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For those folks who have accounts with us, you may now go to: www.aacesonline.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the aacesonline site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending March 31, 2004
For Quarter Ending March 31, 2003 For Quarter Ending December 31, 2002 For Quarter Ending September 30, 2002
For Quarter Ending June 30, 2003 For Quarter Ending September 30, 2003 For Quarter Ending December 31, 2003

28 May 2004 - Evening Comment

7:32am and personal income for April rose 0.6%. Personal spending was up 0.3%. So folks are still living within their means. Ha ha.

The university of Michigan Sentiment Survey and the Chicago PMI both come around 9am and will be the last data for traders to trade around for the day and week and month.

Treasuries were 3 bps weaker ahead of the data and are unchanged on the news.

8:51am and the U of M Sentiment survey was 90.2 for May versus an expected 94.

Stocks have opened lower but it is more from an absence of buying than any real selling pressure. The Chicago PMI was 68 versus expected 63.

9:26am and we are adding NT at $3.88 and BRCD at $5.90 to accounts and also repurchasing in larger accounts at $3.95 the CHTR we sold at $4.50 in April.

9:53am and the Chicago PMI has Treasuries trading higher in yield lower in price. The benchmark ten-year Treasury is up 6 bps in yield. The week end and the strong week in Treasuries may also have trades squaring positions.

Southwest Airlines has offered buyout packages to all of its workers in an attempt to cut costs. Obviously not all the workers will take the packages but this is the first time the bet run airline for the last twenty years has reduced employees.

11:33pm and we are tired of watching paint dry and we have some chairs to move and set up for a graduation party tonight. So we are off for the holiday weekend. The SJIA is down 21 points the NAZZ is up 3 points and the S&P 500 is down 2 points.

Our next post will be Tuesday morning.

And tomorrow is another day.

28 May 2004 - Morning Comment

6:45am and Japan and Hong Kong were both up over 1% overnight. Europe is mixed and U.S. futures are lower. Oil is up a few pennies at $39.25 as OPEC says it will open the spigot and produce as much oil as possible as long as the price of oil stays around $35 per barrel. These guys need something better to do with their lives.

On the home front on the charade on terrorism Ashcroft and Ridge are having a disagreement over whether the alert should be amber or magenta. Ashcroft favors amber and is in a tiff that Ridge won’t raise it to that color. Seriously, we think the fact that stocks have rallied 2% to 5% as these two guys argue about threats is an indication that the Bushies have cried wolf once too often or that traders are so anxious to make a buck after the lousy trading year that they are willing to ignore substantial external risks to stock prices.

The last two up days were a surprise to us and so we will predict a third up day. That action would go against the recent trend of Friday sell offs in anticipation of week-end bad news which, by the way, hasn’t occurred. We are picking at a few stocks as the markets are signaling a desire to move higher. But until they break out of their upside resistance the safe thing to do is maintain a large cash holding. And we are.

So let the games begin.

N.B. Sylvia the horse is fine and the bill was less than what we pay at our dentist. And the drill was a heck of a lot larger.

27 May 2004 - Evening Comment

7:28am and we will be leaving early today because Sylvia the horse needs to visit the horse dentist to have a tooth reduced. It should be interesting since this horse weighs 1200 pounds. That’s a lot of Novocain.

7:32am and first time claims for unemployment were 344,000 versus a revised 347,000 last week. Continuing claims were up a bit at 2,940M versus 2,920M. GDP for the first quarter was finalized at 4.4% revised from 4.2% and the GDP deflator was 2.6%.

From: http://www.investopedia.com/terms/g/gdppricedeflator.asp

The GDP deflator is: An economic metric used to account for inflation by converting output measured at current prices into constant-dollar GDP. The GDP deflator shows how much a change in the base year's GDP relies upon changes in the price level.

The GDP deflator has an advantage over the consumer price index (CPI) because the deflator isn't a fixed basket of goods and services. Changes in consumption patterns or the introduction of new goods and services will be automatically reflected in the deflator.

8:02am and the talking heads on CNBC say we need a little inflation. Milk is $4 per gallon; gasoline $2.30 per gallon and house prices are out of sight. We got inflation.

We neglected to mention that new home sales tumbled 11% in April which looks bad until the 10% gain in March is considered. Everyone is trying to pick the month the housing boom ends. We don’t know which month it will, we just know it will.

9:35am and stocks opened higher and just kept moving. We should just keep suggesting boring days for the markets to keep rallying. Breadth is positive.

We added Schwab to our smaller accounts and we are taking a position in Northern Telecom in our larger and aggressive accounts at $3.80. We have been watching the stock since Jim Cramer on Real Money started buying is at $6.50. NT ran into some accounting and CEO honesty problems and the shares have dropped under $4. We think it is worth the speculation at these levels.

We are also buying BRCD at $6 in our aggressive accounts.

Both BRCD and NT have jumped in the last few days and while they are cheap on a trading basis and relative to their price movement over the last few months we think they may back off a bit and we are waiting for that occurrence to add to the majority of accounts.

Stocks have rallied 3% on the DJIA and 7% on the NAZZ in the last three days.

11:06am and crude oil is down to $39.25. The major measures are higher with the DJIA leading the NAZZ today. The NAZZ has had such a big jump this week that some profit taking or resting is due.

12:04pm and we are off to the horse dentist. As we leave the DJIA has surrendered half its gin and the NAZZ is down 6 points. The final hour will be interesting today and we are sorry we will be missing it. So is our horse Sylvia. We presume tomorrow will be neutral with the holiday weekend next.

And tomorrow is another day.

27 May 2004 - Morning Comment

6:24am and Ridge says no and Ashcroft says yes when it comes to imminent attacks on the U.S. Those guys should get on the same page. Overnight gold was higher, oil lower but still above $40, Europe slightly higher and the same with Asia.

The fact that the markets held yesterday was a small win for the bulls but the narrowness of the range of trading and the upcoming weekend holiday will should act as dampers on any stronger upside moves. But we were wrong on Tuesday and on many other days and so ….

With U.S. stock futures above fair value and no untoward news this morning we would expect a higher opening but more of yesterday’s paint drying.

So let the games begin.

26 May 2004 - Evening Comment

7:32am and durable goods were down 2.9%,ex defense down 2.4%, but the previous month orders number were adjusted upward.

The Homeland Security Department is not going to raise the alert level even though we are all to go on heightened alert for the 18,000 terrorists ready to do harm to the U.S.

As a precaution we have placed the dogs on perimeter alert although Tubby is on medical leave due to her advanced age and breathing problems. Pooper and Luna are charged with taking up the slack.

9:01am and stocks are trying to move higher after a down opening. The markets are shaking off selling from yesterday’s big jump and should be higher within the hour.

We are adding Schwab to accounts at the $9.35 level. SCH should benefit from the rise in interest rates since over 40% of its income is derived from interest earnings. Commissions are a smaller portion of their revenue at around 25% and the commission cut announced yesterday will affect that area and overall revenues but we think the bottom line will benefit as interest rates move higher. The shares are down from a high of $13.75 in March.

We are also picking up some Hain Celestial which we have traded before. HAIN has dropped from $23 to $17.50 on disappointing revenues and earnings in the second quarter. Because it is a thin trader we are going to place HAIN in larger accounts as we initiate positions around the $17.50 level.

10:20am and the major measures are floating around just below even for the day. Breadth is positive and trading is light.

12:34pm and the NAZZ is positive but the DJIA just can’t make the jump. With the long holiday week-end approaching and all the terror talk investors don’t want to bite. Yesterday’s last 100 points may have been short covering. Memorial Day has often been a positive week-end but the 9/11 catastrophe is still taking its psychic toll and risk takers just don’t want to be long the holidays.

The durable goods orders of this morning were positive news for stocks if the adjustments to last month are included. Unfortunately for stocks, we think that most folks are investing in their homes and that young folks are most interested in buying and owning real estate than stocks. The beauty and comfort of real estate is that prices aren’t quoted daily in the papers and the imagination is the only limit on the value perceived in the property owned.

12:59pm and the Treasury sold #25 billion of 2 year notes at a 2.53% yield.

1:31pm and in reading a report on www.realmoney.com we were struck by the fact that the currently the Federal Housing Administration is allowed to insure first time mortgage buyers with only a 3% down payment and that the Bushies wants to eliminate the down payment requirement entirely. It reminded us of the early 1980s when the Farm Loan Board and banks and farm credit agencies were encouraging farmers to borrow money for land and equipment at 12% and higher rates. These lenders’ projections showed farmers how they could afford the interest by increasing production. Many of the farmers who followed that advice lost their farms. The same is going to happen to home owners even though interest rates are low. That’s because the folks qualifying for loans won’t be able to make the payments when rates rise on the adjustable rate mortgages or floating rate home loans.

3:02pm and the DJIA lost 8 points to end at 10110. The S&P 500 gained 2 points to finish at 1115 and the NAZZ rose 12 points to 1977.

And tomorrow is another day.

26 May 2004 - Morning Comment

6:45am and so much for our comments yesterday morning suggesting a nothing day and little activity. With the major measures closing on their highs and all making better than 1% moves a little pullback this morning will be in order. Then it will be up to the bulls to move stocks higher with a strong close to show that they are again in charge.

Most of the trading yesterday was program related as it has been recently, but an up market is an up market no matter who is doing the moving. The only problem with programs moving the markets is that the programs can only take them so far, then some real investing needs to enter the fray.

This morning the markets get durable goods as their trading key. That isn’t much but even with the heightened terrorist activity being discussed we would guess that stocks will move higher after an initial sell off.

So let the games begin.

25 May 2004 - Evening Comment

Note to clients of Lemley Yarling Management Co: the following letter will be sent on or about June 3, 2004 to clients.

Dear Clients:

As we have previously informed you, the execution and clearing services of ABN AMRO the firm we have used to execute and clear trades for Lemley Yarling & Co (LY&Co) was sold to Merrill Lynch (MLFPS) on March 31, 2004.

We have chosen to not continue with MLFPS because while MLFPS is a fine firm with excellent resources the fit is not good. If we switched to MLFPS we would have to transfer all our IRA accounts from TruStar (Delaware Charter) to MLFPS as trustee. Also MLFPS does not currently offer check writing on cash held in accounts.

And so we have decided to transfer accounts to Mesirow Financial Inc. (Mesirow). Mesirow is a Chicago firm that is small enough to give us and our accounts the personal attention we require.

Mesirow Financial, Inc., a New York Stock Exchange member firm has been in the clearing business for over twenty-five years and enjoys an outstanding reputation for service. Additionally, Mesirow Financial, Inc. is equipped to electronically process customer transactions and retrieve customer account information on a real time basis. This high tech capability dramatically enhances service capabilities for order execution and up to the minute customer account information.

