Lemley Yarling Management Co
309 W Johnson Street Apt 544
Madison, WI 53703
Toll free phone numbers:
30 November 2007 Daily Comments
Uncle Ben spoke last night in Europe
and suggested that events of the last month might affect the Fedís thinking.
The markets took his comments to mean that a 50bps cut is in the works for the
December 11 Fed meeting.
This morning there was news that
the Treasury is working with money center banks and mortgage creators to arrive
at means to delay implementation of the resets at higher rates of the sub prime
mortgages that were issued at teaser rates. (The hang up seems to be the greed
of mortgage companies who want to bet that they can make more money from the
higher rates than they will lose on the bankruptcies. Greed is the word that
describes this market and the first seven years of this century.) This is the
news we suggested several days ago would comfort markets.
Asian markets were mildly higher
overnight and European bourses are up about 1% at .
Bank stocks and Fannie and Freddie are 5% to 10% higher in the early going. Oil
is down $2 with an $89 handle and Gold is also lower at $793. Treasuries are
J Crew had great sales and earnings
news and the shares are up 12% this morning. We sold our position at $45.30 for a nice profit. Thank you Mickey.
down $3 on what the street is conjuring as bad news. Earnings were up 27% and
sales were above estimates but the company said it would be difficult going
forward with computer sales. We bought more shares of DELL
last night at $26.28 and again this morning at $24.90. We think the market
reaction is nuts. Dell is priced at one time sales, has a ton of cash, has
Michael Dell back running the company and has settled all its financial and SEC
Ed Zander the CEO of Motorola is resigning
at year end and the COO of Motorola is going to become CEO. He is not a
technical guy and the analyst we like who has been recommending the stock is
musing that the resignation of Zander means that the fourth quarter sales of
new cell phone products is not going well. But the shares are at less than one times
sales with $ 3.50 per share in cash and no debt in the company and so we are going
to maintain our position for now.
Personal Income and Personal Spending
were both up 0.2% which and should help the Fed cut again.
The major measures opened the
morning trading session up 1%. The S&P approached resistance at 1490 and
backed off as did the DJIA. Today is the end of the month and the last hour
action will be critical for both bulls and bears. Bulls would like to see a
piercing of the formidable 1490 resistance level. We will be happy to put this
month behind us.
We doubled our holdings in BSXat $12.39 in
accounts that own it and added it to a few more accounts. We also added more Walgreen to our large/aggressive accounts
at $36.80 and purchased additional SYMCat $17.60 in those accounts. And
we sold our 12 hour holding in Sears for a $7 per share gain. *****
According to some of the blogs we
read Goldman Sachs placed reduce on
the tech sector today and those stocks are the main area of red today on our
It seems as if the lousy
performance of Sears this year is
getting to Eddie. Not to worry though, he has $2 billion in performance fees to
cheer him this holiday season.
From the wires:
Sears Holdings Corp. Chairman Edward Lampert criticized media coverage
of his company and Wall Street commentary in a letter to employees Friday --
one day after the retailer said its profit plummeted 99 percent in the third
quarter. Following the dismal results, Lampert came under heavy scrutiny by
investors who had counted on the hedge-fund guru to turn around the ailing
"While we were not pleased with these results, much of the
commentary in the media and on Wall Street following the results ignores the
strength of our company and the progress that we have made," Lampert
In the letter, released in a Securities and Exchange Commission filing
Friday, Lampert highlighted the company's positive steps over the past several
years. The chairman said Sears has reduced its overall debt, invested more than
$1 billion on capital expenditures and repurchased more than $3 billion in
Searsís stock, among other accomplishments.
The chairman said Sears, like other retailers, has struggled with a
difficult overall economic environment. Lampert noted that much of Sears'
merchandise is related to home improvement, home maintenance and home turnover,
which are tied to the struggling housing market.
Lampert also said that Wall Street and the media have held Sears to a
tougher standard than other retailers, including Home Depot Inc., Lowe's Cos.,
Macy's Inc., Kohl's Corp. and J.C. Penney Co.
"When other companies manage expenses carefully, it is often
characterized as a sign of good management and prudence," Lampert said.
"In the case of Sears Holdings, meanwhile, expense controls are often
cited as a root cause of poor performance."
Lampert acknowledged, however, that the company's efforts to add
inventory have not resulted in improved sales and profitability, as expected.
He said the company is taking steps to decrease inventory. *****
Oil ended down $2.14 at $88.71.
Gold dropped $14 to $782. Treasuries were flat with the two-year at 3.02% and
the ten-year at 3.94%.
Most European bourse indexes
closed at least 1 % higher as did Mexico
The DJIA surrendered all of its gains
for the day into the afternoon but buy programs in the last half hour pushed it
higher into the close. We arenít complaining.
At the bell the DJIA was up 70 points
at 13382. The S&P 500 gained 2 points to 1482 and the NAZZ was down 7
points at 2660 as tech stocks failed to rebound.
Breadth was 3/2 positive on the
NYSE and flat on the NAZZ and volume was moderate.
There were 110 new lows and 80
The bulls won day and the week and the bears won the month but the bears probably donít
feel anywhere near as smart as they did last Monday night. And we donít feel
the same as we did on Monday night.
29 November 2007 Daily Comments
Citadel Hedge Fund has invested $2.2 billion in E-Trade Financial.
The E-Trade news is not being emphasized on
CNBC but it is big news because the government was involved in the
plan. The rescue deal is that
E*Trade is getting a $2.55 billion cash infusion from
Citadel. In a plan overseen by the federal Office of Thrift Supervision,
Citadel will make a two-part investment in E*Trade. The first component is the
purchase of E*Trade's entire $3 billion portfolio of asset-backed securities
for a value of around $800 million. The second component is the purchase of
$1.75 billion worth of 10-year notes, paying an annual interest rate of about
E-Trade joins Citi and Freddie Mac which sold $10 billion in preferred stock yesterday in
finding deep pocketed financial backing. So that leaves Washington Mutual and Countrywide
as the two major mortgage players that could use a cash infusion. There is
discussion that BankAmerica is still
in the wings on Countrywide after their $2 billion infusion two months ago.
BACís next act would be a take under. This activity shows that the Fed and
value investors are at work behind the scenes and eventually the talking heads
will cease discussing the losses being incurred and instead move on the profit potential
in the beaten down mortgage area.
Asian markets were strong
overnight with Hong Kong and China
both up over 4%. European markets are mixed at
and Oil is $2 higher on a major gas pipeline fire in Minnesota.
Gold is lower and Treasuries are better in the early going.
Preliminary Third Quarter GDP was
up 4.9% with the inflation indicator up 0.9%.
New home sales were announced as
up 1.7% in October to 728,000 from 716,000 in September. But September sales
were announced last month as 777,000 homes and were revised downward this month
to 716,000. And that is how we got a 1.7% increase instead of a 10% downturn.
Sears Holding had a penny per share earnings
for the quarter and the shares are back down to $102. We traded the shares
between $124 and $138 last summer and we are again taking a position in them in
accounts where we traded it last summer. Eddie Lampert, the CEO and hedge fund
guru, should stop running the company and get a retailing person it to shore up
sales. Lampert made a billion dollars last year and the year before that for
being a genius. This year he is a dope and his investors have seen their
investment drop by 40%. They donít get their money back although they have
given their gains back and new investors are out big time money. Eddie keeps his two billion and the talking
heads are saying he just is in a rough patch and that his ego is suffering.
Some suffering. We would suggest that he is fine; it is his clients who are
suffering. The customersí yachts are in dry dock this year.
We bought Cisco
at $28.16 in accounts anticipating the eventual move back into large cap stocks
with foreign exposure. CSCO traded up to $35 last month on good sales and
revenue news. The pullback offers a good trading opportunity.
We are also buying Pier
One in accounts and adding CircuitCity to smaller accounts. Both stocks
are on multi year lows and having problems but they are worth the risk. If they
solve them there is at least a triple if not a home run in both.
Dell announces earnings after the bell today and it is the first major
tech announcement since Cisco. The
street expects the company to earn 35 cents per share on
revenue of $15.33 billion. For the company's January quarter, current estimates
are for earnings of 38 cents per share on revenue of $15.95 billion. For next
year (ending January 2009), current consensus is for earnings of $1.68 per
share on revenue of $64.3 billion.
existing condos in Palm BeachCounty plunged 30 percent in October - the sharpest annual decline since
the Florida Association of Realtors started tracking them in January 2006. The
median price of an existing condo in Palm BeachCounty was $158,900 in October, the
association said Wednesday, down from $225,500 in the same month last year.
"Individual sellers are becoming more realistic and lowering prices,"
said Jack McCabe, a Deerfield Beach
real estate consultant specializing in the condo market. Seller incentives have
failed, he said, and appraisers have "returned to fundamentals." Palm
BeachCounty has a
35-month supply of existing condo units, McCabe noted.† On the TreasureCoast, prices of existing condos
remained unchanged from a year ago at $225,000, the association said. Despite
falling condo prices, sales continued to decline. In Palm
sales of existing condos fell 12 percent, and on the TreasureCoast they fell 13 percent.
Statewide, condo sales fell 20 percent, with 16 of 20 markets posting declines
compared with a year ago. The markets that increased were: Lakeland
(9 percent), Miami (7 percent), Tampa
(8 percent) and Tallahassee (17
In the single-family home market,
had a 41 percent plunge in sales compared with October 2006, the Florida
Association of Realtors said. Single-family home prices on the TreasureCoast also fell, to a median of
$201,000 from $242,400. The 17 percent price drop was the highest-percentage
decline in sales in the state. Palm BeachCounty single-family home sales
fell 27 percent, while the median price of an existing single-family home in Palm
5 percent, to $348,300 from $365,600 a year ago.
