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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, 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

Halloween Evening 2003 Comment

7:32am and personal income was up 0.3% and personal spending was down 0.3%. There was a 1% drop in after tax income as the tax cuts’ effect wanes.

Treasuries are a bit stronger after this morning’s data.

10:02am and we have been buying a few stocks today. ANDW sold off on its earnings news and we tried to pick up some shares but missed. The stock is now higher on the day. We added a few share of AEOS to accounts under $16. We are buying ZRAN under $16 to increase positions in accounts that own shares now. And we initiated a position in AT&T at $18.65. The shares have a 5% yield and the company has indicated a willingness to be purchased.

Stocks are meandering higher. With today being the last day of the month anything can happen. The Michigan Sentiment number was 89 up from 87 last month.

11:05am and stocks are holding at higher levels. There isn’t a whole lot of news today and with Kathy gone we have had to so some work and been busy placing stock in accounts. We think any push or pull will come in the final hour. We continue to think there could be a pull back this month especially with the strong rise the markets experienced in October. But we also believe we should be placing more funds in the market and so we are juggling these competing ideas as best we can. We are comfortable with the stocks we are adding.

In fact last night we were hoping ANDW would sell off on this morning earnings announcement so that we could add more shares. Unfortunately the sell off and rebound were too rapid for us to buy many shares, but we aren’t complaining. The point is that we are buying stocks we want to buy more of if they move lower.

1:52pm and entering the final hour of trading the stock markets could go either way. Next week Cisco announces earnings and gives guidance and then the retailers come with their third quarter reports. But the major earnings reports are over and so now traders will begin anticipating preannouncements, but not till retailers are finished.

2:53pm and we have to leave a bit early. With five minutes to the close, the DJIA is up 32 points at 9820. The S&P 500 is 6 points higher at 1054 and the NASDAQ is up 4 points at 1936.

And tomorrow is another day.

31 October 2003 - Morning Comment

6:21am and we wish a Happy Halloween to Abby and Tyler and all their cousins in Kentucky. Abby is going to be a princess, a role she plays everyday anyway, and Tyler is going to be bad guy which he never is except on Halloween.

Overnight the Nikkei was off over 1% while Hong Kong was higher. Europe is mixed and U.S. futures are slightly lower.

Isn’t it strange that since Arnold was elected Governor of California fire and sink holes have devastated the state? Is Someone trying to say something?

Kathy is in Las Vegas for a few days trying her luck with her own money. She said the smoke from the California fires is in the air there.

6:45am and stocks seemed to tire out yesterday afternoon. Stocks made a feeble stab at piercing overhead resistance early yesterday but failed. Thus we think we may go back down and revisit the lower end of the trading range. It is a rather narrow 3% range recently.

Interestingly, the S&P 500 is up 5% in October, its best month of the year. In today’s NYT Paul Krugman, our favorite economist, gives grudging credit to the tax cuts’ and monetary stimulus’ ability to get the economy moving. He does question the future cost of the stimulus but we take his column as an indication that even he thinks the stimulus may work this time. In the last two years there have been false starts where the economy (GDP) has turned in a gangbusters number for a fiscal Quarter only to retreat back into the doldrums the next. So the Fourth Quarter of this year and the First Quarter of next will tell the tale. And the markets may wait a month or two before anticipating victory.

Today we think stocks will meander with a higher by 50 points close on the DJIA since it is month end.

So let he games begin.

30 October 2003 - Evening Comment

6:46am and we missed our calendar since Newell reported earnings this morning. Their earnings were less than anticipated so we’ll see how the stock opens and reacts.

7:01am and according to some in the media the White House has won a great victory in Congress because none of the $87 billion in aid to Iraq will be in the form of loans. That is a victory created out of whole clothe. Any loans would never have been repaid anyway and the Dems who proposed them were just too chicken and worried about their own poll numbers to just outright oppose the occupation. The longer the occupation lasts the harder it will be to extricate our troops without exposing the Iraqis who have sided with us to the retribution of the folks who take over. So that means we stay forever. Mission Accomplished, Quagmire Created.

What does this have to do with stocks? Well for starters the cost of the occupation is a drag, a serious drag on our economy. Also the location of all our troops in that area as policeman not fighting men and women is a perfect set up for a Lebanon type Hotel bombing situation as occurred in Reagan’s first term. The psychological implications of continued mayhem will eventually affect the markets.

Finally, not many have noticed but Russia is going through a crisis in its stock market and politics with the arrest of the oil oligarch.

These overseas events haven’t come home to roost, yet. But they will. The stock markets can only see about two days ahead right now but there will come a time when the burgeoning deficit, Iraq occupation, Russian irresolution, Israeli confrontations and Washington ineptitude will coincide with a financial crisis. These ideas are our reason for caution.

And now the Congress is preparing another tax cut bill. This one is for corporations and initial indications are that the cost over 10 years will be $128 billion. As a rule if the Congress says the cost will be $128 billion we would double the number to $256 billion over 10 years.

7:24am and the WSJ is reporting today that Richard Strong the CEO of the Strong Family of Funds may have engaged in questionable in and out trading in funds run by his company. The fact that folks are so surprised by the Putnam and Strong revelations is an indication of how naïve and lax the SEC has been in its enforcement practices. But the SEC does manage to examine our books every two years as does the NASD, while huge mutual fun companies are reviewed every five years or so.

7:31am and GDP was up 7.2% and jobless claims were 386,000 which was down 5,000 from an upwardly adjusted last week number. The employment cost index was up 1.0% in the Third Quarter. Stocks are rallying and Treasuries are falling.

With 7% GDP why was there no job growth?

9:38am and stocks opened higher but are now selling off. We sold our Merck at $44.60 after it opened lower. We may revisit drug stocks outside of SGP again but for year end we think our money is better invested for risk elsewhere.

We bought American Eagle Outfitters, a trendy specialty retailer at $16.25 with the Merck money. It will give us more bangs for our bucks in the coming months. It is a volatile stock and has been having trouble hitting fashions correctly for about a year. When it is hot it is very very hot and when it is not it still does OK. We initiated positions in larger trading accounts.

We reestablished a holding in Andrew Corp today at the $13.10 level in many accounts. We are taking a chance because earnings will be announced tomorrow morning. For that reason we have left room to buy more tomorrow for smaller accounts and to add to the accounts buying today if the stocks drops.

Newell is trading higher and we are not going to buy any now. The street has decided the earnings report was OK but we are content to wait.

The opening prices brought the major measures right up to resistance so today will be a good tell on the strength of the bulls who would like the major measures to break out to new high territory above 1060 on the S&P 500. Right now that doesn’t seem doable today.

11:33am and an observant reader reminded us that IKEA is Scandinavian not Japanese.

Stocks have stagnated with the sell offs being bought and the rallies being sold.

3:02pm and European stocks closed higher while Treasuries closed lower but better than their worst levels of the day. The DJIA inched up 10 points to end at 9785. The S&P 500 lost 2 points to finish at 1047 and the NASDAQ was down 4 points at 1932. we’d call it a win for the bears.

And tomorrow is another day.

30 October 2003 - Morning Comment

6:28 am and this morning the markets receive Third Quarter GDP which is expected to be plus 6.1% and the weekly first time claims for unemployment. On these two numbers the markets will trade.

We can sense a growing bullishness as the market measures move higher and that is normal. It’s funny how folks don’t want to buy a down market but the fear of being left behind is enough to push them into a rising market.

We would like to be more fully invested right now but we await the seeming never to occur correction. We are pleased that our wait till after earnings scenario allowed us to repurchase and add OATS at a nice price yesterday. Hopefully we’ll have the same luck with Newell next week.

We have our eyes open and our ears perked for opportunity but we are not finding much to move us. Today should be interesting.

So let the games begin.

29 October 2003 - Evening Comment

6:48am and on CNBC they are talking about productivity. Our take which is simplistic, we know, is that the reduction in workers is the main reason for the much ballyhooed increase.

Just yesterday, Coke announced it was firing 2200 workers. When companies like Coke are still reducing their work force we wonder how great things are. After all the economy came out of recession two years ago according to the folks who know and is now growing at 6% a quarter.

There isn’t much earnings news this morning and the focus of today will be on yesterday’s big push and the GDP numbers to come tomorrow.

9:08am and Wild Oats pre announced a big write off because they are changing distributors and closing warehouses. This is about the fourth year of special write-offs and restructuring and the stocks took a dive this morning. Luckily we had sold positions in many accounts at $11.40 yesterday and reduced positions in others and so we are repurchasing shares at the $9.50 level. We like the company and do think they are finally going to get on the right track and so we are going to place it in many accounts.

We are also initiating a holding in Zoran, which is a speculative stock that makes chips for DVD uses and other consumer electronics devices. They just took a big write-down to account for the purchase of Oak Technologies and since it was a momentum stock the momentum boys and girls have been abandoning ship. The shares traded under $15 last week and have rebounded to the $16.50 level. They are well under their yearly high of $28. This is a small speculative company but it gives us a bit of exposure in the chip area. The company expects to earn 50cents per share on sales about equal to their market cap.

Schering Plough cut its dividend to 5.5 cents per quarter.

10:01am and a friend e-mailed about my comment of bringing the troops home from Iraq:


I recall Ike telling the nation he would bring the troops home from Korea.

He said this during his first campaign and during the height of the combat. Of course, he probably knew and the key players knew also, he had some WMD in his hip pocket.

We sent an e-mail back to him and used the word Ike. The spell check didn’t recognize the word ‘Ike’ and wanted us to use Ikea, the Japanese retailer. Now that is a time warp.

10:11am and Treasuries are finally giving ground with yields back up but not above yesterday’s yields before the rally. Supply is now coming to market which will be a negative for Treasury yields.

10:14am and the sun is exploding more than normal and the solar storm will affect communications today. There may be great Northern Lights tonight if it’s not cloudy.

12:15pm and we bought a bit more PCS at $4.20 in our larger trading accounts. We were bidding $4.10 the other day to add to all accounts and we will if gets down to that level before year end.

1:46pm and in the ‘oops we didn’t mean it’ department Fannie Mae has announced that they are ‘correcting’ their October 16 Third Quarter press release to fix computational errors. These are the guys and gals who finance everyone’s mortgage.

As we enter the final hour of trading the DJIA is up and the NASDAQ after a struggle is in positive territory. Breadth is positive. Treasuries are lower in price higher in yield.

3:02pm and the DJIA closed up 33 points at 9780. The S&P 500 gained 2 points to end at 1048 and the NASDAQ rose 5 points to close at 1937.

And tomorrow is another day.

29 October 2003 - Morning Comment

6:30am and Japan continued yesterday’s party with a 1.7% gain overnight. Europe has a bit of a hangover as do the U.S. stock futures but the stage seems set for a further push higher through the end of the week.

We remain in an ever emptying camp of bearish folks. Tomorrow preliminary third quarter GDP figures will be released showing 6% to 7% growth. Economists expect a more sustainable 4% number for the fourth quarter because there won’t be anymore tax cut/child credit checks in the mail. But the war in Iraq will still be going on since Bush is in the “we can’t cut and run” frame of mind. We rather like the Wayne Morse “declare victory and leave” approach but that isn’t going to happen. And the longer the U.S. stays the longer it will have to stay since more and more Iraqis will become dependent on the U.S. for their safety.

Back in the late 1960s the guns and butter scenario didn’t lead to any crashes but it did lead to a 15 year period of stagnation in the stock markets. Our bearishness doesn’t arise from that historical happening; rather we just don’t feel the excesses have been wrung from the casino. But they may never be and we are open to changing our mind. We plan on giving our scenario a few more weeks to unfold and if we don’t see a change then we may pull up a chair and join the game for a while.

We are looking at stocks that haven’t announced earnings like Newell and AON and we also have Maytag and Verizon and a few more on the radar screen. But for now we are going to try and keep our powder dry and go with what we currently own.

So let the games begin.

