Bud's Poem Page

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30 September 2002

6:53am and as we begin the day the stock futures are suggesting that maybe our crash scenario of last week may come to pass. Thursday's jump higher on decent volume may have tricked us but Friday's sell off down almost 300 points fit our crash scenario perfectly. The Crash of 1929 began on a Tuesday and if today is a downer of any proportions tomorrow could see the markets fall off a cliff. Don't like to start the week on a downer but that's the way events are setting up. Europe is down big this morning with most of the bourses off 3% to 5%. As our partner Don Yarling used to say, markets don't crash off the top. We are down the requisite amount for a crash to occur. In the past bull market when we reached this point a strong rally would materialize. It doesn't feel that way today, but then it never does.

Given our doomsday scenario, it is logical to question why we started buying on Friday. The first reason is that we have been expecting this occurrence and we think it will present a good risk/reward buying opportunity. Also we are hedging our bets in case the sell off stops today or tomorrow and a decent ten to twenty per cent rally occurs. Two of the stocks we bought on Friday SBC and Verizon yield over 5%, Schering Plough yields 3% and Pepsi has bounced off this $37 level about five times in the last three years. Schering Plough (SGP) is back to 1997 prices as is Pepsi. We think the Quaker Oats acquisition is a winner for Pepsi in the long run. SBC is back to 1994 prices as is Verizon. We are first of all investors and then traders and when stocks reach levels where they are value investments we believe it's time to begin purchase.

We bought the DIAs which is the DJIA Trust traded on the exchanges and represents ownership of the Dow Jones Industrial Average. We are buying the DIA as a proxy for the market as the DJIA makes new lows. We are hoping that the SPY which is the proxy for the S&P 500 gets back in the low $70s so that we can add them to accounts.

This is a time to begin assuming risk. We said we would and we are.

Personal income was up 0.4% in August while spending was up 0.3%. We guess the other 0.1% went for margin calls. Actually the savings rate got the other 0.1% rising to 3.6% in August.

Citicorp is making a big push to settle with the authorities by offering to separate investment banking from its research department. All of a sudden everyone has learned of the evils of investment banking and research under the same roof. We've been writing about that travesty for the whole time we have been in the business. In order to settle the charges without putting Citigroup out of business, the authorities should require the big honchos like CEO Sandy Weil to give up all their stock options and not allow any more options to vest for these folks. Don't hold your breathe.

By the way since more folks seem interested in the SKUNK problem than the stock markets we are sorry to report that Tubby and Pooper have not been able to corner or capture the critter. In fact, in the interest of everyone's olfactory senses the two loyal servants have asked to be relieved of their responsibilities. They will continue their Al Qaeda duties for General Ashcroft and his alert system but as of today they are off skunk patrol. We are pleased to report that Trapper Russ Gilbert, world famous in the Kickapoo Valley for being able to trap any varmint, has agreed to look into the situation this afternoon. So we will have a report tomorrow on his assessment.

7:46am and the stock futures continue to paint a grim picture. The futures are suggesting a 1% down opening. Treasuries are strong on the negative stocks.

8:46am and the Fed and the White House say the recovery is on track and that GDP will be up 3.2% in the third quarter and 2.3% in the fourth quarter. And no one will be killed when we destroy Iraq in five hours. The DJIA is bouncing up after selling off 160 points in the early going...

8:55am and just received an e-mail suggesting that the arrival of the skunk was a sign of how stinky the markets were going to get.

8:59am no bounce at all so it's lower we go. Stocks have traded through all support levels.

9:49am and the Chicago Purchasing Managers Index came in at 48 below 50 for the first time in a long time and below the 51 to 53 estimate. Wal-Mart and Federated have reduced their sales forecasts for September. The Markets have stabilized at down 3%. Volume is not that heavy.

10:36am and the German DAX which is their DJIA lost 56% of its value for the quarter ending today. Oops!

10.44am and we sold BGEN for a $1 per share loss in our trading accounts at $29. We also traded GM in those same accounts and made a profit of 30 cents per share. It's a tough market.

11:13am and the FTSE, which is the London Stock index, closed down 4.6% for the day. We need a rally in the last hour to stem the tide for tomorrow.

11:51am and it looks like the buying has been spent and we are going down under 7500 on the DJIA again. While the sentiment among the talking head has turned negative, volume is not all that huge. Breadth is 2/1 negative and down volume exceeds up volume by a 4/1 margin. It looks like the final hour will tell the tale.

1:03pm and a rally is underway with the DJIA down less than 1%. Mark up day.

1:23pm and the mark up has again failed. The DJIA is down over 100 points. We want to buy five to ten different companies selling under $3 per share before the end of the year. Hopefully they all survive. But if five or six survive and recover eventually or quickly after year end we will make a nice profit. The first stock we are purchasing is Qwest which we owned in the teens last year-end. We purchased Q today at $2.30. If the company survives we have the chance for a home run over the next few years. We are limiting our cash investment in each company to distribute the risk.

2:19pm and the DJIA rallied to almost even a few minutes ago. Breadth has improved and up/down volume is also close to even. We sold a big chunk of our Treasury bills in most accounts today to have funds available for redeployment into the stock market over the next few weeks.

3:02pm and the stock markets had a wild ride today. The early morning decline was staunched by Bill Gross PIMCO's bond guru's comments on CNBC that he thought the Fed would cut rates by 50 basis points before the next meeting. That led to a rally in the Treasury market that carried over into the stock market. But there is a lot of bad news today that the stock markets had difficulty ignoring. We don't think it will continue to ignore the west coast dock lock out, the war with Iraq, lowered sales forecasts from the large retailers, and lousy earnings.

At the close the DJIA was down 110 points at 7591 well through the support level of the day of 7665. The NASDAQ closed at 1171 down 27 points and just above support at 1169. And finally the S&P 500 broke support at 817 to close at 815 down 12 points for the day.

And tomorrow is another day.

27 September 2002

7:17am and it's getting harder to get up since the sun is rising later in the morning. As we begin our work day the futures are suggesting a lower opening. GE had its ratings cut by several analysts overnight. Turns out that GE Capital financed the sale to a third party of the GE unit that is providing the $300 million gain that is helping GE make its numbers. The third party buyer tried to do a junk bond financing to pay for the purchase and couldn't so GE Capital put up the cash. Phillip Morris is off about $5 per share from yesterday's close on their announcement that they were cutting their profit growth forecast because of competition. SBC is laying off ten thousand folks and cutting spending. Those are three Dow stocks announcing trouble before the opening. Finally Wyeth Drug which is the old American Home Products announced lower earnings for various reasons and the stock is off $5. Even with that news the futures are acting better than we would expect...

The final revision of second quarter GDP was announced as up 1.3%. Since that is ancient history we are more interested in how the markets react to the triple whammy of negative news for the three Dow stocks. Today is going to be an important day for measuring sentiment. The only problem is that it is the end of the quarter and window dressing is muddling the picture.

8:02am and the futures seem to be underestimating the down opening. Guess we will see?

Reversing two up days, shares in Europe are lower as they wait to see how the US markets react to the bad news.

9:01am and the University of Michigan Consumer Sentiment came in at 86.1 versus 87.1. Since we think the markets are handling the bad news well we are setting up a few trades. We are purchasing GE, ugh! at $25.20 down $1.50 but only as a trade. At the same time we sold MSFT for a scratch and BGEN for 60 cents per share profit at $31.

Since the markets are approaching the 7800 area which has been support in 1998, 2001 and July, we are buying some blue chip stocks that we have traded profitably this year and the DIAs in more accounts as investments/trades. No one ever knows the bottom but we think a decent ten to twenty per cent rally may be setting up and even if we are wrong we think we are within ten per cent of the low on the stocks we are buying. With VZ back to the $28 level we bought Verizon back in all the accounts that owned it before. We also are buying Pepsi and Schering Plough and SBC in larger accounts for investment or a longer term trade.

12:48pm and we have been placing the VZ,PEP,SGP, SBC, DIA in our larger accounts and so have not had time to do much writing. The markets have sold off reversing the gains of the past two days and we'll have to see how the final hour winds up. We made a decision to own the stocks mentioned for a while and we still have more than enough cash if the sell off resumes. We also repurchased our Wild Oats position at $9.50 that we sold at $12.50 a month or so ago. We repurchased BGEN at $30 for the accounts we sold this morning.

