy just can’t get
the number under 300,000.
9:09am and stocks opened higher for a few minutes but the major
measures are now slightly off but holding. Treasuries are again rallying as oil
tops $57. We are a long way from the $40 number the markets need for a
10:46am and the major measures are to the plus side. We repurchased
SBC at $23.35 and will get the 30
pennies dividend since the x date is April 9. We bought on BMY back at $24.20. It goes x-dividend 30 pennies on March 30. As
Treasuries rally dividend paying stocks become more interesting. As we said
last week we are more comfortable trading the big caps than trading the low
We have also added HAIN and TRB to some accounts as longer term holdings. Also when the oil
bubble bursts fund types are going to want to go to calmer stocks like the ones
we are buying.
Veco Instruments is higher again today on good volume. VECO announced earnings two days ago
and said they had reconciled their subsidiaries earnings. The Street seems to
have accepted the results.
Speaking of low priced stocks,
Prudential put a price target of $12 on Wild
Oats and the shares jumped over $8 today. We doubled our position in Lucent at $2.86.
and the DJIA lost 3 points at 10630. The S&P 500 gained 2 points to 1190 and
the NAZZ rose 1 point to 2016 Breadth was 2/1 positive on the NYSE and
barely on the NAZZ at the bell. Oil finished at $56.40 down 4 pennies after
touching $57.60 during the trading day. Treasuries
rallied with the ten-year at 4.47%, the five-year at 4.13% and the two-year at
And tomorrow is today so let the games
17 March 2005 Daily Comment
GM announced it will report a loss for the first quarter and that
is going to weigh on stocks. GM is
$3 lower in early trading and AIG another
DJIA stock is $1.50 lower on news
that Greenberg is actually leaving and that there is a problem with some
reinsurance relationships with among others Berkshire Hathaway. These two coincident
events may tip the scales to the downside and shake the markets out.
Overnight OPEC said it is
increasing production to build inventories for next winter and the trader talk
is that that is bad because it means there will be shortages of oil next
winter. Heck, this winter isn’t even over. The Saudi guy says that $40 to $50
oil is better for all than $55 oil. Traders aren’t listening, yet.
But when momentum is moving
stocks or commodities common sense takes a back seat. The other day we were reading
that the FERC (Federal Energy Regulatory Commission) finally decided that in
2001 Enron and others created artificial shortages in electricity in California
and thus caused a rise in electricity prices nationwide. We wonder when we will
read that the oil panic of 2005 was caused by traders and others who benefited
from the high price of oil although there was no shortage of actual oil in the
U.S. or the world.
Housing starts were up in
February when they were expected to be down and the January numbers were also
UBS raise Coke to neutral from reduce on valuation.
and Europe is lower on the GM news
while Japan and Hong Kong closed higher. Treasuries are firmer and oil is
Stocks are going to open lower.
We think a collapse from here is unlikely but a good old fashion scare your
pants sell off could be in the cards.
Discretion being the better part
of valor we are going to try and move some TWX
and KO around their closing
levels to raise some cash in relatively fully
and we sold the KO because of the
backhanded upgrade this morning and will be interested in the shares below $40.
KO and GE are really market stocks
and will move accordingly although both are relatively cheap. We sold the TWX because it jumped on some AOL news
yesterday and we think in a sell down we’ll have a chance to get back in if we
8:57am and the major measures are all lower
and Treasuries are getting some flight to safety buying.
Panic is not in the markets yet
but we could be down 150 on the DJIA
today and then we’ll see how much money is on the sidelines. Bush is supposed
to talk at 9:15am about something.
9:54am and crude oil tops $56, GM is losing money and #43 is having a
press conference. Is it any wonder that the DJIA is down 100 points?
By the way, inventories of crude
oil, gasoline and distillates were all higher.
We just spent some time with a client
who trades for himself as well as allowing us to manage money for him. He was
in a quandary about what to do. Our advice was to raise a little cash to sleep better
but to hold on to stocks that he would be willing to buy lower. If you don’t
play the game you can’t share the gain.
The whole purpose of our writings
the last week is to say that while we think the markets will move up and down,
the stocks one owns are more important than the overall market. If the markets
are in a 1977 to 1983 type trading range when interest rates were rising and
oil was also up in price and commodities were going nuts and real estate was
ending a run of ten years in which land prices increased 4 times in value, then
stock picking will be the way to make money.
And that means own stocks that
you know aren’t going broke and aren’t selling at ridicules price to sales
ratios. Price earnings ratios aren’t as important because stocks we own usually
are in the midst of earnings problems. Potential earnings are important though.
For example, MYG just said they are going to earn $1.10 to $1.30 this year. At
a share price of $14.50 that means that at most MYG is at 13 times earnings. That’s a fair price for the company that
can earn over $2 per share if it gets its pegs in order.
Bush names Wolfowitz as World Bank
President. That makes since Wolfowitz was so prescient about Iraq. Wolfowitz will replace Wolfensohn.
Far out! *****
12:47pm and as the major measures remain lower we are going to sell
all our JP Morgan. We have a love/hate
relationship with this stock and we are worried because their head derivatives
person left a month ago. With all the various leverages trading strategies
stretched to the limit with the GM news, and oil bubbling higher along with
other commodities, and lower quality bond spreads widening, and $100 billion
plus of GMAC paper under review for downgrade to junk status we think it is
likely that a few of the money center banks and a few large hedge funds may
wind up sucking wind.
Add to that the fact that even
the Sage of Omaha may be in a reinsurance contremps
with AIG and the Feds and we are guessing that JPM might have some bad news in
the near term. Even if they don’t JPM has been more a market stock and is thus a
good source of cash at a scratch loss that goes against the scratch profit we realized
a few months ago in the stock.
1:50pm and after we sold the JPM,
news came across the tape that JPM
had settled with the NY State Treasurer for $2 billion in the MCI matter. No wonder they were the
last to settle. That isn’t chump change. They had reserved enough money to
cover the total.
Entering the final hour of
trading the DJIA is down 110 points
and heading lower as crude oil prints at $56.60 up $1.60. At this rate oil will
be at $80 by month end.
2:42pm and Albertsons sold
down to a good buy level and we bought shares for many accounts at $19.53. This
is a longer term situation with a dividend yield of 3.8% at current prices.
3:02pm and the DJIA closed down 112 points at 10633. The S&P
500 lost 10 points to 1187 and the NAZZ dropped 20 points to 2015. Breadth was over
2/1 negative at the bell. Treasuries closed off their flight to safety highs
with the ten-year at 4.51% and the five-year at 4.18%.
And tomorrow is today so let the
16 March 2005 Daily Comment
The redwing blackbirds should be arriving any day now. We saw one robin
last week before the snow storm and also saw a bald eagle a week ago but no
redwing blackbirds. They are spring to us.
Retail sales were up 0.5% in February, ex autos up 0.4%. The
expectation had been for up 0.8% ex autos. But in every disappointment bulls
can find a silver lining. The slower growth of retail sales means the Fed can skip
a raise or two over the next few meetings.