Unless you advise us, in writing, to the contrary by July 5, 2004 on the conversion day your brokerage account will be automatically transferred from our current clearing agent ABN AMRO to Mesirow Financial, Inc. You will receive statements from both ABN AMRO and Mesirow Financial, Inc. reflecting the delivery of funds and securities in your ABN AMRO account to Mesirow Financial, Inc.

The tentative transfer date is July 16, 2004.

After the transfer customer confirms and statements will continue to display the name Lemley Yarling & Co. The statements will be different but of the same general nature as the one’s you currently receive. Because of the transition clients will again receive two 1099 statements at year end. Hopefully this will be the last time. On a positive note the 1099s generated when Mesirow is clearing our trades will contain realized gains and losses needed for tax season.

For continuing information on the conversion we ask that you call or visit our website at www.budlemley.com .

As another part of the conversion all Cash Equivalent Money Market Fund positions will be liquidated and will be held in cash and paid interest pending reinvestment.

Clients will be able to write checks on the cash balances in their accounts. As a result of having this check writing feature we no longer will send monthly checks to clients. Those clients who receive monthly checks will be receiving check writing applications a soon as the accounts are moved to Mesirow. We will also be sending check writing applications to any client who requests that feature. The check writing feature should reduce substantially if not eliminate the need for clients to ask us to send or wire checks to them. Free Wiring of funds at our end will still be available.

This letter is notice to clients of Lemley Yarling & Co that Mesirow will now become the clearing broker for Lemley Yarling & Co.

Upon transfer of the accounts to Mesirow we will need new “W9s” and Margin Agreements and those are enclosed for your signature. These forms must be returned to us as soon as possible.

Mesirow has an online account site www.mesirowfinancial.com . It will be necessary to reapply with new account info and password but we will be available to help in the process.

If you wish to move your account to a different broker, please contact us by calling the number(s) below. But if we receive no instructions by the transfer date we will take the lack of response as assent to transfer.

Please call with any questions


Bud Lemley 1-800-654-9865
Kathy Pinto 312-925-5248

9:02am and Consumer Confidence was 93.2 in May versus and 93 in April. Existing Home Sales were up 2.8% at a 6.64 million annual rate. And the Iranian oil minister says that oil priced at $30 per barrel is a fair price.

Stocks are trading lower and Treasuries are higher this morning but trading is light. Breadth is negative.

9:06am and this market is becoming more interesting to us as stocks we like continue to move lower. Our intention is to purchase some issues for the longer term which is more that a few months in our way of thinking. We aren’t at any purchase points yet but prices are eroding nicely.

The Iraq imbroglio is disconcerting and will have to be under control before stocks take off to the upside. With the Olympics and political Conventions occurring later this summer the threat of terrorism is going to act as a damper on any rallies and so we are not seeking any trading situations. But we will do some investing if the chance arises.

9:18am and breadth is now 3/1 negative on the NAZZ and about even on the NYSE.

Schwab is cutting commissions and the share price is nearing its 12 month low.

TLAB is off today and we are going to take a larger position in the stock but we are going to give it room for the arbs to take it lower. If this were not an arb situation the shares would be 20% higher.

10:08am and crude is down 43cents to $41.30 and on that the DJIA rallied to plus territory. The NAZZ remains in negative ground.

12:26pm and as we dozed stocks rallied. It never fails that when we predict a dull day the markets rally. It has been a dull rally and we are not inclined to play it. Breadth has improved with it 3/1 positive on the NYSE and 2/1 positive on the NAZZ.

The DJIA is up 90 points and the NAZZ is up 20 points.

1:48pm and approaching the final hour the DJIA is on the high for the day up 107 points. The NAZZ is also at its high up 29 points and volume is better but still holiday light. The last hour as always will be the test.

Today’s action has been more positive than the last five days. The last five days the S&P 500 has opened higher and then faded throughout the day. Today the S&P 500 opened lower and then has slowly moved higher over the last four hours.

Schwab is lowering commission by a big chunk and as a result expects lower revenues. But Schwab has $800 billion in assets under its control and eventually that’s the important element in the financial business. And so we are interested. SCH is trading at $9.25 and the 12 month low is $8.50. It’s about time for a bank to want to buy it again.

3:02pm and the shorts got caught by the bulls today. Whether today’s action will be another one day wonder will be resolved tomorrow. At the bell the DJIA was up 160 points at 10117. The S&P 500 rose 18 points to end at 1113 and the NAZZ gained 42 points to finish at 1964.

And tomorrow is another day.

25 May 2004 - Morning Comment

6:45am and Bush didn’t say much last night although he did manage to get though the speech with out too much difficulty. One president, two vice presidents a prime minister and 26 cabinet secretaries seems like a bit much for an interim government of at most 6 months..

Japan was down overnight and Hong Kong was a bit higher. Europe is lower and so is the U.S. Gold is higher and oil is off pennies.

OPEC has raised the band on oil prices with a $30 per barrel low as they say that production can’t keep up with demand.

Yesterday was a snooze and we expect today to be the same as there is no big news in store this week and with the Holiday approaching folks will begin to leave early if trading doesn’t pick up.

So let the games begin.

24 May 2004 - Comment

8:15am and our trip was short and sweet and we managed to see the folks we wanted and make it home in time to watch today’s action.

The Saudis are going to raise production by 2 million barrels a day, or so they say, and that caused oil prices to drop under $40 per barrel last night. This morning prices are back over $40. Not letting price action get in the way of fond hopes world markets have rallied overnight on the news and the U.S. markets are going to open higher. Treasuries are trading a tad lower.

The big news today is Bush Junior’s speech to all of us at 7pm CDT. The big news yesterday was that he smashed his face up falling from his bike at the end of a 17 mile cross country trek. What a guy! Well at least he wasn’t eating pretzels.

9:44am and stocks opened higher with good breadth and light volume. The DJIA has been up as much as 70 points and is currently up 40 points. The NAZZ is up 1% and is leading the way higher. It outperformed the other major measures last week by rising a bit while the DJIA and S&P 500 were both off fractionally. Treasuries are slightly better and gold is lower.

11:05am and having worked off expiration related activity the major measures have given up most of their gains. Oil is higher. Breadth is less bullish than earlier but is still 2/1 positive and volume remains light.

1:27pm and the DJIA is down 20 points. That drop can be ascribed to the drop in Altria a/k/a Phillip Morris which is down $4 per share on an adverse ruling. The cyclicals in the DJIA are higher. We bought more TLAB at $7.90 in smaller accounts and to round out positions in larger accounts.

Why are the oil stocks all strongly higher today if the Saudis are going to force oil prices lower by increasing production? Inquiring minds want to know.

3:02pm and in a slow crawl to the bell the DJIA closed down 6 points at 996. The S&P 500 gained 3 points to finish at 1095 and the NAZZ rose 12 points to 1924.

And tomorrow is another day.

21 May 2004 - Evening Comment

8:01am and this is going to be a half day for us because we have some furniture to move and then we are off to Kentucky for a party and visit with clients tomorrow and a trip to Chicago on Sunday to see clients and to celebrate with our mother and relatives her 91st birthday.

We’ll be returning Monday morning so the next post after this one will be on Monday afternoon May 24.

8:05am and as we said in the morning post there is a technical reason for stocks to open higher and that reason involves jargon with even we are not familiar. After the higher opening the true test of the day’s trend will then occur.

8:19am and money still talks in criminal circles as long as you are one of the boys. Richard Strong who used to be head the mutual fund complex that bears his name settled complaints against him paying $60 million and issuing a note of apology for transactions that were less than up and up. That follows on the heels of Edward Stern and Canary Fund paying $40 million for the Feds to go away. No Federal charges, no criminal charges just pay, say you’re sorry and take a hike. By the way both money amounts are walking around money to the respective parties.

11:02am and we missed a bit of the action as we packed up our grandchildren for their trip home. We also are packing to leave so this is going to be our last post. The DJIA is up 80 points and the NAZZ is 16 points higher. Breadth is positive but volume stinks. We hold with our guess that the major measures close flat on the day.

We are delighted with our cash position and even with our greed related give-up of our gains for the year we are ahead of the markets and have plenty of buying power for future opportunities.

And tomorrow is another day.

21 May 2004 - Morning Comment

7:11am and we are having quite a storm and are hoping the lightning spares our computers as we type this important missive to our readers.

Japan and Hong Kong both gained 2% overnight and Europe is higher as are U.S. stock futures. The punk close last night was discouraging for the bulls but this morning’s action may yet give them some hope. The only problem is that today is Friday which is the day traders lighten up ahead of any weekend bad news.

Treasuries are ahead for the week and that suggests that the big boys and girls have been doing some short covering but may also indicate that there are some folks in the bond pits who don’t believe the economic recovery is going to last much longer.

CNBC is doing a story on the fact that record high gasoline prices are affecting the sales of SUVs which are the big cash cows for auto makers.

Overnight Smith Barney raised Tellabs from hold to buy on the AFCI takeover.

For today we see up early because of technical factors due to expirations of futures contracts and then a fade into the close.

So let the games begin.

20 May 2004 - Evening Comment

7:11am and Tellabs has agreed to acquire Advanced Fibre Communications for $1.9 billion or $21.50 per share (1.55 shares plus $7 per share cash) based on closing prices. AFCI earned $15 million in the last 12 months. The cash portion being paid is the net of debt and cash on AFCI books so TLAB is paying about $1.1billion in stock. That is about 3 times sales which is the same multiple at which TLAB trades. The price seems fair given tech prices and AFCI is at the low end of where the stock has been trading for the last few years and much lower than the all time high for the stock in 2000.

AFCI is profitable and the fit is good. We have a continuing interest in TLAB and so on the arbitrage sell off we may be interested. Then again we may not.

Ciena announced a $76 million loss for the quarter on less than expected sales. CIEN sees 30% higher sales in the next quarter. We are going to stick with TLAB as our telecom play because at least they are making money.

7:20am and it looks like the Pentagon no longer likes Dr. Ahmad Chalabi, the Iraqi who told of WMD and planned on being the George Washington of Iraq with the help of his friends Paul Wolfowitz and Richard Pearle. Sic transit Gloria.

7:32am and jobless claims were up 12,000 to 345,000 for the latest week which number was higher than expected.

The WSJ is reporting that if crude oil prices hold above $40 per barrel the losses in the airline industry will exceed $5 billion. That really is no surprise. Since the beginning of the airline industry in the 1930s the industry as a whole has never made a dime. The only truly profitable airline is Southwest. Airline stocks are true anchovies.