There's a record four-year supply
of condos and single-family homes for sale in Palm
to Illustrated Properties Real Estate. The high inventory shows that there is
still a gap between buyer and seller expectations regarding price," said
Mike Pappas, chief executive of The Keyes Co. In a
normal market, six months is the standard supply of homes for sale.
Statewide, single-family home
sales plunged 29 percent from a year ago, while median prices fell 8 percent,
to $222,100 from $242,700.
Not all single-family markets had
falling prices. Pensacola prices
rose 3 percent to a median of $161,900, the Florida Association of Realtors
said. Miami prices remained
basically unchanged at $354,800, and Fort Lauderdale
prices rose 1 percent to a median of $354,000.
Sales of existing single-family
homes nationwide fell 21 percent to a seasonally adjusted annual rate of 4.4
million, the National Association of Realtors said. The median price fell 6
percent to $205,700 from $219,600.
Condo sales nationwide fell 20
percent in October to a seasonally adjusted annual rate of 600,000 from 752,000
in October 2006. The median price of an existing condo nationwide fell 5
percent to $223,500 from $213,100.
European bourse indexes closed
mildly higher across the continent as did Mexico
Gold was down $8 to $792 and Oil
gave back its early gains to close 41 pennies higher at $91.02. Treasuries were
higher in price lower in yield with the two-year at 3.06% and the ten-year at
The spread between the 3-mo
Treasury yield and the 3-mo LIBOR yield has continued to widen today, with the
LIBOR at 5.22% and the Treasury @ 2.96%, so the TED spread is 2.26%. That's by
far the fattest spread since August 20 and reflects continued distress (flight
to quality) in the short-term credit market.
With stocks rallying some gurus
are suggesting that there is a dichotomy between the rally in stocks and the
flight to quality in the TED spread. We donít think there is a dichotomy and
that is because the stock market is a discounting mechanism that looks forward
six months and predicts how economic events will be perceived then while the
LIBOR and T Bill rate are real time reflections of current sentiment about
It broke on the news wires this
afternoon that Sprint/Nextel rejected an offer by Providence Equity Partners
and SK Telecom of South Korea to invest $5 billion in the company and install
Tim Donahue, the former CEO of Nextel as CEO of Sprint/Nextel. Of course they
would reject the offer; the directors donít want to lose their sinecure.
The DJIA closed up 26 points at
13312. The S&P 500 gained 1 to 1470 and the NAZZ was up 5 at 2668.
Breadth was 5/4 negative on the
NYSE and NAZZ and volume was moderate.
There were 150 new lows 50 new
Today was a draw for the bulls
28 November 2007 Daily Comments
Asian markets were mixed to lower
overnight while European bourses are all higher at . Gold is off another $14 and Oil is down pennies. Treasuries
are a tad weaker in the early going.
Investors Intelligence had 47%
bulls and 29% bears.
Wells Fargo announced that it will set aside $1.9 billion in the
fourth quarter for loan losses. And the markets yawned. That is how jaundiced
the markets have become.
In the it could be worse column we present the following from the WSJ. We
like to think that we are value investors.
The average large-cap value fund is down 2.6% so far this year,
according to Morningstar Inc. But that average disguises double-digit losses at
a number of well-regarded value funds. Among them, Touchstone Large Cap Value
Fund is down 32% and the Hotchkis & Wiley Core Value Fund has lost 15.1%.
Investors in Weitz Value, run by veteran value manager Wally Weitz, are down
14.2%. That contrasts with a 0.9% increase in the Standard & Poor's
500-stock index (including dividends) and an 8.2% gain in the average large-cap
There is a story making the
rounds that BankAmerica approached Citi about a merger and that Citi refused to
talk. This story may be apocryphal but it suggests that there are resolutions
to the sub prime problems. And it also suggests that the banks and the Fed and
Treasury department donít think the situation is yet so dire as to require some
persuasion for the large banks to merge as they did in 1983 and 1990. Of course
these are the folks who brought us the Iraq
mess and Katrina so their prescience at discerning problems before calamity is
An hour into the trading day and
the major measures are all 1% higher. And now the real test begins. The bulls
need to close the day on a positive note while the bears obviously want a
reversal and a lower close.
Existing housing sales were
down1.25 in October on a month over month basis and down 20% for last October
on a year over year basis.
Durable goods orders were down
0.4% in October and down 0.7% ex transportation.
We have a few stocks
we have been waiting that we want to add to complete our buying list. We bought
Circuit City at $6.20 down form $30 earlier this year. Ten years ago Circuit City was the
place to shop for electronics and Best Buy was an avoid. The
opposite is true now plus there is the added competition of Wal-Mart and Costco
etc. CC is either going broke or it will go back to $30 eventually. We are
betting on the a latter. We are reacquiring a smaller position in Qwest at
$6.60 to go with our other low priced stocks. An in our larger/aggressive
accounts we are buying Starbucks at $22.85. That is 20 times earnings and we
think it is worth buying at this level. Finally we added a few shares of New
York Times at $16.10. We sold stock at $19 a month ago and an analyst placed a
sell on the shares this morning. The entire company is priced at $2.3 billion or
half of what Murdoch paid for the WSJ. We think the shares are worth more and the
shares have a 5% yield at this price. *****
Two hours into todayís session oil
is off another $2 to $91.90 and Gold is down $16 and trading under $800.
The rally today is attributed to
remarks made by Fed Vice Chairman Kohn this morning:
From the NYT:
Mr. Kohn pledged that the Fed ďwill act as neededĒ to address the
volatility of the current economic situation.
ďUncertainties about the economic outlook are unusually high right
now,Ē he said. ďIn my view, these uncertainties require flexible and pragmatic
Mr. Kohn noted that ďthe increased turbulence of recent weeks partly
reversed some of the improvement in market functioning over the late part of
September and in October.Ē And pointing to ďheightened concerns about larger
losses at financial institutions now reflected in various markets,Ē he said the
results could be ďa more defensive posture in granting credit, not only for
house purchases, but for other uses as well.Ē *****
After three hours of trading in
heavy volume the DJIA is up 262 points and 500 points in the last 24 hours.
are selling our financial exposure in our large/aggressive accounts.
bottom of the financial panic was last week and the financials are going up
from here all the other stocks we own for the longer term are going to do well.
If not we have funds available to repurchase these issues a lower levels.
The Fed Beige Book said the economy
and retail sales and employment are softening.
Walgreen was down at $37.50 in a continuation
of yesterdays quick drop on what looked like an institution selling its
position and we bought more shares in our larger accounts.
Marvel Technology is off 8% today at a new three
year low on bad earnings. It is a tech stock that makes chips and storage and
connection stuff. We are buying shares in accounts that own CBS. The share
price is down from $22 this year and $37 in May 2006. It was surely overpriced
at some level but we are guessing that at this level it is worth a few shares
This is the fifth consecutive
session the DJIA has moved triple digits.
European shares ended higher with
hopes for a U.S. rate cut triggering a broad rally and banks in particular
seeing gains as valuations drew in buyers.
The surprise is going to be when
the market learns that Buffet is
going to take over Countrywide or
one of the troubled mortgage insurers, or if he has taken a large position in Freddie Mac or Fannie Mae. If any of those or similar occur it would be Katie bar the door for the bears.
What is the origin of the expression, "Katie bar the
The phrase means "Get ready,
there is trouble coming," or words to that effect. And its origins are a
The best theory is that it comes
from a poem written in 1881 by Gabriel Dante Rossetti: The King's Tragedy.
It had to do with the murder of King James I of Scotland
The king was set upon while
cornered in a room with no bar for the door. Katherine Douglas, a
lady-in-waiting to his queen, tried to bar the door with her arm. All she got
for her trouble was a broken arm and a sliced-up king. Anyway, a lot of people
think the line in the poem "Katherine, keep the door!" changed over
time into "Katie, bar the door."
Some other people think it came
from an old Scottish folk song that didn't have anything to do with James I.
Mexico and Brazil were 4% higher.
Gold lost $9 to $806. Oil dropped $2.85 to $91.57. Treasuries were weaker in
price/higher in yield with the two-year at 3.20% (it traded at 2.90% yesterday
morning) and the ten-year at 4.04%.
The DJIA closed 335 points higher
at 13290. The S&P 500 rose 42 points to 1470 and the NAZZ jumped 83 points
Breadth was 6/1 positive all day
on the NYSE and volume exceeded 4 billion on the NYSE and but was just over 2
billion on the NAZZ with breadth at 3/1 positive. The average volume on the NAZZ
is the only internal negative for the bulls.
There were 155 new lows and 60
new highs on the NYSE.
The bulls won the day and now own the week but are still
down for the month.
27 November 2007 Daily Comments
Asian markets were lower
overnight as is Europe at .
Treasuries have given back a bit of yesterdayís gains and gold is down $4 while
Oil is off $1 in the early going.
is going to invest $7.5 billion in Citi.
They are buying a mandatory convertible preferred that yields 11%. The talking
heads are saying that the 11% is a bad sign but since the convert will have to
convert in 2 years the yield is illusory. There is probably a tax reason for
the structure of the deal. Interestingly, a Saudi prince bought a stake in Citi
back in 1990 when all looked lost and that turned out to be a prescient
Stocks had a slight bid on the
Citi news but it looks like the rally will be sold.
