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Happy Halloween and goodbye to October, that most difficult of months in the markets. Up 150 points, down 150 points, and up 150 points in one week is a little too much for our aging psyche. Happily Friday was an up and so we were able to enjoy the weekend. Japan began this week with a down 2% day.

The Fed meets tomorrow and if today were not the last day of the month we would say that trading would be muted ahead of that meeting where the Fed Funds rate is expected to go to 4%. With the two-year Treasury already at 4.4% the immediate impact on short rates is going to be more affected by any policy statement change announced with the increase.

Wal-Mart is reporting a 4.3% increase in sales for October and that is better than. Oil is lower in the early going and Treasuries are unchanged.
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Personal Income was up 1.7% in September with the PCE Price deflator (inflation measure Alan likes) was 3.8% y/y. Core Deflator was 2.0% y/y. Personal Spending rose 0.5%.
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The FCC meets on the VZ/MCI and SBC/AT&T mergers today. They were supposed to vote on Friday and didn’t.
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9:14am and stocks are higher out of the gate with the DJIA up 66 points. Breadth is running 3/1 positive and volume is brisk. Treasuries are flat and oil is down 50 pennies.

We are selling the CMCSA that we bought last week. Jim Cramer the ubiquitous media market mouth had negative comments on CMCSA’s profit margins this morning. He usually reflects the street’s thinking and while the shares are near their lows we own them cheaper and so are getting out with a plus scratch. Cramer had been a big fan of the stock and is why we originally were interested in it and traded it and so we are going to follow his lead and look for better opportunities for that cash.

With the money we are buying an equal amount of shares of Micron Tech at $12.90 and 4x the amount of shares in Lucent at $2.20.
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11:02am and as Dick Cheney would say Europe was up big time today with the DAX, CAC, and FTSE all rising over 100 points on the backs of merger announcements.

Our stocks markets remain higher with breadth a still comfortable 2.5/1 positive and new highs are leading new lows by almost 2/1.
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12:59pm and the FCC cleared the Verizon purchase of MCI and VZ said it hopes to close by year end.
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1:15pm and trading as slowed but oil is back under $60, gold is down $8 and Treasuries are a little better. Breadth remains 2/1 positive. We are going to purchase DuPont at $41.70 for accounts from which, in the final hour today as the stock is marked up, we plan on selling some higher priced EL that we purchased before the stock tanked on earnings last week. It is too large a position in some accounts in relation to other holdings. Even with the sale in those accounts where we purchased shares at above $32 we will be ahead on the EL because we bought more shares under $31 and we will be back in a cyclical that will benefit if oil continues to drop in price.
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Magellan Fund has replaced its fund manager Stansky with a new manager Harry Lange. Stansky was let go for lousy performance. Stansky was a big cap buyer and Lange is a small and mid cap guy so there is going to be a bunch of speculation on the big caps being sold and small and mid caps running higher. The only problem is that doing that in a $50 billion fund isn’t easy. But it does make for good performance when loading up.

3:02pm and with a sell program on the close the DJIA closed up 38 points at 10440. The S&P 500 gained 8 points to end at 1207 and the NAZZ rose 28 points to 2118. Treasuries closed a bit lower in yield with the two-year at 3.39% and the ten-year at 4.56%. Oil closed at $59,85 down 41.37.

Breadth was 2.5/1 positive and up volume exceeded down volume 4/1. This is the first back to back strong up market in a long while. Volume improved in the final hour but was still only moderate. New highs exceeded new lows.

28 October 2005 Daily Comment

Comparisons don’t salve losses but they do offer perspective. As we begin the day the Model Portfolio is down 6% for the year, the DJIA is down 5.2%, the NAZZ is down 5.3% and the S&P 500 is off 2.6%. We know that slightly bettering the major measures to the downside is neither our fort nor are we or our clients used to performing in line with the measures when they are in a loss situation but sometimes we can’t outperform the markets. So far this year we have been human. But there are two months left in the year. And……

One final thought is that on October 28, 2004 which was one year ago the Model Portfolio had a value of $528,000. The Model Portfolio ended the year with a value of $570,000.
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Advance GDP was up 3.8% which was in line and shows the economy is not tanking. Other figures released indicated that costs are in line but that inflation is picking up. No big surprises there either. The headlines are that White House indictments are going to affect the markets. Well they may because the big boys and girls lead strange lives, but out here in the land of milk and honey the fact that our local football team the North Crawford Trojans are in the state football tournament is the only talk of the day.

Indictments of Libby or Rove or both or none isn’t going to mean beans to the economy. And if the indictments or non-indictments can slow the tax cutting mania in Congress all the better. The best period in the markets in the last 20 years was when taxes were not being cut but rather the budget was moving to balance. Guns and butter has not been the best of strategies as the butter tastes like margarine produced in Argentina and the guns aren’t working so well either.

The stocks markets are at the inflection point of 1176 and while stocks look to open higher there will be a test of 1176 before the day is over. Where that test leads in the short term is anyone’s guess but ours is that most of the selling by mutual funds is finished and the selling occurring now is a Pavlovian response to know facts. BMY is down this morning on lousy earnings which all folks knew were coming. MSFT is down because its earnings were fine but it warned going forward that it didn’t have a clear picture.

The negativism in the market is a bullish sign but the selling can go on well past the end of October. We are in a hunkering in mode since we do think the stocks we own are fairly priced and we don’t see much purpose in flipping out at this time. We will let our theory of a rally into year end/ early next year play out and if we are wrong we will circle the wagons next year and reconsider our strategy. Till then we plan to enjoy the fall weather and let time run its course.
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9:40am and the major measures all opened higher on good breadth. Bulls were hoping for a 100 plus down opening to wash out the sellers but that hasn’t happened and stocks are now beginning to roll over and give up their gains. There is plenty of time in the day and the Washington political brouhaha calls for a two part release of info at 11 am and press conference at 1pm. So until then the media is concentrating on the Pflame stuff and not the markets.

12:29pm and the major measures remain higher with breadth on the NYSE 3/1 positive. Volume is moderate but it has been that way all week. This may just be month end mark up time. We’ll know this afternoon and/or next week.

We repurchased in larger accounts at $16.30 the AMAT we sold on Monday at $17.20.
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3:02pm and the DJIA began the day higher and never looked back. At the bell the DJIA was up 170 points at 10400. The S&P 500 rose 19 points at 1198. The NAZZ was up 24 points at 2087. Breadth was better than 2/1 positive and volume improved. New lows contracted but still numbered 260. New highs were 100.

Treasuries finished lower with the two-year at 4.38% and the ten-year at 4.47%. The thirty year is now at 4.78%. Oil ended up 11 pennies at $61.20. Gold lost 70 pennies to $474.90.

27 October 2005 Daily Comment

White Sox Win! White Sox Win! The prince was an honorary batboy for the White Sox in May and Garcia pitched that day and lost. But since the SOX won the whole enchilada we presume they will want him back next year for good luck. Since the Red Sox took it all last year and the White Sox this year, we suggest that the Cincinnati Reds go back to their original name for a chance to win next year.

As they say in poker, we are now all in. With our purchases yesterday we have constructed the portfolios we will live with through year end and beyond.