9:02am and the major measures are modestly higher in light trading. Treasuries have rallied a bit with the yield on the ten-year falling to 4.75% from 4.80%.

Breadth is 2/1 positive and up volume exceeds down volume by 3/1. Thus the technicals of today’s trading are positive but the lack of volume means a lack of conviction.

TLAB is off 15% to $8 and we want to take a position in the stock. It is down on takeover arbitrage. TLAB is offering 1.55 shares plus $7. We think this situation may turn into the Kerr McGee/Oryx arbitrage bonanza for our accounts that made happy dollars for us several years ago.

10:58am and we bought a chunk of TLAB at $7.90. We will buy more if the stock goes lower. TLAB is profitable, has over $2 per share in cash and we think the fact that AFCI shareholdes are going to receive $7 per share in cash will keep them from selling much of their newly minted TLAB shares when the deal goes through. And the $7 per share is going to flow from AFCI’s coffers not TLAB. The traders who want to sell TLAB are doing it now by shorting TLAB and buying AFCI to lock in a 40 cents arbitrage per share profit. We aren’t doing the same because we want to own TLAB and if the deal falls through TLAB will provide a good profit as short sellers are forced to cover.

Less the cash on hand that TLAB has of $1.2 billion, TLAB is priced at $3 billion with trailing twelve month sales of almost $1.4 billion. That’s a share price of 2 times sales which is relatively cheap. Moreover the merger is synergistic and should enable to the combined companies to effectively compete for the RBOCs broadband business.

The major measures are back to even on the day and probably headed lower until the final hour when the test of the bulls resolve will occur.

12:09pm and volume is low and paint is drying. There are individual stocks making major moves but the overall averages and indexes are somnolent.

We are not averse to putting money to work as with the TLAB which we have been watching for a while looking for a decent entry point. Today’s arb related sell off has given us the opportunity.

Another stock we maintain an interest in is Cabot Micro (CCMP) but it is moving with the markets and so we are holding off on re-entry.

We would like to see the S&P move down to 970 and the QQQ go to 28 both of which numbers would be 50% pullbacks from the up move of the last year and one half. Till then we are going to be picky unless some major event occurs.

2:15pm and stocks are to the plus side with little conviction. Breadth is narrowly positive on the NYSE and decidedly negative on the NAZZ. Down volume exceeds up volume on both venues. If it weren’t an expiration week we would guess that many folks would be headed to the beaches tonight.

3:02pm and the DJIA closed up 2 points at 9939. The S&P 500 gained 1 point to 1089 and the NAZZ lost 2 points to 1892. The ten year Treasury dropped 8 bps in yield to 4.72%.

And tomorrow is another day.

20 May 2004 - Morning Comment

6:34am and the collapse of the major measures into the close was not a welcome sight for the bulls. Breadth was still positive at the close so part of the pullback may be traceable to expiration and part to asset allocation switching to bonds which closed on their lows.

Whatever the cause the bulls have some work to do since today is Thursday and our guess is that traders still won’t want to be long on Friday afternoon.

It is important to remember that 50% of the volume these days is from hedge funds trading for who knows what reasons but trading. And they have no loyalty to stocks or bonds or gold or beans. Hedge funds are just trying to exploit perceived advantages for how ever long those advantages exist. Their philosophy is a far distance from the buy and hold mantra of our mothers day.

Japan’s Central Bank says it is going to continue to keep interest rates at zero and pump money into their economy because deflation is still a problem.

Oil is up, gold is down, Europe is lower, and Japan and Hong Kong were both down 1% overnight. U.S. futures are slightly lower.

Iraq remains a quagmire. We are happy that Mrs. Gandhi stepped down. Three Gandhis assassinated are enough for one family to offer for a county’s well being.

We have no idea what will happen today.

So let the games begin.

19 May 2004 - Evening Comment

7:11am and we have to go out for a bit to get the horses into the barn for their visit from the Vet today.

7:35am and Treasuries are lower as stocks look to open much higher. With Fed presidents talking about inflation the talk is going to get back to bond yields. For the past few days bonds and stocks have been going different directions.

CNBC is reporting that several economists are taking down their estimates for growth for the rest of the year with oil over $40 per barrel. Inflation and slower growth equals stagflation.

8:23am and most of the technicians we are reading want an increase in volume today to confirm a bottom or at least a bottoming process. The markets opened higher yesterday but then went nowhere and volume on the NAZZ was very low. Some folks are looking for techs to lead us higher as they did last year. Maybe Merrill will change its opinion that techs are no longer the leaders.

www.minyanville.com is reporting that the statement by a Chinese Central Bank governor that the Central Bank would not raise interest rates to slow the economy because the 5% inflation rate is acceptable seems the reason for the rally that began last night in southeast Asia and is carrying over into Europe and the U.S. this morning.

8:50am and the DJIA is up 70 points the NAZZ is up 25 points and oil stocks are the only down group. Breadth is positive and volume is OK. Treasuries are lower in price and higher in yield as the inevitable rate hike is a day closer.

9:33am and the rally continues to build and is displaying strength with breadth 4/1 positive. The DJIA is up 115 points and the NAZZ is up 35 points. And we have no dogs in the hunt.

12:39pm and we took an hour off to visit with the Vet and have the horses checked out. One of them needs Dental care and so we have to truck her to the Vets next week.

In our absence the major measures surrendered some of their gains but the NAZZ remains 30 points higher on the day. Treasuries remain lower.

Breadth is over 4/1 positive and up volume exceeds down volume by a 6/1 margin. New highs and new lows are. Citigroup remains 50 cents per share higher and HPQ is holding its early morning gain. Volume has slowed a bit but is still respectable. Oil stocks have turned positive.

2:02pm and we sold the balance of our LYNX in accounts at $2 for a substantial loss. And we are swearing off medical/biotech stocks for the duration of our life.

Entering the final hour the DJIA has given up most of its gain for the day and is up 30 points. The gain in the NAZZ has been sliced in half. Volume has dried up. But the last hour is the most important and we’ll see how that goes.

Breadth is still 2/1 positive so the pull back in the contra hour may just have been the pause that refreshes.

2:10pm and we have to leave early today .the DJI1 is at 10,008 up 38 points as we depart but volume is punk. We’ll comment on the close in our morning post.

And tomorrow is another day.

19 May 2004 - Morning Comment

6:16am and MBA mortgage applications were down 11% the week of May 14, versus down 5% the previous week. With all the turmoil India’s government supported their market this week and Taiwan has set aside $4 billion to support its stock market as a new president is sworn in and China continues to talk tough. So much for free markets.

Hong Kong was 3% higher overnight and Japan was 2% up. Oil is lower and with Hewlett Packard having an excellent report and Applied Material was in line. Europe is higher as are U.S. stock futures.

We remain flummoxed by the markets and will stay on the sidelines for now. We tried to repeat our year end success by continuing our trading in low priced stocks this spring. That didn’t work and the resulting drop has us back to even for the year. There are worse events that we have endured and given world happenings we are happy to be whole and living in America .

For today we would guess higher early then a pullback and then higher into the close. Remember it is an expiration week.

So let the games begin.

18 May 2004 - Evening Comment

7: 11am even with yesterday’s rally in bonds most Treasuries are showing negative returns for the year. The DJIA is down 5% as is the NAZZ so the unchanged to down or up 1% of our portfolios is comforting while not money making

The Nikkei was up 206 points based on improved GDP projections for Japan and the yen is gaining against the dollar.

Agilent and Computer Sciences announced good numbers last night and the stocks are trading higher this morning. That’s a change from the good news is bad news of the last week and suggests some staying power for today’s rally. HPQ announces their earnings after the close.

7:32pm and Housing starts for April were down 2% but last month was revised higher. This months housing start number was less than expected but new permits were higher.

Treasuries are selling off on the rebound in Asia and the positive attitude in the U.S. markets this morning.

7:53am and Deere just announced better than expected and is up $1 in early trading.

8:53am and one politician’s pork barrel is another’s necessity. CNBC has been running a three hour Bush Campaign commercial this morning and now they have a fellow on from Citizens Against Government Waste talking about the waste of money to place traffic lights in Connecticut or to provide broadband services in rural areas. Since that last jab includes us courtesy of our local telephone Co-op we take particular umbrage and would remind him that folks in rural areas pay taxes too. The truth is that the well coifed fellow who is ranting against government waste has his $200,000 per year job courtesy of taxpayers since we are sure his group is funded by tax deductible dollars. And CNBC exists because of government largesse in awarding cable franchises and airwave space. We could go on and on.

9:02am and breadth is 2/1 positive and stocks opened higher but are now pulling back. This may set up a better rally later today but the volume is not great enough in the pullbacks or rallies to signal a trend change.

9:13am and Agilent announced good earnings after the bell and traded higher overnight and at the opening. But it is now lower on the day. The same has happened with Deere. Computer Sciences opened higher and remains up 3 points and Home Depot which announced excellent results is also up 2%. The failure of DE and A may be company specific but we’ll watch HD and CSC for the rest of the day. By the way Citigroup is up today above the $45 line in the sand by 5 cents.

10:54am and Tony Randall died. We always liked him. He seemed an intelligent man.

The major measures remain in the green while volume lags.

11:36am and stocks continue to chug higher with no pullback. The groups of stocks lower are the oil and drillers all the rest are in the green. Oil pulled back but remains above $41 per barrel. Breadth is solid and C is up 1% with HD up 2%. Currently the DJIA is up 75 points and the NAZZ has poked its head back above 1900.

11:53am and the Republic is saved, CNBC is reporting that the White House has re-nominated Greenspan for another four year term as Fed Chairman. But his term as Fed governor expires in January 2006 so he will only be Chairman for another year and one half before he has to leave the board. Then President Kerry will appoint a new Chairman.

1:01pm and stocks are coming back in. The DJIA is up 48 points and the NAZZ is up 15 points. This is the countertrend hour and the next hour is more important.

2:11pm and entering the final hour crude oil futures have closed below $41. The major measures are holding and breadth remains positive except less so than earlier.

We have received two calls today about buying property before the prices go higher. Do those statements remind of an earlier time say 1998 to 2000 when the same mantra was used to justify stock purchases? The bubble in real estate has been burgeoning for about four years now and our guess is that soon…

3:02 pm and Home Depot and computer Sciences held their early morning gains while Deere and Agilent closed lower. At the bell the DJIA was up 63 points at 9969. The S&P 500 gained 8 points to 1092 and the NAZZ rose 21 points to end at 1897. Treasuries closed lower in price and higher in yield but did rally a bit into the close.