Friday is quadruple or quintuple expiration depending on how one counts.
It is also the day that the S&P indexes will be rebalance by one half for
the actual –as S&P sees it – number of shares really, really available for
trading in individual stocks in the various indexes. Ah another reason for
trading in index funds which are unmanaged and not supposed to ever change.
The rebalancing means that about 60 million shares of Coke will
have to be sold this Friday and on September expiration to adjust the holdings
in keeping with what S&P says is the real number of shares available for
trading. Buffet has $40 billion to invest. He could use another $3 billion
worth of Coke stock. He didn’t sell at $90.
Foreign investment in the U.S.
was up $91 billion in January of which $19 billion was invested in Treasuries
and $16 billion went into equities.
was lower overnight and Europe is in the green. They must
be getting ready for St. Patrick’s Day. Treasuries have a bid and the ten-year
slipped under 4.50% while the five-year is 4.17%. Oil is down 18 pennies at
$54.77. Stocks are going to open higher and most technicians think stocks have
to close higher today for he bull case to continue.
9:09am and out of the gate the major measures are higher and
breadth is 2/1 positive. But selling is creeping in and like yesterday we think
we will go lower before and rally can continue.
10:27am and Greenspan keeps complaining about the low U.S.
savings rate. One reason the savings rate is low is that for the past three
years the Fed under his leadership has kept interest rates artificially low
which discourages savings and encourages housing speculation.
Women’s Wear Daily is reporting that Sears is seeking a buyer for Lands End. Big surprise. Not. The
merger of Sears and Kmart is a wonder only to those
financial types on Wall Street. To the real world the wonder is why?
12:55pm and oil is now
higher Treasuries are down and the major measures are in negative territory. At
$55.30 oil is not helping and there is a report that anthrax has been found at
the Pentagon mailroom. We are entering the contra hour and so a sell off would
be in order.
European stocks ended the day
Albertsons is lower today on less than expected earnings and we are
bidding for stock under $20. ABS is Jewel/Osco
and a bunch of California stores
and we have owned and traded before. At current prices the shares yield 3.8%.
and crude oil closed
up 10 pennies at $55.05. Breadth was 2/1 negative at the bell and Treasuries
closed on their lows with the ten-year at 4.54% and the five-year at 4.22% and
the two-year at 3.75%.
The DJIA closed down 60 points at 10745. The S&P 500 lost 10 points to end at 1195 and the NAZZ dropped 16 points to 2035.
And tomorrow is today so let the
15 March 2005 Daily Comment
Beware the ides of March my friend for that’s the day your life may
end. Something like that was said to Caesar in Shakespeare’s play. For
According to the ancient Roman calendar, the ides fell on the 13th of the month with the exception of the months March,
May, July, and October, when it fell on the 15th.
It was on March 15, 44 B.C. that the Roman dictator Julius Caesar was assassinated. Contrary to
popular belief, including William Shakespeare, Caesar was not assassinated in the Capitol, but rather near the statue of Pompey, where the Senate used to meet.
With that our of the way we return
the stock markets although reading a Shakespeare play would be more fun.
To follow up on our March 14 Post we replied to an e-mail question
about the difficulties of the current markets and the stress it is imposing on
folks long stocks.
We think you should relax and go do something else. Look at the stocks
you own. Do you think they will trade at a 25% higher price sometime in the
next two years? If so, hold them since you can only earn 5% a year taxable at
ordinary rate while stocks will provide capital gain at max 15% rate
The whole point of our March 14 post was to say that we have gone to
good quality stocks at fair prices so we can let them work for us and ignore
the markets day to day action. *****
The news for Monday is that Robert Iger has
been elected the new chief honcho at Disney
effective next September 1, unless Michael
Eisner can figure a way to eliminate him. Joke.
The UAL ground workers pension plan has been assumed by the Pension Guarantee Board with $2 billion
in unfunded liabilities. Corporate
welfare at work. And when UAL emerges from bankruptcy all its
pension plans will be gone and the pension liabilities will have been assumed
by the Government system paid for by taxpayers. And the banks and bondholders
will own a streamlined airline courtesy of government welfare.
By shear happenstance an analyst
at UBS recommended K-Mart on Friday
and placed a $160 price tag on the company. This buy recommendation comes three
weeks before the K-mart stock or $50 cash offer for Sears expires. Do we think there might have been an ulterior
motive? Of course not. After all UBS doesn’t have a banking relations ship with either company, YET. *****
www.minyanville.com reports that in 2004
a net amount of $394 billion in new Treasuries were issued. Of this amount
Foreign Central Banks and the U.S. Treasury purchased $316 billion or 88%. Japan
itself purchased $200 billion. Although an interesting statistic, we aren’t clear
how minyanville arrives at this number since they
give no indication that foreign central banks also continued their purchases of
all their maturing debt.
The S&P is going to rebalance
all its index funds with partial re-balancing beginning on the March 18 expiration
and ending on the
September 16 expiration to adjust the indexes to represent shares available
to the public for trading rather than shares outstanding for companies in the
various indexes. That will cause selling of shares of WMT and other companies like KO,
EBAY, and MSFT which have a
large number of shares not available for trading. The selling in those issues will
be by index funds and index trusts. Coke
is the only stock we own that will buffeted by the rebalancing. And it is
because Buffet owns so much of the stock and S&P considers Buffet’s stocks
not available for trading. But selling in Coke may create a buying opportunity
and we would guess that some major funds might use the selling by the index
funds as an opportunity to re-establish positions.
Benjamin Graham: “the essence of investment management is the
management of risk, not the management of returns.”
The Saudis are saying they are going to increase oil production. We will
believe it when we see it. The reality is that oil inventories are much higher
than they were several weeks ago but the bull traders in oil have momentum on
There are also reports that China wants to increase its strategic
oil reserves by 100 million tons. This would be a way of playing the oil market and the dollar market at the same time,
by spending depreciating dollars for appreciating oil. When countries begin doing that it may be an
indication of a top forming.
The timing guru we follow who has been very good has turned very
negative through the end of March. Glad we aren’t in that business any
more. We will be slowly buying the sell off since most accounts have a goodly
amount of cash.
EBAY is lower today again because Meg Whitman the CEO of EBAY tried
for the Disney job. That is taken as an indication that she wants to move on.
In our restated old /new philosophy, one of the reasons we sold the EBay
is that at a market value of 54 billion with $3 billion in revenues we aren’t
at all sure that within the next two years EBay can sell 25% higher than its current
price. It probably will but…
An important point is that the late 1970s and 1980s were times for individual
stocks not the markets in general i.e. the indexes.
10:12am and crude is lower and stocks are higher. That relationship
may hold true until oil backs down under $50. The stock market measures are all
slightly higher but there is no pizzazz in the buying. Breadth is 5/4 on the
plus side. Treasuries are unchanged and the action is typical early Monday
morning after a down week with some buying supporting prices but many traders
wary of venturing much cash. It’s too early for them and most folks are probably
trying to get their NCAA pools arranged.