1:30pm and breadth is 2.5/1 negative and down volume exceeds up volume by the same amount. Volume is not heavy, but the stock markets are. Treasuries are higher. New lows on the NYSE are still under 150 as the DJIA approaches the lows.

1:47pm and we were just thinking that if we get the 300 point down day today maybe we will set up for next week. One thing we are sure of is that there are a lot more opinions floating around out there in this sell off than in 1987 or 1990 or even 1998. These opinions, and that's all they are, have created cross currents that confuse more than they teach. We are reading more fear today in these opinions than we have for a while and that is good. The market has again confounded most folks. Our feel has change and we want to put some money at risk. The SBC and VZ reached our buy levels. We want to own Pepsi and may be early but so be it. Schering Plough is $2 above our absolute buy level and hasn't shown an inclination to revisit the teens. And the Diamonds are at levels they reached in 1998, 2001, July 2002 and this week. They are off 30% from their highs and we regretted being to smart the last three times. Hope this one is the charm but if it isn't, and we almost hope it isn't, we will continue bargain hunting.

2:02pm and the DJIA is down 258 points, the NASDAQ is off 14 points and the S& P is down 23 points. We'll see how it all ends in 58 minutes.

3:02pm and the DJIA closed at 7701 down 295 points and one point below the old intraday low. For the year the DJIA is off 23.6%. The NASDAQ closed at 1199 right below the magic 1200 number. For the year the NASDAQ is down 39%. The S&P 500 closed down 27 points at 827 and for the year it is down 28%. The Model Portfolio is off 0.3% for the year because the stocks we purchased today in the Model closed lower. In the Model we bought 500 DIA at $78.43, 500 SBC at $20.53, 500 SGP at $22.63, 500 PEP at $37.60, and 500 VZ at $28.54. We are about 22% invested. We will be selling the T Bills in most accounts on Monday to have cash available to invest.

Tomorrow is another day and next week should be interesting. We will post the Model Portfolio over the weekend.

26 September 2002

7:01am and as we begin the day the stock futures are suggesting a weak carryover of yesterday's rally. For our crash next week scenario to unfold today needs to be a 200 or more point down day. We shall see. Hate to be so glib about what is a painful experience for most folks, but stocks need to get to investment value before the money that will stabilize the markets will start flowing in.

Oh Joy! In 15 minutes CNBC is going to carry the knighting of Alan Greenspan.

Germany plans to close the Neuer market which is the German equivalent to the NASDAQ. That market has lost 96% of its value since March 2000.

7:35am and durable good orders were announced as down 0.6% for August which was better than expected. Jobless claims were down 24000 to 406000. Stock futures are rallying.

Erratum: several days ago we said that EDS was losing $2 billion on its failed put strategy. We were wrong by a factor of 10. The potential loss was $200 million and EDS yesterday announced that the company lost $100 million. So it was bad but not the catastrophe we suggested.

8:35am and stocks are mostly higher without much conviction. Treasuries are a tad weaker. There isn't a lot of news to move the markets. Folks are expecting two days of markups for month end.

9:01am and the headlines read: "New home sales rise 1.7% in August to record 997,000." The story that follows says that economists had been expecting a drop in new home sales to 980,000 from the 1,017,000 reported in July. But since the July number was revised down to 977,000, the August number magically becomes an up number rather than a down number. So without the revision new home sales would have been down not up. This revision process has been happening with regularity and the revisions have been fairly consistent in providing the ten-second everything is "better" headlines.

9:39am and the markets are all over 1% higher. Breadth is 3/1 positive and up over down volume on the NYSE is 3/1, on the NASDAQ it is even.

10:22am and it looks like the bulls are going to scare the bears into a short covering rally and push the markets higher into month end rather than let the hedge funds sell the markets. So we are going to put on trades in MSFT, BGEN, and YHOO in our aggressive trading accounts. We may not be able to get all the stock we want at the prices we want. Since we are short term trading price is important. Pennies matter.

11:46am and as soon as we put our trades on the rally seemed to peter out. The markets have given back half their gains and volume is drying up. Since we didn't buy much stock and only placed the few shares in our larger accounts we will let them ride for the day at least.

12:07pm and the markets started selling off when a CFSB analyst mentioned that a one time gain is going to help GE make its numbers. They must be reading our web site since we mentioned that on last night's post.

12:09pm and a Federal Court is going to allow USAir's bankruptcy reorganization plan to go forward. UAL is going to have to file bankruptcy to compete.

The NASDAQ has turned negative as the tech stocks that were yesterday's leaders turn negative. There are a lot of cross currents our there.

12:39pm and Gap Stores has tapped the head of Disney's theme parks to take over as CEO. Goodbye Mickey thanks for the memories and money you made for us over the years. That's Mickey Drexler not Mickey Mouse.

Ford director Homer Neal recently bought 500 shares of Ford stock according to regulatory filings. Now that is a true show of confidence.

1:24pm and breadth is 2/1 positive on the NYSE while it is slightly negative on the NASDAQ. Also up volume exceeds down volume by over 2/1 on the NYSE, while down volume exceeds up volume 3/1 on the NASDAQ. Since the NASDAQ started this rally two days ago the failure right it is not a good sign for the bulls. The NYSE is catching up to the NASDAQ just in time to maybe rollover. The last hour will tell the tale.

The US is announcing that it found an Al Qaeda camp in Iran. Don't know where that story is going but we do know that Iran is a bit much to chew on right now. The US plate is full.

2:56pm and we are going to hold our three trades overnight since the mark up folks seemed to regain control in the last hour.

3:02pm and the DJIA closed up 154 points, the S&P 500 gained 15 points and the NASDAQ closed slightly lower. Trading volume was 1.6 billion on both the NYSE and NASDAQ. Breadth was 3/1 positive on the NYSE and 1.2/1 positive on the NASDAQ. Up volume exceeded down volume on the NYSE by 2.5/1 but was exactly the opposite on the NASDAQ where down volume was greater that up volume by a 2.5/1 measure.

And tomorrow is another day.

25 September 2002

7:13am and as we sit down for a new day the stock futures are suggesting a higher opening. As you'll see below in our colloquy with a website reader we expect an up day today. The Crash of 1987 was a one time event, as was 1929, but in both cases there were days here and there of rallying shortly before the ultimate capitulation. We think the coincidence of all the selling coupled with the end of a terrible quarter for most mutual funds may lead to climax selling next week. We are not predicting. Rather we are trying to find a connection with what is happening now with past events in our memory to plan a rational course of action.

E-mail from reader:
From our past contacts, you have decided to express no interest in managing any of my assets, and that is OK. I probably agree. But I am interested in your insight into the current Market and how the Market institutions are advising their clients. Vanguard has recently come out and told people to stay considerably invested in equities, because individuals will not be able to time when to bail out of bonds (and into stocks) when the Market takes off. They say this is tantamount to Market timing and nobody can do that. So......... this means I should stand by and watch my portfolio go straight into the tank just to keep the institutions afloat. Sounds to me they are jaw boning to prevent a massive collapse. What do you think of such crazy advice? It is true that I will miss the bottom, but I think even I can tell what the fundamentals are and when they generally turn around. By the way on March 17, 2000, I sold all of my stock. The NASDAQ had, up till that time behaved in a logical manner. In the space of a few days its volatility went from almost nothing to off the charts. It would have taken an idiot to not see that!!

Our response:
Hi. And with your prescient selling you have double or triple the reason to enjoy St. Patrick's Day from now on. If you have been reading our website you know that we are in cash. We think that professionals can time the market. We have with success over the past years. We are willing to forgo some gains in wild times for the comfort of cash in times like these. We think bonds and bond funds are the next accident but their collapse may be a few years off.

The present market is unlike anything we have seen since 1965 when we started in the business. It has elements of all the big corrections and crashes since then. You must understand that we are speaking with the luxury of four good years of superior performance, 2 flat and one up 40% and one up 20%. We are way ahead of the markets and 98% of investors and we have no inclination to give any back. It's too bad you didn't sell your funds when you sold your stocks. Your instincts were good and you should take solace and gain confidence from that.