Talbotís had a loss for the quarter but said that sales in November
were positive on a same store sales basis. TLB expects to earn $0.70 in the fourth
We get mail:
you started your buying spree, in the last 2 months I lost 15M in the account. That
is 1 yearís draw for me... I understand that is the nature of investing and doesnít
bother me but bucking trends does... there is no doubt in my mind that you're trying
very hard... and the losses are your losses also... in times like this (market
down hard) you can never come out ahead especially with positions onÖ you can
only hold on... having said that when the market rallies and you donít sell
anything for a trade even if it goes higher (which the next day goes lower) thatís
where I am lost. I have been with you a long time and donít give up easy but I am
also older and my nerves are not the best (nothing to do with you or the market
at least the stock market) anywayÖ good luck
some reason we feel like the stuff we are buying should be held this time. Maybe
we are too old/tired to try and short trade. Also the pop trading would
probably only leave us even on the trade since they seem to be going down
more than they are going up.
sell off feels like the ones we used to have that provided good setups into the
next year. In the sell off in 1990 we were down 10% in the Model and up 30% the
next year. Donít know if that will occur again. Certainly hope we are not down
with our gut. Itís bigger than it used to be. We, too, are older and it is
getting more draining but it beats the alternative.
Below are stocks we own in most
accounts. The third column is the High/low and the fourth is the present price.
As is apparent all are near their 52 week lows and are down over 20% or more
from their highs. Not all will return to their highs but many will over time. We
would suggest that a good portion of any excess is out of these particular
52 week H/L
Ericsson LM Tel
J Crew Group
Three hours into the trading
session the DJIA is up 180 points. The test for both bulls and bears will be
the last hour of trading which has gone the bearsí way for the past few weeks.
large/aggressive accounts we took a too quick loss on BRE after we decided
overnight to stick with the down fallen bank stocks and not real estate and moved
the money to the SPDR Regional. We also added shares of Micron, AMD and Ford in
those accounts and reinitiated a position in Rite Aid at $3.56 in accounts that
own Cott. And we bought a few shares of Wintrust Financial which is selling at
book value of $33 down from a high of $56 earlier this year. *****
Citi bought in tons of stock at much higher share prices and now
they are selling that stock to Abu Dhabi.
Buy high and sell low could be the new motto for their stock and their
mortgages. Again we say, out with the directors and top management.
European markets closed lower but
Brazil and Mexico
were higher. Treasuries gave ground with the two-year at 3.07% and the ten-year
at 3.95%. Gold dropped $15 to $811 and Oil was off $3.28 to $94.42.
The major measures were volatile
today with the DJIA up as much as 225 points. It then dropped to up less than
100 points in the first few minutes of the final hour but recovered to close up
220 points at 12961. The S&P 500 gained 21 points to 1428 and the NAZZ
jumped 40 points to 2580.
The rest of the markets were not
as bullish with Breadth only 5/4 positive. Volume was good with volume in the NYSE
over 4 billion shares.
There were 350 new lows and 30
new highs on the NYSE.
The bulls saved their hide for another day.
26 November 2007 Daily Comments
Asian markets were higher
overnight with Hong Kong up 4%. European markets are ails
higher and Gold is up $8 at $833 and Oil has a $98 handle. Treasuries are firm.
No banks or brokers went out of
business while we were away but E-Trade
is on life support and Countrywide
Financial remains in danger. The WSJ reported this morning that Countrywide
has borrowings of $50 billion from the Federal Home loan bank in Atlanta.
We added a quite a few companies
to accounts in the last week and today. We are buying smaller amounts but we
want to take advantage of prices. The problems are now acknowledged in the
market place and will be sorted out over time. The talking heads seem to be
wary of last Fridayís rally and that is a positive.
We own a whole bunch of stocks
all of which we have owned over the years. We are comfortable concentrating on
issues we know that are well off their highs.
Alan Greenspan commented over the
weekend that the sub prime crisis is contained since all the sub prime mortgages
have been written down to zero. He was being facetious, we hope, but there is some
fact in what he says in that the markets are treating sub prime as worth zero.
Working out the mortgage problems will not be easy but the markets have
recognized the problems and many st5coks have been hit worse than the major
measures are now under to fairly priced rather than overpriced. We presume some
smart folks who avoided this stuff when it was fully priced are now looking to
buy the remnants. That is how markets work. We are not under the illusion that
the pain is over but we the pendulum swings both ways and the mortgage fiasco
is affecting the prices of other stocks that are on the periphery of the financial
The markets are lower today and so we are initiating
smaller positions in some financials in our large/aggressive accounts and will
add as conditions allow.† We repurchased National Citywhich has
lost half its value in three months, Fifth
Third which has held well in the latest turmoil but is less than half its
five year high, and AIG, the high
quality insurance company which says it doesnít have sub prime exposure. The price
action in the shares is saying it does. We took small positions in Fannie Mae at $30 (the shares were trading
at $70 in August) and Freddie Mac
$25 (the shares were trading at $65 in August) on the assumption that these
stocks wills survive even though they selling at less than half of their prices three weeks ago. And we repurchased
positions in the Large Bank SPDR and
also a position in the Regional Bank
SPDR. We also bought Intel at
$24.75, Cisco at $27.70, Pier One at $3.93, and Palm at $6.92. *****
We also repurchased smaller positions in Comcast, Time Warner and GE in many
accounts at lower prices than where we last sold them and added Micron and AlcatelLucent to our
very small accounts. *****
European bourses ended mostly
lower as did Mexico
Gold was unchanged at $825 and Oil closed at $97.509 down 60 pennies. Treasuries
were better with the two-year at 2.93% and the ten-year at 3.83%. The Treasury
yields are way ahead of the Fed.
CNBC is reporting that Citi is going to cut 45,000 folks to
get costs under control. So these folks have to pay for the stupidity of the
board of directors who keep their jobs and their fat compensation.
There were only 200 new lows on
the NYSE today. To wash out we need 800 or so unless last Wednesdayís 700 plus
was the wash out.
The DJIA lost 250 points on the
day to end at 12730. The S&P 500 dropped 35 points to 1405 and the NAZZ was
down 55 at 2540.
Breadth was 3/1 negative and
volume was active.
There were 200 new lows on the
NYSE and 40 new highs.
The bears remain in
20 November 2007 Daily Comments
The grandkids arrive today and so this
is our last post until Monday the 26th.
and Europe were higher today. Hewlett Packard had good results last night and
lent a positive tone to the markets this morning. The major measures traded 1%
higher in the first hour and then slowly traded lower till they were down 1%
after the release of the Fed minutes at 1:15pm.
Sallie Mae and Fannie Mae blew up
again today with both stocks down a stunning 10 plus dollars per share on news
that SLM had a $2 billion loss for the quarter and needed to raise capital and
may cut its dividend. That news may cause the Fed to take a bit more notice of
the subprime crisis.
E-Trade, the online broker and
bank is trading at a bankruptcy price of $3 again. And Countrywide is back
under $10 and soon to bankrupt too. One or two of these folks failing with the
financial turmoil that will cause will focus the Fed.
talking heads are calling for a rate cut. That isnít going to help because
today SLM said it was raising mortgage rates to make up for losses. The Fed/Treasury
should buy mortgages from banks at a 25% discount and fix the rates at 8% for homeowners
only-not speculators. Such a plan is possible
with a little imagination. The problem is that the powers that be have no
our relatively conservative 30% to 45% equity positions are damaging portfolios
over the short term. We continue to avoid financials for the present and are
comfortable with our holdings. As we said before, their beta is greater than
the S&P 500 and so the down moves exceed the S&P 500 but they will
outperform on the upside too.
DJIA rallied to positive in the last hour on the backs of Exxon and Chevron which
jumped $4 and $3 respectively as Oil closed up $3.77 at $98.45. Gold gained
the close the DJIA was up 50 points at 13010. The S&P 500 gained 7 points
to 1440 and the NAZZ rose 4 points to 2603.
was 5/4 negative on the NYSE and 3/2 negative on the NAZZ and volume was
were 610 new lows and 40 new highs.
The bears are in control. *****
19 November 2007 Daily Comments
Goldman downgraded Citi
overnight and coupled with lousy earnings and a new
warning from Loweís the stock markets opened lower on Monday.
As we were driving over the
weekend watching the farmers finish their corn harvest we had the thought that
this November sell off is like the weather in that the killing frost was about
a month late this year and so was the usual October correction.
As is obvious, we have again been
adding stocks to accounts. We have decided that the resumption of the August
correction in November is a reoccurrence of the normal autumn event. This year
it has subprime as the proximate cause but the long bull run from 2003 needed and is receiving a good
dose of reality.
We have been adding positions in
smaller size than we normally do. The stocks we have been buying are attractive
but we are leaving lots of room and cash for the unexpected.
The talking heads are singing the
praises of Goldman in that they say they are making money from the sub-prime
mess. Too bad the customers of their two large hedge funds didnít. The question
about where the customersí yachts are comes to mind.
Asia was lower and so is Europe.
The markets seem to be taking their cues from the U.S. markets these days.
CNBC is broadcasting from Abu
Dhabi and the commentators are calling everything there superlative. We would
suggest that excessive might be a better description.
Last week we purchased General Motors and we are buying
more today in smaller accounts. Both Ford and GM are lower in part because
their finance operations may be under pressure. We traded GM successfully last
month but this purchase is to hold for 50%. We bought today at $28. GM was $45
two weeks ago.
We also added TLAB today and more Sprint
to go with shares we acquired last week. These purchases are also for the
longer term. TLAB is selling at one times revenue and Sprint is on a multi year
On Friday we also initiated a small holding in Williams
Sonoma in out larger accounts and bought a potion in Boston Scientific in many
Europe closed 1% and more lower.
We continue to look for stocks to
add. But we donít want to get ahead of the correction and so we are spacing the
Gold ended down $5 at $782. Oil
closed up 90 pennies at $94.74. Treasuries were higher predicting trouble with
the two-year at 3.16% and the ten-year at 4.06%.
The DJIA closed on its lows down
215 points at 12960. The S&P 500 dropped 25 points to 1435 and the NAZZ was
off 40 points to 2595.
Breadth was 4/1 negative and
volume was active.
There were 535 new lows and 35
new highs on the NYSE.