Asia closed mixed and Europe is
11:18am and according to CNBC China passed a law authorizing an attack on
Taiwan. Isn’t China a dictatorship and a U.S. friend? Isn’t Taiwan a
democracy and a U.S. ally? Wouldn’t this action have provoked a market collapse
40 years ago? Times do change.
Hank Greenberg is going to step down as CEO and all everything at AIG. He is AIG as Welch was at GE. With the Boeing debacle with Stonecipher last week and Greenberg this week maybe boards
of directors are going to become that again.
AutoZone’s CEO resigned to go to Office Depot as CEO. AutoZone also reported that same store sales were
down 7% in the most recent quarter and the share price is down $11. We have wondered
about AZO since they built a store on a side street in a town of 3000 people
near us a year ago. The location and population of the town and surrounding
area just didn’t make sense; but we aren’t in that business. The General
Counsel and Executive VP of the company sold a bunch of shares a week ago at the
high. Here come the lawsuits.
12:39pm and as oil heads higher the DJIA is a bit lower on the day
though the other major measures are holding above even. Breadth is flat on the NYSE
and negative on the NAZZ.
1:25pm and as the major measures move to negative territory Treasuries are getting a bit of a bid.
That moving to safety action suggests that maybe some fear is creeping into the
marketplace. Fear is needed to make a bottom although we would guess a more
than 3% move lower from here is also needed.
Every time recently that someone
says something nice about Motorola
the markets are in a going lower mood. This morning the MOT head in China said
sales are going well there.
3:02pm and the CEO at the
Bank of New York needs a tag day since his pay for last year fell 42% ----
to $6.2 million.
Breadth was positive at the bell
and the DJIA was up 30 points at 10803.
The S&P 500 rose 6 points to 1206
and the NAZZ gained 9 points to 2050.
Treasuries were firmer at the end with the ten-year at 4.51% and the five-year
at 4.20%. Oil was up 52 pennies at $54.95.
And tomorrow is today so let the
14 March 2005 Morning Comments
We are in our office on Saturday
morning contemplating the ebbs and flows of the market and portfolios and most
especially portfolio performance. We are taken aback by the swift downturn of
our portfolios this year and so have been reexamining our trading and selections
over ht last year.
In early January 2004 the Model Portfolio reached a value of
$560,000 and then dropped to a value of $518,000 in August 2004 before
rebounding strongly at year end 2004 to finish at a value of $570,000.
A logical question for us and
clients is why we gave up those gains in January 2004 and why didn’t we
compound them at year end 2004.
Upon review, we noticed that the
gains in January 2004 and in November/ December 2004 were in the same low priced
speculations that we have favored for the last few years for short term
But in both cases we noticed and
it is obvious that we were not quick enough in our selling to lock in those gains
before the roof fell in.
In early October we began buying
more stable blue chips like JP Morgan
and Coke. But if we go back and
price those October portfolios to the present we find that there would have
been no run up in value at year end and that the value of the portfolios would
be about the same as they are now.
So what does it all mean? We
don’t know but our guestimate is that the markets are in a different phase and
that is prudent to adjust our investment posture.
We have learned over the last
year that we were not able to sell quickly enough to capture the phantom gains
in low priced stocks. That is a function of the size of the positions we held,
the lack of market liquidity, and in some cases our greed for a higher price
that never materialized.
And so that is why the portfolios
- as now structured - contain mostly big cap solid companies that are selling
near their lows for the last few years. We know that the markets are momentum
oriented and the current favorites are oil and basic metals, along with the
home builders and some select retail stocks.
Since we are neither prescient
nor quick enough to catch trends nor due we usually want to trade stocks making
new highs or backing off new highs –witness our dismal performance in SBUX, GOOG and EBAY recently - we think
that buying and waiting for the markets to come to us is the proper course of
And so we would expect that our
rapid trading of the last few years is going to slow substantially. We also
will probably keep less cash reserves since we want too build position over
time in the stocks we have chosen. This of course may lead to more volatility
but then the moves in our Model Portfolio and client portfolios last year
(2004) proves that even a large cash position won’t reduce volatility.
Back in the good old days before
computers, owning stocks was like owning real estate. If folks owned a
diversified list of common stocks the value fluctuated but only the most
devoted took the time to price their portfolios on a daily or even monthly
basis. This allowed time for positions to work since folks weren’t computing
their net worth on a daily basis. That may be why owning real estate is more
comforting now. 90% of the value of real estate is in the mind of the owner and
the remark “I am not selling till I get my price since I know what my home/ land is
worth” is the watchword for the real estate investor.
Yet in stocks folks let other
people tell them on a daily basis what their holdings are worth and accept that
valuation as the truth. It is the truth of course if a stock holder wants to
sell that day but won’t be the truth a month in the future for the price will
surely be higher or lower.
Last Tuesday Maytag announced that earnings would be better than analysts expected
and the shares jumped 10% in value from $14.50 to $16.10. On Friday MYG closed at $14.80. What was the true
value of MYG? Last Tuesday the traded value ranged between $14.50 and $16.10.
Since we think MYG will sell over $20 within the next year as it did in November
2004, we held.
We own good quality stocks at
fair prices and will hold them dear until we get the price we think they will
be worth. That doesn’t mean we are swearing off trading stocks but is does mean
that our time frame for letting value be realized is being lengthened in many of
the stocks we own.
We do believe that every stock we
own could be priced at least 25% higher than its current price within the next
two years. That is reason enough to own them.
In the late 1970s and early 1980s
buying good quality out of favor stocks and waiting for the markets seers to
come round to them was a philosophy that worked well for us even though the
major market measures were relatively range bound. That was a period of rising interest
rates of much greater magnitude than we now are experiencing. We think that the
current market era has many similarities to that period.
The horses know that this March snow
Is not the same as a month ago
For there is light where once was night
And the winds from west do blow
On the hillside our cows calf
And lick their shivering new born warm
Bellowing calves last week born
Suckle happily through the storm
The wood is plastered white again
And soon the bulging buds will leave
The early robin huddles near
Wondering why she came this year
Backing into wind and sleet
The animals are content to eat
And build the warmth from chewing cud
Than have to trudge through deep spring mud
My little dog does not care
As chasing squirrel and also hare
She barks with joy to just be free
Running where she wants to be
While off away from where we live
Pain and sorrow do abound
And make our short time in the wood
A sanctuary and treasured ground
We must face the world again
But first we’ll sit upon the log
And contemplate a world of fright
As the light holds back the night
12-14 March 2005 Weekend Comment
There is nothing more uplifting than
snow in November and nothing more depressing than snow in March.
The good old Balance of Payments deficit
was $58.3 billion in February with exports up 0.4% and imports up 1.9%.
Household net worth for the U.S.
increased $2 trillion in the 4thQuarter of 2004 to a record $48.53
trillion. That was an increase of 4%.
Intel’s forecast of business on
Thursday night was either good or bad depending on the analyst. This morning
the market is saying that it ws less than thrilled with the news. INTC is
trading 3 pennies higher.