If you own mutual funds now we think the down side is another ten percent and then we should have a pretty good rally even though we think the bear market will continue. As we say on the website the war is the wild card. We will probably commit funds at 6800 on the DJIA and 720 on the S&P. We think we may reach those levels by next week. The week before the crash in 1987 the markets had been selling off for several months. On the Monday and Tuesday of the week before the crash the markets dropped. Wednesday was an up day and then Thursday and especially Friday were down days of 3% or more. That set the markets up for a crash. Markets never crash off the top. And so we are thinking that a good trading opportunity will come next Monday or Tuesday. If the stock markets just continue to "wishy wash" down we won't do anything. All that said we see at most another 20% downside with the same kind of upside. We wouldn't sell now. Rather we suggest waiting for the rally that will come in the next month to lighten up. We gave this same advice to several folks in July and we wonder whether they did lighten when the S&P reached 950 in August, up from 760 in July.

We don't know whether any of this is a help. We are reacting to the markets and not predicting at this point. We have plans of action but we have to see how we arrive at different points to make up our mind.

7:35am and the stock markets remain strong. Microsoft's Steve Ballmer issued a positive statement yesterday. Asia was lower but Europe is up 2% and more and that is carrying over to the futures.

In other positive news GE said it will meet its number for the quarter. The sale of their e-commerce business to a private partnership for undisclosed remuneration for a $500 million profit when most other e-commerce businesses are considered practically worthless is the reason they will make the number.

Oil is lower and Treasuries have also given up some gain.

8:14am and the media continues its fascination with Tyco. It's a good story and surely will be a TV movie and the subject of too many books. But we can't understand the fascination of money managers with the stock. The fellows who ran this company were crooks. They stole from it and seemed more interested in their paychecks than the company's progress. And the new fellow who was brought in to run it is from Motorola. "The Street" likes that but Motorola hasn't made a dime in the last six years after special charges. Moreover Motorola lost $10 billion of its own and investor money on its stupid worldwide telephone system where the user couldn't make a phone call from inside a building. Tyco may not go broke but there are plenty of other depressed good quality stocks in real businesses that offer the same upside potential without the event risk. It's almost as if the money managers buying the stock with other people's money want to prove the professionals who are selling the stock short wrong.

8:36am and the stock markets are all up 1.5%. The news on EDS selling naked puts reminds us of 1987 when many investors were caught in the naked put trap. We aren't going to bother to explain naked puts except to say that Microsoft and Dell have sold them in the past to improve earnings. We don't know whether they still do. But selling naked puts is a form of gambling on the direction of the share price of a stock. It is not investing and that companies have engaged in such transactions should be a warning that those companies are probably cutting corners to report higher earnings.

We don't think this rally will last. We don't believe GE will make its numbers without financial chicanery and we feel the same about Microsoft. So today's "good" news is more ephemeral than real. Speaking of real, the Brazilian "real" is under pressure again today and Brazil is back to where it was before the recent IMF bailout. That's not good news for companies doing business in Brazil or with loans outstanding in Brazil.

8:45am and the WSJ reports that the independent directors of Enron will not face any SEC action. No surprise there since Wendy Gramm who was an outside director and former head of the CFTC is Senator Phil Gramm of Texas' wife. The good ole' boys & girls club is at work 'big time' as VP Cheney would say from his unknown secure location.

9:08am and existing home sales fell 1.7% in August, even though mortgage rates are at an historic low. And supply of homes for sale rose to 5 months.

10:07am and the DJIA and S&P 500 are now negative. Can the NASDAQ be far behind? The investor's intelligence sentiment indicators show 42% bulls, 32% bears which is about the normal configuration. That shows complacency that must be reversed by more of a sell off.

10:39 am and a follow up e-mail was received:
Thanks for your discussion. In March of 2000, I sold EVERYTHING into cash. Ever since then I have been in money markets (ugh) and Treasuries. I'm not sure of committing funds at DOW = 6800. I think more like Prechter. I am more afraid of deflation than I am of anything else right now. However, a lot depends on war and if it goes well we could see a real turnaround, at least a short term one. I am ready to go back to some stock funds in that event, but remain very cautious long term. I agree that bonds are an accident waiting to happen.

Our reply:
Back in 1987 several folks called the top and then the crash and never got back in. Investing involves risk. It is measuring the risk that is the problem. At 6800 on the DJIA there will be stocks that will be higher by 50% within five years. That's better than money market rates. The downside from 6800 is about 20% and if you only commit 50% the rest can be committed at lower levels. Many good stocks are selling at 1994 and before prices. Only one person sells the top and only one person buys the bottom. Getting the part in between is the way to earn a decent return.

11:19am and the market measures are positive again. All are up about 1%. There is a lot of double bottom and rally off the lows talk. No one is looking for a V advance off this low and so it pays to wait and watch. Since we expected an up day today our scenario remains in intact.

11:27am and more e-mails:
I don't disagree with you about a 6800 bottom, and I will commit 30-50% at that time, but I will watch the trends very closely. I just don't have as much faith in the market as you do. It's your business. Unfortunately as I approach retirement, it is becoming mine also.

Our reply:
Remember to go with your feel. And going in scared and being ready to flip out if the scenario doesn't work is important. You should use the SPY and DIA on AMEX with open buy limit orders as we approach those levels. Don't try and catch them on the fly. The markets will be too panicky if we are at those levels for orderly executions.

12:07am and more:
Definitely something to consider. I will be trying to go into this with something more than a feel. I will be watching the technical signs closely. My background is such that I need to see some reason (technical or otherwise) to commit funds. I am far too inexperienced to rely on momentum or automatic trades. Fear has nothing to do with it. I am looking for a real market move. In 1982, the market surge from about 800 upwards was blatantly obvious and for obvious underlying reasons; falling oil prices and massive increase in hi-tech, particularly needed to support massive defense spending from Reagan. If I had any money to invest at that time, I could have made enough to retire along time ago. Alas, it is like fishing and missing the big one. If we go to 6800 (or lower) we are either going down the tube (ala 1929) or will recover nicely based on renewed confidence. I hope for the latter situation, but am having trouble finding real fundamental drivers to support a long term bull market. We have massive debt and the Fed can do very little with monetary policy. Oh well........

Our reply:
The markets are a pendulum. Psychology swings the pendulum. The best time to buy is when there is no other reason to buy than that everyone is selling. When Pepsi trades at a six year low, and GM is at a six year low, etc., the time to buy has arrived. This is not 1929. There are so many scheduled and uninterruptible payments by government and private industry that did not exist back then that we can't have that type of depression. We certainly can have a slow down. And the markets are reflecting that slowdown. But if the market crashes the folks in Washington will wake up and smell their careers crashing. They will then repeal the future tax breaks and give the money to everyone pronto in a $1000 per person check. They will go on a spending program; they will rescue and consolidate the airlines and phone industries. They will begin school and public building projects.

Think back on American History and realize that our current "crisis" is being measured in dollars lost and not lost lives and threatened freedom. History has taught that the time to take risk in the markets is when the outlook is the bleakest.

12:14pm and the DJIA is up 100 points, the S&P 500 is up 1.3% and the NASDAQ is up 2%. Trading volume has slowed as we have rallied. Breadth is 2/1 positive and up volume exceeds down volume 3/1.

12:18pm and more more:
Hope you are right. Just bear in mind that with these high debt levels, additional spending as in the '30s New Deal, will ultimately give rise to rampant inflation. Something has to give if there is no real production engine somewhere. It is very complex, but the Govt. may not necessarily be able to spend us out of a truly bad situation. Printing money alone is no answer. In the '30s, the make work projects actually produced something which could later be used to support true productive capacity (unfortunately used in W.W.II). I agree we are a long way from a 1929 depression, but Japan is in the doldrums of a deflation, albeit a mild one. I doubt if too many people are getting rich in Japan.

Our reply:
Government is our largest industry. It builds our roads and our schools; it defends us and cares for us in our old age. All those projects are positive. There are a trillion dollars available in future tax breaks that could be spent on job producing projects. Our point is not what should be done but what could be done. Government is not focused on these problems and that is the problem. Government is currently focused on the mid-term elections.