The bears are in charge. *****
14 November 2007 Daily Comments
We will be
traveling for the next 10 day and so our posts will be intermittent. The next
post will be Monday November 19. We are headed for Chicago for business
meetings, then on to Kentucky for the opening of the basketball season, and
then back to Chicago for the Thanksgiving week for more business.
Asian markets were on fire
overnight with Japan, Hong Kong, and China all up over 4%. European markets
were trading mildly higher at midday and Gold is up $12 with Oil up $1.50 as
the dollar is again falling. Treasuries are a tad weaker.
The Producer Price Index was up
0.1% for October with the core rate unchanged. The year over year number was
not so benign with PPI up 6.1% and core CPI up 2.5%.
October retail sales were up 0.2%
and ex autos retail sales were up the same 0.2%.
HSBC, the large worldwide bank, said that it is going to write-down
Bear Stearns said it is going to write-down another $1.2 billion in
the fourth quarter but after that everything is great except their mortgage
collateralization business, from which they have been deriving a large chunk of
their profits, is kaput.
The markets like the news and
stocks are going to open higher.
Investors Intelligence had 51% bulls and 26% bears in the latest
reporting period. That bullish number is bearish.
With the markets
lower we are repurchasing five stocks we sold recently that are trading about
10% below where we sold them. They are AMD, Micron, Yahoo, Dell, and Alcatel
Lucent. We are buying to own not to trade. We also bought a small amount of
TLAB in our large/aggressive accounts to won not to trade. We know, we know, but we are buying
for major 50% or more moves.
This gives our accounts about 30% or less exposure which is about where
they should be given market conditions. *****
Oil gained $2.57 to close at
$93.80. Gold jumped $16 to $814. Treasuries were flat with the two-year at
3.55% and the ten-year at 4.26%.
Europe closed mostly higher as
did Mexico and Brazil.
The DJIA dropped 93 points to end
at 13214. The S&P 500 was down 12 pints at 1470 and the NAZZ dropped 30
pints to 2745.
Breadth was 3/2 negative and
volume was brisk. Friday is monthly option expiration so expect continued
There were 192 new lows and 44
new highs on the NYSE.
The bears won the day.
13 November 2007 Daily Comments
Asian markets were mildly lower
overnight and European bourses are lower at midday. Treasuries are firm in the
early going while Oil is lower trading at $93 and Gold is flat after
Wal-Mart reported better than
earnings and gave positive guidance going forward. That has placed a bid in the
markets and the major measures are going to open 1% higher.
Home Depot had less than earnings
and was not enthusiastic going forward. They are also going to suspend their
buyback program with the shares trading at $29. They managed to buy back
billions in stock with the share price at $38 but they donít want to buy any of
their own shares at $29. And the new CEO is making a bundle and we are willing
to bet he is happy to take options as a bonus this year based on the $29 price
rather than the $38 price.
Bank of America said it will take a pretax write-down of about $3 billion
in the fourth quarter to reflect a drop in value of securities related to
mortgages and will spend $600 million supporting in-house money market funds
that are exposed to troubled financing entities called structured investment
are trading higher on this good news.
The markets are very strong two
hours into the trading day with breadth 4/1 positive and volume heavy.
JP Morgan says it has $1.5 billion in CDO exposure with none of it
sub prime. That is a plus for that bank.
Goldman Sachs said that it had no more write downs coming and that
it is fully hedged on sub prime. That news allowed the DJIA to tack on another
European bourse indexes closed
mixed on the day but Brazil was higher and Mexico jumped 3%.
Oil lost $3.18 to $91.45 and Gold
was down $4 to $8.03. Treasuries closed lower on the stock rally with the
two-year at 3.55% and the ten-year at 4.26%.
The DJIA held in the final hour
and closed up 325 points at 13300. The S&P 500 gained 41 points to close at
1480. The NAZZ jumped 90 points to 2612.
Breadth was almost 4/1 positive
on the NYSE and 2/1 on the NAZZ and volume was brisk.
There were 212 new lows and 30
new highs on the NYSE.
The bulls won the day.
12 November 2007 Daily Comments
Asian markets finished lower. European
markets are mixed at . Oil has
a $94 handle and Gold is down $20, oops. Treasuries are not trading today.
We get mail :
We have been together for over 25 years. I have rarely
seconded guessed your decisions and the direction of your strategies. I am
somewhat confused as to some of the trades we have made over the last week or
Your last comment you emailed stated you wanted to move
to quality stocks that would double in value over the next two years. Honestly
Bud, I am not sure I have seen you stay invested in a stock for two years.
The other area I am cloudy on is why we sell certain
stocks and then buy them back within 48-72 hours for nearly the exact same price
that we sold them for?
You have a level of confidence in Retail stocks that all
indicators would lead me to believe that it is going to be a dismal holiday
season and the losses that have come from these stocks appear to support the
current projections. What are you seeing that would be to the contrary. At one
point in the downward moves we experienced, J Crew and Talbotís
almost represented 50% of the losses. If you are comfortable that they have a
foundation to recover, then that would be fine.
Please don't take my comments as being critical or
judgmental, my results would never give me the basis for that position. I guess
I am trying to understand the logic for some of the actions like I have
I am very concerned about the overall credit issues we
are faced with, not only in housing but in individual credit card debts and
equity lines on homes, where we are facing numbers that are
historically staggering. In the greater scheme of things, these numbers may not
look big but I think they are very concerning. Jane and I see it everyday in
the real estate field in Lake Forest, where one would not think the
problem would be significant. Consumer confidence and spending, I would think
are important factors as I look at the make up of most of our portfolio.
I just wanted to pass on some thoughts that were rattling
around in my head.
We run everyone's money as we
do our own with adjustments for age and resources. Since we are close in age
etc. your funds are included in our large/aggressive accounts trading scheme in
which we also trade our own money and the Model Portfolio which is our money.
We run your wifeís a bit more conservatively since the bulk of it has been
generated in the last few years from real estate profits.
We donít consider your concerns to be
second guessing since we are sure many clients have the same questions and the concerns
you expressed in your e-mail.
We do trade much more than we did when
we first met many years and dollars ago and our holding periods have not exceeded
a year in most accounts for long time. We have employed our modified market
timing for the last 8 years. We use value stocks to time but we donít
try to catch every market move. We concentrate on trying to take advantage of the
usual autumn swoon and sway. Whether the holding period is an hour or a year
doesnít matter since many of our accounts are tax free IRAs and 401Ks. And even
with taxable accounts our aim is to earn a risk adjusted return that exceeds
what could be earned on two-year Treasuries or C/Ds. (And because we are
trading more often we have slashed our commissions to where we charge only 2.5
cents per share from the 25 cents per share we used to charge.)
Our results from market timing from 1999 to 2003 were excellent. Since then our
caution and desire to protect those gains has tempered our timing returns.
Entering the autumn period of this year
(2007) we expected a correction during September/October and when it occurred
in August into early in September we proceeded to buy what we considered good
quality relatively well priced stocks for the usual year end/New Year rally.
Last year (2006) there was a correction
in August/September followed by a rally that continued into year end with minor
corrections along the way. When we sensed the correction had ended in early
September 2006 we began increasing market exposure in mid September. Those
actions allowed us to post an 8% gain for the year.
This year (2007) we became more fully invested
in the September/October period because the market action mirrored last year and
because our purchases seemed to be working and visions of sugar plum gains
danced in our brain. The accounts were up 8% to 10% for the calendar year on October 31, 2007 and we were feeling
satisfied and, in retrospect, too smug.
The drop November 1 surprised us. We had
expected a run of the mill pull back in November as occurred in 2006 and so the
350 points one day drop was a surprise. We have been surprised often in our
investment career but because we have much more money than we did 25 or even 10
years ago the drop in absolute dollars was eye-opening. We hadnít questioned
the rise in dollar value of our accounts in the preceding month because that is
what the accounts were supposed to do at this time of year. But the drop was a
horse of a different color.
That 350 point drop occurred on a
Thursday and we actually bought two stocks on that Thursday morning when the
DJIA was down 200 points since and we thought there would be a rebound. When
the DJIA and the other major market measures instead closed on their lows on
Thursday we used the rally Friday morning to raise cash and lower the exposure
of the accounts. †We realized that not
only were we pretty fully invested but the stocks we owned had a higher beta
(would rise faster and drop more swiftly than the overall markets). And we had
not expected the drop.
Over that weekend we decided that in
our Friday selling we had too severely reduced tech exposure and had kept bank
exposure which was the wrong thing to do in that we were selling potential
short term winners and keeping potential short term losers. And so on Monday last
week bought back a few tech stocks to again increase exposure. On Tuesday of
last week we had the opportunity to sell our bank stocks with a small loss when
they rallied. Rather than doing that we held with the hope of a bit more of a
rally and getting even and out. Greed overruled prudence.
We held our two bank stock positions
because we felt comforted by the fact that we had eliminated the positions in National City and Fifth Third earlier
but we made a mistake in not taking selling our remaining bank exposure for a
small loss when the opportunity presented itself.
The 350 point drop on last Wednesday,
the second 350 point drop in a week, suggested to us that maybe at the least a more
severe November correction was in the cards. Two 350 point drops in the DJIA
within 7 days is an unusual occurrence. Two such drops within a seven days in
the month of November has only occurred four times in the last fifty years and
three times of those four the DJIA moved lower for the month of November.
And we were not expecting the second
drop. As a result we decided that we should get back to our normal 20% to 30%
invested position. In the process we sold the tech stocks we had repurchased
since we were going to maintain our MOT and SYMC holdings for tech exposure. The
trades in the tech stocks were pretty much a wash.