Our March 11 posts contained a lot of our current thinking and if you
missed it give it a read. *****
and the major
measures are mixed. INTC was not
able to set the NAZZ on fire and stocks look tired. Treasuries are weaker with
the ten-year at 4.51% and even crude oil is down 34 pennies at $53.15. Breadth
We sold our SBUX, EBAY and GOOG trading positions - even and for
losses - because we don’t want to hold them in a market break.
and as the paint dries
breadth remains 5/4 negative and the major measures are lower. Oil has reversed
its morning down and is 91 pennies higher at $54.45. Treasuries continue to
give ground with the two-year at 3.65%, the five-year at 4.20%, and the
ten-year at 4.53%.
and Treasuries along with stocks closed
lower as oil rallied up 89 pennies
at $54.43. So what else is new? The ten-year ended at 4.55%, the five year at
4.22% and the two year at 3.72%. I think we will buy bonds at 4% on the two
The DJIA closed off 75 points at 10775. The S&P 500 lost 9 points to 1200 and the NAZZ dropped 18 points to 2041. Breadth was 2/1 negative at the
A down market all week long is more depressing that a March snow.
And tomorrow is today and it’s
the week end so relax.
11 March 2005 Daily Comment
The swirling storm outside our
window is repainting the bleak March landscape snow white. Too bad the market storms
are not going to be able hide the effects of the bleakness of last couple of
days on our portfolios. Over the past five years in times like these we would
say “enough” and head to the sidelines.
Most of that quick on the trigger
action –which worked for us - was occasioned by the 2000 to 2003 crash of many
so called wonder stocks and mutual funds and the malaise and fear that followed.
Greed has conquered fear after greed had experienced a very profitable ten year
But as countries always fight the
last war and towns prepare for the last flood both only to find that this time
it is different, so we to think that portfolio saving actions that worked in
2001 may not be the correct actions for 2005.
If there is a bubble it is not
now in the stock market but in real estate. And if rising interest rates are
going to deflate or burst that bubble we thin that the funds left will return
to mother market as they did in 1983 and 1991 after the Texas and California
real estate mania subsided.
The stocks we own are in the main
under priced in relation to earnings prospects and the few overpriced stocks
are the ones holding up well in the turmoil. So how can the markets be making
or be near new highs and our portfolios are suffering so much.
Part of the problem is the short
time frame and the good performance of our portfolios over the past five years.
Other folks are now catching up to us and since our approach worked in
different times it is not illogical to assume that we will not outperform in
And if anything these times in the stock market are normal.
By that we mean that markets are
not being moved by bombings in NYC or hijacking of planes or the threat of war.
Rather the stock markets are being affected
by old time bugaboos like rising interest rates and high oil prices
topping in March as traders
trudge through snow storms ignoring record inventories to buy, buy, buy, and push
the price of oil higher. Both of these current fears are not singular
We have alluded to the fact that
many times back in the 1970s and 1980s invariably oil and other commodity
prices and stocks would top in March as the heating season wound down and the
gasoline season began.
Maybe oil prices are going to
stay high on into the future but as sure as 14% rates became 1% rates and are
now 4% rates on their way to 6% or higher we are confident that the price of
oil will see the underside of $40 before the snow flies next winter.
Why are we confident? Because
traders are traders and they follow momentum and they are agnostic when it
comes to the commodity they trade. They don’t care about it, or gas lines, or
national economies; they only care whether they think the next tick will be higher
In fact our portfolios are back
to where they were in November 2004. And they were then at an all time high and
had still well outperformed the S&P 500 for the latest five and ten year
And so we are down this year and
may go lower. We have had times like this and we don’t dismiss the fears of
clients. Our forty years in the business tells us this may be a difficult time
but the sun is on the other side of the mountain and all we have to do is figure
our how to reach it. We always have in the past and we will this time too.
We reviewed our portfolios this morning
with the idea of raising cash and did decide to try and get out of SBC and BMY in many of our accounts. In
accounts that have only a few stocks or are income oriented we are holding
SBC is involved in the AT&T
takeover announced after we bought and that will be at least a year of
arbitrage involvement and stable but not rising price. We have BLS which gives us wireless exposure
and BLS financials are a bit better. BMY
has a nice yield and may be a takeover candidate but with our SGP holding we will continue to won one
drug stocks and trading BMY for a point profit now and then is what we have
been trying to do so we may as well continue.
We are going to stand pat with
the rest of our holdings which comprise a good investment portfolio of high
Jobless claims for March were up
17,000 to 326,000 reducing a recent trend. Oil is off about 50 pennies in early
trading. Some honcho in Japan
suggested moving away from dollar based assets and his comments were quickly
quashed but had their effect anyway.
We get mail:
Bud: I am pleased
that you provide your clients with daily comments. However, I often do not
understand what you are attempting to explain in regard to your investment
techniques in relation to the stock market performance. Perhaps I do not
understand the relationship of stock market fundamentals to market
investment strategies as presented in your daily comments. I find what appear
to me to be conflicting statements or at least have little to do with the buy
and sell transactions reported for my account. Some of your comments seem
rather useless. For example: "We aim for 6%" and "Some years we
do and some years we are just happy to survive". So what? That does
nothing to satisfy my comfort level. As for the 6%, it was 10% when I first
became one of your clients. My comments are not meant to be criticisms or
complaints; just indications of my inability to understand the
meaning of some of your daily comments in relation to my account activity.
We answer mail:
All of our daily comments are not directed
toward every client. Sometimes we are responding to a specific comment by a
client and think it might be of general interest. We will try to make that
point better in our posts.
For example, you are much less invested in stocks than most are right
now and we are waiting for the opportunity to buy one year treasuries at 4% for
the rest of your money.
We actually have returned about 12% over the life of the Model
Portfolio but many accounts such as yours are run more conservatively and so
haven’t had that return.
My 6% comment is directed at clients who want me to make more money for
them so that they can take more out to live on. They believe the ads on TV that
all investment managers have to do is pick a figure such as 10% and then
magically the brokerage house buys the proper mix of stocks and bonds and a10%
return is achieved. Really. Really they believe that, not really it is
achievable that way *****
and stocks opened
higher on the rally in Treasuries (because jobless claims rose, how perverse)
and lower oil prices. But the Treasury rally is giving ground and oil will
probably reverse shortly as it has every day this week. Stocks are giving
ground now and the NAZZ is moving lower as the DJIA holds just barely in
Today the Treasury ten-year
auction takes place and traders will be interested in the price and bid to
cover. The ten-year is now at 4.50%. This week is turning into a real drag. We
have BMY and SBC in at prices and there
are as yet no takers.
Ok folks we are going to deal with the ELAN purchase and sale. We have received
enough phone calls and e-mails asking why we sold and took a loss for many
accounts. Folks especially want to know why we sold when the stock is now
1. We should not have bought Elan
at $7.80 because it was a falling knife.
2. We should not have doubled our
position at $5.67 and added shares at $5.95 because it was still a falling
knife and a one product company that at the time we purchased was a no product
company. That second purchase is what we call: a “we are bigger and know better than the market” purchase. We aren’t; and the market doesn’t
think, it just is.