1:22pm and we have a nice rally occurring on increased volume. There is some short covering and also, we would guess, some investing going on. The DJIA is up 175 points and the NASDAQ is up 3% while the S&P 500 is up over 2.5%. The rally is right on schedule. We aren't trading these rallies because we are looking for a longer than one day time frame trade. And if we get involved in day trading, or one week trading we destroy our focus. We will have an opportunity in the next month to buy at the current levels if this is all the lower the markets are going. But we are of the opinion that there is 10% to 20% more downside in most stocks before the buy point will be reached.

1:43pm and the Justice Department is announcing the guilty pleas of three executives from Homestore.com. John Ashcroft has a shorter army type haircut. The haircut must be because he has enlisted in the war on terror since he missed the war in Vietnam.

1:59pm and as we enter the final hour the DJIA is up 180 points, the S&P is up 21 points and the NASDAQ is up 38 points. October 6 is the Brazilian presidential election. The left leaning candidate is leading in the polls. That should make October 7 an interesting day,

3:02pm and the major measures held their gains into the close. Breadth remained 2/1positive and up volume exceeded down volume 3/1. Total volume on the NYSE and NASDAQ was active. At the close the DJIA was up 157 points, the S&P was up 20 points and the NASDAQ was up 40 points.

And tomorrow is another day.

24 September 2002

6:11am and walking to the office in the light of a waning harvest moon we were appreciative of the fact that cash has carried us through the stock markets recent turmoil. As we turned on CNBC we saw that the stock futures are again indicating a down opening. We have been down for so many days that a rally should be in the cards. This is a 1974 market with all the other corrections of the last thirty years included. The war scenario is the wild card that seems to be preventing any end to the sell off. We remain of the opinion that right now is the time to preserve capital rather than trying to expand capital. But a few more 2% down days and we will probably begin to commit some funds. Our buy levels remain 6800 on the DJIA on a 300 point or more down day, and 720 on the S&P 500 in the same type of market action. Our commitment to invest is not firm yet. The final test for us will be how we feel internally when the markets arrive at those levels. If we do invest we will commit 50% of funds or more for a 20% move. For those of you running your own money and following our advice, we would place open orders in the DIAs at $69.50 and $68.50 and in the SPYs at $73.50 and $72.50 to invest 50% of your available cash equally divided.

Britain is releasing what they say is convincing evidence that Saddam is a bad guy. Prime Minister Blair says that Saddam has anthrax and other biological agents including West Nile Virus. Britain and the U S should know since both countries sold those agents to Saddam during the 1980s when Saddam was our friendly dictator/terrorist and not yet our enemy.

All the bleeding heart liberals like us worry about what will happen to Iraq after Saddam is deposed. The libs are proposing all sorts of solutions and scenarios. For President Bush we don't think the aftermath will be that complicated. Bush wants to kill Saddam and control the oilfields. Bush will let the Iraqis sort out the political and social aftermath. That's basically what is happening in Afghanistan. The US did its thing and it now on to a new adventure.

Cisco gave muddled guidance last night. Japan was down 1.5% overnight and Europe is also lower. The Fed meets today with no action expected. Consumer confidence numbers will be released today and that number is also expected to be down. Goldman Sachs releases earnings today and while the share price is at $66 which is a 52 week low we would like to buy it if it reaches the low $50s. Lehman Bros released it numbers this morning and missed its number by 37%. Layoffs are expected at the big brokerages. As we often say, brokerages are the worst business managers. When times are good they overstaff and overpay, and when times are bad they fire folks who last year they thought were worth $1million. JP Morgan has cut the 2003 earnings' estimate for General Electric to $1.70 from $1.86 and the folks on CNBC which is owned by GE are apoplectic. The duration gap at Fannie Mae is the subject of much guru talk. The gap is given as the reason for the strong bond market since some gurus say FNM has to buy longer term bonds to close the gap. The head of FNM says all FNM has to do is buy the newly issued mortgages. FNM stock has dropped about 20% on this talk. We have no interest in the interest talk.

By the way we set our skunk trap last night. It was a no kill cage filled with dog food and a piece of whole wheat bread smothered with peanut butter and honey. Had our dogs been small enough we would have caught them instead since they were very interested in the food but couldn't fit in the cage. When we arose this morning at 5am we took our trusty single shot shotgun in hand and crept around the house in the light of the moon. We could smell the critter but he didn't take the bait. He must not like whole wheat bread. Tonight we will try white bread.

7:11am and flash JP Morgan and Goldman Sachs just cut El Paso Corp to market perform from buy. The shares were off $4 per share yesterday to $7.50. The 12 month high was $54. Now that is a helpful call.

For its own operations Goldman Sachs reported $1 per share in earnings, a penny better than estimates. Overall revenues were lighter.

We read yesterday in a blurb on Secretary O'Neill's speech in Louisville that one of the reasons the third quarter GDP number will be positive is that there is a statistical adjustment taking place in what use to be called the balance of payments component. Rick Santelli, the CNBC guru who is worth listening to since he made his living trading bonds was just on saying that many are looking for 4% third quarter GDP number. If that is the case then there is something wrong with the way GDP is calculated. We have always felt the CPI which has shown no inflation for the last five years is screwy and now we will add the GDP number to that category, the screwy category, too. The government may tell folks that GDP is growing and may relish the fact that folks are refinancing at lower rates and spending the extra money realized. Such non recurring consumption is a very unstable base for the economy.

The NY Times is reporting that Justice Department lawyers are opposing the GMH/Dish merger. This will be one of the few mergers the Bush Administration has opposed. But then Rupert Murdoch and his News Corp are the other interested party and so the rejection makes some sense. We don't want to own anything Murdoch does since shareholders outside his family rarely benefit, but we will buy any sell off of arbitrage stock in GMH to catch the subsequent rebound before Murdoch makes a new offer.

8:04am and the stock futures remain lower but at the same level they were a few hours ago when we came in. We expect the selling to abate rather quickly and then would expect the markets to meander until the Fed announces its actions or lack of action at 1:15pm.

Weyerhaeuser, and Maytag also warned this morning and analysts are reducing earnings estimates for Tiffany. The earnings warnings are covering a broad spectrum of industries and stocks. That's not the usual fare.

9:07am and a big tech buy program lifted stocks after the measures were down about 1.5%. Lehman Bros also said that it can't get much worse in its morning market call. Wanna bet? Breadth is 3/1 negative and down versus up volume is also 3/1. The NASDAQ made a lower low yesterday without new lows making a larger number of new lows and that is a positive divergence that may be setting up the tech buy program.

Consumer confidence numbers were not bad. We think the President is doing a good job selling the need for an Iraq invasion even though we don't agree with him. And the Iraq situation has removed all the bad economic news from the media spotlight. We should say the Iraq news and the lady from Ireland beating her little girl have taken over the media spotlight. Let's have the lady lead the first wave into Baghdad.

9:16am and the NASDAQ is now positive and the DJIA is down less than 1% and rallying. If the Fed cuts rate we'll get a nice bear market rally.

EDS is getting creamed again today. It's down $4 and we are glad we avoided this turkey last week. MLFPS is saying that EDS wrote 2.5 million puts at $62.50 per share and also has an obligation to purchase another 2 million shares at $61. That's 2 billion dollars down the drain at the current share price.

10:18am and Bush is on TV again and the stock markets are heading lower.

10:54am and we just read the thought that when the Germans don't want to go to war it should make anyone think twice.

11.57am and the markets are 1.5% lower awaiting the 1:15pm Fed announcement. EDS is again the disaster de jour. Maytag is also lower. We can't believe MYG sold over $80 per share back in the halcyon days of 2000. In response to MYG's announcement Whirlpool says GAAP earnings will be on target. We take that to mean that there are going to be some special charges so that operating earnings will meet expectations. We think that game is close to over.

12:22pm Alert!! Alert!! The Office of Homeland Security has lowered the terror alert warning system to code YELLOW from code ORANGE. We have ordered our dogs Tubby and Pooper to stand down from perimeter patrol although they remain on skunk alert.

1:04pm and there must be 10 talking heads on CNBC for the 1:15pm Fed rate announcement. These folks all sit around and predict what will happen in less than ten minutes. In fact it has already happened the news just hasn't been released.

1:30pm and the Fed left rates unchanged. The stock markets sold off a bit on the news and Treasury bonds rallied a bit more. The two-year Treasury is now yielding 1.8%. Six month Treasury bills yield 1.6%.