The second 350 points drop erased most
of our gains for the year but accounts are still positive for the year and the
action of the markets is reminiscent of 1990. In that year there was a threat
of war with Iraq, now it is Iran plus a war in Iraq. Bank stocks, led
by Citi and the Texas banks, were in
trouble. Most of the Texas banks all failed in
1990 and Citi survived only because the Fed allowed it to. In 1990 stocks began
selling off in August and did so through the rest of the year. We didnít sell
in 1990 and our accounts we down 10% that year.†
As opposed to what we wrote in 1990 and also last week (a foolish consistency is the hobgoblin of
little minds) we decided that it wasnít too late to sell.
(The quote comes from Emersonís essay
on Self Reliance and suggests
that a person does
not have to think consistently from one day to the next. Emerson does not
explain the difference between foolish and wise consistency which is, of course,
the crux of the matter.)
Since the late 1990s we have been much quicker
to go to cash when trouble looms and/or when we find events or market action
occurring that we didnít expect. The only reason we would hesitate to sell is
because it is disconcerting to our clients and might make us look foolish. But
if we are selling in our own accounts we are compelled to sell in our client
accounts since we say that we run both the same. And if we look foolish, so be
it. We have been around long enough to know we canít always be correct in all our
decisions but we also know that cash earns interest as opposed to stocks which
can go up and down quite rapidly. It is easier to move back to stocks when the
dust settles or we think the risk /reward is better that it is to make up
severe losses of capital.
Every market correction is not the precipitator
of a Crash. And we really have no idea whether this sell off the last two weeks
is just a correction or the beginnings of something more severe.
We were too heavily invested and we had
to raise cash. Had we sold on October 31 we would have looked smart and we
certainly would have had many more dollars. We didnít and we and our clients lost
our gains for the year. But that is all we lost.
Regarding long term holdings you are
correct that we havenít had many in our investment careers. Short term trading
got us through the tech bear market of the early 2000s.
You rode out that bear market at
another firm with some of your funds. Those funds were invested in a buy
and hold account seeking long
term gains and you would know better than we how difficult it was to hold
those funds and trust the buy and hold philosophy. We had a few discussions about
what should be done with the funds in 2003 and we told you at the time that if
you transferred them to us we could not run the buy and hold money with the idea of making up the losses. That you eventually
moved the funds from the buy and hold
strategy might suggest that buying and
holding in this era of volatile market action is more difficult and less
rewarding than our timing approach
There is no right and wrong in this
business. There are different styles. Our style of market timing versus buy and
hold has evolved as our personal savings have grown. We hate to give back
our yearly gains and we are reluctant to reduce our potential for gain by not
holding a lot of stocks but we are even more reluctant to go minus on a year to
year basis. The S&P 500 was at 1450 at the turn of the century seven years
ago and has only recently regained the 1450 level. Our accounts that we have
managed during that entire period are 50% to over 100% higher. That is how we
get long term performance.
When we say we will hold a stock for
the longer term we know that seems strange. Retail and bank stocks are out of
favor for different reasons. Retail stocks are not out of favor because their financials are misunderstood or
their capital is threatened. Bank stocks are. At some point both the retail and
bank areas of the market will be a buy. We were early on both and have chosen
to ride some retail through the turmoil because we think the reasons for the
sell off are known.
Talbotís market cap is 25%
of sales. When they get the right clothes the share price will rise. The markets
may recognize the value before same store sales improve. When the markets do and
the share price rises we will sell whether it is next month or two years from
now. TLB is priced at this level because it is a thin trader. It is a value
stock and if the LBO Market had not disintegrated in the last few months it
would be a prime candidate for an LBO. But if we have too large a holding in
accounts, which we did, it is too difficult to ride it down under $10 even
though we know eventually it will sell for $25.
J Crew is a failed momentum stock that
has retuned to fairly priced because JCG doesnít release monthly same store
sales number and the traders and hedge funds that ran it up in price needed
money to cover their sub prime problems or were scared to hold it without those
numbers. Two months ago JCG was trading at $55. Now it is $38. We think it is worth
the risk. But we did accumulate too large holding when we were masters of the markets in October. We
have corrected that.
Bank stocks are a different story. We
bought early and were planning on riding through the turmoil until we realized
we werenít comfortable with the unknowns. And so we decided to hop off and
maybe revisit at a later date. If the banks stocks rally without us owning any
we will still benefit because all the other stocks will probably rally. The
converse is not true.
We have always been more comfortable
buying out of favor stocks. Our mistake this time was buying too large a position
to begin with. We have corrected that mistake.
Finally your comments on the credit and financial
situation are right on. We have been writing and worried about the difficulties
for many years. A $ 9 trillion debt, a difficult war and threats of another, a
collapsing dollar and consumer malaise may or may not be priced into the
markets. Stocks are a means to gains. The momentum stocks have held up for now.
If they tank the whole market will. Google is a great company. So was Cisco in
2000. Cisco dropped 80% in value when the major sell off came.
One of the thoughts that passed through our mind over the
last two weeks was that we have been suggesting that the markets have been and
are ignoring many serious problems. The swift drop in value of the accounts
reminded that we donít want to be fully invested if our concerns come to pass.
Thanks for the questions. Interestingly, if we had sold
the stocks bought in September/October and gone to cash (the same amount of
trading) on October 31 we doubt anyone would be questioning our timing methods or our judgment. Our actions
would have been the same only our timing
would have been successful. That is the curse of market timing. The benefit of market
timing even in a situation where we surrender gains that Ė remember, were
the result of market timing- is that we are now mostly cash and in a much more tenable
position. And we still have the capital
and potential for wonderful profits down the road.
The Wall Street Journal had an article
on Saturday about E Trade Financial,
one of the largest on line brokers. ETFC is trying to determine the size of a
write-down on CDOs that it has to take. Citi downgraded this morning to a sale.
And the share price is on an all time low at $3 down from $25 earlier this
year. They are burnt toast. None of the talking heads have mentioned it but it
is a ticking time bomb.
The company, one of the biggest online brokerages, at the time also
lowered 2007 guidance because of "the possibility of further credit
E*Trade uses some $40 billion of customer cash from its bank and
brokerage to make investments, including
in asset-backed securities and CDOs.
Separately, E*Trade disclosed that the Securities and Exchange
Commission is conducting an informal inquiry of the company's loan and
securities portfolios. The company is cooperating with the SEC inquiry, which
began Oct. 17, according to disclosure in the company's third-quarter report.
shares closed higher in an uneven session, as investors turned away from the
commodity sector amid worries that upheaval in the credit markets is dampening
risk appetite, although sentiment that banks such as Barclays have been hurt
too much helped markets close with gains. *****
Fannie Mae is down 10% ($3) today
while all the banks stocks are higher. That doesnít make any sense.
Oil is down $1.43 and Gold is
down $30 in light trading this afternoon. The DJIA is surrendering a 100 points
gain from earlier today.
The momentum stocks are lower
today as the beaten down banks and retail move higher. First Solar which traded
at $225 last Thursday when Jim Cramer recommended it is down $25 today at $175.
It traded at under $100 a month ago. Crocs
was recommended today but is off $3 and down over 50% from its high. †Baidu
is down $25 to $315. It traded at $425 last week. Apple and Research in Motion
are both off $8 per share. Even the Google
is down $15 at $648. It was $750 last week. We donít know whether this is a one
day event or a change in market character. Also we wonder if the folks selling
are the ones buying. We think not.
The credit card delinquency rate
was 4.5% in October up from 3.5% a year ago. There are $700 billion in packaged
credit card backed securities debt similar to mortgage CDOs.
Jim Cramer must be reading our
stuff because at he posted a
comment about the repercussions of a failure at E Trade Financial. By the way he didnít mention this stock on his
daily afternoon comment show on CNBC. That is unusual but not surprising.
Correct me if I am wrong, but an E*Trade
failure would be a big deal. It would be the first non-mortgage broker to go
under. But the difference is that there's a ton of retail money in this firm,
and the company is hugely visible -- unlike the American Home Mortgages and the
New Centurys. Sadly, they have a lot in common. E*Trade bought a huge amount of
really horrible mortgages and home-equity loans made by the defunct mortgage
brokers and really got it all wrong. I think that's what all these departures
are linked to. To me, the
issue here is the press that E*Trade gets. The stock is down so badly that I
think people will take their assets out of the place, and already I hear from
Aaron Task that his sources say phone volume there is off the charts, with
panicked callers fearing they'll lose their accounts to the company's
bankruptcy). I don't really know what E*Trade can do. It could try to get Fannie
Mae to buy stuff from it, but look at how that stock's doing. It could put
itself up for sale, but why would anyone want that mortgage book of business?
Or it could simply bet that there won't be a run and soldier on. Right now, it
looks like it is doing the latter. My point: If something bad happens here --
and this stock is down huge so I bet it will -- this will be the lead story and
retail investors ain't going to like it.
closed down 4% and Mexico
was down 2% today.
Oil ended at $94.35 off $1.97.
Gold closed down $27 at $808 as most commodities were clobbered and the dollar
The DJIA rally fizzled in the
last hour as a 100 point gain turned
to a 50 point loss. The momentum stocks pared their losses going into the final
hour but when the major measures turned lower so did the momentum stocks gave
up their rally attempt and closed on their lows for the day. Or maybe the fact that
the momentum stocks didnít rally was the reason the major measures reversed and
At the close the DJIA was down 50
points at 12992.. The S&P 500 dropped 15 points to 1440 and the NAZZ lost 42
points to 2585.
Breadth was 5/4 negative and
volume was brisk for a holiday.
There were only 3 new highs on the NYSE. There were 60 new lows. If
that 60 new low number were 800 we might think a snap back rally was in the
cards. But the new low number is too low.