28 October 2003 - Evening Comment

7:11am and today is Fed Meeting day and so the markets will focus on the 1:15pm release of the Fed statement. With the strong overseas markets we may get a pop in stocks before that announcement if the 7:30am durable goods order number and the 9:00am consumer confidence number are both positive.

7:30am and durable goods were up 0.8% and durable goods ex transports we up 1.2% which were as expected. Capital spending was up 3.9%. Last months numbers were revised positively. This report should put a bid in stocks.

JDSU sold $400 million par value zero coupon convertible bonds overnight and so the stock is under pressure as the convertible arbitrageurs sell stock to hedge risk. That is a new phenomenon that we don’t understand but lots of folks do it. We have been trying to pick a point to buy more stock and this may be it.

8:58am and stocks are higher out of the gate with breadth 2/1 positive. More announced mergers and acquisitions including RJR buying BAT’s Brown & Williamson’s tobacco operations are being taken by traders as a positive sign of economic recovery. RJR is up $4 on the news. The market action is similar to yesterday morning. Treasuries are weaker.

Consumer Confidence was announced at 81.1 versus an expected 79.1.

Upon reflection the gurus have decide that BankAmerica is overpaying for FleetBoston Financial, but the investment bankers are happy to give their opinion that the deal makes sense and thus they go past GO and collect their fee.

10:40am and Bush is having his press conference now and he made some positive comments on the economy. As he is speaking the stock markets are edging higher.

We added another round of JDSU to accounts at $3.41 and we are trying to buy more PCS at $4.11. These are speculative stocks but we have traded them successfully this year and we would like to get a holdable position before year end.

11:26pm and IBM just approved a buyback of up to $3.5 billion in stock. We may see more of that in the days ahead as a means of getting lagging stocks moving.

11:51am and stocks are marking time awaiting the Fed release at 1:15pm.

1:15pm and the Fed leaves rates unchanged and is still worried about deflation. The Fed says no tightening in the foreseeable future. With the Fed worrying about deflation and the economists saying GDP is growing at 6% something has to give eventually. But for now stocks and bonds are rallying so it is the best of all worlds.

European stocks closed higher with France and Germany up over 1%.

2:27pm and in the final hour stocks and Treasuries are maintaining their gains. We are watching. We pulled our bid for PCS.

3:02pm and the DJIA closed up 140 points at 9750. The S&P 500 gained 15 points to finish at 1047 and the NASDAQ climbed 47 points ending at 1930.

And tomorrow is another day.

28 October 2003 - Morning Comment

6:47am and only a few more days till Halloween and the end of the dreaded September/October thrill a second ride in the stock markets. Of course that didn’t happen this year which is in keeping with the way the whole year has gone. The expected seasonal action has been the reverse of what usually occurs.

With that thought we are more cautious about the November/December period when usually the good times at least begin to roll. Given the gains that many individuals have locked in for the first time in a few years, individual tax loss selling may be more prominent than usual.

Overnight Hong Kong was up 400 points, the Nikkei was up 1% and Europe is also strong. U.S. stock futures are not robust but we assume the up trend will continue.

So let the games begin.

27 October 2003 - Evening Comment

6:42am and more thoughts on the BAC/FBF merger is that the honchos at BAC want good seats at the World Series next year. The media will be filled with the wonders of this merger today. We aren’t since bigger just means more job loss and bad loans that have to be mitigated by beggaring savers with low interest rates courtesy of the FED.

7:42am and Treasuries are lower in price and higher in yield as the stock markets look to rally in celebration that merger activity is back. In addition to the BAC/FBF merger there is Anthem and Wellpoint combining. Commiseration to the folks who belong to these HMOs since we are sure service will suffer. But making money is much more important than health service. Anthem is paying cash plus stock so Anthem will be more leveraged. After the merger it will be time to raise premiums again.

8:38am and stocks are higher across the board. The FOMC meets tomorrow and the markets are interested in the statement that will be issued. No interest rate action is expected. New home sales were again announced at a record pace

9:33am and the Russian Stock Exchange has been closed because of the arrest of the Russian oil tycoon.

10:32am and stocks remain higher across the board. Breadth is positive although volume has slowed. We have no ideas percolating and so we are watching and napping.

12:36pm and we are letting our Limited go today for a 60cents per share loss. We are going to hold the AT&T Wireless, the Time Warner, the Schering Plough and Sprint PCS. The OATS and MRK and LTD are anchovies right now and we are trying to sell them. The fact that we can’t sell our relatively small holdings on the bid is telling to us.

Merck is intriguing and we did compare it to our McDonalds miss but Merck’s problems are external as well as internal. MCD’s problems were only internal. Because next year is an election year the Repubs may throw the drug companies to the wolves for a year at least. There have also been rumors about MRK buying SGP and in that case we don’t want to lose money on a MRK holding in an arbitrage situation as we watch SGP rise.

3:02pm and we didn’t get a rally that would allow us to sell the MRK. We sold the OATS in many smaller accounts including the Model Portfolio for a scratch profit.

At the bell the DJIA was up 25 points at 9607. The S&P 500 was up 2 points at 1030 and the NASDAQ gained 14 points to finish at 1880.

And tomorrow is another day.

27 October 2003 - Morning Comment

6:18am and the fires in California look devastating. The power of nature unchecked is awesome.

On the stock markets front, BankAmerica is going to buy Fleet Boston for $47 in stock which is a 40% premium over Fridays close and a 125% premium over the low for the last 12 months. It is also 10% higher that the shares of this company have ever traded. Congratulations to the folks who own FBF, and commiseration to the folks who sold the stock last week.

But who would know that the merger would occur at the all time high given the tentative nature of the economy. It does make sense in the world of mergers and acquisitions where companies are never bought on their lows, only on their highs. This merger is a reminder that the thinking of the 1990s is alive and well and living in the brains of high salaried CEOs across America.

By the way, if you are interested in Jack Welch’s views on this merger and other subjects he will have a special interview with Maria the Mouth on CNBC tonight. Jack must be getting bored and lonesome in retirement and needs a break from his divorce proceedings where his ex wife is doing a job on his finances.

Asia was higher by 1% as is Europe and the U.S. futures are higher. There is no effect on the markets from the hotel bombing on Sunday or the 40 Red Crescent and other folks killed today. Situation normal as they say at the Pentagon.

It looks like the stock markets want to make a move higher today. We have no great thoughts or prediction on this early Monday morning.

So let the games begin.

25-26 October 2003 - Weekend Musings

6:49am and upon further review there are a few accounts where we can add more AWE without surpassing our 5% of cost or 10%(for very small accounts) rule of investing in any one issue. We use the cost measure because if we use market value we can acquire a much larger position than is prudent as the price of a stock going to $1 per share would allow. Upon further review, as they say again, our brother the computer guru reminded us that we now own Sprint PCS which is also in the cell phone business and so with our next purchase of PCS we will be at the magic 5% level for industry exposure. In the case of cell phone we are going to stick with that constraint. In the area of large ethical drug companies we are going to use a 10% threshold.

The following are mostly political so if you don't like our left of Jesse Jackson liberal leanings you should avoid this post entirely. We have decided to use a week end post to vent our feelings about various subjects without interfering with those who want our stock market commentary during the week.

6:52am and we are bemused by the folks who are interviewed outside of Walmart by the media. To a person they seem to say that the workers should get more pay, the workers should have the right to unionize and isn't it terrible that Wal-Mart uses illegal workers through its subcontractors who also don't provide medical benefits. Our first question is always how do you think WMT has such low prices?

Anyway, the final response of the interviewee is always the good old American standby, their prices are so cheap I have to shop here. Another way to say that is I got mine the workers have to worry about theirs.

We were reminded of this philosophy when reading a column by a market observer who we presume is well educated who bemoaned the fact that his insurance premiums are so high when he is such a healthy fellow. The implication was that if he were sick he would no feel so bad about paying large insurance premiums. We always take the view that we are happy to pay the insurance premiums and not be sick.

Moreover we too believe insurance premiums are too high for everyone, and we believe that everyone no matter how sick should be able to get insurance at the same rate as everyone else. That is the purpose of insurance and is how insurance began in the mutual assurance societies. Profit is not a dirty word but there are some activities that are socially beneficial that should be the province of government and not private corporations. The profit motive in health insurance is just like the profit motive in health care, the profit motive creates a disinclination to expose the insurer to unknowable risk and the health provider to unknowable expenses in the pricing of services and the provision of care. Both health insurance and hospital care in the good old days when the system worked were provided by not for profit institutions.

But the good old days aren't coming back and for profit health care is her to stay because of the "I've got mine philosophy". That philosophy always lasts until one of theirs gets the illness that isn't covered but since that happens on an individual not group basis no change occurs. One exception to the rule is if a powerful Senator's child gets a disease that isn't mandated to be covered by insurance companies. Such was the case when Republican Senator Peter Domenici's child needed mental health care that was not covered by insurance. He was shocked, just shocked. Within six months insurance coverage for mental health care was mandated by the Federal Government.

The world trade center bombing is an example of when something happens on a group basis and is horrific; the community sees the justice of providing what amounts to insurance coverage for folks who didn't pay premiums for the coverage.

7:05am and connected with the above thoughts we read on Friday that a 1 million doctor lawsuit against Aetna resulted in a $450 million settlement for the doctors. Again we see what seems to be a case of whose ox. Lawyers are OK if they sue on behalf of doctors but not if they sue on behalf of patients. OKEDOKEY.

7:21am and as long as we are on a rant from www.atrios.blogspot.com

A Tale of Two Soldiers

From BET:

Posted October 24, 2003 -- Army Spec. Shoshana Johnson, the African American women who was held prisoner of war in the U.S. invasion of Iraq, was looking forward to a quiet discharge from the Army in a few days.

Battle scarred and weary, she has said not a word as her fellow POW comrade in arms Jessica Lynch cashes in with book and movie deals and a celebrity status in the media.

But it is the Army that is forcing Johnson to break her peace.

A few days ago, military brass informed her that she would receive a 30 percent disability benefit for her injuries. Lynch, who is White, was discharged in August and will receive an 80 percent disability benefit.

The difference amounts to $600 or $700 a month in payments, and that is causing Johnson and her family to speak out. The are so troubled by what they see as a "double standard," that they have enlisted Rev. Jesse Jackson to help make their case to the news media.

Johnson was shot in both legs and is still traumatized by her war experience. In addition to walking with a limp, she suffers from bouts of depression.

8:20am and on the Keith Oberman Show on CNBC Thursday night a connection was made between Grover Norquist, the big Republican hookah and dear friend of Karl Rove, and several Muslim outfits that were connected to the supplying of Muslim clerics to the naval base at Guantanamo,Cuba. It seems Norquist has been a registered agent of the Islamic Institute. This should be an interesting story. For the interview go to CNBC.

And tomorrow is another day

24 October 2003 - Evening Comment

8:05am we learn that Madame Chiang Kai-shek died yesterday at the age of 105. She was a power and influence on U.S. foreign policy for over 50 years and yet we would guess that over 80% of the folks in this country whose lives and pocketbooks she still affects have no knowledge of who she was. Of course the NYT has a wonderful infobituary which can be read at: www.nytimes.com

8:07am and this week’s New Yorker has two very interesting articles. The first is by Jeffrey Toobin and in it he postulates that Ken Lay and Jeff Skilling are going to walk free from the Enron scandal. He gives all sorts of legal arguments, the best of which is that since so many folks in Enron knew of the shenanigans; when all are guilty of wrongdoing it is hard to convict only two. Our take has always been that ‘Kenny Boy’ which is how Bush always referred to him is too well connected and knows too much to go to jail.

The second article is by Sy Hersch and discusses how the adults in the White House under Bush – as opposed to all the kids under Clinton – totally undermined the intelligence system in order to create the factoids they sold to the American public to justify war, rather than deal with the less conclusive evidence that actual intelligence was providing.