1:50pm and we were just reading that office vacancy rates in some cities are above 15%. That news ties in with Nucor's announcement that non residential building construction has slowed to the point where their earnings will be affected as less steel is purchased.

Delta Airlines sold under $10 per share today. Maybe the airlines are going the way of the railroads thirty years ago when the NY Central filed bankruptcy in 1969 and over the next few years all the eastern rails disappeared. The airlines want a bailout. Will capitalism prevail?

1:58pm and as we enter the final hour the DJIA is down 140points. The NASDAQ is up 6 points as the result of a tech buy program that has been going on all day. The S&P 500 is down 1%. The final hour will set the stage for tomorrow.

3:02pm and the DJIA closed over 2% lower and down 191 points at 7680. The S&P 500 lost almost 2% to close at 820 and the NASDAQ closed only slightly lower for the day at 1182 as the result of an all day tech buy program.

And tomorrow is another day.

23 September 2002

7:55am and we are getting a late start because of skunk problems overnight and the fact that CNBC was not available on our satellite dish this morning when we entered the office. The skunk problem remains but hopefully will be settled within in the next few days by the skunk leaving or going to skunk heaven. And we have Maria and the boys back on CNBC and all is well as we start the first full day of autumn. We had a light frost last night so we feel in the seasonal mood with our first fire in the wood stove to remove the morning chill

And Wal-Mart began the day by reporting that sales for September will be at the low end of their forecast. The stock futures are predicting a lower opening. These next two weeks are usually the most negative of the year and since all the major measures are at or through supposed support on the downside we would guess that we will have more selling.

War with Saddam continues on course even with Schroeder's win in Germany. We have accepted the fact that there will be war. Many folks are placing a $200 billion price tag for the US on the war which we think is too large. In fact the war could have a revenue producing effect for the US. To the victors go the oil fields and that gives rise to our positive spin.

We have a somewhat different scenario than most for the disposition of the war. We think the main aim will be to kill Saddam rather than to pacify the cities like Baghdad. With that objective there will be no need to fight in the cities. Our scenario has Special Forces invading the country and securing the oilfields first since they obviously are our main objective. At the same time Commando teams will hit Saddam's various palaces and places of hiding and eventually with the help of turncoat Republican guards, (not US Republicans, Iraqi Republicans), and find and kill him. The US will then tell the Iraqi people to figure out their own solution to a post Saddam government and offer half the oil revenues for that purpose. The US and Russia will divide the other half of the oil revenues to repay themselves for the cost of the war and subsequent maintaining of peace. That will lower the costs of prosecuting the war and also lower oil prices around the world.

That is our thinking as to how the war will play out. If it takes that course there will be a very positive short term effect on the stock markets with a 50% or better short term rally from levels on the day the war begins. We don't want the war. We think the war is wrong not because Saddam doesn't deserve to be taken out but because the precedent of first strike is a very dangerous precedent to create even if we are the only major power in the world. But the writing is on the wall and so we have an obligation to our clients to form an opinion and act upon it in the management of their money. And the war will be positive for the markets and the American psyche.

8:50am and the market measures are about 1% lower. The NASDAQ is at 1207 which is close to the 1200 support level. On July 24 the NYSE had over 900 new lows. The daily NYSE lows have been at around 200. So we need a bit more expansion in the news lows as the markets drop. But if we make a new low on the DJIA without new lows exceeding the 900 number that would be a positive sign according to Helene Meisler at www.realmoney.com. Helene has been right on the markets for the past year and she wants a big down with new lows staying under 900 to set up a nice rally. We do too.

10:54am and the major measures remain about 2% lower. NASDAQ support has been broken. Breadth is 3/1 negative and down volume exceeds up volume7/1. We don't see a catalyst for a turn around and so the markets may decide to get the agony over for a while with a big whoosh down today and tomorrow. But we will have to wait and see. We have a bid in at $76.10 for a chunk of DIAs which would be down 5 % on the day if we purchased them. What comes to mind is the one week sell off bottom put in last year at this time.

11:41am and the index of leading economic indicators fell for the third straight month. Treasury Secretary O'Neill says not to worry, everything is going well. The stock markets are ignoring that advice and worrying so much that they are unable to climb the wall of worry today.

12:39pm and Treasury yields are at a 44 year low, or so we read. We remember when short rates were 21% in the early 1980s and "the old stockbroker" said we'd see 2% rates again. Actually he didn't predict that he would see them but that rates would drop that much. That's something to keep in mind as folks run out to buy 10 year Treasuries yielding 3.67%. When the economy recovers those rates will be double that number with a corresponding drop in price. If we are like Japan then that may not happen with the current ten year since Japan's economy has been in a funk for 12 years. Last year we were among the few suggesting a 1973-74 scenario. More are suggesting it now, and the war with Iraq adds a 1990 flavor to the mix. That war also makes any answer or investment thesis more confounding. We remain with our when the stocks get to investment value philosophy and we are closer to that point this week than last.

12:58pm and another downer to keep in mind is that mutual fund reports for the third quarter will be received by investors in the middle of October. Those reports are going to take some folks breathe away. Don't know whether that will occasion more selling or just abject resignation. The reaction will probably be somewhere in between since the most worried mutual fund investors are checking their accounts daily.

2:07pm and entering the final hour the stock markets are on their lows. The Brazilian real is under pressure. The US banks have exposure in Brazil and coupled with Argentina and their loans to telecom companies there is the potential for a Long Term Capital type crisis. That would add the 1998 scenario to the 1990 and 1973-74 scenarios we mentioned above and result in a 1987 type crash. Sorry to be so cheery on a Monday.

3:02pm and the DJIA rebounded in the last 45 minutes of trading to close under 7900 and down over 1% for the day. The NADAQ closed 2% lower and below the July 24 close of 1192. The S&P 500 lost over 1% to finish at 836.

And tomorrow is another day.

20 September 2002

6:58am and our big question today is that because the moon is full tonight and autumn starts tomorrow is this moon the Harvest Moon or is next months the Harvest Moon. Other than that the stock futures are indicating a higher opening which makes sense given yesterday's collapse. The bulls would rather see a big down on big volume but that isn't going to happen, yet.

After we wrote the above we went to www.space.com and found that Saturday night is the full moon and that yes it is the Harvest Moon. So at least that great unknown has been answered. The rule is that the Harvest Moon is the full moon closest to the autumn equinox, not the first full moon after the equinox as with Easter. We also learned that birdwatchers train their telescopes on the full moon and spend the night counting the migrating birds passing in front of the light of the full moon.

Back in the unreal world, there doesn't seem to be a lot of market moving news. The last two legs of triple witching occur today.

7:47am and the futures still indicate a higher opening. We'll guess higher by 75 points on the DJIA, then down 175 points at which time we'll try some DIAs for a 200 point up rally at the end of the day. That's our game plan and we'll see what happens.

8:35am and it looks like we aren't going to make it to up 75 points on the DJIA before we head lower. We may wait for down 200 points if it happens before trying the DIA trade. We think using limits established before the opening is the only way to trade the DIAs.

9:57am and the stock market measures have turned negative. Breadth remains slightly positive and up/down volume is equal. The failure of the rally should lead to a good sell off and then a rally attempt.

11:33am and we are not really into today's markets. Our scenario has not occurred and since activity is skewed by the options and futures expirations we are watching and napping. There is not a lot of news and so even though volume is large, conviction is lacking.

12:11pm and we just completed a sampling of the losses we would have incurred in the last month had we not liquidated our stock holdings at the end of August in the Model Portfolio. While we were only 45% invested in the market on August 21 we would have lost $33,000 had we held those positions. Enough said.

1:05pm and the stock markets remain mixed but looking to head lower.

2:03pm and in Palestine the Israelis' are digging a trench around Arafat's compound. Very subtle. In Washington the Russians are listening to the bidding from the White House on how much the US is willing to pay for Russian support on invading Iraq. Can Cheney say in Russian, "half the revenues from the oilfields in Iraq"? Good-bye Communism. Hello Capitalism.

2:41pm and a mini rally is occurring in the stock market measures. Breadth remains slightly positive and up volume exceeds down volume by a bit. Buy on close orders may keep the measures positive thru the close.