3. We were correct to sell it at
$6.42 thus mitigating our loss and extracting ourselves from a position we
shouldn’t have initiated.
4. That the stock subsequently
ran to $8.40 this morning (closed at $7.47) is of no consequence since we would
have sold the position at $6.75 which was where we were even on the trade, because
the trade was a mistake to initiate.
5. We survived the early 2000s by
taking losses when we realized we were mistaken.
6. This year in January we lost
the gains we made in November and December 2004 in the low priced speculative
stocks we purchased to hit a home run and take advantage of the January rally
which always –but this year- occurs. That was a painful experience. Had we held
the speculative stocks for a rebound on hope instead of selling we would have lost
twice as much money as we did since almost to a stock they all moved
8. This business ain’t as easy as
9. We didn’t get rich on hope. We
got rich by making good and sometimes painful decisions.
10. We plan to continue to stay
rich by doing the same.
and oil is down
$1.52 at $53.24 as some traders finally learned that oil inventories were
higher. That drop and oil allowed the major measure to move higher and the DJIA
jumped up 50 points which allowed us to sell the BMY at $24.95 and SBC at
$24.20 for scratch profits for many accounts that needed to raise a little
cash. We kept the two stocks for those accounts which are long term and/or that
have enough cash.
The ten-year auction had a 2.38
to 1 bid to cover ratio and Bill Gross the PIMCO bond man let it be know that
PIMCO had purchased several billion of the five-year yesterday an the ten-year
today. PIMCO manages over $500 billion so those purchases are odd lots.
Breadth is negative today and
selling those two issues was difficult so we are not placing much confidence in
this rally. The S&P 500 rallied to 1213 which was support and is now
resistance and now has backed off from that level.
Intel speaks this afternoon with its mid-quarter update and that
will help set the tone for tomorrow’s early trading. And who will remember what
they say today next week?
and the DJIA closed up 46 points at 10851. The S&P 500 was up 2 point at 1209 and
the NAZZ dropped 2 points to 2059. Oil
closed down $1.23 at $53.54. Treasuries rallied a bit but closed below their
best levels of the day with the ten-year at 4.47% and the five-year still
underwater versus yesterday’ auction at 4.14%. Breadth was negative all day.
And tomorrow is today so let the
10 March 2005 Daily Comment
Today the story of the day is Treasury
prices dropping. The rumors are that China
is going to do something with the Yuan versus the dollar and stop buying
Treasury bonds. Japan’s
year end approaches and rumors are that the Japanese may boycott the five-year
auction today and the ten-year auction tomorrow. Add all that together and the
yield on the ten-year is at 4.48% versus 4.27% last week and the five-year is
at 4.11% versus 3.90%.
Markets are 90% psychology and the
interest rate view has become negative seemingly overnight. Now folks are talking
about deficits, BOP deficits and no one to buy U.S.
bonds. And as rates rise mortgage folks have to adjust their intricate hedging strategies
which involve selling the ten-year.
So for Wednesday traders will
concentrate on and react to the five-year auction as on Tuesday $55 oil kept a
lid on stock prices.
A client asked yesterday what we
thought of the markets. Our answer was a little muddled because we have been
concentrating on individual stocks and our time frame has become a little
longer than it has been recently.
Part of that is because we think
the time of year still favors higher stock prices but more because the stocks
we have been buying don’t seem over priced. That doesn’t mean that they are going
up tomorrow or next month but that in a store of prospective purchases we are
relatively comfortable with what we own.
But we know that the overall
markets also have to be positive in order for our stocks to benefit over the short
run and on that point we haven’t a clue. We do wish to return to the old days
when we could buy stocks for a six month to two year move and we have been
edging in that direction. And then we remember our own caveats about the
trillions of dollars in hedge funds that has to be in movement every day
scalping here and shorting there in order to beat the next guy.
And we are tired of beating the
next guy. Over the years we have accumulated a good chunk of money for our
family and our basic purpose is to husband that money. We don’t like setbacks
like January but they are part of investing and must be dealt with and then we
must pass on. We can’t provide a 15 % income stream for folks who want to
retire and live from their accounts earnings. We aim for 6%. Some year we do
and some years we are just happy to survive.
A client told us the other day
that his money at a bank increased 24% in the last year while his money with us
was up 1%. We sighed and said yes that was true. We then wondered how his money
had performed at the bank from 2000 to 2004. He said he wasn’t invested with
them at that time.
And so it goes. Our promise is
that we care about our client money and its performance because our money which
is our retirement is invested with and similarly to our client’s money.
and the double
whammy of higher oil at $54.87 and higher yields/lower Treasury prices are
taking their toll on stocks in early trading. All the major measures are lower
and breadth is negative. It should be an interesting day.
10:35am and crude oil inventories are higher than expected and distillate
inventories are down less than expected. Oil backed off the $55 level on the
news but is still higher on the day. Crude inventories have been higher than
expected four weeks in a row but if the psychology is to buy oil then oil
prices stay higher. It reminds of the California
energy crisis back a few years when strategic and unnecessary shutdowns of
power plants led to sky high electric rates and great trading profits for those
The major stock measures are
mixed but above their lows of the day but breadth remains over 2/1 negative.
12:34pm and the major measures just bounced off their lows for the
day with the DJIA now down 60 points after being down over 80 points a few
minutes ago. The S&P 500 is testing 1212 and that was the close at the end
of the year. Breadth remains over 2/1 negative and the bull psychology is being
Seibel jumped up over $9 per share today on news that Oracle is in a fight with SAP for another software maker named Retek. Oracle bid $9 versus SAP’s $8.50
bid for the company. Every time ORCL makes a bid for another software maker
SEBL jumps higher. We noted that Tom Seibel just sold 800,000 shares at $8.65
and his charitable foundation is going to sell 2,500,000 shares over the next
six months to diversify. We are betting that no takeover offer materializes now
since SAP will be tied up with ORCL in a bidding war over RETK.
We are picking up some more Tribune under $40 today and have
purchased some XEL in larger
accounts to continue our trading /dividend capture strategy with this stock.
1:44pm and the Treasury five-year came at a 4.08% which was a bit
better than the 4.10% they were trading at before the results were announced.
That is the highest five-year yield since May 2002 and the bid to cover was
2.58 to 1.
We bought a small amount of Google yesterday and today in a few of
our larger/aggressive accounts.
The all time high on the NAZZ was 5058 reached five years ago Thursday
March 10, 2000.
and today was a downer with the DJIA off 100 points to 10810. The S&P 500 lost 12 points to 1204 and the NAZZ performed the best dropping only 10 points to 2063. Breadth
was close to 3/1 negative on the NYSE and about 2/1 on the NAZZ at the close.
Oil closed up 17 pennies at $54.77. The Treasury ten-year closed at 4.52% and
the five-year dropped to 4.15% placing all who bought the auction today
And tomorrow is today so let the
9 March 2005 Daily Comment
For those clients that have
Check Writing please be aware that the new checks you just received are the
ones you should use. Destroy
the old checkbook. If you want check writing please call Kathy for forms.