What’s interesting about the whole WMD and Nuclear arsenal stuff is that Bush could have invaded Iraq just by saying that Sadaam was a bad guy and it was time to take him out. It may not have been a legal war but he could have waged it with Congressional approval. And with all the info that is now surfacing it is obvious that the war was not legal from on International Law stand point anyway.

8:45am and stock opened lower. 1020 remains the line in the sand for the S&P and it is currently at 1023.

9:23am and the DJIA is down 50 points and the NASDAQ is off 22 points and on its way to closing the gap at 1840. Volume is moderate and the sell off is orderly but later in the day that could change if the S&P 500 which is currently at 1025 breaks down through the 1020 level. We are watching.

10:54am and we are getting to old for this game. We hate the pain of losing positions even when we know the value is there. Based on our assumption that the economy will muddle through and show some modest growth, we think it is prudent to be adding stocks at this time for at least a year end trade. We would hope to be 50% to 75% in stocks by year end.

Encouraging us in this view, although we know he didn’t mean to be encouraging, was a column by Paul Krugman, our favorite columnist, in the NYT this morning. We noticed a change in Krugman’s tone. Secretary Snow has been saying that the economy will begin adding 200,000 jobs a month by the end of this year. For the economy to do that the weekly claims for unemployment will have to drop to the 300,000 level. (The government reports net job increases separately and monthly.) Krugman who has been the main liberal economist criticizing the Bush economic agenda implies in his column that 200,000 jobs per month won’t be enough. He may be right but we know that if the initial claims for unemployment drop to 300,000 a week, the stock markets will rejoice and a rally will ensue. We want to catch that rally and for that we have to absorb the temporary paper but still real erosion of a bit of capital.

11:30am and our strategy with AWE is to buy no more shares. We are full up and the best course of action is no action. It does no good to press and try and prove we are right and the market is wrong. The market is never wrong over the short term and we don’t have enough money to make the market see our point. We were a little too aggressive buying in the $8 range because we think the stock is going to $12 over the next year. We are now paying through missed opportunity for not letting the price of the stock come to us. We are at our percentage of account maximum. And so now we will concentrate on letting other stocks come to us.

11:54am and the NASDAQ and S&P 500 have both now closed the October 3 gap that the technicians wanted them to close before stocks could go higher. Right now stocks look to be going lower with the DJIA down 104 points and the NASDAQ down 40 points. But we have a lot of trading left before the end of the day.

2:12pm and entering the final hour of trading the S&P 500 and the NASDAQ are both pegged to the October 3 gap which is also support for the S&P. the German DAX closed down over 1% while the rest of Europe was small fractionally higher or lower. Treasuries went our up in price down in yield on the day.

3:02pm and with a reflex rally off support the DJIA closed down 30 points at 9585. The S&P 500 lost 5 points to end at 1029 and the NASDAQ dropped 20 points to close at 1865.

And tomorrow is another day.

24 October 2003 - Morning Comment

7:11am and Microsoft disappointed last night because their deferred revenue number which according to those who know signifies future business was not as great as the gurus expected. As a result MSFT is down in early trading this morning.

Overseas the Asian markets were mildly lower but there wasn’t the waterfall follow through to the Thursday 500 point down day in Japan. Europe is lower with the DAX off almost 1%. U.S. futures markets are lower.

The last few days of earnings have pleased the bears and confounded the bulls yet the markets have held their own in a show of bullishness or at least disinterest. The markets seem to be saying, ‘OK, the numbers aren’t great but this is the beginning of the climb to the Promised Land, we have passed through the valley of consternation and weeping and gnashing of teeth.” Well, maybe that is a little too theatrical for trader types but the markets and the traders in them seem to be content to continue to play the bullish side.

Historically, next week begins the period when stocks begin to climb from their late October sell off. But since we haven’t had the sell off it is hard to guess what is going to happen.

As we get invested for year end we are giving up a bit of our gains for the year. Many accounts lost 0.5% to 1% of value yesterday as AWE headed south. Over the last few years AWE has produced more pain than gain, but we think it has turned the corer as a company and is worth owning for year end and the longer term. We thought their numbers were fine.

There is going to be turmoil in the cell phone industry and pressure on stock prices caused by the FCC mandated ‘Portability” which begins on November 24 and gives phone users the ability to switch carriers and keep the same telephone number. Media coverage will place a lid on the stocks till that event has passed. Our presumption is that it may be a zero sum game with lots of switching but everyone winding up with the same number of subscribers. Portability will probably lead to some discounting.

This morning stocks will open lower and then we are out of guesses.

So let the games begin

23 October 2003 - Evening Comment

7:03 headlines:

Sony profits fall on lower Play Station 2 sales. Royal Dutch earnings fall. Colgate meets expectations.

We bought a bit of Merck yesterday because it is cheap on an historical basis. We know it may go lower and if it does we will add to the position.

But the fact that Merck is cutting 4400 jobs at a time when the economy is to be recovering and jobs growing is disconcerting. That's because these are certainly high paying jobs and may presage further cuts in the drug industry. Or it may be all show for Congress to get the legislators to go easy on any drug pricing reforms.

We have been leaning over the last month to begin taking investment as opposed to trading positions. We don't know whether the bear market is over, no one does. But historically over the last 100 years, three down years are followed by one or two up years if not more. Were the Bushies not creating such a huge deficit we would be much more bullish. But we can't resolve how the deficits will affect the U.S. economy. That's because much the deficit financing is going to be thrown down the toilets of another country. Waste and fraud are bad in America but according to the Bushies it's the price of doing business in Iraq. These misplaced priorities and lack of financial help from countries in the region who will reap many benefits is disheartening and disconcerting.

And so we are faced with the problem of deciding whether to buy the sell off for a long term rebound in the economy and thus the stocks markets or to view it as a trading opportunity to be abandoned in the New Year as prices rise in the typical New Year rally. In either case the first decision is to buy, the second on selling can wait.

7:43am and our bet is that this morning's sell off gets bought big and then reverses later in the day. Since we have no money on this bet it is a free ride but such an occurrence would set the stage for a grand correction.

The support levels today on the 50 day moving average are 1020 for the S&P 500 and 9516 for the DJIA. On the NASDAQ it is 1846 which would fill a gap there which is an important consideration for technicians if the markets are to go higher.

8:29am and for those hoping for the kinder gentler Arnold of California will be interested to learn that he appointed a former deputy to Republican Governor Pete 'the deregulator of electric rates and tax raiser' Wilson as his chief of staff. Patricia Clarey was a lobbyist for the third largest HMO in California, so much for health care reform.

8:51am and so far there have been no fireworks. The DJIA moved off about 50 points but is now down just 25 points with bargain shoppers around. We don't know whether stocks are bargains but the bidders are there.

9:40am and the NYT today writes about the continuing investigation into late day trading at mutual funds. Actually it should be called allowing big hedge funds to steal money from small investors. And all this occurred with the blessings of the advisory firms that ran the mutual funds. No one will go to jail unless it is some lowly clerk. The more things change...

9:42am and the DJIA was positive for a moment but then fell into negative territory.

We are buying AT&T Wireless for all accounts this morning at $7.50. If it was worth holding at $8.50 it has to be worth buying at $7.50. We are also buying Sprint PCS Wireless in accounts at $4.70. It's down a dollar a share in the last few days.

10:49am and we forgot to mention that initial claims for unemployment were 386,000 which is up 2,000 claims from last week's 384,000 which was revised upward to 390,000 so this week's number is down 4,000 from last week's revised upward by 6,000 number. As we remember last week's number was also revised upward by 6,000 folks who lost their jobs.

10:56am and on top of Japan's 5% drop overnight, Hong Kong was down 4% and Europe is down 1% to 2% across the board. The FED injected $17 billion in repo money into financial system today. That is not usual. Also Treasuries are higher in yield lower in price today even though the stocks markets around the world are under pressure. That is not usual.

12:08pm and stocks are trying but not making it to the plus side. If this keeps up we would expect a sell off in the last hour. We bought a few shares of Time Warner at $14.95 for some more aggressive or underinvested accounts. We want to keep adding to the stocks we own since that is our game plan for October through year end. This is the pain (AWE as in OUCH) part of the gain game in year end trading. And year end trading also requires a go slow approach which we are trying to maintain

1:39pm and the DJIA and S&P 500 are slightly higher while the NASDAQ is off 8 points. Breadth is slightly positive on the NYSE and 6/4 negative on the NASDAQ. All in all the bulls are holding their own as the last hour approaches.

3:02pm and the DJIA fooled us and closed with a gain for the day up 15 points at 9613. The S&P 500 rose 3 points to finish at 1034 and the NASDAQ closed down 12 points at 1885. All things considered today was a win for the bulls.

And tomorrow is another day.

23 October 2003 - Morning Comment

6:17am and it’s never over till it’s over and that was true of the World Series game last night and certainly Octobers’ confounding market action.

With the big down day yesterday in U.S. markets, Japan decided to follow suit overnight and dropped 5% or over 550 points. Europe is not that bad this morning but it is lower as are U.S. stock futures.

And today we get to deal with AT&T Wireless earnings announcement.AWE is going to be down because gurus didn’t like the churn numbers which are the turnover in accounts. The churn rate was 2.7%. Analysts were expecting 2.2%. Also, AWE only added 228,000 subscribers when the gurus were expecting 350,000. Ignored in the hullabaloo is the fact that free cash flow is going to exceed $1 billion this year and that AWE earned 5 cents per share for the quarter. In early trading AWE is at $7.50 and we will be adding stock at some point hopefully around the $7 per share or less level.

We mentioned yesterday and a few times earlier this month that we were selling some stocks ahead of earnings because we wouldn’t be buying them if they went lower. That was and is not the case with AWE. We admit that we expected better numbers on churn and subscriber additions but the quarterly results do not change our long term outlook on the company.

Cell phones are here to stay and AWE is a player either on its own or as a merger partner. In late 2001 and early 2002 we went through agony with this stock. But then it was on the far side of the earnings and EBITDA mountain and now it has crossed over the valley of price carnage and doubt and is climbing the positive side of the mountain. We are comfortable making AWE a large position in accounts because it is the type of stock that can give us a 50% return over the next year if the markets continue to rise. And if they don’t AWE may still outperform the markets.

With the down start to the morning it will be interesting to watch how the bulls and buy the dip folks react. October’s hobgoblins may spook more folks today and since many have been calling for a correction or slowdown in the market’s rise we expect to hear the talking heads telling us we told you so. And then if we reach the 950 level on the S&P 500 over the next week or two we’ll see how many are still ready to commit capital.

At last an interesting day is at hand and the denouement of the annual autumn miasma may occur over the next few weeks. Stay tuned.

At last night’s close the Model was 85% cash and all accounts have plenty of cash to weather the storm and add stocks on sell offs.

So let the games begin.

22 October 2003 - Evening Comment

7:35am and when we saw the earnings headline on EK would should have know there was more, or rather less. There are a group of investors who want EK to go back to concentrating on film and forget digital since they missed the boat and the waters are crowded in that area. We agree. The grand plans of a CEO sometimes conflict with the realities of the marketplace. Film will be around for a lot of years and if EK cuts back on all the money it is spending on R&D on Digital there would be funds to devote to their traditional market. Whatever, we are not interested in buying the stock for now.

The pressure the drug companies are feeling is deserved and they had better wake up and smell the coffee brewing. Only the most Neanderthal Republicans like Tom Delays can’t figure out that the common folks the Repubs so often remind everyone they represent have finally figured out that they are being ripped off by the drug companies. Politicians like their jobs and the Dems have an issue that isn’t going away.

We don’t know what the answer will be but it is interesting to see drug stocks under selling pressure when the three branches of government are controlled by the Republican Party. Our thoughts are that a lot of smoke and mirrors will obfuscate the solution and that if the markets move higher the drug companies will participate. We are going to stick with SGP because it is the most trouble among the majors and is thus the cheapest and will either figure a way to survive or be sold, hopefully at a premium to our cost.