And tomorrow is another day,

18 May 2004 - Morning Comment

6:45am and the major markets are up around the world. India closed down 11% yesterday but is up 8% this morning and Japan gained 200 points and Hong Kong was up 100 points. Europe is mixed but mostly higher. Treasuries put on a good rally yesterday and we’ll have to see if an up market today will affect that action.

We are down to one stock in many portfolios and since it is not one that would be our first purchase we may let it go soon and rethink our investment outlook. We had the right goods at year end and received a nice pop in our stocks and then we got greedy. We’ve spent the last five months dealing with our greed and in the process we have surrendered our gains.

Where to from here is the question of the day for us and many other managers. Since we are out of stock at the moment we have no dogs in the current hunt (we sold them all). There don’t seem to be many catalysts for a rally yet the markets seem to have corrected enough to suggest at least a weak if not stronger rally.

We weren’t in the right stocks for the rally and that is the reason we have basically moved to cash. We aren’t averse to trying to trade a rally but our thought process right now is to take some time to reflect and refocus.

AT&T has completed a five year deal with Sprint PCS to offer wireless services under the AT&T Wireless name which will cease to exist when AT&T Wireless merges with Cingular. We think the action is a good move on the part of AT&T and it suggests an eventual combination of Sprint and AT&T. We are interested but not moved to buy at this time.

U.S. Futures are up and indicating a slightly higher opening.

So let the games begin.

17 May 2004 - Evening Comment

7:11am and we regret the death of the President of the Iraqi governing Council. We didn’t know his name or who he was or who he represented. And he has already been replaced.

7:34am and Treasuries are rallying and the dollar is dropping in reaction to the Iraqi news. There were also explosions at UK banks in Turkey that we missed mentioning in the morning post. By the way the China/Taiwan story in the morning post was reported on www.minyanville.com.

The Empire Manufacturing Index was 30.4 versus an expected 34.1. The futures remain lower.

Prudential has dropped the auto sector on fear of rate increases. Where have they been? Anyway GM goes to neutral and Ford and Chrysler to under weight.

7:54am and Jeff Cooper who is a technician that we follow on www.realmoney.com presented a chart this morning. The chart suggests that 78% of the time that the first time the DJIA touches its 200 day moving average which it did on May 10 after an extended bull run a buying opportunity is created. We shall see. Actually a panic sell off this morning might set up that scenario if the S&P tests and bounces off the 1060 level.

With stock markets down around the world margin selling may take hold. Moreover, the killing of the Iraqi Council President who had no real power is mostly a symbolic loss.

8:08am and on top of all the news this week is an expiration week with all the funny stuff that event brings. Recently the big moves have been occurring earlier in the week.

9:28am and breadth on the NAZZ is 7/1 negative and 3/1 negative on the NYSE. The DJIA is down 100 points and volume is moderately active. New lows are less than 100 on both markets. The NAZZ is down 25 points and the S&P 500 is nearing 1080. The drop is contained at these levels as Treasuries rally on the flight to safety issue.

9:30am and Reuters is reporting that the Army has found an exploded artillery shell that had sarin gas in it. So now that the army has found one exploded artillery shell Bush is exonerated on the WMD question and the threat that one shell posed to the United States and after spending $300 billion to take out that one shell he can declare victory and bring the troops home. Our guess is that if Bush announced the troops were leaving Iraq at the end of the month stocks would rally 20%. And his poll numbers would rise because he had the courage to admit he was wrong. The situation is analogous to Nixon going to China when there is no way Humphrey could have had he been elected. So too for Kerry saying he will pull out if he is elected, although we think he will.

10:53am and like last week, after the initial leg down prices have stabilized. Breadth and down versus up volume are still negative but better that the extreme negative readings of the opening hour.

11:34am and we just realized that the Memorial Day holiday is actually going to be on Memorial Day this year.

12:24pm and we have decided to bite the bullet and sell our CIEN position. It is quite large and involves a hefty loss. We don’t want to own it ahead of Thursday’s earnings and while we think it is cheap we don’t have the desire to continue owning it as it gets cheaper. The merger that issued 100 million shares that are available for sale was not supposed to be finalized till later this summer and we think those shares are pressuring the stock. There are times to blow out mistakes and take a fresh look and for us this is one of those times.

We are trying to sell the LYNX that we own in aggressive accounts, also at a substantial loss. We made a bit of money trading the stock and then got caught in a waterfall. Our read of their financial report released last week when they announced non earnings was not a happy one and the stock tanked for good reason. We thought they would have kept more of the money they had just raised through private share placements but they burned through five million dollars in the quarter. That means they have to find an angel or sell more stock. In either case we are trying to extricate ourselves.

1:09pm and the 1pm hour is the countertrend hour. And right on schedule stocks are rallying. The technical internals remain negative. The final hour is the tell and the set up for tomorrow.

2:10pm and the collapse of the Indian market may be affecting some hedge funds and banks which is how Long Term Capital got in trouble and 1998’s big sell off occurred.

3:02pm and Citigroup broke down through $45 per share during the day but closed above that number. Volume was summer light and at the close breadth was 2/1 negative on the NYSE and 3/1 negative on the NAZZ. New lows were tame with about 150 both places. Down volume exceeded up volume by a 7/1 figure on both the NYSE and NAZZ.

At the bell the DJIA was off 110 points at 9902. The S&P 500 lost 12 points to finish at 1085 and remains above its 200 day moving average. And the NAZZ dropped 28 points to 1875. Treasuries closed higher on the day.

And tomorrow is another day.

17 May 2004 - Morning Comment

6:14am and as we turned on the computer we were met with the news that the head of the Iraqi governing council was assassinated, China is demanding that the new president of Taiwan accept Chinese rule, and India’s stock market has crashed another 17% on top of Friday’s drop in response to the win by the Gandhi Party.

Overnight Japan was down 3%, Hong Kong was off 2%, Europe is down across the board and U.S. futures are down 1%. An interesting week awaits us. Any continued sell off today in the major measures is going to worry technicians. We are watching.

Our three stocks are in the tank like all others, but at least we are 90% plus cash in all accounts. We are battening down the hatches.

So let the games begin.





From http://www.talkleft.com/ for fun do the following:

Someone at Google apparently has a sense of humor. We received this by email, try it soon, before someone at Google fixes it:

1) Go to www.Google.com

2) Type in (but don't hit enter): "weapons of mass destruction"

3) Hit the "I'm feeling lucky" button instead of the normal "Google search" button.

4) READ CAREFULLY what appears to be a normal ERROR message.

15 May 2004 - Update

7:11am and we wish a happy birthday to mother Odella. It’s number 91 and only 9 to go to 100.

We are reviewing the last few days by posting our thoughts during those days.

13 May 2004

6:41am and overnight Japan dropped 3% and Hong Kong was lower even though markets rallied into the close on Wednesday in the U.S. and that rally reversed a 160 point drop. Disney announced 5 cents better earnings and Wal-Mart beat by a penny.

Disney is projecting earnings for the year that will still be less than they earned six years ago. Why should Disney deserve a growth multiple?

Europe is trading higher taking heart from the rally while U.S. futures are lower before the opening.

Our thoughts remain that the risk/reward ratio is more than we want to accept at this time of year. Since the bubble burst in 2000 summer trading has been an off and on affair with two summers being positive and two negative. We just have a gut feeling that volatility and world events are caps on any market gains.

6:52am and we get mail:

Bud: I have been searching the internet to find some good new for CBB & CIEN without success. Now the CICSO savior for CIEN has faded away. I can find nothing to indicate that CBB has any prospects for a takeover (or takeout). Some of the stock market experts seem to think that today's turn around signals a capitulation bottom for the market. In today's comments you seem to disagree with this point of view. My portfolio as of 04/30/04 has a valuation equal to its value at 12/31/03. Granted we are mostly in cash. My question is why are we not fully in cash considering your negative view of the prospects for the market as expressed in today's comments.

And we answer:

Ed: Because on an absolute basis CIEN and CBB are cheap. There are other cheap stocks in the market but we don't have any desire to do more buying. We may get a rally; in fact one of the fellows we follow says the action in the advance/decline data for the past few days has led to an intermediate term rally in 10 out of 10 occurrences in the last twenty years.

The only problem is that the rally would probably only get the markets back to where we started going to cash. We just don't see the resumption of last years bull move although it is true that we missed that one. But we had made good money before the move and made our usual gain at year end so we came out OK.

By the way, you are even and the DJIA is down 4% and the S&P 500 is down 2%.

7:32pm and PPI was up 0.7%, Core PPI up 0.2% in April and jobless claims rose 13,000 to 331,000. Retail sales dropped 0.5% and ex Autos dropped 0.1%. Again we ask can anyone say stagflation.

The inflation numbers in the PPI have Treasury yields moving higher.

8:09am and Yossarian in Catch 22 would appreciate Rummy’s dictate that the Pentagon can’t release more pictures of the atrocities at prisons in Iraq because to do so would violate the Geneva Conventions that proscribe exposing prisoners to degradation.

Catch-22 is a military term that is confusing and difficult to describe. In short, its basic meaning is that if there was a rule, no matter what the rule is, there is always an exception to it. It is a mysterious regulation that is in essence a circular argument. This catch keeps Yossarian in the war because a concern for one's own life proved that he is not really crazy, and to get out of combat you have to be crazy. The catch is used by the superior powers to uphold and increase their power, and yet it is harmful to those who do not have power in the first place. It creates situations where, when you think everything is perfect, Catch-22 pops up and makes your plans impossible.

8:39am and the stock markets have opened marginally lower. The first two tranches of the Treasury auctions this week are under water.

1:22pm and stocks rallied to positive in late morning but now are in a sell off trend into the approach to the final hour of trading. The ten-year Treasury came at a 4.84% yield and central bank purchases were just 31% of the auction which is a drop off from the 45% level that recent auctions have experienced. The five-year is yielding 4%.

We are interested to see if the markets get the final hour buying of yesterday.

3:02pm and the bulls tried in the last hour again but couldn’t get the DJIA to close higher. At the bell the DJIA was down 34 points at 10011. The S&P lost 2 points to finish at 1095 and the NAZZ also rose 1 point to close at 1926.

Crude Oil closed at $41.17 on the NYMEX.

14 May 2004

7:11am and overnight Japan was up a bit and Hong Kong lost 1%. U.S. futures are slightly lower and Europe is mixed. Last night Dell announced good results but traders didn’t like them and the share price dropped. But then we have always thought that Dell sells at too high a multiple. Dell is currently trading down $1.40 per share.