We have concentrated on unloved big cap stocks that are being abandoned by the big boys and girls as mutual fund year end at the October 31 approaches. For example we thought Estee Lauder was cheap a week ago when we bought some at $34 since we didn’t know how the street would treat earnings announced yesterday. Well over 10% lower was the answer as we completed establishing our position with a sizable purchase of shares at $30.82 yesterday. MKC went through the same sell off/ rally/ and now sell off in the last month. Both are excellent companies but are owned by insiders and institutions with little public ownership. That makes them volatile at times like this but their overall price pattern over the years has been a rising trend.

Verizon announced good earnings today and with a 5.3% dividend we are comfortable with our large positions. The Baby Bells are never sold by individuals and so the float on the shares is only the 50% that the institutions own. Once the merger with MCI occurs the pressure will be relived.

We sold the SBC to switch to National City because we wanted a bank stock. We were too quick on the trigger on JP Morgan but we managed to pick up NCC at a 10% discount from its level before recent earnings. With a 4.6% dividend yield and we think the potential of a takeover we like the holding.

We have concentrated our tech holdings in Intel and Cisco and our telecom equipment holding in Nokia. We may trade TLAB again but our selling before earnings on that stock helped us avoid a painful decision as it dropped $1 from its high of a few weeks ago

We have added the Drug Holders Trust (PPH) to large accounts because the drug companies are being thrown out with the bath water, but we don’t want to pick just one or two stocks, (see our October 25 post for the companies held in the trust) with the way the drug stocks are acting. Here again it is mutual fund year end and that is the reason for the final blip down in these stocks.

We added DuPont and International Paper to large accounts as a play on the drop in oil prices but we will be quick to take profits in those issues.

All the other stocks in the portfolios have been there before. We may be early on the retailers but aside from the large GPS position the smaller holdings in AEOS and TLB leave room for adding. By the way a Japanese consortium owns 50% of TLB and it ahs since it went public many years ago.

We trade CMCSA a couple of times this year and we are now only in stocks that were nice to us with the exception of TWX. That one has value and we are going to ride with it for a while.

So settle in folks it is going to be a rocky road to year end but we hope it will be a profitable ride.
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Our guru man is long term bearish and we can’t tell whether he is short term bearish. Anyway his S&P 500 markers are 1176 on the downside as the line in the sand with 1200 as the moving day average and 1210 remains the breakout the champagne high point that needs to be take out for any real rally to highs to resume.
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Initial jobless claims were down to 328,000 versus and expected 350,000. Oil is up 50 pennies and Treasuries are flat. And Harriet Miers is gone after her 15 minutes of blasting by the right.
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9:42am and the major measures are down this morning and breadth is also 2/1 negative. Treasuries are better and oil remains higher.

We sold our DD trade for a $1.50 gain and also our Disney position for a plus scratch to have cash on hand in our aggressive accounts to put into some more volatile issues like TLAB which we are buying under $9.50 (sold at $10.15 last week ahead of earnings which came two days ago)and OATS at $11.05.
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1:19pm and the NAZZ is sting right above its 200 day moving average at 2075. The gurus say that if it breaks that level look out below. But it is the end of October housecleaning and we are inclined to give the markets a little leeway.

Breadth is over 2/1 negative and new lows are around 300. Volume is low though and that is a positive.

2:32pm and the markets are always a great tester of resolve. We do believe in what we purchased and wish that all of them had doubled overnight but that has never happened before and certainly isn’t happening now.

A couple of takeovers (GDT & CD) have blown up in the last few days and some of the selling may be related to folks raising cash to cover losses. There is so much hedge fund static in the trading air that the day to day movements especially at times like this create a lot of noise and dust and hopefully not much more.
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3:02pm and the DJIA closed down 115 points at 10229. The S&P 500 ended at 1179 and will probably test the 1176 level tomorrow morning. The NAZZ dropped 36 points to end at 2063 which is below its 200 day moving average.

Breadth was 3/1 negative and down volume was 4 times up volume. Overall volume was light.

Treasuries inched higher with the two-year at 4.35% and the ten-year at 4.56%. Oil closed at $61.09 up 43 pennies and gold lost 50 pennies.

26 October 2005 Daily Comment

Investors’ Intelligence has bulls at 44% and bears at 29%. Short interest is at a record 5.94 billion on the NAZZ. Both of those are bullish numbers in a contrary way.
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1:28pm and we have spent most of the day reviewing accounts and investing in National City Bank, Estee Lauder and McCormick spices. The EL is down today on earnings and MKC is off as month end approaches but both are great companies at attractive prices. The same goes for NCC.

We also added TLB, CMCSA, AEOS, CSCO, TWX NOK, and GPS to various accounts to bring them up to a relatively fully invested level.

The markets have been see-sawing back and forth and volume is active. Breadth is negative and new lows are above new highs.
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3:02pm and the DJIA closed down 33 points at 10344. The S&P 500 ended at 1192 down 5 points and the NAZZ was off 10 points at 2100.

Decliners outnumbered advancers 2/1 as did down volume over up volume. New lows expanded to 250 versus 150 new highs.

Oil ended at $60.92 and Treasuries were weak with the two year finishing at 4.37% and the ten-year at 4.59%.

We were limited in our posting today because our computers were out for a while as the phone company installed our Television setup so we could watch the White Sox for the rest of the series.

25 October 2005 Daily Comment

We wish a very Happy Birthday to our sister Barbara on her 64th. (BETTER LATE THAN NEVER). One more year to Medicare. Who would have thunk it back when she was getting us to give her our quarter allowance for candy while she piggy banked hers.

Stocks are going to open lower this morning as profit takers take advantage of yesterday’s big move. Today will be a good test of the bull’s strength because after the initial sell off we would expect a move to the upside from the investment committee buy decisions that took all yesterday to make. Then the perfect bullish scenario would be another sell down into the two o’clock hour and a strong final hour that moves the S&P 500 up another 10 points today and well above the 1200 marker which is the approximate 200 day moving average.

10:23am and the major measures have been plus and minus a little so far today. Breadth is negative and volume has picked up. New highs and new lows are running even again today as the battle of 1200 on the S&P 500 is played out. Treasuries are weaker ahead of the 1:15pm Fed announcement and oil is higher this morning at $61 up 68 pennies.

We are buying more PPH, the Pharmaceutical Holders Trust at $67.32 for larger accounts at 50 cents above its yearly low and down from $100 per share in 2000 and $85 per share in 2003. The drug stocks are being abandoned by the mutual funds as tax selling season ends and the trust has a 3% yield.

We also picked up a few more shares of Comcast at $27.68 that we are adding to accounts. In our larger/aggressive accounts we bought DuPont and International Paper back this morning after they announced earnings. We paid more than we sold them for a few weeks ago but still well below their yearly highs.

We want to keep buying good quality stocks that are down significantly on the year. The big boys and girls will eventually return to them.
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1:50pm and we switched our SBC to INTC this afternoon. We made a scratch profit on the SBC and we are placing a large bet on the INTC to perform after quarter end.

Because we are increasing the INTC position we are going to sell our AMAT holdings for a plus scratch again because we don’t want to increase or overall tech exposure. Also the sale of the AMAT will give us funds for the blow up of the next quality stock before quarter end.
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Crude oil is up $2 because of the Northeastern winter forecast. What? We think oil is up because the big boys and girls want to speculate on a commodity that is down 10 points in month and a Democrat Senator introduced an excess profits tax bill in Congress. Could someone want the price of oil higher to show that there is a shortage of oil? The last few months have shown that there is little connection between the price of oil and supply and demand unless we are talking about supply and demand on the New York Mercantile Exchange.