8:05am and Amazon earned money in a quarter for the third time in it history and the shares are trading off $3. That may have something to do with the $25 billion market value of the company.

8:46am and stocks have opened lower across the board. Europe is also weak with Germany and London both down over 1%. We are adding some AWE to aggressive accounts at $8.10 but mainly watching.

Merck is down $3.50 per share and we don’t remember the last time we saw MRK drop by this much. It is back to its October 2002 low which mirrors the low back to 1998.

10:30am and we decided to begin buying MRK at $45.80 in our larger and aggressive accounts since it is off $3 today and over 10 % in the last few days and now yields over 3% and sells at less than 15 times earnings. This is a similar situation to McDonalds last fall that we traded instead of holding. We don’t think the Republicans will let the drug companies down and MRK through in the kitchen sink this quarter in its earnings report.

The DJIA is down over 100 points and breadth is bad. There is still more of a buyers strike than a seller’s convention except in a few earnings related stocks.

We also bought a few more shares of TWX at $15.30 and SGP at $15.25 for our aggressive accounts.

11:00am and Cody Willard at www.realmoney.com offered the following description of the life of a money manager where the clients know and follow what is being done. We money managers have great perks but there are times…

“Since I launched this hedge fund, I've had one giant knot in my stomach 24 x 7 x 365. I'm not sure you ever reach complacency when you're running other people's money -- not to mention doing so in public, where all can see the good, the bad and the ugly.

It's a mindset that revolves around never being good enough. You hit a single, but why wasn't it a double? You hit a homerun, but why wasn't it a grand slam? And you can forget about sleep when you hit into a double play. You're always only as good as your last trade, even when you consider it an investment!”

11:45am and Daimler Chrysler debt was downgraded to BBB by S&P yesterday. Strange but true but after record sales years in the auto industry both Ford and Daimler are having their debt downgraded instead of upgraded. That’ a bear ‘tell’.

12:07pm and Intel’s CEO is being quoted on CNBC bashing California which he says has been mismanaged for 20 years and saying that INTC has no plans on investing there. What a pile of baloney. Intel wants to invest in Asia where it can get cheap workers and the ‘California is a terrible place’ media mantra is a convenient excuse.

12:43pm and the DJIA is down 150 points, the NASDAQ is of 40 points and Treasuries are higher. Europe is down 2% across the board. Easy come easy go. The last weeks of October are never easy.

Breadth is 2/1 negative and there are only a total of 200 new highs on the combined NASDAQ/NYSE.

1:19pm and support levels are being broken. Stocks haven’t had a day like this for a while and if they close on the days lows we would expect more selling tomorrow.

1:58pm and the DJIA is down 144 points entering the final hour of trading. Based on what has happened to all our other stocks as they announced earnings, we are trying to exit our SLE holdings at $18.60 before tomorrow’s earnings announcement. The upside for SLE is not as great as for the other stocks we own and want to add or add to. With the change in market reaction to earnings that has taken place in the last week we want to sell this one before tomorrow even though it involves 40 cents per share loss. We should have been quicker to realize the situation yesterday, but then that was yesterday and today is today.

One thing that bothered us about SLE after we purchased it is that the company announced that the CEO had received a larger bonus in 2003 than 2002 plus a salary increase and more options. That announcement came a month after SLE announced that first quarter earnings would be 20% less than anticipated because retailers were reducing inventories. Could it be that the inventory problem SLE is seeing in the first quarter of fiscal 2004 had something to do with SLE making bonus numbers for its CEO in fiscal 2003?

2:21pm and December crude oil prices have moved down under the $30 per barrel mark by a few pennies. Treasuries are rallying today as stocks give ground.

2:41pm and at least Maria the Mouth is not worried about the sell off today. With volume exceeding 1.5 billion on the NYSE there has obviously been some selling today. When two backbones of the DJIA, GE and Merck, can’t make their numbers we understand why more than a few folks would start to worry about the fourth quarter and next year.\

3:02pm and the DJIA closed down 140 points at 9600. The S&P 500 gave up 14 points to finish at 1030 and the NASDAQ dropped 37 points closing at 1903. Breadth was over 2/1 negative and down volume exceeded up volume 4/1.

And tomorrow is another day.

22 October 2003 - Morning Comment

7:06am and there was more profit taking in the Nikkei overnight with that measure down over 1%. Most of Asia was down also and Europe is lower this morning.

Time Warner reported 12 cents versus 10 cents which is pretty meaningless. The headlines in the business section of the NYT say that the SEC is pursuing its investigation of TWC.

Eastman Kodak reported 88 cents versus 57 cents. We don’t understand what is happening at that company. Pfizer earnings were ahead of estimates, Merck earnings were lower and Schering Plough posted a quarterly loss.

Stock futures are lower this morning. Stocks open lower this morning on the bad Merck report and then we have no idea.

So let the games begin.

21 October 2003 - Evening Comment

8:25am and CNBC keeps running the headline “Texas Instruments soars on earnings growth from high quality chips”. We’ll see how long such superlatives can carry the stock and tech stocks higher.

AT&T also reported higher than expected earnings at 58cents versus and expected 53 cents. They must be doing something right. Or maybe not since those the share price is off over $1 per share.

And there is the rub. Earnings are beating expectations even if in many cases earnings are lower than last year or three years ago for most of the tech stocks. And so how are such earnings valued?

9:02am and Texas Instruments is $2 per share higher but its rise is not doing much for the other tech stocks. The DJIA is off 15 points and the NASDAQ is up 5 points in moderate trading. There is not much happening.

9:33am and SBC is down to $21.50 as traders have chosen to vote with their feet regarding SBC earnings

11:48am and the paint is drying very slowly. The DJIA is moving up and down 20 points over last night’s close with regularity today. There isn’t much action.

1:36pm and there are a few individual stocks in which we have no interest making big up and down moves but the stocks markets in their entirety are just not going anywhere. The NASDAQ is up 1% but the DJIA is down 2 points under the spell of AT&T and SBC both of which are taking gas from unexciting earnings reports. CAT, BA and Citigroup are also lower along with Exxon. Breadth is positive but new highs are nothing to write home about.

A dull sideways moving market is not a worry for the bulls and so if this type of action continues for a few weeks time it may take the place of the correction.

We are awaiting earnings in the stocks we own and will look for weakness in their share prices to add more dollars.

We get e-mail:

Bud: I am not certain that I understand your investment strategy comments regarding the "machination of the entire market". So I took a look at the results to date for my portfolio. Net realized gains to date of $31,342. Considering the market actions this year that is an acceptable result. However, I noted that for the period of 9/22 to 10/20 net losses of $2,295 have been incurred. These numbers are not large in comparison to the "big picture". From my point of view, I consider them to be an erosion of the prior realized net gains. If that trend continues, additional losses of about $5,000 could be incurred by year end. That would spoil the favorable results prior to 9/22. How does this fit in with this "machination" objective?

We answer e-mail:

Written like an accountant. Losses are not part of a trading strategy but they do occur. One would hope that our trading abilities will at some time in the near future produce some profits.

Our point was that we are trying to decide whether the bear market is over and we are in a new bull market.

  • In a bear market we try to trade the market moves by using individual stocks.
  • In a going nowhere market we want to trade individual stocks not the market.
  • In a bull market we want to own individual stocks and indexes.

Our crystal ball hasn't yet given us the answer but we keep hoping.

Our trading in SBC the last two weeks is an example of the fluctuating nature of the markers and our reaction to changing perception. When we purchased the stock, earnings reports were being received warmly by the markets. But then GE announced less than stellar earnings and the share price dropped 10% and Citigroup announced good earnings and traders nitpicked the earnings and the share priced eroded a fraction.

We took that as a sign that before earnings announcements over the next few weeks we should only own stocks that we want to buy more of at lower levels. Markets change overnight and we have preserved capital over the last four years by taking losses on the drop of a dime if we thought that was warranted. In bear markets we trade to make money. Over the last four years we have. Over the short term we sometimes don’t. But consistency of investment philosophy has carried us through the worst bear market in many years with nice gains. If we are now in a true bull market we will probably under perform. We don’t yet think we are.

2:18pm and S&P put Ford’s ratings on credit watch for possible lowering to BBB-, the lowest investment grade. We don’t think anyone cares right now. When interest rates begin to rise in the longed for recovery some folks may.

3:02pm and the DJIA closed down 28 points at 9750. The S&P 500 gained 2 points to end at 1046 and the NASDAQ tacked on 15 points to close at 1940. Treasuries were up a bit in price at the close.

And tomorrow is another day.

21 October 2003 - Morning Comment

7:11am and SBC earnings were 37 cents versus and expected 39 cents. SBC lost access lines to the tune of 323,000. But with the addition of long distance service SBC should be able to limit that loss in the future. We sold it yesterday but remain interested

Texas Instruments announced earnings and revenues last night and ‘the street’ liked what TXN said and the shares are trading higher this morning.

We know that recently we have been all over the board on our market outlook. As soon as we get more than a little invested we get cold feet and sell. Professionals aren’t supposed to act that way and usually don’t. Those are the professionals who lost big bucks for folks in the three year crash. But since they held on to their dogs and this is the year of the dog recovery, many of those professional are being feted by the media for their perspicacity and their marvelous 12 month and year to date performance records.

Since we are managing our own money and basically running it the same as we do for our clients with just a dash more speculation, we are more interested in the bottom line than how we get their and don’t ever like to see our assets move lower.

There are times when the risk reward ratio suggests taking risk for the potential reward. What we have decided about this time of this year is that rather than worry about the machinations of the entire market we are going to focus on a few stocks in which we have confidence and build positions in them to trade and/or hold over year end. Because we like the stocks doesn’t mean they will outperform the markets, rather it means that we are comfortable holding them with a reasonable opportunity for gain.

This is not a new approach on our part but it is a departure from our approach over the last three years when we were trying to catch market moves by buying individual stocks. No we are going to try to catch individual moves in stocks while not worrying too much about the overall markets. Obviously, if the markets tank, our stocks will suffer too but if the markets continue to wallow along then we hope our picks will do better. This is another name for realizing that we are now in a time period where we may do better looking at the investment process as a market of stocks as opposed to a stock market.

Japan was down 1% overnight which probably was profit taking after the recent big run. Hong Kong was higher as is Europe. U.S. stock futures are mixed.

We expect a lower opening a rally and then a lower close.

So let the games begin.

20 October 2003 - Evening Comment

7:51am and does it say anything about American young that the “Texas Chain Saw Massacre” and “Kill Bill” were one and two this weekend in the movie release race?

We don’t want any governmental censorship we do worry about folks who need these types of movies to obtain their entertainment.

Folks are up in arms about John Snow’s comments around the world. The dollar is higher on his comments over the week end just as it was lower several weeks ago on his comments. Our take is that the Treasury Secretary is one voice in a cauldron of voices and that his power in the administration is as a water tester as in “John say something and we’ll see how it goes.” When some comment he makes is not well taken in the financial markets Bush disavows it. That is the function of a Treasury Secretary in the Bush Administration as opposed to the Clinton Group. Then when Rubin talked the world knew it was policy.

8:30am and stocks are opening higher while Treasury prices are moving lower.

8:49am and Citigroup is down on its record earnings this quarter. That implies a sell the news reaction and is not good for the overall market sentiment.

Wal Mart says it’s on track for 3% to 5% sales gains for October. That is the usual announcement for any month. Last month they said they were a bit ahead of plan which they are not yet saying this month.

9:38am and the lousy action of Citigroup with their record earnings has led us to sell our SBC at $20.03 which is a scratch loss including the dividend. Earnings for SBC are announced tomorrow and we are inclined to let it go now and revisit after the report. As much as we try and take the longer view we continue to be aware of the length of time and percentage gain in the major market measures since the rally began in March.

There have been a few years in the past ten where the markets were strong in September through October and then failed going into Thanksgiving. And a couple of those failures were painful. At our age we would rather lose a few dollars or give up a bit of potential gain to avoid the pain of the more serious corrections.