The NYT has an article about the failure of the Government Airline Bailout Program after 9/11. Back then we mentioned that all the big majors would probably have to file bankruptcy. US Air did and is thinking of doing it again. UAL did and Delta is suggesting that tactic. No word yet from AMR but we said then and now that the majors have so much debt that if one of them is able to eliminate most of that debt in bankruptcy and also get loan guarantees we don’t see how the other majors can compete. Our one caveat which remains is that AMR is a Texas company with fantastic political connections. For the same reason that Texas Commerce Bank didn’t go belly-up during the bankruptcy demise of many of the Texas banks in the late 1980s because of strong political connections (Secretary of State/Treasury James Baker’s family were large holders of that bank’s shares) we are agnostic on AMR.

7:32am and April CPI was up 0.2% and core was up 0.3%. This is a phony number. Gasoline prices were supposedly down 0.3% and food and lodging costs were also supposedly down. Treasuries are higher in yield and lower in price on the release. Business inventories rose 0.7%, business sales rose 2.4%.

8:04am and 1160 on the S&P 500- which is currently at 1095- represents a 50% upward retracement of the down move in the S&P 500 from its 2000 high of 1550 to the low of 785. That is why the 1160 number has acted as resistance. Also it is interesting to note that the pullback from 1550 to 780 was a 50% retracement of a move from 0 to 1550.

As we said in yesterday’s comment, the 1060 area is support and the 1100 area is resistance which if penetrated to the upside could lead to a rally to the 1105-1108 area where we think the rally would fail and the markets would turn downward.

Trying to trade the market with the SPY or QQQ is going to be difficult since over 50% of the trading occurring in stocks is using those two measures. But we keep looking for a few good stocks to trade.

April Industrial Production was up 0.8% and Capacity Utilization was 76.9%. Both numbers were higher than expected. Treasuries have now reversed earlier losses and are trading to the upside with higher prices and slightly lower yields.

9:10am and the DJIA opened higher but is now off 50 points. Treasuries are staging a strong rally. India dropped 6% today on the Gandhi election because the folks who lost were considered to be better friends of business.

10:57am and the NAZZ is off 1% and that is not good for the bulls. The DJIA has been floating between up 10 points and down 25 points for the last hour. It is currently down 20 points. Volume is weekend light. Bond prices remain higher with yields 5 basis points lower on the ten-year and thirty-year.

12:41am and oil is at a 20 year high at 41.50 per barrel. Nevertheless the DJIA has rallied to the plus side and the NAZZ has halved its loss. Breadth is 2/1 positive on the NYSE and 5/4 negative on the NAZZ. Up versus down volume is 5/3 positive on the NYSE and 2/1 negative on the NAZZ. Volume remains on the light side.

Treasuries remain strong as shorts cover into the weekend. We would expect the opposite effect in stocks but then again with next week being and expiration week and nothing bad having happened on the international front over the past few weekends traders may be willing to go or at least stay long.

12:54pm and the techs are basically in the red while the financials and drug stocks are higher on the day.

3:02pm and at the bell the DJIA was up 1 point at 10011. The S&P 500 lost 2 points to end at 1095 and the NAZZ dropped 20 points ending at 1905. Oil closed at $41.40.

And tomorrow is another day.

12 May 2004 - Evening Comment


This is our LAST COMMENT UNTIL SATURDAY morning. Our guru computer specialist who is also our brother is heading to the hospital for a pacemaker implant. Our hopes are that he will be out of work for only a day (since that will mean that everything went well) and so we plan on a post on Saturday Morning. We appreciate your forbearance and if you have any questions you may call at 1-800-654-9865 or e-mail at budlemley@aol.com.

7:31am and the trade balance was a record negative $46 billion. Import price index was up 0.2% in April but year over year up 4%.

7:35am and Chicago Fed President Moskow is on CNBC talking about Fed policy accommodation moving to a neutral monetary policy. Measured movement refers to time and space and infinity. Inflation increases are transitory but Moskow doesn’t see long term pressure creating inflation.

9:04am and stocks are back to the downside. Disney earnings after the close are now the bulls’ last straw hope. Breadth is 2/1 negative and volume is light. The DJIA is down 80 points and more importantly the NAZZ is down 30 points reversing all the gains of yesterday.

10:01am and since January 1, 2002 the S&P 500 is down 6%. Since September 30, 1998 the S&P 500 is unchanged. So much for buy and hold investing in a trading/gambling environment. The DJIA is down 100 points and the NAZZ is down 42 points. Every rally attempt this morning has been met by selling. With oil over $40 and Treasuries weak ahead of today’ five-year auction traders are favoring the sell side and investors are sitting on their hands. We are too confused to do anything and are hip with our 90% plus cash position.

Jim Cramer on www.realmoney.com reminds that June 30 is the day the Fed meets on interest rates and is also the day for the hand off of Iraq to Iraqis, sort of. He has a term he uses for days with potentially market moving events and that is a fulcrum day which he is calling June 30. Makes sense to us.

10:43am and when markets act like they have the past few weeks where they move down off a top after failing for the third or fourth time to break out we think of our late partner Don Yarling’s comment that “Markets never crash off the top”. Most traders are calling for a rebound from the oversold condition of the markets but that may have been what yesterday’s feeble attempt was. More likely the NAZZ move higher yesterday was occasioned by short covering and the selling today in the NAZZ is more shorts getting greedy and reestablishing short positions.

The 200 day moving average is 1078 on the S&P 500. The S&P is currently at 1082.

1:51pm and entering the final hour of trading the DJIA has rallied form down 150 points an hour ago to down 90 points. The NAZZ has also rallied about 8 points but still remains down 32 points. Breadth is 3/1 negative but volume is light.

We haven’t been posting much because we have just been watching the erosion of prices and trying to discern what the sell off means. Traders and technicians continue to expect an oversold rally and we wouldn’t be surprised but the markets are running out of days in the week. With the weekend approaching we don’t think any sustained rally is possible so if the markets rally tomorrow we would expect a retreat on Friday.

Since we are not posting till Saturday our comment is that unless the S&P 500 drops under 1000 we don’t expect to be doing any buying. Since that level is still 8% from here we don’t think we’ll be doing much but watching.

On March 15, 2002 the S&P reached a bit above 1170 then fell of in May to 1080 before rallying back to 1110 in mid May on its way to below 800 in October. This year on March 5 the S&P exceeded 1170 and is now at 1080 and is looking for an oversold rally.

Crude oil close at $40.73 and the Saudis are smiling.

3:02pm and the bulls rallied the DJIA to down 40 by 2:15pm and unchanged on the day at 2:30pm, down 30 points at 2:40pm , up 20 points at 2:45pm and closed the DJIA at 10045 up 25 points on the day. The S&P 500 gained 2 points to end at 1098 and the NAZZ was down 6 points at 1925 after being down over 40 points around noon . The rally will probably continue tomorrow and abate on Friday.

And tomorrow is another day.

12 May 2004 - Morning Comment

6:15am and we wish the happiest fourth birthday to the prettiest, smartest, most gifted grandchild in the world, Abigail Bezold. Since she already received a hermit crab for her birthday her last wish is a gerbil. Give it at the risk of losing Abby's mother's friendship

6:41am and we get mail:

Happy spring. No teen beans but we did sell the last of our 03 beans for $10.11. I'm confused about something. Your money fund is paying .28%. The Hickory Point Bank in Decatur (owned by ADM, pretty solid I think) is paying 1% on $95K and the little state bank in Lovington is paying .75% on $9K. Is somebody too high or somebody else too low? Obviously I don't know as much about this as I would like.

Our response:

We haven't wanted to buy Treasuries because we think rates are gong to rise faster and impair principal. We are thinking of buying after June Fed Meeting and expected rate increase. Most banks are yielding 1% on money market accounts and we have suggested that folks who want the higher yields over the short run should take the cash and place in banks. At these levels banks can outperform money funds. As rates rise we think the banks won’t raise as aggressively as money funds can earn.

Also, in investment accounts the cash position represents investment funds awaiting investment and so our basic purpose in being in cash is not to lose money. Had we bought 2 year or longer bonds when we went to cash earlier this year we would have a loss on them that would offset any interest earned.

Had we bought bonds last year when we went to cash in May we would have missed the trading opportunity that earned us a 10% to14% return for the year which was better than any bond returns on a risk/reward basis.

In our bond only accounts we did mange to hold some the 3% Treasury Notes till they matured in the last six months and we are now just waiting for rates to rise a bit more for our straight bond investors.

The waiting for the Fed to raise has been longer than we thought it would be but we think the time is at hand and that rates will move to where it makes sense to buy less than two year maturities. As it is for this year most treasury investments have a negative return if unrealized principal loss is included.

Money funds yield less currently because they have payments to brokers and because of other overhead. We think that is a temporary condition. Moreover when we move the accounts in the next month as a result of ABN AMRO our clearing broker being sold cash balances will be earning 30 basis points under fed funds which would be .70% and 1.2% if the FED jumps the Fed Funds rate 50 basis points.

The key is the FED and the first rate increase.

7:02am and U.S. Futures are mixed as a result of Cisco selling off after their earnings news last night. Oil remains over $40 per barrel. Europe is lower while Japan was up 2% and Hong Kong 0.5% overnight.

We don’t have our crystal ball shined for today. So let the games begin.

11 May 2004 - Evening Comment

7:11am and Regional Fed Presidents Moskow and Santomero speak today and may provide some words to move bonds. The Treasury auctions $24 billion in three year notes.

MCI is going to cut 7500 jobs. Those folks will find jobs flipping hamburgers at McDonalds and as greeters at Wal-Mart and Wall Street will rejoice in the new jobs data. There are jobs and there are jobs and the jobs that support families are getting harder to find. What’s screwy about the MCI layoffs is that they are doing it after emerging from bankruptcy.

Citigroup is resting right at support/resistance at $45 per share. It needs to make a stand here because it has been a market leader for the past year.

8:38am and stocks have opened tentatively higher. Most gurus we are reading expect good news from Cisco tonight. That will be the test for the markets for if the news is good and the stock rallies bulls will take heart. If the news is good and the stocks fails to rally bears will be delighted. The reality may be somewhere in the middle.

9:10am and with no progress so far and the DJIA only up 20 points traders are relying on the NAZZ which is up 23 points to lead the way. Breadth is 3/1 positive and up volume exceeds down volume by a wide margin. Our guess is that he NAZZ is higher only because of the nature of the trading and market maker mark-ups.

9:57am and stocks are shaking off the bears on their backs and gradually moving higher. Many technicians continue to call at least an intermediate bottom made yesterday and suggest a good rally is in the cards. We are content to watch.