3:02 pm and the Model Portfolio ended the week up $378 for the year at a value of $430,182. The DJIA is down 20%, the S&P 500 is off 26% and the NASDAQ is down 37%. Happily we are 100% cash in most accounts.

No posts this weekend. The Model Portfolio as of 9/20/2002 is posted.

And tomorrow is another day.

19 September 2002

7:11am and as we turn on the tube we hear CNBC talking heads and gurus discussing the relative merits of AOL Time Warner. There is talk of a coup attempt against Steve Case the founder of AOL and Chairman of the current AOL Time Warner. Ted Turner has lost $7 billion on the drop in the value of AOL. Of course he gained most of that value on the huge and in hindsight ridiculous run up in the prices of the two stocks after the merger was announced.

The stock futures are suggesting a down opening. Unemployment claims and housing starts are announced this morning. EDS announced lousy earnings and was hit hard last night in after hours trading. That is a main reason for the negative tone this morning.

OPEC concluded meeting in Osaka Japan and agreed to leave output unchanged. The price of oil over the near term is going to be determined by the war or no war premium.

7:32am and unemployment claims for the latest week dropped 11,000 but continuing claims rose and the initial claims remain above 400,000. Housing starts in August were down 2.2%.

The Nikkei rose 2% overnight as the Bank of Japan continued to buy stocks. The rest of the world is lower. The German DAX is down 41% this year. The DJIA futures are now trading under 8000 and the S&P 500 futures are at 853. Today's big question becomes will the DJIA hold 8000?

Both Pepsi and Coke have been downgraded by UBS Warburg. Morgan Stanley Dean Witter announced punk earnings. Wall Street tells everyone else how to run their businesses but Wall Street does an atrocious job running their own. But even when earnings fall the top dogs at Wall Street firms still manage to find enough money to pay themselves bonuses.

8:39am and the stock markets have opened lower with the DJIA down 1.5%. We are trying to trade DIAs off the $80.50 level. We will buy them only for a trade in our larger accounts. The NASDAQ and S&P 500 are also down 1.5%. That's less of a drop than the futures were indicating and we think the DJIA will try to make a stand at 8000 which is the reason for our day trade.

9:01am and IBM is down $4 per share because analysts are cutting earnings estimates for IBM in the wake of the EDS earnings shortfall. That of course is affecting the DJIA.

9:02am and Bush is on TV with his bomb Iraq speech and the markets seem to be rallying. This is the first time we have seen them rally when Bush has spoken live on TV in the last few months. The markets want a quick resolution to the war uncertainty and may be responding to the seeming majority in Congress who will give the President authority to invade Iraq.

9:19am and we closed out the DIA trade. We were surprised that there was not enough volume to trade them in size with any confidence. We made a few pennies on the trade but learned that we will only buy them to own as an investment in the market or trade on a one or two week basis.

The stock markets have turned lower but don't seem to have any conviction on their direction. Neither do we.

10:22am and not much is happening. An e-mail suggests adding Oracle and EMC to the low priced list and so we have.

12:17pm and the markets are just drifting. EDS has lost half its market value today. Ford which does $130 billion in sales is being priced by the stock markets at $19 billion. IBM has moved up a bit off its low but is still down almost $4.

Even with all the doom and gloom in the markets there is no panic, just steady erosion. If we break 8000 later today the selling may pick up but we may have to wait till next week when triple witching has passed to get a better idea of how severe the desire to sell is.

The Commerce Department is sponsoring the Homeland Security Technology Expo in Washington, DC. CNBC is at the Expo and showing a fire resistant suit that can withstand temperatures as high as 1200 degrees. Sold in units of 3, the suits only cost $28,000 each. A tech expo to combat terrorism, Far out! Only in America!

1:41pm and as we approach the final hour we are near the lows for the day. That said, there is no panic in the markets. Gurus and talking heads seem to be of the opinion that this is a process that is inevitable. We are contemplating stocks that we know will be at much higher prices when the economy recovers. But before that they may be 30% lower and that is why we can't pull the trigger. We just don't have a handle on what is happening in the world, either politically and economically.

Political events certainly aren't as bad as they were in WW II or even during the Cuban Missile Crisis. But the tolerance of investors for violence is not as great as it was then either.

And on the economic front we aren't even in recession although there are a lot of folks in their own personal recessions. We were at having dinner at the Kickapoo Inn last night which was crowded because it was Mexican night and there was a wake at the local funeral home for an old timer who died and has a zillion relatives in the area. We overheard a conversation at the next table in which a woman was explaining that her widow friend had to go back to work after retiring a few years ago because the WorldCom stock in her pension plan was worthless. She had lost half her money. The woman went on to say that widow had EDS stock in the plan which was still doing OK.

Since EDS lost half its value today, we feel terrible for the woman in the conversation. When folks in the Kickapoo Valley are talking about their losses at the Kickapoo Inn in Readstown Wisconsin, population 452, you know that this bear market is touching everyone in America. And the psychological effect is what we can't measure.

2:01pm and the DJIA is flirting with 8000.

2:12pm and we broke thru 8000 to the downside.

3:02pm and the DJIA closed down almost 3% at 7943. The S&P 500 lost 3% and closed at 843 and the NASDAQ also dropped 3% but managed to close at 1216 above 1200. Treasuries rallied on the bad stock markets. Folks buying five and ten year Treasuries had better be nimble. The risk to principal in Treasuries are growing as yields fall.

EDS lost half its value. We were tempted but were put off by the increase in receivables by $2 billion over the last two years.

And tomorrow is another day.

18 September 2002

7:26am and as we begin our day the stock futures are the exact opposite of yesterday and predicting a down opening. We were wrong yesterday in that the DJIA and S&P both closed lower than their September 5 intraday lows. The NASDAQ closed just above support. This morning we will probably open lower and then rally to see if we can get above the levels of 8220 on the DJIA and 880 on the S&P. The S&P cannot close below the 870 level today without suggesting a return to the July lows.

The CPI rose .3% in the latest period, a bit more than expected. The German DAX is now down 4% and the British FTSE is down 2%. The Nikkei stabilized at down 1% because of Bank of Japan intervention.

With three failed rallies in the last two months stocks need to head lower to wash out the last of the bulls. The wild card is war with Iraq. We were thinking last night about the last war scenario in 1990 when there was about an equal division of opinion about going to war. And at that time there was also a great fear of the unknown consequences of the war. We had no idea how it would come out. Now there is near unanimity that the war will be an easy affair and be over in a week. When everyone agrees on something we start to get worried. We have no doubt that the US can destroy Iraq, we wonder if the US can accomplish its goals. Certainly Saddam can be deposed but what will happen in the rest of the Arab world is the uncertainty. We are bemused by the assumption that the oil fields of Iraq will survive the war intact and that the US will gain control of the oil and be able to influence oil prices by pumping at will. And we think that those who are seeking war must realize that the total outcome is more in doubt than the current patriotic fervor suggests. We would add that the weakness in the markets is a precursor of the uncertainty that does exist and the stock markets weakness is also a warning.

After the close yesterday, JP Morgan Chase announced that earnings would be lower but gave no guidance as to the actual number. The CEO of J P Morgan has on OP/ED piece in the WSJ today defending the actions of banks in general and JPM in particular in their dealings with Enron and the whole telecom debacle. The guy should be fired. That editorial reminds us of the CEO of Bristol Myers who in an interview we read had the temerity to say he had never made a large mistake. This statement was made as he was paying $2 billion for Imclone systems. Hubris lives. As a result of the earnings warning JPM shares are trading off about 15% around $19 a share in pre opening trading. Oracle is also trading about 15% lower on expected earnings but light sales numbers.

On another subject we note that most major company funded pension funds are cutting their assumed rate of investment growth from 10% to 9%. This comes on news that the average equity exposure in pension funds is now about 60%. Since the S&P 500 is now down over 40% over the last three and one half years and bond yields are at historic lows, it is ridiculous to keep such assumptions. But not to do so would mean that companies like GE and IBM who have been using pension gains above required reserves to enhance earnings would have to take a larger hit to earnings if they adopted more realistic assumptions.