We also sold our trading position in HPQ for 80 cents per loss. We did this because IBM has failed to hold the $91 level and is now backing at $89 and Microsoft can’t seem to get over the $30 level. We have been in and out of HPQ for the last few years and now we will await November earnings before venturing back in.

11:11am and to reinforce our point made above about Treasury Secretary Snow, Reuters is reporting that: The White House said on Monday that comments by Treasury Secretary John Snow about interest rates were not reflective of U.S. policy but were merely an observation about the economy.

11:33am and our ability to hold year end trades has been affected by our desire not to give up gains. We are torn by the desire to make money for our clients and ourselves and on the other side of the coin by our deep seated bearishness. There are times when situations change and trading patterns emerge, but for the last few months as we try to take on trading positions an inner sense of disquiet causes us to not be able to hold many for any significant period of time.

We are hoping that the economy recovers and good times roll but we are right now a prisoner of our intellect which tells us that the folks in charge of the economy don’t have any more of a clue about the future than they ever have. The journey of the last four years has been turbulent and we don’t see it getting easier soon. And so we first of all protect our gains and secondly try every now and then to add to them. We agree with ‘the down in November’ theory that a few gurus are propounding because it makes senses to us after such a big run. And we have a few stocks we want to hold but most as usual have again become anchovies.

12:19pm and the DJIA is up 20 points while the NASDAQ is up 7 points. The S&P 500 is fixed at 1040 which is support. Breadth is positive while volume is light. We are taking 30 cents per share loss on Verizon to sell the second RBOC we hold. We don’t want to hold through earnings on September 28 and we have a feeling the markets are not going to be rising next week.

In selling the 2 telephone RBOC we are holding AT&T Wireless which is in an area that will continue to see growth. We’d increase our position in AWE but earnings come Thursday and we would rather wait since the markets have been less than kind to good news the last few days. Analysts and traders pick at the earnings reports and are able to find bad news in the good news. Currency gains, trading gains, layoffs and such are contained in the good numbers and the traders tend to take such earnings with several grains of salt.

A few of the other stocks we plan on adding to are SGP which reports earnings 10/22. Time Warner earnings come the same day, Sara Lee is 10/23 and The Limited will be in November although LTD is having a conference call to discuss prospects tomorrow.

12:34pm and Treasuries have reversed course with prices higher and yields lower after the White House disavowed its own Treasury Secretary Snow’s comment about higher interest rates and Richmond Fed Bank President Broaddus said the economy remains weak. Poor Snow can’t buy a break today.

2:06pm and entering the final hour of trading stocks are trying to rally again. We aren’t feeling very smart with our recent in and out trading. We have one more trade to eliminate, Delphi, which we only held for a few days when we traded it last summer at a loss. We sometimes forget why we sold when we repurchase and so we live and learn and pay the price. DPH broke support today at $9 and so with $8 as a potential break down to price we have decided to take our 40 cents per share loss and move on.

3:02pm and the DJIA gained 54 points to end at 9774. The S&P 500 rose 5 points to finish above support at 1044 and the NASDAQ was up 12 points finishing at 1925.

And tomorrow is another day.

20 October 2003 - Morning Comment

7:19am and we wish a most happy birthday to my sister Barbara.

The stock futures are higher on the back of a good Citigroup earnings report and rebound from Friday’s dismal close. Japan closed at a sixteen month high, up 1% on the day and 30% on the year. Europe is mixed.

We had no great thoughts over the week end except to enjoy the Indian summer weather. Except for the lady bugs which are everywhere with no birds who want to eat them, the days were sunny and the nights crisp.

To day there may be some unwinding of Friday’s expiration, or so the gurus say. This is the big earnings announcement week of the quarter and so by next week most traders will be worried about the next quarter.

Today we would expect up early, then a pullback with a rally and higher close for the day.

So let the games begin.

17 October 2003 - Evening Comment

7:27 am and EBAY is down about 4 points in early morning trading. We have been concentrating on stocks that are down for the year and also for the last three months. That is our usual operating procedure at year end. The HPQ purchase yesterday was not in that mode. We are hoping it will break out to the upside in the next few weeks for a trading profit for us. But we aren’t going to stay with it into November earnings.

7:32am and housing starts for September were up 3.4% which is higher than expected, while building permits were down 2%. Treasuries have been up this morning reversing yesterday’s sell off. But with the housing number Treasury prices are again giving ground and the ten-year and thirty-year are lower on the day. The two-year which we traded last month is moving back toward the 2% number where we plan to buy for accounts.

The University of Michigan Sentiment indicator comes at 9am and traders are waiting for it to decide how to trade the day.

8:54am and the U of M sentiment survey came in at 89.4 which was better than expected. The DJIA is now lower after being slightly higher at the opening.

9:19am and selling has entered the marketplace with no buying interest around at the present time. The DJIA is down 50 points, the NASDAQ is off 1% and breadth is negative. EBAY is leading the way lower off $4 per share and that has cast a pall on the NASDAQ party.

10:42am and the NASDAQ is down 1.5%. The DJIA remains off 40 points. We are going to sell our Advent holdings in trading accounts. Earnings come Monday and we would rather be watching than holding. We have a $1.50 per share profit and we’ll take that and see what comes. ADVS is a volatile stock and is at its 12 month high.

We also sold Darden Restaurants at $20.55 for a $1.20 per share profit. As the market sold off this morning we found we are less brave than we thought. We are holding our dividend stocks because the dividends give support.

11:35am and box cutters and other items were found in bags on two South West Airlines planes and so all planes in the U.S. are going to be searched in the next 24 hours. We think the Feds would do a lot more good if they would scan all the bags and cargo going onto airplanes but that would cost too much money. Better to spend the money on zip codes for Iraq.

The box cutter rumor has caused bids to be pulled. Just this morning we were wondering whether the terror scares would affect the stock markets like they had last year. With today’s action we guess so.

We are going to sell our SUNW position today because we don’t want to be holding any junk stocks through the coming correction. Also, Sun Micro’s numbers were less than encouraging last night. We’ll about scratch on the trade.

Japan is going to chip in $5 billion over five years for U.S. efforts in Iraq, with $1.5 billion given this year. Wow.

1:21pm and it is interesting that the game fell apart for the Red Sox with one out in the eighth inning the same as it did for the Cubs. Only difference is that the Cubs crashed in game 6 and the Red Sox crashed in game 7.

The DJIA remains under pressure but the last hour may save it. The NASDAQ is down over 2% and we don’t think it will be saved by the bell today. It is interesting how a small sell off brings out the fear in folks.

1:57pm and entering the final hour stocks are on their lows for the day and Treasuries are going out on their highs for the day. Europe closed mixed. We sold most of our MYG purchase of yesterday for a small cents profit. We’ll take a look at MYG during the correction.

3:02pm and the DJIA closed down 70 points at 9721. The S&P 500 lost 11 points to close at 1039 and the NASDAQ dropped 38 points to end at 1912.

And tomorrow is another day.

17 October 2003 - Morning Comment

6:36am and down go the Red Sox. We were sitting sadly watching the Red Sox fail and wondering why when we thought New Yorkers deserves something good what with all the bad stuff that has happened to them lately. And the Yankees are winners.

Oil is over $31 a barrel, Japan was fractionally higher and Europe is fractionally lower. EBAY made its estimates and SUNW was a bit under theirs. But then SUNW has been in the red for 10 straight quarters.

Stock futures are mildly lower and with expirations today, anything can happen. We are pretty fully invested fir us at 25% in the Model and almost 40% in many of our smaller aggressive accounts. It is a bit scary but this is the time of year to take risk and so we are. But we are sleeping lightly and may change at any moment.

The sentiment surveys are against us with fewer than 20% bears and over 55% bulls in many of the surveys. That is considered a contrary indicator. The wall of worry is crumbling and there is obvious speculation in the low priced stocks. Many large caps seem fully valued. But this market has ignored these indicators for many months.

And the psychology is not what it has been the last three years. We perceive folks are more anxious about not making money than they are about losing money. We are even in that camp. And so with the Holiday season approaching we think the risk/reward ratio will give us another 3% to 5% for the year and we want to take the risk.

The 1040 level on the S&P is near term support, or so the gurus say. We do expect a scary down in the next month before the year end rally. Hopefully we are not in the year end rally now.

For today we expect down early and then a claw back to even. Moving sideways for a few weeks will be good for the markets but we aren’t holding our breath.

So let the games begin.

16 October 2003 - Evening Comment

7:52am and we just saw that last week’s jobless number was revised up 6000 job losses so this week’s 4000 less announcement is actually a 2000 more occurrence. Nevertheless the trend is for lower numbers and that is a positive for the markets.

We continue to believe that the job creation occurring is at lesser salaries or hourly wages with less benefits than the jobs being lost. We haven’t seen any data on this but our anecdotal impressions lead us to this belief. The striking supermarket workers in California are on strike because they will have to pick up $5 to $15 of their health insurance costs as reported by company spokespeople in the press. The unions then tell us that the $5 to $15 refers to weekly costs which amount to up to $60 per month. When take home pay is $1000 or less a month 6% is a large number. We doubt that the guys who runs Albertsons or Safeway, two of the large supermarket chains with striking workers, would like to see 6% of their after tax income go to health insurance costs.

8:38am and stocks are opening lower. SBC received permission to offer long distance in the Ameritech territory of Illinois, Wisconsin, Indiana and Ohio. This approval has been a long time coming and is a positive, but presages more dinner time switching phone calls.

9:13am and the DJIA is down 50 points while the NASDAQ is now positive. There is no panic just some orderly selling and no trend is yet in place. Treasuries remain higher.

9:27am and we are buying Maytag which is off over $3 per share today as a result of a disappointing earnings announcement of charges and a lousy fourth quarter outlook. MYG is a stock we have owned off and on over the years and usually made a profit trading. MYG is projecting earnings of $1.67 in 2003 while analysts had been expecting over $2 per share. Ooops. We are buying on the sell off as the type of value plays that drop precipitously in October as institutions unload. We are placing in our larger trading accounts at $25.50 to start but if the sell off continues we will place around in more accounts, leaving room to buy lower.

10:49 and stocks continue to meander at lower levels. Breadth is positive, down volume exceeds up volume and as one would expect new highs are half of what they were a few days ago.

11:32am and AOL is now Time Warner with the ticker symbol TWX. Sic transit Gloria and a lot of dollars.

11:36am and just when we thought Arnold mania had passed Bush has to go and visit California today.

This afternoon and tomorrow are option expiration days and so the action from here on out through Monday may not mean much in the general scheme of future market action.

12:02pm and San Francisco Fed President Perry is predicting employment gains by the end of the year. That statement has moved stocks out of their lethargy and the DJIA is now up with the NASDAQ up 1%.

12:52am and we bought HPQ for our trading accounts at $21.80. We continue to add OATS to accounts as we are able to pick up shares. The DJIA is now lower with the NASDAQ remaining higher as hedge funds and traders are buying the low priced OTC stocks for trading. Speculation is back but is not yet excessive.

1:21pm and Europe is closing lower except for Germany. Japan closed 1% higher while Hong Kong was lower.

1:57pm and entering the final hour of trading the DJIA is down 48 points and the NASDAQ is about even for the day. But breadth remains positive and up volume exceeds down volume. Caterpillar and IBM are hurting the DJIA. With the expirations mentioned above anything may happen in the last hour.

3:02pm and the DJIA closed down 15 points at 9789. The S&P 500 gained 4 points to end at 1049 and the NASDAQ gave rose 10 points to end at 1949. Treasuries closed lower on the day after being higher because of an improving jobs outlook mentioned in the Philly Fed report.

And tomorrow is another day.

3:10pm and we present a few political briefs at the end of our regularly scheduled market commentary.

We aren’t making this up. The following is a quote from Lt General William “Jerry” Boykin, who is the new undersecretary of defense for special projects to track down Osama and Sadaam, referring to President Bush.