11:02am and the NAZZ and DJIS are both up 30 points. Obviously the NAZZ is leading the rebound which is a bullish sign. Breadth remains strong and the only fly is that the volume is less that stellar.

2:01pm and entering the final hour of trading the DJIA is beginning to rally from negative territory. The NAZZ is 30 points higher and is leading the way. Given the action of the DJIA we would guess that some of the strength in the NAZZ is short covering.

The Treasury three-year came at a yield of 3.19%. Treasuries are a bit higher in price lower in yield across the board.

3:02pm and the DJIA closed up 30 points at 10020. The S&P 500 rose 9 points to finish at 1095 and the NAZZ gained 34 points to end at 1930.

11 May 2004 - Morning Comment

6:31am and Japan and Hong Kong moved a bit higher overnight in a dead fly bounce from Monday’s big sell off. Europe is gingerly higher and U.S. futures are higher.

Cisco announces earnings after the close and that will probably be the focus of today’s trading. The markets need some good news from Cisco to stem the tide of selling.

Delta Airlines is threatening bankruptcy if its pilots don’t allow wage cuts and the new MCI which is the old WorldCom announced a $300 million loss for the quarter.

We wouldn’t be surprised by a rally today or tomorrow but we think the trend is still down. The markets are waiting for the Fed to move on interest rates and even then it will probably take selling exhaustion to get stocks moving higher for more than a day or two.

Today we would guess mildly higher by the close.

So let the games begin,

10 May 2004 - Evening Comment

7:11am and Citigroup has reached a $2.65 billion settlement in class action securities litigation related to WorldCom. That’s $1.6 billion after tax so U.S. tax paying chumps are paying a part of the settlement. C is taking a total charge of $6.5 billion ($4.95 after tax) for litigation settlements today and in the future.

7:36am and there will be $54 billion in supply of Treasuries this week.

8:49am and the reality is that most of the new lows on the NYSE are preferred stocks and closed end funds. We are going to go with the NAZZ as the indicator of a market bottom and so will be looking for 1000 or more on that index.

The DJIA traded down 100 points and is now down 60 points. The NAZZ is down 11

9:38am and it is disconcerting that a teenager in Germany can create a virus that infects computers world wide in the course of a week. The Sasser and Sasser e viruses infect computers with MSFT XP by invading through a failure in code protection. One kid and millions of computers damaged.

10:33am and the declines lead advance 10/1 on the NYSE and 8/1 on the NAZZ. Up/down volume figures are about the same. New lows on the NAZZ are at 160. The DJIA and S&P 500 are at new 2004 lows and the NAZZ is now down 5% for the year.

12:12pm and the markets are attempting their second rally of the day from much lower levels. Breadth and up/down figures remain horrid.

2:05pm and entering the final hour the major averages have slipped below their noon hour level but remain above their lows for the day. Breadth is as bad as Friday and new lows are expanding. Volume is picking up.

3:02pm and the DJIA closed down 128 points at 9990. The S&P 500 lost 12 points to end at 1087 and the NAZZ dropped 22 points to finish at 1896.

And tomorrow is another day.

10 May 2004 - Morning Comment

6:22am and overnight Japan tanked over 4.5% while Hong Kong was down 3.5%. Europe is in the red by 1% across the board and U.S. futures indicate a lower opening.

The action on the NYSE on Friday was indicative of a trading bottom occurring unless it was the set up for a larger move lower. Aren’t caveats great? Our hesitancy in accepting a bottom theory is that the action on the NAZZ hasn’t been as negative and we would think the NAZZ has to lead lower. We know the Nazz index has dropped a bit more on a percentage basis but the advance/decline, up versus down volume, and new lows just don’t approach the NYSE. Also sentiment numbers don’t suggest panic.

This morning will probably bring 1000 new lows on the NYSE and that is a buy signal 90% of the time. We are probably going to pass this time though, given the non confirming by the NAZZ

Today we expect down big early and then a rally to up a bit followed by a rollover lower into the close.

The Saudis want to increase OPEC production by 1.5 million barrels per day to bring the price of oil down and that news has oil trading a dollar a barrel lower this morning.

And so let the games begin.

7 May 2004 - Evening Comment

7:44am and Treasuries continue to move lower on the large gain in jobs reported a few minutes ago. After initially moving lower, stock futures have stabilized and cut their losses. We would expect a move to the upside from stocks within the first hour as tepid bulls become emboldened to take a chance since stock averages are near the low end of their three month range.

For the year Treasuries are all negative in return and bond traders are waiting for the Fed to begin raising rates. The problem for the Fed is that home construction has been the backbone of the boom and any rise in interest rates is going to cut into the ability of folks with low paying jobs to buy homes and even autos.

Also today is Friday and it has been the custom recently for traders to want go home flat for the weekend. It should be interesting.

7:55am and Martha Stewart Living Omnimedia reported a larger loss than expected. Martha should go to jail, serve her time and get out so she can run her company.

8:45am and tech stocks are opening higher while Treasuries have moved off their lows for the day but are still well entrenched in negative territory. The NAZZ is up 10 points while the DJIA is off 20 points.

9:01am and breadth on the NAZZ is 2/1 positive, and the NYSE 2/1 negative. Our guess is that there are more nervous shorts in NAZZ stocks who are covering those shorts on news than in NYSE stocks. Also OTC market makers have a tendency to let NAZZ stocks move up on little demand while NYSE stocks have a bit more liquidity controlling their price movements.

Oil tops $40 per barrel.

The DJIA made it to positive territory but then rolled over and now is lower. The NAZZ remains higher.

10:31am and Rummy testifies pretty soon so we would expect trading to slow. Also it is a nice day in NYC and a Friday. The DJIA is down 20 points and breadth is still negative on the NYSE and now also on the NAZZ. There are 500 new 12 month lows on the NYSE. That is a huge increase and suggests that a trading low may be approaching.

11:08am and now there are 600 new lows on the NYSE. 1000 new lows has always been a trading buy point.

1:01pm and the DJIA is now down 60 points as the NAZZ has turned negative and bonds are slipping lower. There is still time for bulls to make their case but we would guess that any fireworks in the stock market will wait till Monday.

The Rumsfeld testimony was a non event because Senators only had time for at most 2 questions and no follow-up.

Breadth is negative 7/1 on the NYSE and 2/1 on the NAZZ new lows on the NYSE are approaching 700.

One of the big questions we have is that when the NYSE has 1000 new lows do we buy the DIA or do we buy the QQQ. The NAZZ led the bull run of last year and the run higher this year and has also led down. It turned yesterday and has been stronger today.

Or do we have to wait for the NAZZ to have 1000 new lows. Maybe we should wait for the S&P 500 to go to 980. So many questions and luckily the weekend is upon us and we are supposed to get rain tonight and so we’ll spend the weekend in the garden trying to decide.

2:13pm and Krispy Kreme is down $8 per share today. It must be my diet.

Entering the final hour the DJIA is down 96 points while the NAZZ is only down 4 points. Maybe Merrill Lynch’s midweek “techs are no longer growth stocks but now are cyclical stocks” has failed to take hold.

Cisco earnings come on Tuesday, Disney on Wednesday and Wal-Mart on Thursday along with the PPI on Thursday.

3:02pm and breadth was 10/1 on the downside with 700 new lows on the NYSE. On the NAZZ breadth was 2/1 negative with 90 new lows. That is a real disconnect but we don’t know what it means. The DJIA closed down 125 points at 10116. The S&P 500 lost 15 points to close at 1099 and the NAZZ lost 20 points to end at 1918.

And tomorrow is another day.










Political Commentary:

We consider this social commentary but since some may consider it political commentary we have added it to the end of today’s post. The following is our way of protesting Bush’s visit to our fair county where only folks who said they had and would vote for him were allowed to get near his appearance.

If folks are really against abortion as opposed to against sex, then they should applaud contraceptives that work. But the Bushies are such hypocrites that they won’t try and prevent abortions by approving safe contraceptive measures even though most of them including our great leader have used contraception in their lives. That is unless he was too drunk or coked up every night but one of his first 25 years of married life.

By Trapper John http://www.dailykos.com/
Thu May 6th, 2004 at 21:14:24 EDT

The Food and Drug Administration on Thursday rejected over-the-counter sale of the emergency contraceptive Plan B, saying that the distributor had not proven that young teens can take the drug safely without a doctor's guidance.

The decision was an unusual repudiation of the lopsided recommendation of the agency's own expert advisory panel, which voted 23-4 late last year in favor of the switch and 27-0 that the drug could be safely sold as an over-the-counter medication.

The denial was a major goal of social conservatives, including members of Congress who lobbied President Bush on the issue. Reproductive rights advocates lobbied equally hard for its approval, and Thursday they criticized the decision as misguided and a historic blot on the reputation of the FDA as a science-based agency.

So let me get this right: teen girls are incapable of taking a pill that has instructions and everything on the box, but are capable of giving birth to and mothering another human being.

I'm speechless. They compound outrage upon outrage, but each seems to enrage in a new way. For some reason, I find this one particularly galling. I think it's that people who are against abortion have a special duty to promote alternatives. Instead, these righteous folks are making it even harder for women to avoid abortion.

Rush Limbaugh in his own words on the Iraqi prisoner controversy: from as new website by David Brock: http://mediamatters.org/items/200405070002

On his May 6 radio show

LIMBAUGH: All right, so we're at war with these people. And they're in a prison where they're being softened up for interrogation. And we hear that the most humiliating thing you can do is make one Arab male disrobe in front of another. Sounds to me like it's pretty thoughtful. Sounds to me in the context of war this is pretty good intimidation -- and especially if you put a woman in front of them and then spread those pictures around the Arab world. And we're sitting here, "Oh my God, they're gonna hate us! Oh no! What are they gonna think of us?" I think maybe the other perspective needs to be at least considered. Maybe they're gonna think we are serious. Maybe they're gonna think we mean it this time. Maybe they're gonna think we're not gonna kowtow to them. Maybe the people who ordered this are pretty smart. Maybe the people who executed this pulled off a brilliant maneuver. Nobody got hurt. Nobody got physically injured. But boy there was a lot of humiliation of people who are trying to kill us -- in ways they hold dear. Sounds pretty effective to me if you look at us in the right context.

…. The thing though that continually amazes -- here we have these pictures of homoeroticism that look like standard good old American pornography, the Britney Spears or Madonna concerts or whatever, and yet the Libs upset about the mistreatment of these prisoners thought nothing of sitting back while mass graves were being filled with three to 500,000 Iraqis during the Saddam Hussein regime.

On his May 5 show

LIMBAUGH: I think a lot of the American culture is being feminized. I think the reaction to the stupid torture is an example of the feminization of this country.