3:02pm and today the markets meandered finally closing lower after a stab to the plus side by the DJIA with ten minutes to go. The DJIA closed down 7 points at 10377. The S&P 500 lost 3 points to end at 1196 and the NAZZ dropped 7 points to 2110.

Decliners outnumbered advancers by 2/1 as did down volume versus up volume. New highs and new lows were about even and volume slowed after a good start.

Treasuries tanked with the two-year ending at 4.32% and the ten-year breaking to 4.52%.

24 October 2005 Daily Comment

Jim Cramer comments today on his website about the possibility that Refco was playing with the price of oil and that its collapse marked the top of the cycle for oil futures prices. His conjecture is that if Refco would lie about $500 million in capital why wouldn’t it take a look at which way all the oil futures accounts that it was clearing were leaning and go the other way and force covering that would lead prices higher.

Stranger things have happened and as we drove home last night in the rain from the land of the prince and princess and listened to the White Sox capture another improbable win we were also thinking about oil topping over $70 in the Katrina Hurricane crisis and the collapsing of oil prices at the end of the hurricane alphabet with Wilma.

We have said all along there have been no gasoline lines and that the weekly inventory figures showed enough supply and yet the price of oil and derivatives kept on rising. The same thing happened with electricity in the 2001 and it eventually was disclosed that a cabal led by Enron was the culprit. If the story ever is written on this oil run it will probably be the same type of cabal. There is no insider trading in the futures market and traders can gang up with one another to run markets up and down as long as the money lasts.
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While we were away we sold TLAB and NVLS for scratch and BMY for a loss. With the BMY money we purchased CMCSA and in various accounts we also bought TWX, EL, RAD, ASD, NOK and OATS.

We sold the TLAB ahead of earnings due out tomorrow and because we have a good position in larger cap tech stocks. Also our smaller accounts had a little profit so it wasn’t’ a painful decision. We traded out of Bristol Myers on the news of negative results from their new diabetes drug and the desire to switch the funds to other stocks to take advantage of the drop in CMCSA, EL and NOK. We decided not to own individual drug stocks and in our larger accounts we plan on buying PPH which is an exchange traded fund comprised of large ethical drug company shares. 100 shares of PPH originally equaled 100 shares of the following companies but splits and distributions have increased the number of shares owned. The breakdown is now as follows:

Abbot Laboratories	ABT	14.00
Advanced Medical Optics	EYE	0.22
Allergan, Inc.	AGN	1.00
Andrx Corporation	ADRX	2.00
Biovail Corporation International	BVF	4.00
Bristol-Meyers Squibb Co.	BMY	18.00
Eli Lilly & Company	LLY	10.00
Forest Laboratories, Inc.	FRX	4.00
Hospira Inc.	HSP	1.40
IVAX Corporation	IVX	2.34
Johnson & Johnson	JNJ	26.00
King Pharmaceuticals, Inc.	KG	4.25
Medco Health Solutions, Inc.	MHS	2.65
Merck & Co., Inc.	MRK	22.00
Mylan Laboratories, Inc.	MYL	2.25
Pfizer Inc.	PFE	58.00
Schering-Plough Corporation	SGP	14.00
VRX Pharmaceuticals, Inc.	VRX	1.00
Watson Pharmaceuticals, Inc.	WPI	1.00
WYETH	WYE	12.00
Zimmer Holdings Inc.	ZMH	1.80

EL announces earnings on October 26 and we are going to await those earnings to add more shares.
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8:49ama and stocks opened higher out of the gate with breadth better than 2/1. Oil is down $1.06 at $59.57 and Treasuries are giving a little ground ahead of the Fed meeting tomorrow where the Fed Funds rate will be moved to 4%.
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Barron’s finally heard our plaintiff plea about the value in Verizon and had a nice article on it over the weekend. The stock is over $30 for the first time in a few weeks.
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Todd Harrison on www.minyanville.com is hearing rumors that Greenspan’s replacement will be announced soon.

12:23pm and Harrison was correct and stocks are higher on the news that Ben Bernanke the White House economic guru is going to be the new Fed Chairman. Breadth is 3/1positive on the NYSE and 2/1 on the NAZZ. And up volume over down volume is also impressive although overall volume is relatively light. New lows are at 104 and there are more new highs today than new lows which is the first time in a while.

Oil is off its lows but remains under $60. Treasuries are weaker but steady with the two-year at 4.24% and the ten-year at 4.43%

We are adding shares of American Eagle Outfitters to more accounts at $22.75 and also we purchased some Drug Holders exchange traded fund shares (PPH) in our larger aggressive accounts and picked up a chunk of VECO which is Veeco Instruments. We bought at $15.25 which is down $2 on the day. We have traded this stock before.

We also bought a few shares of McCormick, the spice people, and also some more Intel and we are inching into Kyocera in our larger accounts at the $63 level.
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3:02pm and the DJIA closed up 170 points at 10385. The S&P 500 gained 19 points to 1199 and the NAZZ rose 35 points to 2115. The S&P 500 needs to crack through 1200 on the upside decisively in order for the correction/collapse to be stymied.

New highs and new lows were about even and breadth was 3/1 to the good on the NYSE and 2/1 on the NAZZ.

Oil ended down 31 pennies at $60.32 and Treasuries were lower with the two-year at 4.25% and the ten-year at 4.44%. Volume was the only bugaboo.

19 October 2005 Daily Comment

In the early going stock futures are lower, Treasuries are better and Oil is up a few pennies.

Motorola delivered good news and rose after hours, Yahoo was a yawn and Intel was in line but traders were disappointed by future revenue forecasts and the shares sold off.

We are pretty fully invested as we take a few days off. We will be watching and acting if necessary but we like what we own. Now it is a matter of waiting for quadruple witching to do its thing in the next few days and the end of tax selling by mutual funds at the end of the quarter.
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Jamie Dimon is taking over at JP Morgan after year end and that is considered a positive by those in the know. JPM reported better than earnings as did Bank America.
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American Standard took it on the chin yesterday. ASD went by the original name American Radiator and Standard Sanitary for old-timers. It makes bathroom fixtures and its Trane unit makes heating and air conditioning and air moving equipment. The fixtures business was the back breaker yesterday since the air conditioning and heating business was up 16%. We will be adding more shares as we raise money from other sources and the share price moves lower.
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Cingular Wireless (soon to be AT&T Wireless) is now making money for SBC and BLS, its owners, earning $222 million the quarter which was double last year’s comparable quarter. Those pesky analysts don’t like the fact that it added only 900 thousand subscribers instead of the million analysts were forecasting.
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Housing starts were up 3.4% in September and permits were up 2.4%. Treasuries remain up.
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To begin the day we sold Yahoo on the good earnings news at $34.40 for a better than $1 plus gain. We can’t own the stock for long because it has revenues of $4 billion and is priced at $44 billion.

We also took a short term gain on Motorola on their earnings news. We think Nokia is the better value right now. We reinvested the MOT money in Time Warner since it seems something positive may occur with AOL and other portals before year end. We have been trying to make money in TWX for two years maybe the 15th time will be the charm.

With both HD and ASD both being considered as housing exposure by the big boys and girls we sold the Home Depot we purchased yesterday (in the same accounts we bought ASD) for a 50 cents loss to buy more ASD which is down another $1 today and over $2 below our purchase of yesterday and $10 below Monday’s closing price. This is too good a company to suffer such a fate and with earnings projected at $2.65 (13 times our average cost) for the year and selling at one times sales we want to own the stock on this break.