"Why is this man in the White House? The majority of Americans did not vote for him. Why is he there? And I tell you this morning that he’s in the White House because God put him there for a time such as this.”
3:11pm and from Maureen Dowd’s column in today’s NYT we present the following quote:
“On Monday, Representative George Nethercutt Jr., a Republican from Washington State who visited Iraq, chimed in to help the White House: "The story of what we've done in the postwar period is remarkable. It is a better and more important story than losing a couple of soldiers every day." The congressman puts the casual back in casualty.”
On Nethercutt’s official website biography we see no mention of service in Vietnam during the war though he was born in 1944. Had he been to Vietnam or even thought a bit more about what he was saying we have to hope that the few lives a day he so easily dismisses would mean a bit more to him Maybe like the noblesse oblige of Tom Delay he didn’t want to take the place of ‘colored folk’ who needed good paying jobs, or like Rush Limbaugh he had boils on his derriere, or like Dick Cheney he had more important things to do. He’s running for Senator in Washington State against Patty Murray.

The NYT also reports that two Democrat Congress folks are questioning the arithmetic of Halliburton providing gasoline to the people of IRAQ by charging the U.S. Government $1.70 a gallon for fuel they buy at a dollar a gallon and sell to Iraqis at 40 cents a gallon. Is that Dick Cheney math? If it is it may account for the reason the Bushies can’t find any WMD.

16 October 2003 - Morning Comment

The Cubbies didn’t make it but they went farther than anyone but the most die hard fan would have predicted in the spring. So it is waiting till time again in Wrigleyville. One reason for the loss has to be the boorish behavior of the ‘know it all folks’ who threatened the life of the Cub fan who tried to catch the foul ball. Talk about Bush league.

7:33am and jobless claims were down 4,000 to 384,000 in week ended 10/11. CPI was up 0.3% in September and the Core rate ex food and energy was up 0.1%. Business Inventories were down 0.4% in August versus 0.2% in July.

Those are benign numbers for both the stock and bond markets. IBM met expectations last night and said it would add 10,000 jobs next year.

Bonds have rallied on that news and stock futures are moderating their early morning losses. Asia was up overnight and Europe is also higher

Happily our telephone stocks stopped dropping yesterday and even rallied a bit. The sell off was on low volume and we consider them great values. We added SGP yesterday and are looking for a few more stocks to place in the portfolio before November’s chill winds arrive. We will then add to the stocks we own when the correction comes.

Today we would guess down early and then a rally into the close’

So let the games begin.

15 October 2003 - Evening Comment

7:35am and the retail sales numbers were accepted by stocks with a move higher while bonds continued their weakness of yesterday brought on by President Bush's comment about the need for weak dollar.

Overseas Asia was higher overnight and Europe is also higher so we are set up for a higher opening today.

There has been a significant drop in applications for mortgage refinancing but stock traders have moved on to other friendlier data on which to hang their trading hats. Retail sales were down 0.2% in September but ex autos retail sales were up 0.3%. Inventory build is increasing but supposedly that is OK as long as sales are also rising. Those who know are predicting a big Christmas and so retail stocks are rising accordingly. Economists are raising their GDP growth number for the fourth quarter to 6% to 7%.

Anecdotally it looked like there was a lot of shopping going on when we were in the city last weekend.

8:41am and we sold the XLK holding at $19.82 for a scratch profit on the trade. That sale raises the cash we wanted to and now we are looking at re-entering SGP on any pull back.

Stocks have opened higher on the Intel earnings news and upgrades but there isn't a lot of oomph in them yet.

8:54am and the NYT reports that the average price of an apartment in NYC is over $900,000 while the median price is over $500,000. One expert commenting on the high prices said that you can build a house in a cornfield but who will come. Well we have a house in a cornfield and every day we are thankful we are here and not in NYC. .

Stocks are weakening after their opening non surge and after 9 out of 10 up days they may be ready for a rest.

9:47am and the stocks we are buying now we are buying to own for a while not to rent for a day or two. That's why we sold the XLK. We are repurchasing the Schering Plough we sold several weeks ago at a bit below the sale price. We want to own the stock going into next year and so we are reestablishing a position and will buy lower if the occasion arises.

10:32am and car sales have been going at a record pace for the past year and yet GM earned less than $1 per share for the quarter and most of that came from GMAC finance profits which will be affected when interest rates move higher. We think the markets are reading too much good news into auto sales. Once interest rates move higher the cost of autos is going to be out of reach for many now buying. Of course the auto companies can go to thirty year loans on the autos which will bring monthly payments down. The auto companies are already at 6 years at no interest.

12:02pm and stocks are back to the plus side after visiting negative territory. We bought SGP in many accounts at $16.18 and also bought some Limited at $17.50 in trading accounts.

Breadth is negative but new highs exceed 350 on both exchanges because of the early morning pop. Conviction seems to be lacking.

2:01pm and entering the final hour of trading the DJIA is down 44 points. Breadth remains negative and volume moderate.

3:02pm and the DJIA closed lower by 13 points at 9800. The S&P 500 dropped 4 points to finish at 1047 and the NASDAQ lost 5 points to end at 1938. Treasuries closed lower in price, higher in yield for the day but gained back some of their early morning losses as the stock markets traded flat for the afternoon.

And tomorrow is another day.

15 October 2003 - Morning Comment

7:07 and Intel made traders happy last night as the Cubbies disappointed. But one more day till the pennant means another $5 million in the till. Hopefully it won't be the "wait till" as it has been in the past.

Merrill Lynch has upped its targets on Intel and tech stocks are looking higher as the morning progresses. We will have the chance to sell our XLK at a profit which we plan on doing this morning. We have been behind the curve for the past six months but since we were ahead of the curve for the previous six moths we are about even for the twelve months ended October 1.

It would be unusual but not unprecedented for stocks to keep moving higher through year end. We have inkling that there will be a scary correction in November before a resumption of the rally to end in March of 2004. That would be the normal year end pattern minus the October scare which hasn't yet occurred this year.

And so today we will loose the XLK and look for some more individual stocks to buy in the days ahead.

So let the games begin. The updated Model Portfolio is posted.

14 October 2003 - Evening Comment

2:30pm and we returned from the big city today and are happy to be back in the land of big valleys and meandering rivers once again.

Treasury notes and bonds were under pressure today and the stock markets are higher. Our telephone stocks remain under pressure. We added OATS at $11.15 to accounts where we purchased DRI yesterday. We have been trying to sell our SPDR Tech holding for no loss for the last two days but keep missing by a few pennies. We are over 20% in the market in many accounts and we want to continue to buy individual stocks. The action seems to have moved from techs to other areas and we are trying to replenish our cash. All the major market measures are at yearly highs and seem stuck. Breadth has been good but as we mentioned yesterday the wall of worry has crumbled and so we want to be ready to add more issues in a correction that may now be delayed to November. The XLK is basically a trading position and we aren’t getting the action we expected.

3:02pm and the DJIA closed up 48 points at 9812. The S&P 500 gained 4 points to end at 1050 and the NASDAQ rose 10 points to finish and 1943. We didn’t sell the XLK.

And tomorrow is another day with a morning and evening post plus the adjusted Model Portfolio.

13 October 2003 - Evening Comment

2:35pm and the DJIA is up 75 points and looks to close higher for the day. We have been traveling and have been out of touch with the markets but stocks seem to want to go higher.

Today we bought a bit more SUNW and DRI and initiated a holding in Delphi Auto Parts. We’ve owned the stock before and plan on holding for a while this time. DPH has a 3% yield at the $9.28 purchase price.

Our telephone stocks are off today because of a NYT Sunday Business Section story about free internet telephone service. We own the stocks because they are down on bad news but we do think they will recover as the markets move higher. We have to get through the month of October with them.

We are tempted to keep buying but we don’t think the markets are going to keep moving higher without a pull back because the “wall of worry” seems to be crumbling.

We will have a new post on Wednesday Morning after we have time to collect our thoughts from our trip to the big city and the Cubbies win the pennant.

And tomorrow is another day.

10 October 2003 - Morning Comment

6:52am and having survived our birthday we are off to Chicago later today for a week end of client contacts, a benefit and a trip to the opera. We will return to the farm on Tuesday October 14. We won’t be posting any comments until Monday evening October 13 and then begin our regular posting again on Tuesday evening October 14.

We did some more buying yesterday since buying on our birthday has eventually been lucky for the last three years. Last year October 9th marked the bottom of the market; our hope is that this year it didn’t mark the top.

We bought VZ in accounts where we hadn’t purchased the shares before the stock went ex-dividend. We purchased at $32.60 which is in within $1 of the low for the last year. Verizon is the leader in wireless and had been suffering with the other telecoms because it is near its low and thus a tax sale candidate for funds with on October 31 year end. Moreover there have been stories galore about the death of land lines, and our position in AT&T Wireless attests to the fact that we feel wireless is here to stay. A new type of internet telephony is in its infancy and its advantage is that there are no charge at all for calling. We would presume that if it takes hold wiser minds will realize that regulating one type of telephone and not the other is not fair competition. But we aren’t holding our breathe. Those are long term consideration an over the next six months it is our belief that if the markets continue to move higher that investor dollars will return to VZ.

We also initiated a holding in Sara Lee at $19 in our larger accounts and will await earnings on October 23 to add any more. Darden Restaurants popped to the upside yesterday and so we will await a better price. We added a few more shares of Advent Systems under $18.

Finally we added another leg of SPDR Technology at $19.80. We know we are adding shares at the high for the year which is not our usual modus operandi. But we want tech exposure through year end and buying the XLK gives us that exposure to the large tech stocks that we don’t want to buy individually. We are aware that in a correction the XLK can sell off dramatically but we have room to double our position or more.

We also bought some Wild Oats at $11.70 in our aggressive accounts since the stock has been acting interesting lately. Management has been doing a good job turning things around and takeover rumors move the stock periodically. Just last week it jumped from $11 to $14.50 on no news and then back off over the next few days.

Gap jumped yesterday on good same store sales numbers and the trader types who sold with abandon last month were happy to pop the stock a dollar yesterday. We aren’t going to chase it and feel a little burned by our losing trade of last month and so we may avoid retail this time around. Or Gap may sell off in a correction and give us a chance to get back in under $18 per share.

Asia was strongly higher overnight; Europe is higher as are U.S. stock futures. And so we look for a slightly higher opening and then who knows.

We probably won’t do any buying while traveling but we remain in a positions building mood. We like the action of the stock markets and while our long term bearish attitude is intact our short term view is that the risk on the stock we are buying is worth the potential reward. Our selections are no going to blaze through the firmament but we think they offer decent recovery potential.

So let the games begin. Monday is the Columbus Day Holiday but stocks will be trading. We probably won’t since we have appointments all day. The updated Model Portfolio is posted.

And tomorrow is another day.

8 October 2003 - Evening Comment

This will be our last comment until Friday morning. Tomorrow we turn 60 and we are going to spend the day enjoying the fall foliage.

9:23am and stocks are slightly lower. VZ did not sell off the amount of today’s dividend and so we have taken no action. Yahoo’s earnings come tonight and kick off earnings season. Reactions will probably be stock specific and so we will be keeping out eyes wide open looking for trading opportunities in companies that disappoint.

10:08am and one of the worries with buying stocks at this time is that the major market measures are all approaching highs for the rally that has been underway since March. It would be good if the markets moved sideways for the next few weeks or months to work off the overbought condition.

Traders have chosen to ignore the budget deficits and Middle East problems; and reports suggest that individual investors are beginning to edge back into stocks. The time of year favors buying but the technical picture suggests correction and that is why we are moving gingerly. The dollar is the major hope of the bears in that if it weakens the bears feel a sell off will occur. We do believe a one week ten percent correction would be followed by a buying surge no matter what happens with the dollar. That’s because there is pent up demand from folks who have missed the move.