The bears snatched the day from the bulls in the final hour
9 November 2007 Daily Comments
Yesterday breadth gained at the
end of the day and we didnít correct our statistics. Breadth yesterday was only
5/4 negative as a result of last hour rally. And volume on the NYSE exceeded 5
Asian markets were mixed to lower
overnight and European bourses are lower by over 1% at . Foreign markets were advancing until rumors that
Barclays Bank was going to take a $10 billion write-down began circulating.
Barclays denied the rumor.
Oil is at $95 and Gold is at
$833. Treasuries have a bid.
Goldman Sachs placed a sell on 3M. WachoviaBank announced before the opening that it was adding $600 million to
loss reserves for CDO exposure. That announcement set a negative tone and the
DJIA is going to open 1% lower.
Many pundits seem
to be worried about missing the next rally. Many of the current talking heads are the same folks who said
to buy lower tech stocks at the end of 2000, and in 2001 and in 2002.
eventually correct but most folks ran out of money before the lows were made
and had to have great fortitude to survive the collapse and await the recovery
in 2003. The talking heads may have
out-preformed their peers but the out-performance was still negative.
The activity of
the last two weeks has given us pause and we have moved from seeking gains to
preserving capital and readjusting our market perspective. We still plan to do
some buying before year end. But we want to let the dust settle and regain our
bearings. We will buy more names in smaller amounts when we do.
The NAZZ is down 7% in the last
Two hours into the trading day
and bids are beginning to show up for banks and brokers. The DJIA is still down
175 points but buyers are appearing.
Back in 1990 when the same type
of capital charges were hitting banks eventually corporations, with large cash
positions, had to fess up to having lost money on worthless paper that they purchased
to get a little more yield. There havenít yet been any of those disclosures but
we would guess that there are many companies out there who bought CDOs with
their cash reserves who are now wondering how to now price them. Their accountants
will be asking questions. Those revelations havenít yet dawned on traders since
many present traders werenít around in 1990.
shares ended lower rocked by a poor opening on Wall Street and as worries about
sub-prime exposure again rattled the banking sector. Technology shares also
came under pressure. Bourses indexes were down 1% to over 2% across the
Charles Prince, the deposed head
of Citigroup, will get a goodbye package worth about $100 million. Prince, who
stays on as a consultant until the end of the year, gets a pro-rata cash
"incentive award" currently estimated to be worth $12 million. It
also includes $10,716,469 in restricted share awards and $16,046,703 in stock
options that will automatically vest at his departure. Prince owns 1.61 million
shares in Citi, currently worth about $53 million. Citigroup has written down
$20 billion so far.
Remember when Uncle Alan
Greenspan was worried that if Bush didnít cut taxes the national debt would be
paid off by now: so much for Uncle Alanís prescience.
of Michigan survey at 75 is at its
lowest level since Katrina and the second lowest level since the survey began.
We reduced positions
in J Crew and Talbotís and Cott. We retain ownership but have reduced percentages
of each to bring them in line with the overall invested portion of the
accounts. JCG was a 10% holding and now it is 5%. We sold Coldwater Creek.
Entering the final hour of trading
all the large banks and brokers are trading green
while the recently strong tech and momentum stocks remain in the red. The DJIA is down 90 points. The green banks and brokers suggest short
covering going into the week-end when a rescue deal may be announced.
Oil ended up 94 pennies at
$96.40. Gold lost $4 to $833. Treasuries closed strong with the two-year at
3.40% and the ten-year at 4.25%. Brazil
was higher on the day while Mexico
The DJIA rallied to down about 60
points with 45 minutes to go today but then shorts stopped covering and/or the
dip buyers ran out of steam and/or day traders who were buying in the hopes of
a reprise of yesterdayís last hour rally gave up. And so the major measures
sold off to their lows of the day and the week and the month.
The DJIA close 225 points to end
at 13042. The S&P 500 lost 21 points to end at 1453 and the NAZZ dropped 68
points to 2627.
Breadth was 2/1 negative and
volume was active with volume on the NYSE volume exceeding 4 billion shares.
There were 700 combined new lows
which were less than yesterdayí 900 plus lows.
The Bears won the day
and the week. *****
8 November 2007 Daily Comments
Asian markets tanked overnight
with most down 25 or more. And at
European bourses are lower as they await the opening in NYC. Oil is over $96,
Gold is up another $8 and Treasuries have a bid. Futures are indicating a
slightly higher opening in the U.S.
Ford reported better than
revenues and a loss of a penny a share excluding items when a loss of 47
pennies a share was expected. Folks are making a big deal of loss of market
share for Ford. But if a company is selling cars on which it loses money to
maintain market share what is the point. Toyota
has been profitable for years and only reached number one this year. Ford can
find the nitch to be profitable even if it isnít number two, or even three.
We are chagrined by the quick
loss of 5% of our gains for the year over the past week. That evaporation of
the gains is spilled milk and we have to look forward.
In the last ten minutes of
trading yesterday the S&P 500 broke a serious support level at 1490. Yesterday
was the second day in two weeks that the markets easilydropped
over 350 points. One day is an anomaly, two days are not. With the markets
under pressure and still racked by unknown knows and known unknowns we would
rather be on the outside ruing missed opportunities than owning stocks. For us,
fear has overtaken greed.
We are selling our trading positions
on the up opening. The stocks we are selling are all good quality butÖ. †Two of the issues we just purchased yesterday
and four others earlier in the week. That is the nature of trading and that trading
served us well the last two months. But we didnít sell the news on the Fed rate cut on Halloween. Shame on us.
We are holding stocks we bought
to own that we think have the potential to at least double in the next two
years when the economy and market improves. And we will hold them although we
may reduce the J Crew position.
Everything we sold
had losses. In essence we gave back all our trading profits of the last two
months. That hurts.
We sold AEO, STJ,
JPM, SPDR Bank, DELL, MMC, YHOO, WSM, and partials of Motorola (in larger
Wal-Mart same store sales were up 0.4% versus 1.1% expected.
Cisco announced results last night that were better than but was cautious going forward. That caused the shares
to drop $4 in overnight trading and will be a drag on the markets today.
Jobless claims were 326,000 for the latest week.
First Solar reported a doubling of revenues to $150 million for the
quarter and earnings of 49 cents. The price of shares is up $50 per share to
$217 this morning. That is a market cap of $15 billion. Not all bubbles have
On the bursting bubble side Hansen Natural Beverages is down $13 to
$43 after disappointing. It was trading at $70 in the middle of October. HANS
missed by 2 pennies.
Oops. When Barack Obama's charter
plane touched down Tuesday night, aides were surprised a car wasn't waiting to
rush him to that night's campaign events. Someone stepped onto the tarmac and
quickly realized why: They had landed at the wrong airport. Instead of going to
Cedar Rapids, the plane had touched
down about 100 miles to the west in Des Moines.
Headline on CNBC from Bernanke
testimony: Rising Oil prices do
represent some inflation risk.
Itís good to know that oil priced
jumping from $52 in the summer to $100 today might represent some inflation risk.
Gold ended down $3 at $830 and
Oil lost 95 pennies to $95.85. Margin requirements were raised as of the close
of business today and that may have created some selling.
Treasuries were strong with the
two-year at 3.50% and the ten-year at 4.28%.
European bourses closed when the
stock measures were on their lows and so those markets closed lower. Brazil
After being down over 200 points
with two hours of trading remaining the DJIA and major measures rallied in the last
hour to close up on the day. Greed lives. The major banks and brokers led the rally as they did on a
Thursday in September when the Fed made its initial surprise rate cut the next
day. We would guess that a combination of short covering and traders getting
long Citi at $32 plus some hoping for tomorrow were responsible for the
recovery. The bulls will take any help they can get.
The DJIA closed down 35 points at
13265. The S&P 500 was down 1 point at 1474 and the NAZZ lost 50 points to
2696. Other major measures like the NYSE Index and the Russell 2000 were up on
Breadth was 2/1 negative on the
NYSE and NAZZ and volume was active with over 4 billion shares traded on the
There were a combined total of 900
new lows on the NYSE and NAZZ.
The Bulls saved the day and the very active volume and 900
new lows suggest the purge may be over for now. We think some Fed action is
needed for any sustained move up. The problem is that if the market rally then
the pressure on the Fed eases because they are worried about inflation if they
continue to cut rates. And there is always tomorrow although tomorrow is
guaranteed to no one. *****
7 November 2007 Daily Comments
From realmoney.com: A key
Chinese political figure said China should diversify its $1.43 trillion in
foreign exchange reserves by buying strong currencies such as the euro; his
statements are causing great pressure on the dollar. That combined with high
oil and lingering worries that bad debt problems have not ended, and GMís $39
billion loss is setting the stage for a sharply lower open.
were mixed overnight and European bourses are lower at midday.
Oil hit $98 in overnight trading as traders concentrate on the
winter heating season and supply disruptions. The price of oil is a joke. There
have been no lines anywhere, there is sufficient oil but the traders have oil
on a roll higher and momentum rules. Gold is on the move also up another $18 to
$841 in the early going, the dollar is at a new low versus the euro and
Treasuries are strong.
As it stands
now stocks will open lower by 1%.
Investors Intelligence has 54% bulls
and 22% bears which are a 1% increase in bulls and 1% decrease in bears.
yesterday of the re-pricing of the CDO tranches and today the media is on the
case. Several analysts wrote about the pricing overnight and placed numbers on
the various firms and that has traders nervous. The known, no matter how bad is
better than the unknown. But this time around we wonder whether traders will
believe the numbers given.
are talking about diversifying their dollar holdings after the dollar has
fallen 50% against the euro.
The top woman
model in the world has declared that she no longer will be paid in dollars.
A client of
ours tells us that oil will never trade under $80 per barrel in our lifetime.
says, ď'One-time events' are happening every day. The fact is, high oil is here to stay.Ē
is that oil traded down to $52 this past summer.
the same type of never talk in the
early 1980 when short term rates were 20%. Only then it was that rates would
never go back to 10%.