But wait until the end of March since she is on vacation and we are trying to
survive without her. It is not easy.
Schering Plough’s cholesterol drug that it co-markets with Merck does a better job on lowering
LDL, the bad cholesterol, than Lipitor according to studies. Seagate is going to have better sales
and earnings and that suggests that Brocade
should be a beneficiary of storage growth also.
The markets are stuck at the top
of the range where they have been before. There doesn’t seem to be a catalyst
to get them through that level and so stocks are meandering with no trend. The
only real resistance popper that we can think of would be a drastic drop in the
price of oil. We have been saying for months that the real rally won’t occur
until oil drops though $40. Maybe $50 will be the level to engender a rally now;
at least it seems more attainable in the short term.
Overseas markets were mixed last
night and this morning Treasuries are taking it on the chin with the two-year
at 3.62%, five-year at 4.03% and the ten-year at 4.36%.
9:02am and stocks were up out of the gate but the major measures
are now minus without conviction. The flop is Treasuries is weighing a bit.
Crude oil is up 56 pennies to $54.45.
10:47am and breadth is 2/1 negative and the major measures are
lower. We are repurchasing EBAY in
small amounts in accounts that own SBUX.
We also are picking up a few shares of Tribune
and Cabot Micro.
and there’s a
snowstorm in NYC as NY Mercantile Exchange traded crude oil hits $55 again. The
European stock markets closed lower.
The housing market is on fire. This article is worth the read:
3:02pm and Treasury prices ended with
the two-year 3.60%, the five-year 4.03% and the ten-year 4.38%. At the bell the
DJIA was down 23 points at 1093 with
the help of oil stocks. The S&P 500
lost 2 points to 1222 and the NAZZ dropped
16 to 2073. Breadth was 3/2 negative. Oil ended at $54.59.
And tomorrow is today so let the
8 March 2005 Daily Comment
Our description of the Treasury
action on Friday was incorrect on Friday. Treasuries were higher not lower.
We spent the weekend considering our purchase ofElan. After reading the London Times
and several Irish papers plus visiting the NIH website Medline and reading all
that was published in the U.S.
on Google we decided that we were mistaken in taking a position in the shares.
When we made our money in ELN
last time we watched it fall out of bed in mid year and then slowly sink to $3
at year end. This time the stock fell out of bed because of the two deaths for
side effects from the very effective MS drug Tysabri. But there is going to be
at least a six month wait before any approvals are given and in that time period
we can’t see any drug company except Biogen taking a chance buying Elan.
Moreover if one more unexpected illness is announced the stock will go to $3
Quarter end is approaching and
the question is whether the buyers at current prices will be able to mark the
shares up rather than the sellers continuing to pummel the stock. Add in the
mix of day traders and Elan is not a
situation we want to spend time worrying about.
For these reasons we sold all our
shares at $6.23 this morning. Some accounts had a scratch profit but most wound
up with a loss on the sale. We reinvested part of the proceeds in Lucent at
$3.08. We have been trading LU over the last two years and our last sale was at
$3.48 when we were closing out all positions in January.
11:13am and the major measures are higher. We are lagging the
S&P this year and will have to have a bit of luck to catch up. We are happy
with the stocks we own and current aim is to recover the losses from our unprofitable
year end speculative foray without incurring too much risk.
While the media is talking about
new multi year highs it should be noted that the gains in the S&P for the
year are on the order of 1%. While that gain beats our return by more than we
like, it is obvious that there isn’t yet a raging bull market. There may be
Quarter ending markups at the end of the month but the major measures have not convincingly
broken above technical resistance. Maybe this will be the week they do.
Maytag announced that earnings
this year will beat the street estimate and the shares are up $1.50 on the day.
and entering the
contra hour the major measures are higher with the NAZZ leading today up over
1%. Breadth is only 5/4 positive and volume is moderate. Short Treasuries are
firmer and longer Treasuries are a bit light. Oil is down 13 pennies at $53.16.
We are doing buying in various
accounts to get them up to the investment exposure we feel is warranted. Stocks
we are buying are FITB, SGP, JPM, GE,
The action of the Dow averages
gave a Dow Theory buy signal last week according to some technicians.
and as oil turns
higher the DJIA has turned weaker. The NAZZ is at 2092 and a close above 2100
is needed to get the shorts covering and the bulls buying. Intel has quietly moved from the $21 level to approaching $26 in
the last month.
and crude oil
finished up 12 pennies at $53.90. The DJIA
closed down 4 points at 10936. The S&P 500 was up 3 points at 1225 and the
NAZZ was up 20 points at 2090. Close but no cigar.
And tomorrow is today so let the
5-7 March 2005 Weekend Comment
We fell into a cauldron pot with
our purchase of Elan at $7.70
yesterday. Today the media is announcing another case of PML, a rare and 50%
fatal disease, for an MS patient taking Elan’s drug TYSABRI for Multiple Sclerosis in combination with BiogenIdec’s drug AVONEX.This announcement is not new news, it only
confirms the second suspected case that was originally announced and that
person is still alive. ELN and BIIB also announced that there have been no
cases of PML with folks on a single regimen of either AVONEX or TYSABRI. But in
cases of panic details are often lost in the shuffle and media hype.
We have followed and owned both
stocks for a number of years and missed the big run up in both. We did make good
money on both the last time they crashed and were thought to burn but our gains
are in the past and now we are dealing with the present situation.
There are two problems trading
Elan at this time. The first is that of ton of momentum folks like Janus and
Tudor and Fidelity’s fast funds owned the stock when this news hit. They have
probably been selling since they usually abandon ship at the first sign of
trouble no matter what the price and this is trouble, about that there is no
The second problem is that ELN is
now a cheap stock and so a lot of day traders and bottom fishers have purchased
the stock for a pop and they can be weak holders. Heck, we can be weak holders
too. So there is not yet any stability in the stock.
We found that out yesterday when
after 3 days of trading over 400million shares (386 million outstanding) in the
$8 range the stock suddenly dropped to $7 on its way to closing at $6.75.
Obviously some folks got wind of this morning’s news stories around yesterday and the shorts piled in.
Our belief is that the drug will
eventually make it to market again. The absolute risk in the stocks are to $3 on ELN and $30 on BIIB and the upside are takeovers at$10 / $45 by some drug company or a move back
up into the teens or $50s if and when the drug is approved. That is a decent
risk/reward gambit. Until then it will be a rocky road with March quarter end
selling and pop ups along the way. We like the odds and so are going to commit
our emotional capital to both these stocks. Our financial capital will be
limited but actively traded if needed.
7:25am and early on oil is a few pennies lower. Europe
is higher overnight and Hong Kong was down big time
while Japan was
an inch higher. Stock futures are a bit higher and Treasuries are unchanged in
front of today’s numbers at .