And 20 million people a day listen to him. Strange and stranger.

7 May 2004 - Morning Comment

7:32am and the economy created 288,000 jobs in April. There was also an upward revision to 333,000 jobs from 318,000 in March. Service jobs were up 123,000 jobs.

Treasuries are in the tank with 4.75% on the ten-year and the two year note at 2.56%.

With bonds selling off the stock futures are a bit weaker but it looks like they want to go higher. It should be an interesting day.

So let the games begin.

6 May 2004 - Evening Comment

7:15am and WGN news, which we watch to keep up on Chicago happenings, since we are happenings folks, had a piece last night on real estate buying in Chicago . The commentary of ever rising prices and buy now before prices go higher reminded us of similar pieces on tech stocks during the late 1990s.

One section of the report had a 28 year old talking about paying $200,000 for a one bedroom apartment with the comment that she wasn’t worried because when she needed to sell in a few years for more room she would be able to use the projected $60,000 profit to buy bigger digs.

One problem with that thinking is that after five years of rising real estate prices where properties in some parts of Chicago have doubled in price there is no guarantee that real estate nirvana has another five years of similar growth. And when she goes to sell that property at a higher price the property she is looking to buy will also be higher.

Her final comment was that the condo was a good investment. We have a hard time suggesting that no money down fully leveraged purchase of anything is an investment. It may be a speculation.

One thing was obvious from the report and it was that the building boom in Chicago has been beneficial to the economy and we understand that Greenspan doesn’t want to raise rates and end the bubble. But the real estate bubble will end as badly as the tech bubble did. Greenspan did say today that there is no free lunch.

7:32am and initial claims for unemployment, not to be confused with the new employment added which number will come tomorrow, was a job loss of 315,000 folks which was down 25,000 from last month but still represents a goodly number who are now looking for work. Continuing claims dropped to 2.93 million as more benefits expired. Productivity rose 3.5% in the first quarter as more folks lost jobs and unit labor costs rose 0.5% when unchanged was expected.

Stock futures have rallied a bit on the news while the ten-year Treasury has jumped 30 basis points in yield and dropped in price. With any number over 200,000 tomorrow an inter-meeting 25 basis point rise is in the cards.

7:45am and Picasso’s “Garcon a la Pipe” from his ‘Rose period’ sold for $104 million last night.

8:36am and stocks are opening lower with the DJIA down 65 points and the NAZZ off 15 points. CNBC is reporting that Greenspan says there is no bubble in the housing market and that rising interest rates won’t hurt housing prices. Say what? Maybe he meant to say in his lifetime.

9:13am and there was an interesting article on www.minyanville.com that gave the components of the Consumer Price Index (CPI).


            Commodities (40%)

                        Food and Beverages 15.4%

                        Commodities less food 24.7%

                                    Nondurable less Food 13.4%

                                                Apparel 4%

                                                Nondurable less food and apparel 9.5%

                                    Durables 11.3%


Services (60%)

                        Rent of Shelter 32.5%

                        Household Insurance .4%

                        Gas and electricity 3.6%

                        Water, sewer, and trash collection .9%

                        Household operations .7%

                        Transportation Services 6.3%

                        Medical Care 4.5%

                        Other services 10.9%

We would point out that the housing portion of the CPI does not take into account the zooming prices of housing since it figures the cost of housing by concentrating on rents. One of the unusual side effects of the housing boom is that because folks are buying rather than renting. Rental rates have not been rising at anywhere near the cost of housing and so the CPI is underestimating the true cost of housing by a large margin. Thus the CPI is misrepresenting and underestimating the huge rise in housing costs over the past few years.

While it is true that apparel and household goods because of Wal-Mart have been kept down the cost of Housing Autos Food and Energy have been rising at faster than the currently configured CPI gives credit. Make your own judgments about the percents. It should be noted that autos price increases are figured at the stripped car price and not the fully equipped price even though most folks buy partially if not fully equipped vehicles. Also figuring medical care as only 4.5% of family costs works only because a huge chunk of folks don’t have health insurance or are under insured.

10:07am and the S&P 500 has pierced 1110 to the downside so there may be a bit of selling from technicians. The DJIA is now down 100 points and the NAZZ is off 30 points. Breadth is 6/1 negative on NYSE and 4/1 negative on the NAZZ and new lows exceed new highs by almost 4/1. Volume is light.

11:11am and Brazil and Germany are both down 3% today. There are 279 new lows and 38 new highs so far in this trading session. Breadth remains decidedly negative. Yesterday we mentioned the round trip in U. S. Steel’s share price in the last twelve months and today Sears is doing a good imitation. After running from $25 to $54 last year it is now at $37 on its way back down. This kind of volatility in big cap stocks is disconcerting, to us at least.

We read in the morning papers that AT&T owns the AT&T Wireless name and that it will reacquire that name when AWE merges with Cingular Wireless. AT&T then plans to go into the wireless business as a reseller of wireless services. We think that is a capital idea and offers good bundling possibilities. And so our interest in T has revived as more than a trading stock. But we see no reason to rush back into owning the stock.

1:52pm and entering the final hour the major measures are down about 1%. They were off more earlier in the day. Breadth remains abysmal and there are now 300 new lows versus 80 new highs. Traders are suggesting short covering into the close so that folks are more neutral going into tomorrow’s number. We have no horse in this race and so we are just watching.

3:02pm and the DJIA closed down 70 points at 10240. The S&P 500 lost 7 points to end at 1114 and the NAZZ dropped 20 points to finish at 1937. Oil closed at $39.37. Treasuries were lower in price and higher in yield but above their lows for the day.

And tomorrow is another day.

6 May 2004 - Morning Comment

6:26am and overnight Japan began trading again and was down over 1.5%. Hong Kong was fractionally higher and Europe is lower. The Bank of England raised rates by 25 basis points to 4.25%. U.S. futures are lower.

The eyes and ears and minds of traders are on tomorrow’s employment report. We do think that report will be like cotton candy since its effect isn’t going to last long, it will be puffed up and it won’t be good for us. But traders need something on which to focus because of the Attention Deficit Disorder that most of us suffer.

If the number is too large say over 300,000 then bonds will tank and eventually stocks will also. If the number is under 100,000 then stocks will tank and bonds will act confused. If the number is just right at 200,000 we won’t believe it. Goldilocks is a fairy tale but traders have been know to embrace fairy tales for several years at a time with the recent tech bubble as a prime example.

For today we expect a day like yesterday with lethargic trading and motion but no strong move one way or the other. And we also hope we get some much needed rain.

So let the games begin.

5 May 2004 - Evening Comment

7:45am and now that Libya is our friend and has promised not to blow up any more American airplanes and kill the passengers the auction of its oil leases is again available to American oil companies. Oil is the great peacemaker. And if Bill Clinton had made the deal with Libya an impeachment resolution would already have passed the House of Representatives.

On that same note we read that Disney won’t allow Miramax to distribute Michael Moore’s “Fahrenheit 911”, a new documentary about the Bushies. It is too political for Disney’s tastes. And the brouhaha is also a great publicity generator.

7:50am and we were lucky enough to catch an article in the NYT yesterday that discussed the phenomenon of buying $500,000 condos with no money down. The buyer who in the case cited was 29 obtained a conventional mortgage financing on 80% of the purchase price. He then borrowed the down payment of 20% by taking out a home equity loan on the 20% equity remaining in the value.

And so in effect he purchased for no money down. The home equity interest rate is adjusted monthly and he had an adjustable rate mortgage (ARM) on the 80%. The NYT had a graph that showed that adjustable rate mortgages are now 30% of the mortgage market.

This is how bubbles are created.

8:15am and CNBC just displayed a graphic showing that if options had to be expensed the overall net income for the NASDAQ 100 (QQQ) collection of stocks would have been over 200% lower in 2002 and over 40% lower in 2003.

9:14am and stocks have opened mixed in light trading. The major measures are all higher and breadth is negative on the NYSE and positive on the NAZZ. New highs exceed new lows by a 2/1 margin. The NAZZ outperforming the NYSE makes sense since the NAZZ has suffered more in the recent sell off.

Merrill yesterday suggested that tech stocks are no longer the leaders and may have to sell at cyclical multiples rather than growth multiples. If that view becomes the prevalent thinking watch out below.

9:19am and in conducting a quick check of accounts we observed that most are flat to up 2% for the year and all are at least 90% cash. That is where we are going to stay while we cogitate.

10:36am and the day could use a little humor.


Adam was hanging around the garden of Eden feeling very lonely.

So, God asked him, "What's wrong with you?"

Adam said he didn't have anyone to talk to.

God said that He was going to make Adam a companion and that it would be a woman.

He said, "This pretty lady will gather food for you, she will cook for you, and when you discover clothing, she will wash it for you.

She will always agree with every decision you make and she will not nag you, and will always be the first to admit she was wrong when you've had a disagreement. She will praise you!

She will bear your children and never ask you to get up in the middle of the night to take care of them.

"She will NEVER have a headache and will freely give you love and passion whenever you need it."

Adam asked God, "What will a woman like this cost?"

God replied, "An arm and a leg."

Then Adam asked, "What can I get for a rib?"

Of course, the rest is history.

10:43am and today is Cinco de Mayo and for all our edification we present the following from http://www.vivacincodemayo.org/history.htm:

The 5th of May is not Mexican Independence Day, but it should be! And Cinco de Mayo is not an American holiday, but it should be. Mexico declared its independence from mother Spain on midnight , the 15th of September, 1810 . And it took 11 years before the first Spanish soldiers were told and forced to leave Mexico .

So, why Cinco de Mayo? And why should Americans savor this day as well?

Because 4,000 Mexican soldiers smashed the French and traitor Mexican army of 8,000 at Pueblo, Mexico, 100 miles east of Mexico City on the morning of May 5, 1862.

The French had landed in Mexico (along with Spanish and English troops) five months earlier on the pretext of collecting Mexican debts from the newly elected government of democratic President (and Indian) Benito Juarez. The English and Spanish quickly made deals and left. The French, however, had different ideas.

Under Emperor Napoleon III, who detested the United States , the French came to stay. They brought a Hapsburg prince with them to rule the new Mexican empire. His name was Maximilian; his wife, Carolota. Napoleon's French Army had not been defeated in 50 years, and it invaded Mexico with the finest modern equipment and with a newly reconstituted Foreign Legion. The French were not afraid of anyone, especially since the United States was embroiled in its own Civil War.

The French Army left the port of Vera Cruz to attack Mexico City to the west, as the French assumed that the Mexicans would give up should their capital fall to the enemy -- as European countries traditionally did.