We are buying the ASD at $35.60 in accounts where we sold Yahoo today.
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10:03am and the major measures are mixed with the DJIA up 22 points and the NAZZ down. Breadth is 2/1 negative but stocks are trying to make a stand. New lows are already over 270.

18 October 2005 Daily Comment

Oops, guess the hurricane Wilma is not going to make it to the northwestern Gulf of Mexico and so oil futures are lower this morning.
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Traders liked IBM’s numbers and we can only hope for the same result tonight with Yahoo’s and Motorola’s earnings releases.
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Texas Instruments was lowered to under perform from in line by Goldman Sachs and Merrill Lynch call centers are being investigated by the NASD.
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More than 52 million recipients of Social Security and supplemental benefits will see a 4.1 percent bump in their monthly payments come 2006, the Social Security Administration said Friday.

The average retiree who receives Social Security will see his payment increase from $963 a month to $1,002. The maximum monthly benefit any retiree over 65 may receive will rise from $1,939 to $2,053.

The 2006 cost-of-living-adjustment (COLA), the largest since 1991, is based on the change in the Consumer Price Index from the third quarter of the prior year to the third quarter of the current year. The CPI for September was released on Friday.

The 4.1 percent COLA will also raise the level of wages subject to the Social Security tax. The new wage level next year will be $94,200, up from $90,000 this year. That means the first $94,200 will be subject to the 12.4 percent Social Security tax, half of which is paid by workers and half by their employers. The self-employed pay the full 12.4 percent but may deduct half of that on their federal taxes.

As a result of the wage-level increase, 11.3 million workers, or 7.1 percent of workers who pay Social Security taxes, will be paying more next year as a result of the increase.
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7:50am and the Producer Price Index came at 1.9% and core at 0.3% both a bit higher than expected. Year over year the PPI was 6.9% and core 5.5% respectively. Treasuries are flat on the news and oil is down 60 pennies at $63.76.
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Refco filed Chapter 11 and agreed to sell its futures trading business.
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Fifth Third Bank reported in line earnings of 71 pennies. Those earnings were lower than last year.
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In 12 Shiite and Kurdish provinces, as many as 99 percent of the voters were reported to have cast ballots in favor of Iraq's new constitution. Sounds like Chicago to us.
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And Sadaam goes on trial. There is just too much news. He never received 99% of the vote as we remember.
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9:12am and the major measures are mixed. We must be in a bull phase though because Verizon is up 5 cents a share. Seriously, we view the continued weakness in VZ as a buying opportunity. We have been adding shares to accounts and will continue to do so through year end. We expect it to be our largest position in all accounts at year end.

Oil remains lower and Treasuries have firmed. We are buying Home Depot for accounts in which we purchased Comcast yesterday. Novellus which makes chip equipment is off 10% today and on its 12 month and 36 month low and we are buying shares in NVLS in those same accounts.
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Fifth Third Bank’s share price spiked $1.60 higher during its conference call on the morning’s earnings and we took the opportunity to unload our shares for a scratch to $1 per share profit. Since we had an unrealized $3 per share loss in it last week we wanted out to rethink our ownership. There is also a takeover rumor going around which has the October and November $40 calls active. It won’t be the first or last takeover we miss. And it also won’t be the first or last time we were able to get out of a stock with a profit when takeover rumors that turned out to be untrue lifted the shares.

We are placing the proceeds in National City Bank which is down $1.60 per share, also on lower earnings. NCC had warned the street but the street doesn’t like lower earnings today. We have traded the shares profitably earlier this year and we also bought shares in those accounts that had profitable trades at higher prices this year.
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American Standard, the toilet folks who also make air conditioners and auto stuff missed their quarter although earnings were higher year over year. ASD also warned going forward and said the bathroom fixture market was tough. The share price is down $7 today and this is a good company. We are using the drop to initiate positions in larger/ aggressive accounts that own CMCSA. If the share price continues to fall we will buy more around.
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October is sale month in the stock market. We think the buys of Novellus and ASD and NCC and Talbot’s will turn profitable for us and we are buying all on their yearly lows as we did with Comcast yesterday. All are good quality names.
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1:34pm and there are mixed messages in the markets. A bunch of regional Fed presidents did not want to raise the discount rate the last time around. Exxon just broke a triple bottom at $57 and technically the next stop is $50. Oil is down $1.26 to $63.10 as the hurricane gambit of yesterday falls into the Gulf. Home builders are getting crushed on the American Standard news of no bathrooms equaling no homes.

Our thought is that the NCC we just bought is as likely a takeover target as Fifth Third which we just sold. FITB traded at $62 and any takeover at less than $50 ($26 billion) would probably upset folks. And if someone is going to pay $50 ($26 billion) they may as well buy NCC at $38 ($23 billion) for the same earnings of better quality.
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In the thanks a lot department the wire are reporting that Fed member Janet Yellen is saying that a neutral Fed Funds rate is between 3.50% and 5.50%.
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3:02pm and the DJIA closed down 62 points at 10285. Altria which was up $4 yesterday gave back $2.50 today an Exxon lost $2.59 today. The S&P 500 lost 12 points to end at 1178 and the NAZZ was down 14 points at 2056.

Treasuries closed a tad better with the two-year at 4.25% and the ten-year at 4.48%. Oil lost $1.16 to finish at $63.20.

Breadth was 2/1 negative at the bell and new lows were 247, about even with yesterday.

And the games continue tomorrow at which time we’ll see how the markets react to the earnings reports of tonight.
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17 October 2005 Daily Comment

We begin the week with a new storm/hurricane in the Gulf and oil higher as a result as the worst scenario is always priced into traders minds as they play their games. Gold is also higher.

On a positive front, GM has an agreement with the unions to cut health care liabilities by 25% with the pretax savings of $3 billion which converts to after tax of $1 billion.

It looks like a few hedge funds are interested in owing Refco, the harried futures broker.

Last weeks bugaboos are satisfied and now it is time to look for new ones this week. That is the way it is in correcting markets when the next crash is only a day away.
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Newell Rubbermaid has fired its CEO (who was from GE by the by) so there will be more write downs in the years to come as the new CEO takes over. NWL does have a nice dividend, for now at least.
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9:23am and the DJIA is higher led by GM which is up on the healthcare news. The other major measures are also higher and breadth is 5/4 positive. Oil is up $1.14 and Treasuries have now moved back to flat on the day with the two-year at 4.25% and the ten-year at 4.48%.
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We are adding Comcast to our larger accounts at $27.30. we have traded it profitably this year and it is on its low for the year and is an institutional stock so we think the selling pressure will abate after October 31. As with Verizon and SBC we don’t expect them to move higher after that date but we do expect the down draft to slow if not stop. If and when folks realize the economy is slowing then we would expect these stocks to move higher.

Before that time comes we are hoping our tech stocks pop as new institutional money flows in and we can take a quick 20% profit and place the money in 2 year Treasuries. That is our December scenario.
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We may be all wet but we would bet that if and when folks look hard enough they are going to find bird flu in U.S. chickens. It is sort of like the mad cow disease, we think the only reason the U.S. doesn’t find mad cow disease is they don’t check as many animals. A pandemic will occur as surely as New Orleans flooded and a major earthquake will hit the west coast. But we think the markets of folks spending their time worry about the avian flu pandemic is a waste of time. We’ll let the experts handle it and hope the U.S. government provides sufficient funding.