The pendulum swings to extremes before returning
to the norm and the extreme in the other direction. The globe warms and melts
the ice which changes the temperatures which eventually lead to a new ice age. †Droughts turn to floods and back again. The earth
rotates and the sun warms and then the earth cools. Stocks jump and then fall. We
come from dust and to dust return. The pendulum is relentless and eternal.
The euro is
at $1.46 to the dollar after being at $.70 to the dollar a few years ago. At
some point the Europeans are going to become more aggressive in buying
U.S. assets. The same goes for the Canadians.
General Motors plans to book a $39 billion non-cash charge in the
third quarter as it establishes a valuation allowance and reduces certain net
deferred tax assets to $0 in order to be in compliance with federal accounting
Alibaba.com, a Chinese internet
company, went public yesterday on the
Kong stocks exchange. The share price
tripled in the first day of trading giving the company a market cap of $25
billion. Only in China or the U.S. in 1999 would that make sense. Yahoo owns a 37% stake in the
parent company of Alibaba and 10% of the common stock of Alibaba.com.
ownership has been responsible for the volatility in YHOO over the past two
weeks as traders were positioning to play the public offering of Alibaba through
Yahoo. That is because
U.S. investors canít buy Alibaba shares until December 17. The share
price of Yahoo jumped to $34 two week ago and was $32 yesterday morning before
the selling off on a sell the news reaction. We bought the shares
back at $$28.90 that we sold last week at $30.40. *****
Citigroup generated $63 billion in net
income in the last three quarters. That figure may give some perspective to a
$20 billion write-down.
Productivity was up 4.7% in the Third
Quarter as folks got fired to make the bottom lies look better. Labor costs dropped 0.2%.
At 1pm the S&P 500 is down 30 points at 1490 which is support and also
the 200 day moving average. A break through 1490 means quickly lower. Breadth
is 8/1 negative and down volume exceeds up volume 9/1. There are 700 new lows
on the combined NYSE plus NAZZ. 1000 new lows would signal some capitulation.
There are no
more trading curbs at the NYSE to stop program trading. There are only circuit
breakers that kick in when the DJIA is down 10% and then 20%. And so the markets
will be more volatile which the traders want. It makes it more difficult for
those actually buying individual stocks because they represent value to see
them drop and extra dollar on a program trade. But we play with the cards we
This market resembles
the savings and loan crisis year of 1990. That year there was the threat of war
with Iraq and the banks taking huge write downs. We begin buying in August
and suffered through the dismal fall. But 1991 turned into a banner year for
us. We remember Don walking into the office one day in August and saying it was
too late to sell and that we need to keep buying value. And that is what we
did. Back then a 10% cash cushion was large. We have more now.
Oil ended the
day lower at $86.27 down 47 pennies. Gold was up $10 at $831 and Treasuries
were higher with the two-year at 3.58% and the ten-year at 4.33%.
bourse indexes closed lower across the continent as did Mexico (-1.1%) and Brazil (-2%).
It was ugly
in the last hour of trading and stocks closed on their lows for the day with
the major measures all down over 2%. We bought Marsh McLennan
back in the last hour at $24.85 as it dropped $1 on the day. The problem now is
to take our time and remember that in the panic type atmosphere that is
developing stocks can go a lot lower a lot faster than our remaining cash
reserves can handle. We arenít going to say that we enjoy the drop but the
stocks we own are value and we have cash to continue adding. The reasons for
the sell off are apparent and while every sell off is different the psychology
is the same. Greed is always at war with fear. Fear won the day.
closed down 360 points to 13330. The S&P 500 closed at 1475 down 45 points
and the NAZZ plunged 76 points to 2746.
8/1 negative and down volume exceeded up volume by a 10/1 margin. Trading
volume was moderate.
There were a
combined 750 new lows.
The bears won the day and with two more trading days remaining we are
fastening our seat belts.
6 November 2007 Daily Comments
Asian markets were mixed
overnight with Hong Kong recovering 1.7% of Mondayís 5%
loss. European bourses are higher at
and in the early going Oil is over $96 and Gold is higher by $12 at $823. Treasuries
We bought American
Eagle Outfitters in our large/aggressive accounts. They will
announce same store sales on Thursday and, as with all retailers, less than
stellar numbers are expected. We are leaving room to buy more and add to other
accounts also. AEO is priced at 12 times 2007/08 earnings and 10 times 2008/09
earnings. The shares are down from a higher of $36 in May.
repurchasing a partial position in the Ford we sold last week at the
price at which we sold. The dust has settled from the collapse on Thursday and
we want to add the Ford back in a smaller quantity that leaves room to add if
the world ends.
Testifying before Congress on Tuesday, Mark Zandi, the chief economist
estimated that two million families would lose their homes by the end of the
current mortgage crisisÖÖ
Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At
Countrywide, $285 million came from late fees last year, up 20 percent from
2005. Late fees accounted for 7.5 percent of Countrywideís servicing revenue
But these are not the only charges borrowers face. Others include $145
in something called ďdemand fees,Ē $137 in overnight delivery fees, fax fees of
$50 and payoff statement charges of $60. Property inspection fees can be levied
every month or so, and fees can be imposed every two months to cover
assessments of a homeís worth.
That last paragraph suggests that
the loan servicers have learned a lot from lawyers.
Oil closed up $2.72 at $96.70.
Gold jumped $14 to $825. Treasuries closed lower with the two-year at 3.70% and
the ten-year at 4.38%.
European bourse indexes were
higher as were Mexico
The info below is from CBS Marketwatch which took it from
Investment banks categorize their
investments in three buckets:
* Type I
Securities that are 'marked to market' or where they could actually sell them
according to the last price.
* Type II Securities that are
'marked to model' where they could conceivably sell them at a price determined
by an analytical model.
* Type III Illiquid securities
that are "marked to management," or prices subjectively determined to
be fair value by the management structure of the firm.
As of the past quarter, Level III
investments at four of the five major investment banks grew 36.7% from $156.4
billion to $215 billion. The one major bank that wasn't included in this
reported figure was Merrill Lynch (MER), which has since written down close to
$9 billion dollars in losses.
On November 15 investment banks
and banks have to reveal the valuations they have placed on their level III
holdings. In the case of Citigroup (their Level III holdings are 105% of equity
base) and Goldman Sachs (185%) Morgan Stanley (251%) and Bear Stearns (154%) their
Level III holdings exceed their equity base.
These valuations may become a
focal point of talking heads and media mavens over the next week.
Our surmise is that the Fed is
going to allow them to carry these holdings at non capital destroying
valuations. The brokers were broke for several days in 1998 during the Long
Term Capital debacle. And Citi was broke back in 1990. But as long as the Fed
says they are solvent, they are solvent, and that is what the Fed did in those
We took a loss on
TLAB in our large/aggressive accounts and placed the money in Symantec which is
down the same percentage. We also bought St. Jude in those accounts.
Our theme in investing now is to
buy stocks that are down but had better
than reports in the recent reporting period. We think these stocks have the
best potential going forward. Both St Jude and SYMC are in this category. TLAB
The DJIA gained 120 points to close
at 13660. The S&P 500 was up 18 points to 1520 and the NAZZ popped 30
points to 2825.
Breadth was 5/4 to the good on
the NYSE and flat on the NAZZ and volume was moderate on both.
There were 500 new lows and 250
new highs on the combined NYSE and NAZZ.
The bulls won the day
but the volume and more lows than highs should show they have work to do.
5 November 2007 Daily Comments
Asian markets were lower overnight
with Hong Kong down 5%. The drop was the result of news that China's Premier WenJiabao holds a number of reservations about a plan to allow
mainland investors to buy Hong Kong-listed stocks. European bourses are also lower
on the Pakistan news and U.S. stocks will be opening down 1% on news that Citigroup has
another $12 billion in write downs coming. Sub prime and other derivative
losses are the talk of the town. *****
Gold is down $3 in the early
going and Oil is off $1.50 with a $94 handle. Treasuries are flat.
We spent the week-end considering the ramifications of the sell off on
Thursday and the Citigroup and Pakistan news. We note that many gurus seem to
still be in the greed mode and while giving advice to avoid the money center
banks and other financials the gurus are suggesting large cap stocks for
Our take is that no sustained rally to significantly higher levels will
occur until the full extent of the financials problems is clearer. Citigroup
did announce that they would be taking an additional $8 to $11 billion in write-offs
which would bring their write-offs to $20 billion. It may well be that the
major extent of Citigroupís exposure is now know although the markets may not
be recognizing that.
The Fed is going to lower interest rates to allow the banks to recoup the
banksí loss which is the tried and true way. Lowering interest rates robs
savers but increases the spread between the cost of funds/and loan rates and
helps the banks recover their greed driven losses.
We are taking a $2
loss per share on the SPDR Financials (XLF) and Wintrust Financial to reduce
our financial exposure in our larger/aggressive
accounts and we are buying back two better quality tech stocks that we sold on
Friday. We decided we want more high quality tech exposure. We are repurchasing
Dell at less than where we sold in accounts in which we sold Walgreen and Symantec
at our sale level in accounts that owned it.
That completes the restructuring of our portfolios to lessen the risk while
at the same time maintaining investments in stocks that we think have good
potential. Actually the stocks we sold also remain attractive to us but the
reality is that with the markets within 5% of all time highs on the S&P 500
and DJIA we cannot have the too great market exposure we had last week. *****
Citigroup held a conference call today to calm the markets. We
donít think they did. They suggested that they hold $50 billion in bonds for
which they are reasonable stab at the
value. That is not a confidence building statement.
Gold closed up $2 at $810. Oil lost
$1.95 to finish at $93.98. Treasuries were flat with the two-year at 3.67% and
the ten-year at 4.34%.