8:15am and we have to head downtown for a haircut. We'll miss the opening fireworks, but the last hour today is the most important and we'll be here for that. With this week being triple witching today may be a wild ride. Since we are all cash we plan on reacting to events. We have no need to predict them.

9:10am and we are back. The stock markets have stabilized at lower levels. The markets don't want to give up the ghost yet. Hershey is not going to be sold so it is now an investment stock again and back on our screen. Our wish list is:

Diamonds (DIA) DJIA Trust
SPDRS (SPY) S&P 500 Trust 
Verizon (VZ) for telecom,
AT&T Wireless (AWE) for wireless
Biogen (BGEN) for biotech
Goldman Sachs (GS) for financial
Cox Comm. (COX) for cable
Phillips Conoco (COP) for oil
Heinz (HNZ) for value/takeover
Campbell Soup (CPB) for value/takeover
Hain Celestial (HAIN) for value/takeover
Pepsi (PEP) for value
Schering Plough (SGP) for drug
Bristol Myers (BMY) for drug
Hughes Elect/Direct TV (GMH) satellite TV
General Motors (GM) auto

Trade/Depressed DIA SPY NASDAQ 100 Trust (QQQ) Ford (F) Delta Air (DAL) Kroger (KR) AMR Corp (AMR) Starbucks (SBUX) Atlantic Coast Airlines (ACAI) Reuters (RTRSY) McDonalds (MCD) Disney (DIS) Guidant (GDT) General Electric (GE) Citigroup (C) SBC (SBC) BellSouth (BLS) PNC Financial (PNC)


And some cheapies: Q RAD PHI JDSU NT LU PALM

9:34am and Secretary of Defense Rumsfeld is on TV listing potential events so terrible to contemplate that even the most dovish member of the House of Representatives will have a hard time voting against a resolution to bomb Iraq to oblivion.

10:19am and the major measures are all down about 1.5%. Breadth is 2/1 negative and down versus up volume is 4/1. Volume is more active than is has been in a while.

10:58am and volume is slowing with the major measures down 2%.

11:31am and a mini rally is underway. The major measures are now down about 1%. Back in July when the markets were making their lows the S&P 500 was about ten percent lower than it is now in relation to the DJIA. By that we mean that when the DJIA futures broke 8000 the S&P 500 futures were at 7700. Now the DJIA is at 8100 and the S&P 500 is at 8600.

We don't know what the divergence in the comparative price movement from July means other than that the gap on the amount of the retrenchment from the all time highs for both measures is narrowing. The S&P 500 is down 43% from its all time high while the DJIA is down 31%. Should the S&P 500 go back to its July low of 780 then the DJIA would have to go to 6100 to equal the drop in the S&P. If the S&P refuses to rollover here then for the DJIA to have an equal retrenchment the DJIA would have to drop to 6800, the level where Greenspan made his statement about irrational exuberance. We like that 6800 number for the DJIA because the DJIA also traded down to that level in the year of 1998 before its push to all time highs in the year of 2000.

Our committing money is also dependent on the timing of the beginning of the war. So for now as long as the scenario continues to unfold as we predicted six months ago, we are content to watch and wait.

1:30pm and the stock markets are edging back towards unchanged for the day. If they make it to unchanged by the beginning of the final hour we may see a short covering rally.

2:10pm and the DJIA is up 42 points and the NASDAQ and S&P are both up about ½%. We were thinking about our discussion of the relative levels of the DJIA and S&P 500. We should note that the DJIA is an average of only the prices of the thirty stocks in the Average. No consideration is given to overall market value of each company. For example a $1 move in the price of Honeywell has the same effect on the DJIA as a $1 move in the price of Microsoft. Yet HON has 800 million shares outstanding so a $1 move in its price increases the market value of HON by $ 800 million. Microsoft has 5.3 billion shares outstanding so a $1 move in MSFT increases its market capitalization by $5.3 billion or almost 6.5 times the number of dollars created by a $1 move in HON.

Originally the prices of the thirty Dow stocks were added up and divided by 30. Because of splits and changes in the stocks the divisor has been adjusted over the years so that it is now .1441703 and because it is less than 1 acts as a multiplier.

The S&P 500 is a market value weighted index which means the value in the index of each of the 500 stocks is determined by multiplying the price by the number of shares outstanding. Then the market values of the 500 stocks are added together and divided by 500. So the larger the market capitalization of a company the more weight a move in the share price of the company will have on the index. Thus in the example above a $1 move in MSFT would have more effect on the S&P 500 than a $1 move in HON.

3:02pm and the DJIA had a down/up/down move of over 5% today finally closing down 34 points at 8173. 8000 remains the psychological support level for the DJIA. The NASDAQ closed at 1253, down fractionally and just above support at 1250 which it breached on an intraday basis today. The double dip support level is 1200 which can't be broken. The S&P 500 closed at 869.47 or just blow the 870-875 support area.

And tomorrow is another day.

Below is our anti-war rant for the day. We have removed it from the body of our market reporting for those folks who don't want to read our political views but are enthralled by our stock market commentary.

10:25am and as our grandson and granddaughter play in the fields picking wild flowers and singing, we visualize the little girl in the poem we published several days ago. We will be a great nation when we don't go to war to get our way. We will be a great nation when we learn how to cajole and encourage cooperation. World War II was the last and only unavoidably necessary war in US history since the American Revolution. We are saddened that folks who don't want this war are justifiably afraid to speak out since they will be accused of being unpatriotic. This is a political war being fought for all the wrong reasons. While most sane people will agree that Saddam is bad guy, it does not logically follow that we have to invade Iraq. If we do have to invade Iraq in order to get rid of an evil despot then why are we not in the Congo and Uganda and Rwanda and Indonesia? Ah you say, "They don't have weapons of mass destruction". We reply, "Those countries sure do a good job killing masses of people". And if President Bush is worried about repressive regimes with weapons of mass destruction then why do we support a dictator in Pakistan, which has nuclear weapons? Why do we make friendly with a totally repressive regime in China which has nuclear weapons?

The rush to war is a mistake. The Democrats are going along so that war and their patriotism and presidential ambitions will not be a campaign issue in the November elections. Profiles in courage? The Iraq war is a war for domestic political advantage and for oil. That Saddam will be deposed is its only good and the innocents we will kill to save and the price we will pay will be dearer than the result realized. Why does half the world hate America? Jealousy is the convenient and facile answer. And it is the wrong answer. They hate us because we don't listen to them. We don't hear or care about their needs.

17 September 2002

7:02am and we are back at our desk ready for another day of watching. The overnight news of Iraq allowing inspections has put a bid in stocks and the futures are indicating a strong opening. There should be a full complement of investors and traders back for the first time since summer so the next few days will give an indication of what's up or down as the case may be.

Over the last two days we made a trading foray in Honeywell which cost us 25 cents per share when we closed the position out yesterday. We bought HON when it was down $4 on Friday and we were hoping for a pop at day's end. When that didn't happen we closed the position out on Monday morning. The stock is cheap but we bought it for a trade only since their Bendix subsidiary has asbestos litigation outstanding.

This week is triple witching and so it may be volatile. Both the S&P and DJIA have held support and so the rally this morning may carry higher. We'd like to try and trade these rallies but we just don't have the conviction to do so. Also we believe the White House wants to go to war with Iraq and will not be deterred. The planning and moving of US war equipment is under way, it's just not being reported by the media.

The life span of stocks as favorites is becoming shorter and shorter. This morning the drug distributors like Cardinal Health are going to get hit because D&K Healthcare, a smallish drug distributor is off 50% on news that third quarter earnings will be half of what were expected. The reason given is that Bristol Myers stuffed the drug distributors with inventory last year at very attractive prices when the officers at BMY were trying to make sales numbers to earn their bonuses.

The NYT has an article about folks wanting Steve Case, the formerly could do no wrong CEO of AOL, to resign. He did a great job selling all the supposedly sophisticated analysts and investors on Wall Street a bag of nothing. We lost several customers in the late 1990s because we bought and then didn't hold AOL on its tremendous bull run. We just never believed the story, especially about ad revenue.

7:22am and the stock futures are getting stronger. Looks like a 2% plus higher opening for stocks. Shoulda bought the DIAs on Friday. The "shoulda, coulda, woulda" market is the best market there is. In that market of the mind we are always right and never lose money and always remember our winning ideas and never our losing ideas.