A company in India is going to begin making generic tamiflu because Roche, which holds the patent won’t license it and won’t drop its $60 per dose fee. Ain’t capitalism great?

If there really is going to be a pandemic every drug company in the world should be making it and selling it at cost to the governments of the world to give to all the folks.
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1:49pm and in the contras hour the major measures are mixed with the DJIA up on Altria and GM and the NAZZ lower as small cap stocks continue to be sold.

Verizon continues its journey lower in very slow trading. The yield is now 5.5%. we continue to add shares.

Breadth has slipped to the negative side but new lows are down to 150 continuing the retreat from the high water new low mark last week of over 600.

3:02pm and the major measures closed to the plus side. With Altria up 4 points the DJIA closed up 60 points at 10347. The S&P 500 gained 4 points to 1190 and the NAZZ rose 5 points to end at 2070. Breadth was almost 2/1 positive at the close and new lows were a better 220.

Treasuries gave a little ground with the two-year at 4.27% and the ten-year at 4.49%. Oil gained $1.73 on the topical storm to maybe hurricane news and volume was light.

14 October 2005 Daily Comment

And so and era ends as effective October 24, 2005 All or None (AON) and Fill or Kill (FOK) order types will be eliminated. All AON or FOK GTC orders will expire at the close of business on October 17th, 2005.

We remember the ‘old stock broker’ running up to the order desk shouting “buy 5,000 Moog ‘A’ at $22 fill or kill”. Of course no one runs to order desks any more; they type their orders on a computer and click a button. Some parts of the good old days had much more flavor.
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GE reported 15% higher earnings while United Health Care had better earnings on lower sales. Citigroup downgraded Ford to sell with a price target of $7. We will be buyers at $7.50 since we do believe that Ford family ownership precludes any bankruptcy as it has during tough times in the auto industry in the past.

By the way the bankruptcy filings of Delphi were a way for Delphi to get out of their union agreements the same as the bankruptcy filings in the airline industry. The Congress just changed the bankruptcy rules so that individuals can’t do the same thing. Welcome back Robber Baron Capitalism.
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Well it is ‘Buy Yom Kippur Day’ and with all the government reports to be issued in a few minutes we’ll see how the big boys and girls want to play the data.

7:30am and CPI for September was up 1.2% with core CPI at 0.1% with the year over year core up 2.0%. Retail sales were up 0.2% and ex autos plus 1.1%.

Bonds were down and rallied a bit on the news as did the stock futures so the data had something for everybody.
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8:49am and stocks opened higher out of the gate with breadth 2/1 positive but reality is setting in and stocks are coming back down. Michigan Sentiment was 62 versus 63 but then their football team lost to Notre Dame so we don’t know if that number means much.
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We are adding a few shares AEOS to our large aggressive accounts and Yahoo to accounts that own BMY.
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1:38pm and stocks are meandering at higher levels. Motorola opened at $21 and backed off to $20 this afternoon and we bought a few more shares.

We are heading out early for a bike ride. As we leave Treasuries are finishing lower on the day with the two-year at 4.27% and the ten-year at 4.50%. Oil and gold remain under pressure as do oil stocks. We continue to think that the Refco futures situation ahs something to do with this weakness but for whatever reason we are glad to see oil moving down instead of up.

Breadth is now 2/1 positive and new lows are at 380 down from yesterday’s 610 number.

The DJIA is up 30 points 10246 and the S&P 500 is up 6 points at 1182 with the NAZZ at 2056 up 10 points.

13 October 2005 Daily Comment

Overnight Asia was mixed and Europe was lower. Treasuries have begun the day higher in yield. The two year is at 4.25% and the ten-year is at 4.48%. Jobless claims were 389,000 and the trade deficit for September was $59 billion. The Import price Index was up 2.3% (ex oil up 1%). Oil is25 pennies lower at $63.87.
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Today is Yom Kippur and so trading volume will be lighter than usual and the big boys and girls will have a chance to play games.
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We read the following in a WSJ article on the Refco mess and thought the understatement was funny. Of course folks will tell you we have an unusual sense of humor.

Companies are required to disclose such "related-party transactions" with their top officers, directors and shareholders, to alert investors to a possible conflict of interest. While Refco showed $74.3 billion of assets, the $430 million looks large compared with Refco's $185.4 million of shareholder equity, as of May 31.
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Sometimes I think the Market has a negative bias due to short selling and the arcane situations that let people exploit it. XXXX disagrees with me. Obviously the shorts are having a field day recently.

Shorting is an integral part of the market. The more shorting there is the better that is for the bullish case-- eventually. That’s because the shorts have to be covered (unless the companies go broke) and that means future buying pressure at either a lower or in many cases a higher price as the folks who are short lock in a profit or can’t take the pain. In every bear market novice folks begin shorting who don't understand that shorting stock is not the same as being long shares. A different psychology is involved and it is very difficult to make the crossover from being a long investor to being short. We have never been able to do it. When we don’t like the markets we go to cash.

The old saying is that “When you are short you can lose all the money in the world plus commissions charged to cover the short. When you are long you can only lose the money you invested.”

In the case of the Verizon and SBC arbitrage takeover situations the shorting will end when the mergers take place. And if VZ is around the $30 level there will be a few more days of selling as arbs unload the extra shares they receive above the announced terms set at a $34 price level on VZ. Of course as we commented earlier as the merger date approaches there is a ‘strange’ tendency of the acquiring company’s share price to migrate toward the more advantage price level for the acquirer which would be $34.
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9:47am and the major measures opened lower but are now slightly to the plus side. We bought Motorola at $19.70 and Disney at $23.22 which is a few pennies higher than where we sold it a few months ago before its run to $23 for accounts that own BMY.

We also added a few shares of TLAB, CSCO, GPS, and NOK to smaller accounts and VZ and DIS which we sold last week at $1.50 higher in price than we are now paying to some larger accounts.
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This morning Bear Stearns issued a bullish report on AMAT and set a $24 price target. They expect above consensus earnings and sales.
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12:09pm and trading in Refco shares is halted. Refco is one of the largest derivatives brokers. Moreover we think it is interesting that the oil complex and gold are both lower and that the Refco imbroglio has not roiled the financial markets more. Refco has $70 billion in positions on its books with $500 million of capital supporting them. Hopefully most of those positions net out but there could be some panic created yet. As with Long Term Capital we would guess that the Fed is involved. Goldman Sachs, which is going to be sued because they were one of the underwriters of the Refco deal, has been hired as an advisor.

We think the eventual result is going to be someone like Goldman acquiring Refco to calm the markets. And then the lawsuits will settle who pays how much to whom.
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3:02pm and the big boys and girls had some fun this afternoon rallying tech stocks in the contra hour and then selling in the final hour.

The DJIA closed down 1 point at 10216. The S&P 500 lost 1 point to end at 1176 and the NAZZ gained 10 points to 2047. Oil shares were under pressure all day.

Oil ended down $1.04 at $63.08 and Treasuries were unchanged on the short end to up a few bps on the long.

Breadth was 2/1 negative on the NYSE and 2/1 positive on the NAZZ. New lows hit 610 so we are getting there. Volume was respectable.