1:55pm and we have been doing some early celebrating. Entering the final hour stocks are lower. Maybe the correction is at hand. We are biding our time. We added a shares of AT&T Wireless to accounts at $8.50.

3:02pm and the DJIA closed down 25 points at 9530. The S&P 500 lost 5 points to end at 1033 and the NASDAQ dropped 12 points to finish at 1895.

The next post will be Friday morning.

And tomorrow is not just another day, it is our 60th birthday.

8 October 2003 - Morning Comment

7:32am and it could only happen in America. Arnold won and took 47% of the vote. Davis only received 45% on his portion of the ballot so at least Arnold won the popular vote contest. That makes it easier for us to accept the results. Now if Orrin Hatch can get the constitutional amendment through the Congress and out to the states to allow foreign born citizens who have resided in America for 20 years to run for President we may see the Arnold boomlet grow. We wish California well but don’t plan to visit soon. This was a true victory for family values as practiced by Republicans.

7:38am and Asia was lower overnight while Europe is higher. U.S. futures are slightly lower and so are Treasuries.

We are going to buy some Verizon today if it trades under $32. We want to keep adding a new stock every few days through the month and would like to reach a 35% invested posture by month end. We know we are exposing ourselves to risk but we want to continue playing the game the way it has worked for us the past few years. While we are not having the downturn in October of the past three years the timing of investing has usually worked for an over year end rally if stocks are bought beginning on our birthday, which is tomorrow. More on that later.

Today we see softness at the opening and then a move higher with retrenchment and a slightly down close in commiseration with our Cubbies who just couldn’t get it done last night. At least Sammy got a timely hit for once.

So let the games begin.

7 October 2003 - Evening Comment

7:41am and the invasion of the Chinese lady bugs is in full flower out here in the boondocks. It seems that ten or so years ago some person had the bright idea to import some Chinese lady bugs to eat aphids on soybean plants. At least that is the story we have been told.

Unfortunately after the soybeans are picked and autumn arrives the Chinese critters want to find a warm place to spend the winter. And so in a rite that overwhelms, billions of these bugs invade every nook and cranny of the farmstead. The invasion got so bad yesterday that the carpenters working on a farm near us had to quit working.

All this is occurring as the leaves reach the peak of their autumn color and Indian summer weather arrives. This week end marks the harvest moon and the beauty of the recent nights more than compensates for the discomfiture of the lady bugs.

We think the real problem started back in the Clinton Administration when the FBI ordered some Chine bugs. You know how sometimes orders get lost in translation. And now that we know that the only espionage going on back then was a Republican Chinese lady spy sleeping with various members of the FBI maybe we can blame the Chinese lady bug problem on the Bushies.

Unfortunately, no bird or animal seems to want to eat these critters since we are told that they have a bad taste. We aren’t experts but don’t all bugs taste bad?

12:26pm and we are back from an extended period out of the office. The DJIA has been a bit higher and lower and currently is trading at 9585 down 10 points. The yen broke 110 to the dollar on the downside at which point someone intervened by buying yen and selling dollars and a rally in the yen coincided with a recovery in the stock markets.

Today we are looking at Verizon and Sara Lee and Darden Restaurants but they aren’t at levels where we wish to add more.

12:34pm and as stocks fail to correct the bears continue to make their case. We ourselves are agnostic and while we remain bearish on the longer term economic scenario we know from experience that near term stock market action often has little to do with long term economic forecasts by us or anyone. We have traded the markets from the long side all through the last three and one half years and survived. We want to participate in any year end rally and so we think we have to get our feet wet now and that is why we did some buying yesterday and are looking for some value plays for a 20% years end or after year end move. We don’t think the techs are cheap and that is why we went with the SPDR Tech Trust yesterday because we want to play tech but not risk a wreck by placing our tech money in one or two stocks. And we do own SUNW and JDSU as speculative tech plays.

1:39pm and we were musing about the California Recall. We remember that Mike Royko, the acerbic columnist for Chicago papers who died too young used to write that 30% of the people in this country would vote for Hitler if given the chance. His prediction is coming true.

2:15pm and entering the final hour the stock markets are rallying. Looks like another up day. We will await the correction that may never come to add more positions. The Model is currently 83% cash.

2:45pm and we have to leave early. The DJIA is currently up 50 points and the NASDAQ and S&P 500 are also higher. The bulls win again.

And tomorrow is another day.

7 October 2003 - Morning Comment

6:53am and stock futures are lower this morning. Asia was up overnight and Europe is slightly lower. Yesterday was a good day for the bulls and the major measures are approaching the top ends of their ranges so they may be due for a rest. Every time we think a rest is coming the markets move higher. This is a year in which the abnormal is normal; witness the Iraq War and the California Recall.

At least the California Recall will be over after today, or will it?

There isn’t much economic news for the boys and girls to trade on today so they are on their own. That may be one reason the futures are lower.

We have no great thoughts this morning. We did a bit of buying yesterday and the additions to the Model are posted on the website. We are looking at Sara Lee under $19 per share and more Darden restaurants for accounts.

Gold is higher this morning, the yen is lower against the dollar while the euro is higher and that’s about it.

So let the games begin

6 October 2003 - Evening Comment

7:15am and the NYSE is now investigating former head Grasso for interfering in the way a specialist traded the stock of a Company run by a director of the NYSE. When it rains, it pours, but doesn’t leave some people who plan ahead poor.

7:51am and the U.S. Labor Department is going to adjust downward or take away 145,000 jobs from its March starting data base to bring the number more in line with what they view as reality. We don’t know whether those are real jobs or like the WMD jobs that exist in the minds of the Bush administration, or rather, like the WMD jobs that used to exist in the minds of the Bush folks.

And in Las Vegas folks are holding a vigil for the animal trainer Roy Horn who was mauled by a tiger a few days ago. In Washington there is a vigil at the Supreme Court for Alabama Judge Ray Moore’s Ten Commandments Tablet and in California…

8:32am and stocks are opening a tad higher. Treasuries are slightly lower and there is not much market moving news.

9:39am and DJIA has been plus or minus 20 points all morning.

We repurchased SBC at $22.70. It goes ex-dividend on Wednesday in the amount of $1.13 and with the new tax treatment of dividends we view the purchase price as $21.60 taking into account the $1.13 dividend we will earn.

We also have reestablished our AOL holdings at $15.60. We can’t seem to live without it. We are repurchasing lower than we last sold. We were hoping for a lower price but we want to get a few more dollars working for us now. With Yahoo having a value in the marketplace of $20 billion we know that the AOL sub is worth at least $5 billion just on the subscription cash it generates like clockwork every month. The market is placing no value to the AOL sub at the current capitalization of the entire Time Warner.

We are also buying Sun Micro for a year end trade again this year. We have purchased at $3.40. It will survive to next year at which time we will hopefully take a profit and move on again.

We bought a position in the SPDR Tech Trust again at $19.35. Tech has been leading the market higher and we are going to add to this position at lower levels if we get a sell off. The SPDR Tech gives us diversification and is concentrated in the major tech companies.

We are adding a few more aggressive stocks to our trading accounts. The first is Level 3 (LVLT) which is a fiber optic telecom company in Omaha that Warren Buffet has invested in. It is a speculation and we bought at $5.30 in small amounts in large accounts.

We are also going to acquire a small position in Advent Systems which is a software company that provides software to the money management business. As consolidation has occurred their business has been hurt and ADVS is a volatile stock. We are only buying in large trading accounts. We bought a few shares at $17.62 and hope to add more at lower levels.

We are also initiating a holding in Darden Restaurants. These are the Red Lobster/ Olive Garden folks. The stock dropped on disappointing quarterly earnings caused by a judgment mistake on “an all you can eat” crab promotion. The executive who thought up the giveaway also gave away her job. DRI is a solid company priced at 12 times earnings. It is a slim trader and so we will be buying it over a number of days at or below the $19.30 level for many accounts.

Finally we established a holding in Verizon at $33.60 in our larger accounts. It also goes ex dividend on October 8 and has a 4.5% yield. We may ad to more accounts.

1:21pm and with our buying finished for the day we are watching the markets float on light holiday volume. European stocks closed slightly lower in light trading.

3:02pm and the DJIA closed up 22 points at 9595. The S&P 500 rose 5 points to end at 1035 and The NASDAQ gained 13 points to finish at 1893. Treasuries also closed higher on the day.

And tomorrow is another day.

6 October 2003 - Morning Comment

6:45am and as many folks continue the observance of the Yom Kippur Holiday we would expect stock market volume to be muted today. That doesn’t mean that there won’t be volatility.

Last week the DJIA gained 2.8%, the S&P 500 was up 3.3% and the NASDAQ rose 4.4%. Those jumps are less than the 5% plus jump in all the measures on October 2. 2002. We offer that reminder for those who feel that no October correction is possible. Even with that good start last year stocks went markedly lower before rebounding.

The bombing of Syria by Israel over the weekend may be more important than the press is reporting. This was the first attack deep in Syria by the Israelis in three decades. We are sure that Israel informed the U.S. military of its intentions and we are also sure that the U.S. military had AWACS and other monitoring devices on full operation to see how Syrian air and ground defenses reacted to the Israeli intrusion of Syrian air space. Could another front in the war on terror be on the horizon?

We are conflicted by the market action of the last week. Many gurus are expecting a correction in October before the push higher. We have been in that camp. But when too many folks are on one side of an idea the opposite usually occurs in the stocks markets. For that reason we may invest some dollars over the next few days since there are a few new stocks we want to own for year end and also stocks that are below where we sold them last month and well off their highs for the year.

As we have been saying we would be more bullish if the deficits weren’t so gosh awful high but the markets have chosen to ignore that reality for now at least. Moreover stocks are not continuing to crash on bad news after their initial sell off and we take that as a positive. Finally the major employment number was well received and last week bad news was no news and no news was good news and that is a return to the type of market reaction we saw this summer as stocks moved higher.

On the news front Motorola is going to spin off its semiconductor business to concentrate on communications and try to pop up its stock price and PeopleSoft sees revenues above estimates.

Asia was up overnight and Europe is mixed. U. S. futures indicate a slightly higher opening.

So let the games begin.

3 October 2003 - Evening Comment

7:39am and the job numbers suggest that the downturn on job loss has ceased and job creation is beginning. That’s why stocks are higher and bonds are lower. We don’t get that feel in our reading of news stories but we do see the statistics and these markets trade on the daily releases. So we’ll hold on to our seats this morning.

7:51am and stock futures are screaming higher on the employment report. Traders smell a bear route and are grabbing stocks with abandon. This may be a set up for the same type of October reversal that occurred last year in the first week. Or it may be the start of an up leg that will leave all us doubting Thomas behind. We’ll wait a few hours to see how the strength of the rally holds before deciding on any action.

8:38am and the DJIA is up 150 points and the screen is green. And Treasuries are under selling pressure so at least the two types of investments are acting as they should. This mornings rally is too strong to buy and since we have nothing to sell we are observers. We don’t want to get caught watching as stocks move another 15% higher but we think we will have a chance to enter later this month at more favorable prices, or at least we hope so.

10:15am and the stock markets have maintained their opening levels while Treasury prices have continued to erode.

The thirty-year treasury is down over 2.5 points or $25 per bond. Last night the Treasury bond was yielding just under 5%, so 2 ½% of that 5% coupon has just disappeared this morning. The Treasury ten-year is down 1 ¾% and was yielding 4% last night so it has lost almost forty per cent of the year’s interest in one hour of trading this morning. Of course bonds could rally but the movements up and down in Treasury yields/prices coupled with the relatively low coupon rates is the reason we are not venturing into this arena right now.

10:56am and the WSJ is reporting that the median pay of large company CEOs was over $3 million last year. CEO pay rose 15% while employment plummeted.

11:03am and the FBI is now going to investigate people in Soldiers Grove Wisconsin about the White House officials leaking the name of the CIA operative. The FBI feels it would be too simple to look at phone logs and appointment schedules in the White House around the time of the supposed leak. Rather they would like to cut a broad investigative swath across America and leave no stone unturned in their desire to not find who did it. This is called the 9/11 investigative strategy by FBI insiders.