It won’t be long now.
non farm payrolls
increased 262,000 in February and 2.4 million over the last 12 months. Average
hourly earnings were up 0.3%. Bonds are muted and stocks are getting a bit of a
11:29am and the major measures opened higher and haven’t yet looked
back. Treasuries are lower with the ten-year at 4.32%, the five-year at 3.96%
and the two-year at 3.55%. Oil is a few pennies lower.
Breadth is 3/1 positive on the
NYSE and the 5/3 on the NAZZ.
We doubled our ELN position this morning for folks who
owned the stock.
and entering the
contra hour the major measures are on their highs with the DJIA up 125 points.
We’ll see if the bulls can win the day. The next hour is the one that counts.
We added more ELN to accounts that didn’t own it.
and oil finished up
21 pennies at $53.78. Breadth at the bell was 3/1 positive on the NYSE and 2/3
positive on the NAZZ. The major measures couldn’t hold their highs and the S&P 500 failed at 1222 so next week
will be another interesting one.
The DJIA closed up 106 points at 10940. The S&P 500 closed under resistance at 1222 and the NAZZ lagged, gaining only 12 points to
And tomorrow is the week-end,
enjoy. The next post will be Monday
The Model Portfolio will be
4 March 2005 Daily Comment
We were wrong; Martha doesn’t get out till after tonight.
We have continued our restructuring of smaller accounts basically
adding to our positions in the big cap stocks in those accounts. The stocks we
mentioned yesterday are where we are placing the money and they are: BMY, BLS, JPM, GE, NYT, and SBC.
This morning we are buying a limited amount ofSBUX at $54.30. The stock has been whipping around and we have not
traded it well. Our initial purchase a month ago at this level was too large in
accounts and then we compounded the problem by adding more shares at lower
prices (making the positions too large) to prove ourselves correct. That never
works. When the markets were teetering at the 1184 level on the S&P 500 we
blew out our position. This morning SBUX announced ‘better than’ same store
sales and jumped up a few points. Since we do think the stock will eventually move
higher as the markets trade higher we repurchased. We haven’t often done this
but we used to trade the GAP this way in the 1980s. The Gap was cheaper than
SBUX and that is why we are treading gingerly with the stock. We did not buy
back in all accounts and we bought in amounts that are more proportioned to the
accounts and the risk.
We also are going to take a flyer onElan. We owned the stock a few years ago and made a profit and then
watched the stock rise to the $30 level. It is back at $7.71 where we purchased
shares in accounts that own OATS. We
didn’t take a big stake. The company needs the suspended drug in order to survive
but it has $1 billion plus in cash and its debt has been restructured. There
was one death and one critical result and that is when the testing was suspended.
Since MS is a fatal disease we can see the drug or at lest talk of the drug
being re-instated. We are in for a trade.
10:20am and stocks opened strongly out of the gate and then backed
off and are now just meandering. We think the employment report tomorrow is going
to limit any upside this afternoon.
Productivity was up 2.1% in the 4th
Quarter and Treasuries liked that number and firmed for the first time this
week. Jobless claims were down 1000 at 310,000. Oil is firmly higher at $53.50
and the major measures are vacillating. Most of the gurus think that the
markets are going to break our strongly. They differ on which way.
Breadth is positive on the NYSE
and negative on the NAZZ and trading is moderate.
was mostly higher and Europe is currently mixed.
11:43am and crude oil is $55.
and the NAZZ is down
10 points while the DJIA is up 10
points with help from the oil stocks. Most of our holdings are in the red and
breadth has slipped to negative on the NYSE
and is almost 2/1 negative on the NAZZ.
Treasury yields are creeping back up and it looks like oil is going to go out
at a record high. The boys and girls are having fun.
and as the contra
hour ends the major measures have turned positive except theNAZZ. Breadth
is positive on both the NAZZ and NYSE as oil has backed off under $54.
Let’s hope the bulls have some
buying power left for the final hour. With the way the market have been action
the past few days we will guess that the final hour will be a downer.
and the DJIA closed up 21 points at 10833. The S&P 500 gained 1 point to end at
1210. The NAZZ dropped 10 points to
2058. Breadth was positive on the NYSE and negative on the NAZZ. Oil ended up
52 pennies at $53.52. The ten-year was unchanged at 4.38% and the fine-year ended
And tomorrow is today so let the
3 March 2005 Daily Comment
Tomorrow Martha is sprung and all the media will become hyperactive. Today Chairman Greenspan is testifying and
supporting private accounts, no deficit, spending constraint and apple pie. It
is amazing the amount of time and space devoted to the musings of one man.
The fact that twice in his tenure
he has artificially lowered interest rates to save the banks and disadvantage
the savers he so ardently advocates is a fact that is lost on the media who are
so devoted to his every word.
On reason we concentrate on
history books in our reading is that such reading reminds us that it has all been
said and happened before. The housing “miracle’ that has floated the economy
since the internet bubble burst is just one more occurrence of the age old
fight among greed and fear and reality.
11:37am and stocks opened lower today but now are to the plus side
with breadth 5/4 positive. We have readjusted some of our smallest accounts by
selling SBC, BLS, andBMY and placing the proceeds in NYT, JPM, and GE which they already owned. We just wanted to create
more meaningful positions. In our larger accounts we didn’t disturb any of the
mentioned stocks but did add to positions in TWX, SGP and MYG and VECO.
Treasuries are unchanged and oil is over $52. Tomorrow and Friday
there will be some economic data for the big boys and girls to trade while
today there are only Uncle Alan’s utterances.
for those who are discouraged by Alan’s testimony this morning a write at www.realmoney.com
reminds that in 2001 Alan was worried about
the surplus in the Social Security Fund buying up all the Treasuries and there
not being any Treasuries for the big boys and girls to trade. For those with short
memories the website to visit is
Excerpt from Testimony of
Chairman Alan Greenspan Current fiscal issues Before the Committee on
the Budget, U.S. House of Representatives March 2, 2001
recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the
federal debt is in reach and, indeed, would occur well before the end of the
decade under baseline assumptions. This is in marked contrast to the
perception of a year ago, when the elimination of the debt did not appear
likely until the next decade. But
continuing to run surpluses beyond the point at which we reach zero or
near-zero federal debt brings to center stage the critical longer-term fiscal
policy issue of whether the federal government should accumulate large
quantities of private (more technically, nonfederal) assets… *****
and unable to stand
prosperity the major measures just rolled over and are now negative. Down
early, then up and now a pullback into the
hour would be the perfect set up if the bulls can then rally the market in the
last hour. If not then it is more of the same old, same old who knows what will
happen. Stay tuned.
and Zowie! Wowie! Crude oil just hit $53. *****
and we are edging
back into Cabot Micro after an ill
fated but not too unprofitable fling with the stocks last year. We are buying
in small amounts in larger/aggressive accounts. The shares ran to the high $30s
at the end of last year but fell to $30 last week on earnings and sales that
were less than expected. We are buying our initial shares of CCMP at $32.60.