Tomorrow there are bunches of numbers (CPI, Retail Sales, Capacity Utilization, Industrial Production, Business Inventories and Preliminary Michigan Sentiment not to be confused with final Michigan Sentiment) for the big boys and girls to ponder plus more news in the continuing Refco saga.

12 October 2005 Daily Comment

Apple’s earnings disappointed (they only quadrupled from last year) and the shares are down $4 in the early going today. Harley Davidson did better than and its share price is up $1.50. Japan and Hong Kong were down big and Europe is lower so it is going to be a rough ride this morning.
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Happy birthday, you now have joined the social security gang. With the long bike ride, hose ride and hot tub, you must have had time to reflect on life and investments. As for the life, it seems it has been good to you which is great. On the investment side, well you’re trying and it’s been tough. I still think you didn’t like the market but got in anyway to please some of the investors...as I said before there is nothing but bad news out there and it isn’t getting any better esp. higher int. rates and natural disasters ...the hole is just getting deeper and darker

Life is interesting but when my clients are not making money it is not good. But it is better than a lot of folks have.

We don't get in or out any more to keep clients happy. We get in and out to try and make a buck. Always in October we wonder why we get in but then we have been getting in, in October, for 25 years and only missed in 1990. That was the year we lost 50 pounds, a George Bush was President and Gulf War I was around the corner. This year we lost 55 pounds, a George Bush is President and we are in a Gulf something so we hope we are not down 12% at year end. The next year in 1991 we were up 30% so it all evened out.

I am staying with good stuff and some nice dividend payers and I do think I understand what is occurring.

For sure these are tough times but there have been much worse. There doesn't look like anything that can move stocks higher but it is October.

Today is going to be a wild day with an early down opening in the cards and then we would hope to see a rally. But with the old adage of buy Yom Kippur we may not get the rally till Friday which would be a nice way to end the week as long as we don’t go down another 4% before then.
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Refco is the U.S.'s ninth-largest futures brokerage firm, with more than $4.1 billion in customer accounts as of March, according to the Futures Industry Association.

Refco’s CEO has been indicted and the SEC is investigating to determine how he was able to hide $450 million in bad debts from auditors and underwriters and the SEC. This is a story that usually occurs in October. Refco just went public and was listed on the NYSE a few months ago.

By the way the IPO was passed on by the SEC, auditors and these other managers of the offering Credit Suisse First Boston LLC, Goldman, Sachs & Co. and Banc of America Securities LLC were the joint book-running managers for the IPO. Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Sandler O'Neill & Partners, L.P. and HSBC Securities (USA) Inc. were the co-managers.

Investors Intelligence finds bulls under 50% at 44.8% and bears up to 29.2%. We are getting there (a bottom).
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9:02am and the major measures are higher and we used the pop up to sell JPM for a net (including the dividend) loss of 40 pennies. The Refco mess mentioned above has some derivative and IPO risk for folks and we would guess that JPM is somehow involved. That sale raises a good deal of cash for deployment in other areas. We also sold our TWX holding when MSFT and YHOO announced this morning that they were combining their Instant Messaging systems. MSFT and TWX had been in talks and the other deal would seem to close out any MSFT/TWX deal.

Finally we are taking some serious lumps selling Cabellas. We are going to stick that money in The Gap which is down more than our losses in CAB and which we plan on holding and adding to through the shake out. We are holding off for now on the GPS.
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Advanced Micro Devices has $4 billion in revenue and is priced at $22 (30 times earnings) for a market cap of $8 billion and may earn 70 pennies this year and has negative cash flow and debt exceeds cash on hand. Intel sells at $22 (15 times earnings) with revenue of $38 billion and a market value net of cash of $128 billion and $14 billion in cash and free cash flow of $7 billion.

Which stocks do you want to own? Wrong. Up until today the street wanted AMD and hated INTC. Now it dislikes both.

We are buying INTC at $22.85 in accounts where we sold MSFT last week.
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2:31pm and after breadth hit a 5/1 negative reading around 2pm the major measures began moving higher. New lows for the day are about 550 but we would guess that an 800 or higher new low number will help mark the bottom. The rally is now fading away. We still are going with the Friday rally theory. Tomorrow will be a thin trading day because of Yom Kippur and there may be some volatile movement in individual stocks and maybe even the major measures.
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3:02pm and the DJIA finished down 36 points at 10218. The S&P 500 ended off 8 points at 1177 and the NAZZ dropped another 24 points to 2037. Breadth was ugly at over 3.5/1 negative at the bell and down volume bested up volume by a 4/1 margin.

Treasuries closed higher in yield with the two-year at 4.24% and the ten-year 4.45%. The 4.40% level was resistance on the ten-year. Oil was up 59 pennies to $64.12 and gold lost $3 to $473.

Add the games continue tomorrow so join us tomorrow night for the results.
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11 October 2005 Daily Comment

The Delphi bankruptcy and GM’s troubles continue to dominate the financial news while a potential Avian Flu Pandemic dominates the world news. Coupled with the New Orleans and New England floods, the mess in Iraq, the earthquakes in Pakistan, rising interest rates and the destruction of the United Auto Workers labor union resulting in the loss of the last high paying blue collar jobs and spending ability -- there doesn’t seem to be a whole lot of reason to be in stocks. But it is October and a dismal market is par for the course in October and normally a good time for buying stocks.

6:52am and as we begin on a rainy day in Wisconsin the stock futures are suggesting a higher opening. We think yesterday’s action was a continuation of the October wash out. Why then did we buy some stocks yesterday? We did that because those issues had reached what for us was true investment value. That doesn’t mean they won’t go lower. But the stock markets are in the process of establishing at least an intermediate if not final low. Markets don’t go straight up and they don’t go straight down. We may very well be in a three to ten year bear market but even bear markets have significant rallies and we think that a tradable rally is in the cards.

We have learned over the years that when rumors of bankruptcy fill the air, when major companies like Ford and JP Morgan are rumored to face imminent bankruptcy that the markets are probably approaching a tradable low. Ford and JP Morgan may very well go belly up but we will be betting that not all the current bankruptcy candidates will. And when panic is created by rumor, lows are usually made.

Of course if you turn off the radio and TV and read a good book and visit with the neighbors in the back yard the conversation might turn to the Yankees or the White Sox or the Bears or the Packers. So as always it all depends.

We get paid to watch the mess in the markets and react accordingly, but it isn’t getting any easier even though we have seen this scene many, many times.
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11:52am and the major measures opened higher on the backs of good markets in Europe and a better than 1% rise in Hong Kong and Japan.

That lasted till about 15 minutes ago when stocks turned mixed as the NAZZ is trading lower and the DJIA is higher. The DJIA is higher on the backs of GM, Altria, and IBM. But breadth is almost 2/1 negative and new lows are around the 240 mark of yesterday. Treasuries are lower in price and higher in yield and oil is up $1.45 at $63.25

Before the sell off in oil stocks the other stocks in the S&P 500 were down about 10% for the year so as oil comes down and the other issues continue to move lower there is a pretty good correction occurring below the surface as is evidenced by our stocks.