European bourse indexes dropped
on the day as did Brazil
(-2.8%) and Mexico
The bulls rallied stocks in the
final hour to save their day but did it too early and the major measures failed
at the close.
The DJIA dropped 51 points to end
at 13543. The S&P 500 was down 7 points to 1501 and the NAZZ sank 15 points
Breadth was 2/1 negative on the NYSE
and the NAZZ and volume was light on both.
There were 295 new lows and 65
new highs on the NYSE.
The bears are in control.
Poor Souls Day 2007 Daily Comments
down big time overnight and Europe is lower at . Treasuries are flat and Gold and Oil
are flat in the early going. The Employment Report said that 166,000 jobs were
created in October. That is twice the number expected. Stocks are going to open
higher on that news. We are going to do some selling on the higher opening.
Poor Souls day is the day after
All Saints Day and itís the day to remember all the folks who have crossed over
the River Styx.
Given yesterdayís market action we
would suggest that there are lot of folks including we
and our clients who are also poorer souls
today that we were yesterday.
Our comments on yesterdayís
market action (written during the day) were more positive than we felt after we
viewed the carnage to our profits for the year in our accounts. We have not had
a day where we surrendered so much hard earned yearly profits for a long time. And
on an absolute dollar amount we have never had such a day.
As a result we did some thinking.
From yesterdayís action it was apparent that the issues we held had a higher
beta than the markets as a whole. That means that the stocks go up faster and,
unfortunately, down faster than the market.
We came to the conclusion that we
were taking too much risk. The November scenario we had envisioned did not
include a 370 point down day. We had expected a more controlled pull back this month
after the nice move up off the August lows. What we expected and what Mr. Market
provided were not the same.
And so we decided to reduce
market exposure by selling those stocks that we owned for a trade versus those
that we are comfortable owning. Our trading concentration has been in tech and so we were able to eliminate (ERIC, SYMC, YHOO, TXN, MU, and AMD) most
of the issues for scratch profits or losses. We sold Ford for a profit since we
have a lot of retail exposure with J Crew and Talbotís. That is a continuation
of our own, it donít own, relationship with the stock. We took a larger than we like loss in Comcast and Boston Scientific. It is fun taking profits and painful taking losses but
that is part of trading. We also gave up our Walgreen holdings for now at
least. We think the recovery potential gains in JCG and JPM are greater than
WAG. In our large/aggressive accounts we sold SBUX and WFC for scratch losses.
Several folks asked what
companies the SPDR Financial owns. Here is the distribution: we were in error
yesterday when we said that Citigroup was 20%.
Below is the composition of the major holdings of theMoney Center Bank SPDR:
As of 11/01/2007
JP Morgan Chase
Bank Of America
Wells Fargo & Co New
State Street Corp
Northern Trust Corp
Bank Of New
SunTrust Banks Inc
GMAC Financial Services, partly
owned by GM said its third-quarter loss widened to $1.6 billion on a steep loss
at its mortgage business, making it a continued drag on the auto giant's bottom
line. GMAC was formerly GM's in house financing arm. GMAC posted a loss of $1.6
billion compared with a year-earlier loss of $173 million. Revenue fell 42% to
$2.57 billion from $4.55 billion. GM sold a controlling stake in GMAC last year
to a consortium of lenders led by Cerberus Capital Management LP, (the folks
who bought Chrysler) after years of relying on the unit to offset weakness in
automotive operations. But GMAC's escalating struggle with the housing downturn
has punctured GMAC's importance to GM and its third-quarter loss will likely
lead to the auto maker booking hundreds of millions of dollars in losses
related to its GMAC investment.
Oil ended the week up $2.22 at
$95.30. Gold gained $15 to $808. The Hunts are finally even on their purchase
of Gold in 1979-80. Treasuries closed higher with the two-year at 3.66% and the
ten-year at 4.30%.
European bourse indexes closed
lower across the continent.
The WSJ has a front page story
this morning that Mother Merrill is parking securities off the books with
buy/sell arrangements with hedge funds.
Merrill Lynch & Co. , in a bid to slash
its exposure to risky mortgage-backed securities, has engaged in deals with
hedge funds that may have been designed to delay the day of reckoning on
losses, people close to the situation said.
transactions are among the issues likely to be examined by the Securities and
Exchange Commission. The SEC is looking into how the Wall Street firm has been
valuing, or "marking," its mortgage securities and how it has
disclosed its positions to investors, a person familiar with the probe said.
Regulators are scrutinizing whether Merrill knew its mortgage-related problem
was bigger than what it indicated to investors throughout the summer.
one deal, a hedge fund bought $1 billion in commercial paper issued by a
Merrill-related entity containing mortgages, a person close to the situation
said. In exchange, the hedge fund had the right to sell back the commercial
paper to Merrill itself after one year for a guaranteed minimum return, this
the Merrill-related entity's assets and liabilities weren't on Merrill's own
balance sheet, Merrill might have been required to take a write-down if the
entity was unable to sell the commercial paper to other investors and suffered
losses, the person said. The deal delayed that risk for a year, the person
That wouldnít be illegal unless
the securities werenít full collateralized. Actually, that arrangement is how
Mother and some other large brokers helped Enron hide liabilities. They paid
billions in fines for doing so. These are the kinds of rumors that circulate in
queasy markets and help to create corrections. Fear replaces Greed. It did with
us last night.
The DJIA closed up 30 points at
13598. The S&P 500 gained 1 point to end at 1509 and the NAZZ was up 15 points
Breadth was 3/2 negative and the
NYSE and 5/4 negative on the NAZZ and volume was light.
There were 90 new highs and 260
new lows on the NYSE.
The Bears won the week.
1 November 2007 Daily Comments
The stock markets are going to
tank to begin the day and month. Citigroup
was downgraded by CIBC and the NYT is suggesting that C may cut its dividend.
Oh how the mighty have fallen. Where is Sandy Weill when we need him?
Crocs is also on sale today with the share price down $21 to $53 on
a muted forecast going forward. That is taking some starch out of the momentum
Asian markets were mixed
overnight as is Europe at .
Treasuries have a bid on the stock market woes and Gold has touched the magic
$800 mark in the early going with Oil at $95.
The economic numbers released
this morning suggested a slowdown in consumer spending.
The WSJ has a story about the CEO
of Bear Stearns playing cards and smoking dope while two Bear Stearns hedge
funds were crashing in August. Rupert is settling scores.
We are buying
Wells Fargo Bank, SPDR Large Bank (KBE) and the SPDR Financial Trust (XLF) in
our large/aggressive accounts. Citi is down $3 today on the negative
news and it is 20% of the XLF. We think it is a good way to play C and the
brokers while keeping some diversification in the industry with still a
concentration on C.
Oil traded over $96 this morning,
but two hours into the stock trading session has pulled back to under $94.
One of the reasons given for
todayís sell off besides the obvious reversal of yesterdayís month end pop by
the bulls is that the Fed signaled yesterday that it was finished cutting rates
for a while. Our guess is that they are finished as long as the sub prime mortgage
mess remains contained. If it doesnít and Citi and/or a mortgage insurer or Countrywide
blow up then the Fed will cut again.
Over the last twenty years the
Fed has shown a willingness to correct the mistakes of banks by cutting rates.
This in effect punishes prudent savers who buy fixed income instruments and
rewards the risk taking banks. It does no good to lament this fact of economic
life. It has always been so, if you owe enough money you have to be rescued.
Now that they have a contract Chrysler is going to fire 10,000 souls.
CNBC has just discovered that Iran
controls the Straits of Hormuz. There is a conference going on in Washington
speculating on what would occur if the price of oil reached $160 oil and CNBC
is covering it. Their competition with Faux News is heating up and soon we expect
bikini clad talking heads. The question
is what would occur if Iranís oil supply were interrupted by say, bombing Iran.
Not only would Iranís
oil supply be interrupted but we venture that all shipments from the gulf would
Coupled with Citi going broke,
and everyone in the country refusing to pay on their mortgages, the markets now
have the glass one quarter full to contend with. Investors Intelligence bulls
were still at 52 last week but we would guess todayí dire warnings have moved
that number under 50.
European bourses closed lower
down 1.8% and London and France
both down over 2%.
Watching the markets today we
know how the bears felt yesterday.
With two hours to go in the
trading day the bulls are abandoning ship and the bears are pressing their bets
which are a heck of a lot easier now with the up tick rule gone.
This is the time
of year when panic and rumors hit the market place. If it were any other time
of year we would be donning our hard hats and raising cash. But at this time of
year such talk usually creates buying opportunities in issues and industries
being abandoned. †One caveat is that the
major measures are so close to highs, but the rotation in stocks that has moved
the averages to those highs has placed a lot of companies on their lows. And
those are the stocks we are buying. We are not cavalier about the risks but we
do think the risk/reward is in our favor on these issues at this time of year. We
are avoiding the toxic stuff like the home builders and Countrywides of the
stock world but the money center banks, tech, and select retail offer good
large/aggressive accounts we sold INTC for a scratch and bought WSM for a trade.
Treasuries rallied today on the
down stock market even though the consensus is that the fed is through loosening
for a while. The two-year was 3.75% and the ten-year was 4.35%. Gold closed $3 lower
at $792 and Oil lost $1.35 to $93.20.
and Brazil were
both down over 1.5%.
The large money center banks each
lost 5% or more of their market value today. CNBC says they havenít dropped
that much in a single day since 2002.
The DJIA dropped 320 points to
end at 13567. The S&P 500 lost 40 points to 1508 and the NAZZ lost 65
points to 2795.
Breadth was over 4/1 negative but
volume was light. It was also light yesterday when the markets rallied.
There were 70 new highs and 180
new lows on the NYSE.
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