3:02pm and the S&P 500
opened lower moved up to resistance at 2118, sold back down to 2112 rallied and
then closed unched at 2109. The high price of oil at $53.07 is hindering the markets
ability to move higher even if Alan isn’t worried about the price of oil’s effect
At the bell the DJIA was off 20 points at 1810.
The NAZZ lost 5 points at 2068. Treasuries were flat and breadth was
5/4 negative at the close.
And tomorrow is today so let the games begin.
2 March 2005 Daily Comment
The NYT has an article in the March 1, 2005 issue about folks buying
homes and condos for investment or trading purposes. The NYT says that the National
Association of Realtors suggests that up to 25% of the homes purchased last
year were for trading not for living.
Flipping houses has become the new party topic. Houses are made to
be homes not to flip and as tulips
were for looking not trading eventually the housing miracle created by
Greenspan’s low interest rates will end badly. The when is the question? We
don’t think the when is around the corner but its day is approaching as interest
rates move higher.
Treasuries took it on the chin on Monday and have recovered a bit
in early morning trading. Asia was mixed overnight and Europe
is higher as is the U.S. *****
There have been a few upgrades in
Biogen Idec and Elan this morning with folks saying that the drug causing the
problems will probably come back on the market with warnings attached. The sell
off yesterday was quite a show and we would expect speculators to take a fling
on the stocks.
The monthly employment number is scheduled for Friday morning
release. www.minaynville.com has an
article that discusses the fact that adjustments for companies ceasing to do
business at year end 2004 affected the January Employment Number negatively to
the tune of over 200,000. This Friday the consensus expects a 250,000 addition
to the jobs markets but minyanville
is suggesting that that number could be in the 400,000 range as the January
adjustment is reversed in the February numbers.
Such a number would have a
negative effect on bonds immediately after release and could set off an
11:18am and the major measures are higher with breadth 2/1 positive.
There have been no big stock blow ups today, oil is down 50 pennies and the
ten-year is at 4.38%. We are watching.
and we didn’t have
much to write today. The major measures except the NAZZ are testing upside
resistance and have yet to make it through. At the bell the DJIA was up 70 points at 10835. The S&P 500 was up 7 points at 1211 and
the NAZZ gained 20 points to 2070.
Breadth was almost 2/1 positive at the bell and Treasuries were unchanged at
the close. Crude oil was down 7 pennies.
And tomorrow is today so let the
1 March 2005 Daily Comment
Personal Income in January was down 2.3% which is because of the
fact that MSFT paid that huge dividend in December and didn’t pay one in January.
Ex the effects of the MSFT dividend Personal Income was up 0.5% in January.
Personal Spending was unchanged and the Personal Savings Rate was 1%. How they
get these numbers is beyond us but there they are. Inflation was 2.2%.
Elan Corp the Irish drug company that we owned a few years ago when
it was in the $3 range and traded for a profit is going to be the ‘market crasher’ of the day. A drug
that they were selling for MS patients has caused serious side effects and has
been withdrawn from the market. The share price is going to open at $9 down $19
per share. We never did understand how a drug company with large debt could
move so quickly higher after selling off most of their promising drug patents
to reduce debt and stay alive. But the fast money hopped on and now it is
Biogen which markets Tysabri under the name Antegren in the U.S.
in partnership with Elan is also off $25 per share. The FDA just approved the
drug in November, 2004. The approval is more egg in the face of the FDA.
May Department Stores and Federated
Department Stores are merging with Federated paying $35.50 in cash and
stock. The combined company will have over $10 billion in debt in a rising interest
rate environment. The last time Federated had this much debt was in 1986 before
it went bankrupt after the 1987 crash. That’s not a prediction, just and
10:41am and stocks are lower on the Biogen Idec / Elan news. BIIB
has lost $10 billion in market value today and Elan has lost $8 billion. Since both were darlings of the momentum
folks this has put a crimp in their trading. BIIB is also a large percentage of
the Biotech indexes that the hedgies like to trade and also is in the QQQQ.
Breadth is flat on the NYSE and
5/4 negative on the NAZZ. Crude oil is up 11 pennies at $51.60 after trading
over $52 earlier. Asia was higher overnight and Europe
is mixed. Bank of America cut Ford
and GM ratings and over the weekend Barron’s
suggested that that GM bonds might be a better investment than the
stock. As a result both GM and Ford are lower.
Treasuries are softer with the ten-year at 4.35% up in yield and
down in price from this morning’s 4.26%. The two-year is at 3.55% and the
five-year is at 3.98%.
We added TLAB, SEBL, and BRCD to accounts that didn’t own them
today and we are taking a position at $15.35 in Veeco Instruments which we mentioned lat week. VECO is off from $20 on news that one of their subsidiaries books
were not in order and that caused VECO to delay reporting earnings for the
fourth quarter and the year. It also loosed the tort lawyers as about ten
different firms filed law suits. This problem will cost VECO some dollars but
we think the stock is good speculative value buy at this level. Hopefully the
accounting problem will be temporary. We have followed Veeco for a number of
years and traded it profitably. With the
current sell off in the stock the company is priced at about 1.2 times sales
Veeco Instruments Inc.
designs, manufactures, markets and services a line of equipment primarily used
by manufacturers in the data storage, semiconductor, compound
semiconductor/wireless and high-brightness light emitting diode industries.
Veeco's line of products allows customers to improve time-to-market of their
products. The Company offers two principal product lines: process equipment and
metrology. Veeco's process equipment products deposit or remove (etch) various
materials in the manufacturing of advanced thin film magnetic heads (TFMHs) for
the data storage industry, semiconductor deposition of mask reticles and
compound semiconductor/wireless and light emitting diode devices. Its metrology
equipment is used to provide critical surface measurements on semiconductor
devices and TFMHs. In November 2003, the Company acquired the TurboDisc Metal
Organic Chemical Vapor Deposition (MOCVD) business of Emcore Corporation and
Advanced Imaging, Inc.
Martha gets out on Thursday. All Martha all the time in all the media.
We like Martha but UGH!!!! *****
and it looks like
the first day of the week is going to be a big downer for the second week in a
row. The DJIA is now down 106 points and the NAZZ is of 25 points as the
biotech wrecks do their work. GM is
down almost $2 and Ford is off 50 pennies.
Oil stocks are also lower and we would guess that the momentum folks who owned Biogen Idec or Elan are locking in some oil stock profits to offset the losses in
those two stocks. Also, Treasuries are tanking and that is not helping the
mood. The hedge funds rule the markets and any number of strategies could be
causing pain today which translates into selling stocks as the easy way to
Biogen Idec has 333 million shares outstanding and will trade over
100 million shares today.Elan has as many shares outstanding and
has already traded 130 million shares. That is amazing.
and it looks like
the markets can’t stand prosperity. The DJIA
closed down 75 points at 10766. The S&P
dropped 8 points to end at 1204 and the NAZZ
lost 14 points to 2052. The ten-year went out 4.37% while the two-year ended at
3.60 and the five year at 4.01%. That’s a lot of damage in the bond pits.
Breadth was 2/1 negative at the bell.
Oil closed up 16 pennies at
And tomorrow is today so let the
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