Under the command of Texas-born General Zaragosa, (and the cavalry under the command of Colonel Porfirio Diaz, later to be Mexico's president and dictator), the Mexicans awaited. Brightly dressed French Dragoons led the enemy columns. The Mexican Army was less stylish.

General Zaragosa ordered Colonel Diaz to take his cavalry, the best in the world, out to the French flanks. In response, the French did a most stupid thing; they sent their cavalry off to chase Diaz and his men, who proceeded to butcher them. The remaining French infantrymen charged the Mexican defenders through sloppy mud from a thunderstorm and through hundreds of head of stampeding cattle stirred up by Indians armed only with machetes.

When the battle was over, many French were killed or wounded and their cavalry was being chased by Diaz' superb horsemen miles away. The Mexicans had won a great victory that kept Napoleon III from supplying the confederate rebels for another year, allowing the United States to build the greatest army the world had ever seen. This grand army smashed the Confederates at Gettysburg just 14 months after the battle of Pueblo , essentially ending the Civil War.

Union forces were then rushed to the Texas/Mexican border under General Phil Sheridan, who made sure that the Mexicans got all the weapons and ammunition they needed.

11:03am and stocks remain higher. breadth is improving but volume is light.

12:52pm and we are watching paint dry. The major measures continue to move up and down between unchanged with very little motivation. When we get into the final hour of trading we’ll have a better of idea of which trend is dominant.

3:02pm and Ciena close up a penny today so the bull market must be renewing. At the bell the DJIA was down 5 points at 10312. The S&P 500 gained 3 points to finish at 1121 and the NAZZ rose 8 points to close at 1958. Treasuries closed lower in price, higher in yield.

And tomorrow is another day.

5 May 2004 - Morning Comment

6:22am and U.S. futures are slightly higher but below fair value. Europe is mixed, and Hong Kong was down over 1%.

We raised cash yesterday as we decided to go back to square one and review our market outlook. We still hold CIEN and CBB which are quite low and which we may hold.

We don’t have any great thoughts this morning, rather we want to think about events and the markets for a few days before we do anything more.

As we have stated, we think there is inflation, we don’t think there is job growth, and we do think that the federal deficit is out of control and that the Fed will have to raise interest rates.

The markets are going to perambulate until Friday’s employment report. And so are we.

So let the games begin.

4 May 2004 - Evening Comment

7:45am and now China says it will not tighten but will focus on steel and cement and property and expects growth to reach 8.5%. Isn’t it marvelous how a communist country can control its economy? It’s called managing the numbers. We think the Labor department is doing a bit of that in this country also.

Qwest missed its numbers but since a loss was expected and also a revenue decline we don’t know how that will affect perceptions. We have been trying to own that stock for the last few years but its debt load versus equity, plus the knowledge that its books were cooked for a few years make it impossible for us to hold for long. This is one of those stocks we should only trade at year-end.

There is something about paying $2.09 per gallon for gas that gives us pause. We are out in the boonies and so that may have something to do with the price but the reality is that the other two gas stations in town closed and so the one remaining can charge about 10 cents more a gallon and get away with it. Oil prices are at a twenty year high. Beans are approaching the teens and milk is at a twenty year high. The building boom has jacked up lumber prices, and folks are paying more for groceries and it seems like our health insurance premiums go up every quarter.

These increases may be all part of the natural growth, but we do think and have been asserting that the prices folks pay for their daily necessities have been rising at faster than a 2% annual rate.

When we were in Chicago last week end there didn’t seem to be any lack of folks willing to spend money in restaurants and shops be we don’t know how much our anecdotal observations are worth. Until interest rates rise no one has any idea how much of the current spending is on borrowed dollars added to the last tax cuts. And the reality is that tax cuts are over for now.

Brian Wesbury on CNBC just mentioned that he couldn’t get a hotel room in New York City and that baseball game prices are up 15%. Baseball attendance is no longer affordable for the middle class except as a one time per year event.

Our guess is that prices continue to rise and that jobs growth stagnates. With rising prices the Fed will be forced to tighten and the economy will slow and we will have the worst of both worlds and the dreaded word “stagflation” will reappear in the vocabulary of market prognosticators.

9:15am and stocks are mixed with the major measures slightly higher and breadth also slightly positive. There is no standout group today and the trading is random.

10:02pm and factory orders rose over 4% in April versus expectations of a bit over 2% growth. March factory orders were also revised upwards over 1%. That has helped firm the markets.

12:44pm and ahead of the Fed announcement in 31 minutes we sold our RAD holdings for a 50 cents per share loss and eliminated the RFMD position at a 40 cents per share loss.

That leaves us with CIEN, CCMP, HPQ, and CBB with some LYNX in aggressive accounts.

1:14pm and the DJIA is down 37 point, thee NAZZ is up 3 points and the ten-year Treasury is up 10 basis points in yield to 4.51%.

1:16pm and the Fed stood pat and changed the verbiage.

The DJIA is now up 15 points and the NAZZ is up 10 points. Treasuries are rallying in price dropping in yield.

1:23pm and the long Treasury is 2 points higher. The Fed says that inflation is low. ?

1:32pm and the long Treasury has given back its gains and is now below where it was when the Fed announced no change.

2:02pm and entering the final hour the DJIA is up 60 points, the NAZZ is up 28 points and Treasuries are closing on their lows for the day.

Crude closed at $38.95 a barrel. We sure hope they start pumping that Iraqi and Libyan crude pretty soon.

We sold the CCMP at $30.30 for a $2 to $3 per share loss. At least we avoided the ten point loss of the drop from $42 to $32.

We sold HPQ at $19.95 for a $1.50 per share loss.

It was painful but we are now 97% cash in the Model Portfolio and up about 1.5% for the year. Most accounts are under 10% invested.

3:02pm and the DJIA closed up 3 points at 10316. The S&P 500 gained 2 points to end at 1120 and the NAZZ rose 14 points to finish at 1952.

And tomorrow is another day.

4 May 2004 - Morning Comment

6:35am and we continue to kick ourselves for getting in several weeks ago when we should have been getting out. In fact we should have rested on our laurels at the end of January when the Model portfolio was up 5%. But those are now bygone days and we must live with the hand we have dealt.

On Friday the NAZZ broke down through its 200 day moving average. That event in isolation is no great precursor of doom and gloom. But the NAZZ has led the markets higher for the last year and its retreat is at least a warning sign for caution.

Interest rates are going to be moving higher unless the economic rebound falters. Either scenario will cause problems for stocks.

As we always say, we run money with our first objective being not to lose what we have been given and our second not to lose our yearly gain. That’s known as defensive trading. The method has served us well over the last 20 years we have been managing money and we see no reason to change now.

We are now about 10% to 20% in the markets with yesterday’s sales. We own an eclectic mixture of stocks but all have low debt in relation to cash except Cincinnati Bell which we are holding for a takeout. Hopefully the takeout will occur at higher than our cost.

For today the Fed meets and issues its pronouncement and then the markets will look ahead to Friday’s employment number. Till then trading will be thin and volatile.

Overnight Japan remained closed and Hong Kong made up more than half its 200 points drop of last week. Europe is mixed to lower and U.S. futures are mildly higher.

So let the games begin.

3 May 2004 - Evening Comment

8:15am and China ’s markets are closed for a week but Hong Kong is open and trading and was slightly higher overnight. Japan is closed until Wednesday. Treasuries are weaker this morning

At the opening we are going to well our AT&T holdings for a $1.50 per share loss. That’s almost 10% but there are other more volatile stocks we own like CCMP that we want to add to as the markets sell off. We also may revisit TWX if we can get it at $16 or lower.

8:46am and stocks have opened higher with the DJAI up 50 points. We sold the T at $17.10.

Breadth is positive but our feeling is that the downside will be visited within the hour since we do think there is more work and more panic needed before a tradable bottom is realized.

9:56am and the major measures are holding their gains and actually adding to them. The NAZZ is up 1%. Breadth is 8/5 positive but new lows exceed new highs by a 2/1 margin but are under 100.

Treasuries have turned up with yields falling and prices rising slightly. IBM is well though its original $92 break out support level and has now dropped down though $88. That isn’t a good sign if one is a bull.

11:49am and stocks are trading at higher levels although volume has slowed considerably. With the Fed meeting tomorrow and Friday’s employment number looming we can’t envision a run away to the upside. Breadth remains positive.

1:42pm and with the rally failing we sold two more trading stocks Lucent at $3.30 and Qwest at $4.04 for 50 cents and 25 cents per share losses respectively. They both have a ton of debt and while we hate taking losses we feel the discipline that has worked for the last five years requires us to lighten up.

Ciena remains our only telephone equipment stock. There is selling in this group like there is no tomorrow. Cabot Micro and RF Micro and HPQ are the other tech stocks we own and we are going to ad to them at lower prices. We are holding the Cincinnati Bell and Rite Aid and Lynx Therapeutics is our genomics speculation in aggressive accounts.

We think there is more bang for the buck on the upside in the stocks we continue to hold versus those we sold today.

With today’s sales we raised a good bit of cash and we think the action was warranted by the free fall nature of the recent sell off in tech and telephones and our inability to catch a good trading theme. Money is flowing into safe large cap stocks but we don’t think that safe haven will hold if tech continues its trip to the nether regions of the stock market.

Even bonds are not a safe place this year with all but the shortest maturities showing negative returns for the year.

2:51pm and CIEN was down 40 cents per share an hour ago and is now down 10 cents per share. Maybe the liquidation in this tech area was finished up this afternoon.

U.S. Steel’s price movement the last twelve months has been volatile enough to put any self respecting tech stock to shame. From a low of $14 per share X ran up to $40 per share and is now trading at $27 per share on the China is putting on the brakes news.

3: 02pm and with a rally into the close the DJIA closed up 85 points at 10310. The S&P 500 rose 11 points to end at 1117 above the all important 1111 level and the NAZZ was up 20 points at 1940.

And tomorrow is another day.

3 May 2004 - Morning Comment

6:06am and China is on holiday all week while Japan is also closed for holiday until Wednesday. Europe is mixed and the U.S. futures are also dead cat bouncing at the moment.

With five days in a row down for the NAZZ some kind of short term move up is to be expected. But the news from Iraq remains grim, there are interest rate fears across the land as the Fed meets tomorrow and the May employment report is offered to the vultures and others on Friday. All in all it will be an interesting week.

We may stick a little toe in the water this week and make a few more purchases but we’ll wait this morning to see how the mini rally plays out. Our guess is that it will be sold and then we’ll get a test of the bears’ nerve and the bulls’ resolve.

So let the games begin.

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