There are times to assume risk and ride out a downturn especially if you expected it and October usually is a month where that strategy pays. Of course with the failed rally in January, October may also turn into a real bummer also but we are aware of the risks and adjusting and we hope improving our holdings as different stocks offer better opportunities. We are also trying to keep our cash levels relatively high for an October time period.
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We bought more Nokia at $16.85 in accounts in which we sold NYB yesterday. Nokia has been holding its own through the correction in the same manner as AMAT.
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From today’s action it seems apparent that the drop in Verizon is related to the MCI arbitrage. That’s because MCI is holding steady as a rock. If the holders of MCI were afraid of Verizon they would be selling but because of the unusual terms the lower Verizon goes the more valuable MCI becomes- if the deal goes through. And so the arbs continue buying MCI and shorting VZ and there are no investors left to buy VZ since they, like us, spent their limit at the $32 to $33 range.

3:02pm and the DJIA closed up 14 points at 10252. The S&P 500 lost 3 points to end at 1184 and the NAZZ dropped 18 points to 2061. Breadth was 2/14 negative. New lows hit 300 and oil gained $1.75 to $63.55. Treasuries firmed into the close but were still higher in yield on the day with the two-year at 4.21% and the ten-year at 4.39%.

10 October 2005 Daily Comment

We celebrated our 62nd birthday yesterday by riding 31 miles on our bike. Katie Also rode 31 miles to make a total of 62. We then road our horse five miles, took a sauna and collapsed.

But this morning we are bright eyed and bushy tailed and ready to celebrate Columbus Day.
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With the bond markets closed today and the Yom Kippur observance on Thursday this week in the markets may turn on who of the big boys and girls decides to have the most fun.

The Delphi bankruptcy is affecting the markets today in the absence of much other news. Delphi was and is the supplier of auto parts to GM.

We read that the Delphi bankruptcy had to occur before the 17^th of October and the filing is causing a bit of turmoil in the junk bond market.

The bankruptcy had to occur before the 17th because after that date companies that enter bankruptcy have the proscription that officers of the company can’t make more than 10 times the average workers’ salary in stock options and other compensation when the company emerges from bankruptcy. Under Delphi’s proposed key employee compensation program as part of its bankruptcy filing:

486

U.S.

executives would receive cash bonuses of 30 percent to 250 percent of their salary, totaling $87.9 million, upon Delphi's exit from bankruptcy or sale of the company. For example, President Rodney O'Neal would get a total cash bonus of $2.75 million, based on a $1.15 million average salary. Some 464 executives could earn bonuses ranging from $50,000 to $475,000, based on salaries of $120,000 to $450,000.

Ain’t socialist capitalism great? In Japan the executives used to commit ritual suicide.
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General Motors’ share price is suffering along with Delphi and we are wondering if the media concentration on GM’s travails will turn out to be the same as the IBM is dead and done for talk of the early 1990s. Just asking.
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We commented on the Verizon and SBC arb situation in Friday’s post. We realized over the week-end that both stocks went ex-dividend on October 5th and so folks shorting the stocks don’t have to worry about a dividend being owed until next year by which time the deals may be completed. Relatively speaking the dividend is a decent percentage of the arb’s potential profit and so that could account for the more pronounced weakness late last week. Also it is October and both stocks are on their lows so Mutual Funds may be taking losses. The tax loss selling by mutual funds will end on Halloween. Finally the trading volume in the shares has been low and mostly on the sell side as the folks who are buying stocks at this time is not interested in dividend paying clunkers.
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12:25pm and stocks have been higher and lower all day with the major measures mixed at the present time. Breadth is 5/4 negative and oil is down 64 pennies at $61.20. Bonds are closed today. Volume is holiday slow.

We are adding AMAT and CSCO and SBC and CAB to accounts. AMAT has been acting well throughout the correction.

CAB has been a one way stock (both ways) and so we are buying gingerly. CAB is was a new issue at $22 last year and traded over $30 so everyone who owns it since the public offering has a loss. And so the selling may continue but we want to begin and increase positions at this level which is 13 times next year’s earnings.

SBC yields 5.6% at this level. Once the arb situation disappears at year end we would expect the more than the market weakness in the share price to also.

To pay for tech buys and stay relatively neutral on the day we sold MSFT for a 60 pennies loss and NYB for a 25 pennies loss.

NYB sold off today on no news and that bothered us. In this kind of market that means sell. We know NYB is trading on its yearly low (but so are most of our other stocks) but we are more comfortable with JPM and FITB both of which are on their lows.

We continue to have a good cash position in large accounts for future investment.
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3:02pm and the big boys and girls did sell programs in the last few minutes to mark stocks down. The DJIA closed down 49 points at 10243. The S&P 500 lost 9 points to end at 1187 and the NAZZ dropped 12 points to 2079. UGH!

Oil gained 44 pennies to finish at $62.28. Breadth was 2/1 negative and down volume on the NYSE was 4 times up volume. New lows expanded to 240 from 200 on Friday.

The correction is giving us the opportunity to continue to refine and improve our portfolios. We get this chance every October.

7 October 2005 Daily Comment

We had been wondering what had happened to all the terror alerts. No more do we wonder as a terror alert has been issued for the New York subway system this morning. During the election campaign there was an alert every other day. After the elections, nada. Now when the administration is taking it from both ends of the political spectrum a terror warning for New York following a ‘terrorists want to take over the world’ presidential speech. As the NYT put it: A senior White House official said Thursday evening that the president's 40-minute speech arose from Mr. Bush's desire to remind Americans, after "a lot of distractions" in recent months, that the country was still under threat, and had no choice but to remain in Iraq so Al Qaeda did not use it as a base to train for attacks on the United States and its allies. Coincidence we are sure.
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The big economic number today is the employment report and the media talking heads on CNBC are speculating and pontificating about the number. With the New Orleans and Gulf situation the number is going to be meaningless because the Labor Department will have adjusted it to account for the Hurricanes.

The stock markets are obviously in a lot of pain and confusion. Why October happens to be the month when this usually occurs is a mystery. It may have to do with the changing of the season, the beginning of a new budget year for the U.S., the final month of campaign season every two years, the Baseball World Series and the beginning of football and basketball and hockey, and finally it may just be a continuation of the harvest festivals and early Halloween scariness.

Whatever it is it is doing a good job again this year. From complacency last week the technical indicators have moved to bearishness this week. The question of how long and how far down is obvious but inscrutable. And so we are going along adjusting portfolios to conditions and hoping to catch the magic carpet ride that will follow the turmoil.

It seemed to us that the under loved big cap tech stocks were seeing some rotational buying yesterday since the NAZZ was down while they were up. The big cap techs may have become the stocks of last resort for many big boys and girls when looking to stay in the markets especially since these tech stocks haven’t done much for anyone lately.

Well that is our theme and we are going to stick with it until we don’t. Today is Friday and so we only have one more day of confusion. Let the games begin.
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We aren’t sure you can handle this but our tech guru says that the ‘get out of Dodge’ sell signal was issued on Thursday. Coupled with the seven Samurai sell signal of Wednesday, events and the stocks markets are not looking good for the home team over the short term. Our plan is to ride out the signal and add to positions as the probable sell off continues. We will hope for the ‘hop on the freight train’ buy signal soon after the end of Yom Kippur on October 13.
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Asian markets were mixed overnight with Hong Kong up fractionally and Japan down another 1% after Thursday’s sell off. European markets are fractionally lower. Oil is over $62 again and Treasuries are opening a bit weaker ahead of the employment number.
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7:30am and the envelope please: the employment report says that non farm payrolls declined by 35,000 jobs. The forecast was for a loss of 130,000 jobs. But the Labor Department counted jobs held by folks not yet fired and also adjusted June and July numbers to add 70,000 jobs. Good for the Labor Department’s ability to adjust bad numbers into good numbers. Treasuries are lower on the news but so are stocks futures.
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4.25% yield on the Treasury two-year as the potential of future Fed rate hikes becomes more certain.
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A Prudential analyst is suggesting that JP Morgan and Morgan Stanley might merge for cost savings and synergies. At least the name would be synergistic. We don’t think Mack and Dimon would be willing to share the top spot.
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9:53am and the major stock measures have been higher all morning but are beginning to give ground. Breadth is positive but new highs outnumber new lows 2/1. Treasuries are back to flat for the day after a sell off on the employment report a few hours ago and oil is now up a few pennies at $61.45.
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1:29pm and stocks are meandering as are the markets. Yesterday’s big NYSE volume is not being repeated and with the Monday bank and bond holiday for Columbus Day it seems as if the market may close with a whimper.