11:37am and a client just called bemoaning the fact that he hadn’t invested his money last March and that he was out $25,000 in lost profits. We commiserated because we too have missed the six month move and don’t like it when we don’t participate. We know the “gurus” say that market timing doesn’t work but it has worked for us over the past five years. And even with the 25%move in the S&P 500 which now is up 17% for the year, the Model Portfolio is up 12.6%.

Markets change and one of the reasons we have been hesitating to put our money to work and at risk is that we are thinking more long range than we have the past four years. It was obvious to us back then that the markets were due for a large correction and we benefited from the drop. Now the markets at best are slightly over valued.

If the economy is truly recovering there will be time to get invested. One employment report does not an economic recovery make. Just remember that if one missed the move in the markets from 1983 to 1987 there was still an opportunity in late 1987 and 1988 to get on for the ride. The S&P 500 hit 1500 in 2000 it’s now only 1030. The NASDAQ hit 5000 and its now 1900.

In that same conversation we happened to mention that a mutual friend’s father had $400,000 in Treasuries mature and he had called to ask what we would suggest the father do. We said buy Treasury bills yielding 1%. The friend said his father needed $40,000 a year in income and that investment counselors in Florida were suggesting one half in equity mutual funds and one half in corporate bond funds. We demurred saying the corporate bond funds will lose much more in value that they will earn in interest over the next five years if interest rates rise as the economy recovers. And if the economy doesn’t recover the equity mutual funds will drop back to lower levels. His father will have to choose one of the two poisons, buying both will not work.

It is interesting to note that three years ago a risk averse investor could have earned $60,000 by investing $1 million in two-year Treasuries. Now that same investment will return only $16,000 per year. That may be one reason why the economy is not recovering as fast as folks think it should. Low interest rates help companies that aren’t hiring, but they hurt savers who don’t have the money to spend.

12:08 and the stock markets are a runaway train to the upside today. We said yesterday morning that there had to be some follow through to Wednesday’s rally to confirm a breakout to a new trading range. Today’s market action seems to confirm this move. Our only but is that it is October and… with that in mind we continue to keep our powder dry but we are suffering from buying anxiety.

1:58pm and as trading enters the final hour stocks are giving back some of their gains. This is normal and it will be interesting to see how the bulls handle the last hour.

As the stock markets have rallied and Treasuries tanked, oil has quietly crept over $30 a barrel.

3:02pm and the DJIA closed up 87 points at 9575. The S&P 500 rose 10 points to close at 1030 and the NASDAQ gained 44 points to end at 1880.

And tomorrow is another day.

3 October 2003 - Morning Comment

6:30am and news piles up when we leave for a day. In a review of Thursday’s news that we missed while traveling the Labor Department reported that jobless claims rose 13,000 last week but magically did not hit the 400,000 figure, settling at 399,000 instead. Next week that number will hit 400,000 in the adjustment.

Prudential Securities fired 5 sales people and an office manager in Boston for market timing mutual fund trades by entering orders at the last minute of the day.

Rush Limbaugh has resigned from ESPN but keeps on mouthing.

The Bush administration says that rebuilding Iraq over the next five years will cost $56 billion. A Donors Conference gets underway in Madrid later this month. Countries aren’t beating down the door to join. Companies like Halliburton and Bechtel already own the door and are guaranteed payment.

The U.S. has spent $300 million searching for WMD. Now the Bushies want another $600 million to continue the search for redemption. We thought the war and its $40 billion cost was all about searching for WMD but then we must have been reading another script

The auto companies enjoyed robust September sales by offering fantastic rebates and 0% financing for as long as 6 years. We presume the auto folks are counting on the pattern of trading in cars after two or three years to rescues them from the 0% financing loss leading strategy. Either that or the auto companies have a lot less confidence in economic recovery and the subsequent rise in interest rates that will occur from that recovery.

Last year on the first day of October the S&P 500 jumped 4% then fell 8% over the next week before rebounding to close higher by Halloween. Last year the stock markets were on their lows for the year, this year they are on their highs.

North Korea says it is making nuclear bombs and nah nah nah to the U.S.

Arnold is again being accused and today admitted to groping women. It’s funny that when Clinton was accused, Republicans wet ballistic. Now with Arnold the Republicans are doing the wink and nod routine. We ourselves are put off by the violence in his movies. We admit that the most we have seen of any Arnold movies is the advertising trailer, but the violence in the trailers was enough to disgust us.… What are folks thinking that he is a serious candidate? His candidacy and poll numbers bring back thoughts of the Roman Empire and the blood spectacles in the Coliseum.

6:58am and the newest tax wrinkle is to allow multi national corporations to repatriate overseas earnings at a 5.25% tax rate instead of the 35% rate that very few corporations pay anyway. Supposedly there is over $300 billion in profits overseas that U.S. corporations can bring home to build plant and equipment in non union states. This reminds us of the lotteries which in most states were created with the idea of being a source of new funding for schools. The only problem is that the states quit appropriating other money and as a result the lottery just replaced not increased education dollars. The same thing will happen with repatriated overseas earnings. And how much does Bechtel, a private company have stashed overseas where it does much of its business? Bechtel is a favorite of the Bush/Cheney crowd.

7:04am and the Asian markets continued their rally overnight with Japan up another 1%. Europe is also up and U.S. stock futures are positive. Treasuries are a bit weaker. Traders are waiting for the employment numbers at 7:30am for a focus for today’s trading.

7:11am and yesterday’s action did nothing to clear the picture and give an indication of where to from here. The stock and bond markets seem to be stuck in a trading range and if that continues for the next few weeks we would think there might be a break out to the upside. That‘s because the dreaded October low would not have occurred. Nothing has gone according to plan this year and the rally since March still seems to be in force.

Our continuing discomfort with the stock markets comes from our inability to understand what effect the huge deficits going forward are going to have on the markets and public psychology. The Bushies, while continuing to proclaim themselves deficit hawks as Cheney did on Meet the Press, also say from the other side of their mouths that the projected deficits are only 4% to 5% of GDP and there have been higher relative deficits before. out take on that is that why just compare the deficit to the U.S. If the whole world is considered, the deficits are less than 2% of world trade which doesn’t make any more sense than the GDP comparison.

We think the absolute number of the projected deficits in relation to the Federal Budget not GDP is staggering. Moreover there seems to be no end in sight to the spending on Iraq. But till now the stock markets don’t seem to be bothered by the numbers. That may be a function of traders not focusing on more than the next month. We would like to get invested and will do so when we can feel we have a handle on the deficit issue.

7:32 and the unemployment rate was 6.1% which was less than expected. Nonfarm payrolls were up 57,000, manufacturing employment dropped and service employment rose. This surprise has stocks moving higher. So for the morning stocks will be higher and bonds lower.

So let the games begin.

2 October 2003 - Morning Comment

6:57am and the stock futures are muted with an upward bias. Europe is higher and Japan jumped over 2% on the back of yesterday’s big rise in the U.S. The move up yesterday was bold but in order to break the recently established pattern stocks will have to put in a good day today.

The thought of deficits, middling economic data, the price of oil and the strong action in Treasuries all create doubt in our mind of the sustainability of any rally. But we have been saying that since March and have been mostly wrong.

Given where we are in the calendar year our trading activity usually begins to pick up about the second week of October. The only problem is that we need some scary down days to get our juices flowing and we really haven’t had any of those for many months.

We are in a watching pattern. Maintaining a large cash position requires patience and we have been getting better in that department.

Today we have to take an annual journey to visit a client and review the year and so there will be no Evening Comment.

So let the games begin. And tomorrow is another day.

1 October 2003 - Evening Comment

8:29am and Schering Plough received word that the probe of its Puerto Rico facilities is over. That is good news and the shares look to open higher. Now the company only has to figure out how to increase sales and earnings. We are interested but watching.

Stocks look to be opening higher after yesterday’s late sell off. The pros always say that the little folks buy the opening and the big guys and gals close the market. That means that the first hour is not the tell, the last hour of trading is the tell. This accepted truism may have to do with the fact that the investment meetings at the large funds and institutions occur in the morning as the markets are opening and the decisions aren’t made till mid day with the buying or selling occurring thereafter.

8:39am and www.minyanville.com reports that secondary offerings are at the highest level since March 2000. There are also a large number of IPO in the works. This activity marks either the beginning of a boom on Wall Street or reflects the fact that folks are rushing to market because they aren’t so sure the good economic numbers are real.

According to reports there has been a significant increase in the number of day traders. Our take is that this is a function of job loss and individuals taking their 401k money and anointing themselves as market mavens. It will end badly as it did the last time. Everyone is a paper trading genius, when actual dollars are involved real time trading becomes a much more difficult proposition.

Stocks have opened higher with good breadth and volume.

10:01am and the ISM number was 53.7% versus a consensus estimate of 55%. Stocks are failing at the opening levels and a bit of selling is entering. If the rally fails here we would guess the markets will tend lower. Treasuries were lower this morning but have rallied to positive for the day on the ISM data.

10:43am and the DJIA just popped up 100 points. The reason given is that the ISM data while weaker than the consensus was not as weak as it could have been. That makes as much sense to us as any reason. The NASDAQ is up 1% but trailing the DJIA in strength. Breadth is 3/1 positive on the NYSE and 2/1 on the NASDAQ. New highs are under 100 both places and volume is moderate.

11:50am and the DJIA is up 130 points. That surprises us but it may be a combination of new money entering the markets, a reversal of last nights sell programs in the last half hour, the ever present short covering and the contrariness of the stock markets. Whatever! The S&P 500 and NASDAQ are both up over 1% also. We haven’t seen anything to tickle our fancy and so we are consigned to the sidelines to watch the show.

12:43am and our screen is a scene of green as the breadth of the rally today is as strong as any recent rise. Volume is good and there are some large players who want to be in the S&P Index. With the recent strong rally in Treasuries we are sure that the “asset allocation switch” reasoning will be hauled out at some point today. In keeping with that theory Treasuries are now slightly lower on the day.

1:56pm and stocks are on their highs for the day. With breadth at 3/1 positive on the NYSE and no reversal in sight it looks like today is going to be a big up one for the bulls. If the next week or two are up, the action will throw all the pundits, including us, for a loop. But one day does not a turn make and the distribution of stocks that has been occurring for the last month won’t be negated by one up day. Follow through tomorrow and the next would do the trick though.

3:02pm and the bulls are dancing in the streets as dreaded October began with a huge up day. Maybe the low for the 4th quarter was made at 12:01am before the NYSE opened. Actually, we just were reminded by CNBC that last year on the first day of trading in October the DJIA gained 350 points. And so today's gain is one half of last year's in percentage terms. At the bell the DJIA was up 190 points at 9465. The S&P 500 gained 22 points to close at 1017 and the NASDAQ gained 43 points to end at 1830.

And tomorrow is another day.

1 October 2003 - Morning Comment

7:37am and Rabbit, Rabbit. Go Cubbies. We are a little late this morning as we slept in. The killing frost came last night as did the new quarter in the stock market.

These next two to three weeks should see the low for the quarter and then the beginning of the rebound if events and trading go according to history and the gurus. The fact that everyone knows this is a contrarians conundrum and we are going to pick our spots and look to get somewhat invested while not going over board.

We expect a test of 9000 on the DJIA and 950 on the S&P 500 over this time period and how the markets react to those tests will be key. The rally in bonds doesn’t make sense if stocks are to rally as the economy recovers.

Japan was up over 1% overnight managing to stay above 10000, and Europe is mixed this morning.

At quarter end the DJIA was up 11.2%, the S&P 500 13.2% and the NASDAQ 33.8%. The Model Portfolio is up 12.9% and is 98% cash.

This morning we should be up early and then we are agnostic.

So let the games begin.

The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.