Verizon is down again today and it is because we are in a lousy market but also because there is a very complicated arbitrage situation. VZ has agreed to pay $26 for MCI which is currently priced at $25.50. Of that price $5.60 is to be paid in cash and the rest in Verizon shares with a guaranteed value of $21.40. The original deal was for .5743 shares of VZ to be issued. But as Verizon’s share price drops in value because the arbs are buying MCI and shorting VZ to lock in a profit as long as the deal goes through, the arbitrage situation becomes more complicated because more VZ shares have to be issued to MCI shareholders. And the more shares having to be issued causes the arbs to short more VZ, we think. Our brain is too old and tired to figure it out but it is now obvious that VZ will be under pressure until the deal is closed and they ought to fire their investment bankers for figuring out such a screwy deal. The FCC is going to comment on the merger on Tuesday October 13 and that should go a long way toward getting the deal done. Until the merger is completed or folds, VZ will remain under pressure. We own a big chunk of VZ now so we won’t buy much more unless the price drops to $29. We are not disturbed by the pressure on the share price except for wishing we had waited a bit longer to buy. At our cost price the yield is almost 5%. We aren’t buying MCI because the deal may fall through and the risk is not worth the reward. Also stock prices have the unusual habit of moving up in price as a merger closing dates approaches when shares of stocks are involved.
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3:02pm and the DJIA closed up 7 points at 10295. The S&P 500 gained 5 points to end at 1196 and the NAZZ rose 6 points to 2090. Both the NAZZ and DJIA are down 4% for the year while the S&P 500 is down 1.3%.

At the bell breadth was 5/4 positive and volume for the day was light. New lows again exceeded new highs by a 2/1 margin but the absolute number of new lows was lower than yesterday at 180.

Oil ended the day up 48 pennies at $61.84 and Treasuries closed early today and higher with the two-year at 4.17% and the ten-year at 4.35%.

And tomorrow is Saturday so ride a horse or bicycle or take a walk and enjoy the fall weather and forget about the falling market. There is always next week when the games will begin again in earnest.
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6 October 2005 Daily Comment

Well all was fine until yesterday when the confluence of several Fed folks speaking about inflation coupled with folks returning from the holy day and general October malaise all combined to introduce fear into the stock markets.

If we can’t have fear in the markets in October when can we? Our take is that traders need some action and since they can’t get it on the upside, and their oil trades have turned sour, with the grain complexes boring which leaves stocks the only place to play.

The Fed speakers see inflation and will raise rates yet Treasuries rallied yesterday. The high price of gasoline is going to inhibit spending yet gasoline consumption is at a 17 year low and refineries are cutting production of gasoline.

The economy is going to roll over but the Fed sees strength. Obviously there is enough ammunition for both the bull or bear case. And bird flu is going to kill us all so who cares anyway.

And on these happy notes we return from 6 days of rest and relaxation and visiting with clients and friends. The weather has turned autumnal which sure beats the 80 degree stuff we endured in Chicago.
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We like this time of year because of the weather change but also because it usually allows us a chance to find decent stocks values at October sale prices. We know that everything is wrong and will never be corrected. The deficit is too large, New Orleans is a mess, there is too much government spending and health care costs continue to rise. Every concern is new and old at the same time.

Hopefully folks are taking the time to watch the White Sox win a few games in between dealing with all the world’s and markets’ problems.
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While we were away we switched Disney to Applied Materials on the theory that if there is to be a rally in the fourth quarter the tech stocks will lead it. And this year we plan on staying with big cap tech stocks for our trading.

We own some out of favor big caps (JPM, FITB, VZ, and GPS). There is going to be more pain this month but we do think that our choices will reward us at some point.
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The S&P is down 3% this week as the quarter end mark-ups have given way to new quarter selling. Last week the S&P was at a three year high and now it is at a six month low.

All the major markets around the world are lower with Japan and Hong Kong off 2% and Europe down over 1%. The dollar is weak, Treasuries have a bid and oil is lower.
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Federated Dept Stores who just bought May Dept Stores and has a ton of debt is issuing warnings for the third and fourth quarter. The last time Federated owned this may stores was back in the 1980s when the Belzbergs in Canada created a leveraged monstrosity that eventually had to unwind all its acquisitions in bankruptcy.
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As housing prices flatten and weaken we think money will flow back into stocks.
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The Gap’s same store sales were down 6% when the street was expecting down 7%. That is small comfort.
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The technical guru we like to read says he received the seven Samurai sell signal yesterday. That means that seven of his technical indicators went bearish. We are going to raise a bit of cash.
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We sold our IP, DD, AVP, EL and GE holdings. We lost on the first four and scratched on the last. We want the cash since the rally failed again at S&P 500 1250 and rolled over below 1200. The path to riches is never straight and there are times and months when quick action and turns are called for. October is always one of these times and months.

All of these stocks are source of cash stocks for mutual funds through October 31 and probably have offsetting loss potential for funds hoping to mitigate any capital gain sting. We are not abandoning them, we just don’t’ want to rent them right now.

The rally this morning is very thin and we expect a rollover to more downside this afternoon or tomorrow.
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12:04pm and the major measures are mixed with breadth negative. Oil is at $61.55 down $1.24 and Treasuries remain firm.
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On days like today we watch which stocks we own exhibit strength (are up) so that when the afternoon sell off commences we can consider adding more. TLAB, CSCO, MSFT, and AMAT are all up as the major measures move lower. We expect them to give up the ghost today also but we think up in a weak market is a positive sign for the eventual rebound. INTC isn’t on the list today. JPM has also been higher most of the day and it went x-dividend yesterday.
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The Verizon/MCI merger was approved by MCI shareholders today. This is an arb situation and there are probably a lot of hedge players in the shares right now which we think may be one of the reasons for the extraordinary weakness in the share price. There had been opposition to the merger and maybe the MCI holders opposed to VZ who have big profits are selling, forcing the VZ down also.
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3:02pm and the big boys and girls rallied the major measures into the close after the DJIA was down 90 points with 45 minutes to go. They didn’t have enough power to get the measures to the positive side. They may do that tomorrow. At the bell the DJIA was down 30 points at 10287. The S&P 500 lost 5 points to finish at 1192 and the NAZZ dropped 19 points to 2084.

Breadth was over 3/1 negative. Volume was moderate. Oil ended down $1.11 at $61.68 and Treasuries closed unchanged to down with the two year at 4.19% and the ten-year at 4.37%.

And tomorrow is Friday and the casino closes for the week-end. We’ll be around all day watching the action for you and reporting after the close. So let the games continue.
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31 October 2005 Daily Comment