In our travels these past few days we saw a tremendous amount of home building in the $100,000 to $150,000 range. Some bill boards were advertising 5% down payments and a few suggested no money down. If that is what is fueling the homebuilding boom we remember a few other "no money down" booms that turned out badly. We heard an interesting statistic that the last really big housing boom topped out in 1972 with houses being built at a 2.5 million annual rate versus the current 1.7 to 1.8 million rate. The person making the comparison was suggesting that the housing boom has a way to go. We were struck by the fact that 1972 was the high water mark for the stock market for the next 11 years.

Treasury bonds are weak on the Iraq inspection news. Crude oil is lower by 50cents per barrel but still at $29.

On a very positive note, the meeting between the Japanese and North Korean leaders bodes well for some return to normality in that little corner of the world. Hopefully the US will follow up on the opportunity presented.

7:54am and we are hearing the let's take Iraq and get control of the oil "to solve our economic problems" line of reasoning for attacking on CNBC. And the senator being interviewed doesn't disagree. At the same time President Bush is speaking about American school children's lack of knowledge of US history. This disconnect is alarming. And it is also scary. Let's get the story right. We are attacking Iraq because they are bad guys and abuse their people. Oil has nothing to do with it. Right.

Our jaundiced view of GE and Jack Welch is on record. We believe that earnings were manipulated over the years and continue to be manipulated. It is truly appalling how CNBC, a GE subsidiary, continues to shill for Welch. We appreciate operas and the entanglements that create the conflicts that are usually resolved by the man or woman or both falling on a sword. No sword in the Welch soap opera, yet.

8:15am and industrial production was announced at down .3% and the stock futures are falling. Economists were expecting an up .1% number.

Foreign markets were strong overnight on the Iraq news with the Nikkei up 3% and Europe up on average over 1%. We don't think their take on the situation is valid since the war hawks are in control of the White House. In fact, we would guess that the UN sanctions ploy was Secretary of State Powell's idea and we can hear Cheney and Rumsfeld and the other hawks saying, "We told you so". Iraq is run by a bunch of bad guys, but they aren't dumb. Given a choice between being bombed to oblivion or letting some folks walk around their country looking for stuff doesn't seem like a difficult choice to us.

8:23am and we see on the tape that Morgan Stanley has lowered its outlook for Lucent. With the stock at $1.05 we would suggest that the stock market was way ahead on that prediction.

8:48am and it looks like the big rally of the day may have occurred before the opening. Currently the DJIA is up 50 points, the S&P 500 is up the same percentage and the NASDAQ is up a tad less than 1%. The industrial production number was a negative but we think the reality of the war hawks coupled with triple witching and mutual fund tax selling will keep a damper on any enthusiasm.

9:29am and the stock markets are now down on the day. Wow, Sun Micro is under $3 per share. How quickly the investment world has changed. Wall Street didn't like Kroger's earnings and the shares are off $2 to $16. McDonalds is down over a dollar on lousy earnings. More of this kind of news is to come.

11:30am and the stock markets want war. And war means falling stock markets until the US start dropping bombs. Then the stock markets should rally. That may be the hurry on the part of Wall Street to get the war going. The DJIA is now down 110 points, the S&P 500 is down 1% and the NASDAQ is down ½%. Breadth is 2/1 negative and down volume versus up volume is 2/1.

12:57pm and McDonalds is down $2.25 to a multi year low at $19.50. Disney is up a few pennies on rumors that Steve Jobs of Apple and Pixar fame will replace Michael Eisner as CEO. Don't hold your breath. The markets have stabilized at lower levels. Oil stocks are under selling pressure as the price of oil drops. AMR and Delta are at multi year lows. It almost seems that folks think all the airlines except Southwest will be filing bankruptcy. It may also be a case of committed sellers and uninterested buyers. We may be interested near the end of October as mutual fund selling runs it course.

1:24pm and Lucent cracks the dollar mark.

1:53pm and as we enter the final hour the DJIA and S&P are both down a bit over 1.5% and the NASDAQ has rallied to down ½%. Airline and oil stocks remain under pressure. It's unusual to see both of them getting hit at the same time but such action is a good indication of the confusion caused by the war issue. There is a bit of a bid in some of the beaten down tech stocks which we would guess is coming from short covering. All the major measures remain above support.

3:02pm and the DJIA closed down 176 points or right at support of 8200. The S&P 500 closed down 2% and the NASDAQ closed 1.25 lower. We did no trades today and remain all in cash.

And tomorrow is another day.

11 September 2002 - second post

5:45am and we were awakened today by a crashing noise that no one heard but us. Whether it was dream metaphor for the day we do not know, but we awakened and came down to the office. Today is almost a mirror of a year ago with bright sun, cool weather, and a declining market. The difference is that we begin the day with a heavy heart and great sadness for the folks who lost their lives and their families who will have to live with that loss forever. They are in our thoughts.

The media is spending the day remembering and so we don't think we can say anything that hasn't or won't be said. Our web site exists to present our views on the markets and while we often interject our views on other subjects, today is a day we won't presume to be any more insightful or aware than any of our readers.

7:17am and the services have begun. The stock markets will open after the services at around 10am our time and so till then we plan on going for a walk and thinking peaceful thoughts.

9:30am and as we pass through this day without any terror incidents the markets will begin to re focus on the economic and political events that in the end determine stock prices. And unfortunately, the lousy economy and earnings coupled with the threat of war with Iraq will continue to be a drag on any meaningful rally to higher levels. The low volume of the last few weeks is a measure of the lack of conviction on the part of investors. Over the years we have learned that there are times to step aside. In the past we usually did so still owning a complement of stocks in case we were wrong. This time we decided to take the brash step of selling all and refocusing our investment antennae. Since we have survived the turmoil of the three year bear market in good shape we want to start over with no preconceived investment notions. We would expect that if the markets experience a severe correction from these levels that we will commit funds. If the stock markets fool us and move higher we will reevaluate our situation. But we first must give the markets the time of at least a month to disprove our thesis.

10:29am and the NASDAQ is trading up 1.5% while the NYSE hasn't opened yet. Europe was strong today with Britain up over 1%, France and Germany over 2% higher and even Japan gained 1%. With those numbers we would expect a relief rally to occur today and carry on the rise of the last two days.

11:10 am and the DJIA is up 120 points. The S&P 500 is also up 1.3%. Both measures have about another 2% upside potential before they run into resistance. Treasury issues have dropped in price with the two year yield back up to 2.21%.

12:12pm and the markets are coming back to even. There still is a lot of green on my machine. There isn't much trading occurring. Nor is there much news.

1:35pm and the markets are now mixed. Breadth is positive but there isn't enough volume to know whether the short term trend remains up. Maybe we are back to where we were on September 10 last year, where the stock markets looked like they were going lower but there was no panic. The sell off after 9/11 interrupted that normal correction. Time will tell. For now we are going to take the afternoon off for a bike ride. We are taking Thursday, Friday, and Monday off. Thankfully the markets are quiet and we are in cash so we can enjoy a few days away. Hopefully it will be the pause that refreshes.

And tomorrow is another day. Next post will be Tuesday September 17, 2002.

11 September 2002

      In Memoriam

As war talk fills the air we offer several poems in memory of the folks who perished a year ago. We truly believe that some of them would not be calling for war and reprisal. The first poem was written by Adam Hanft and we came across it during the Viet Nam conflict and have kept it on our desk and presented it several times since then. We also offer our own poem written and published on this site last spring.


It is always the same way,
that after the armies have
settled into their homes and
the borders are shifted their
one lame mile
that talking rises that they
have found the little girl.

It is so, they have found her in a 
tongue-tied corner of the woods,
and they have learned from
the palsied woman who lives with
her son by the bridge how in a
tantrum of strength she rose
to the window and saw
when the soldiers came they
killed the Mayor's little girl.

And so it starts, how the child
was gathering sunshine in her
rainbow creased dress when she 
or how,
in another town, by another bridge
the girl was sleeping in the grass
when they came and that her 
smile stuck to her lips while the sky
clanged and beat around her.

And now all the schoolchildren, so
scrubbed and solemn in rows are
standing as the Mayor, with
his one good arm,
drapes a few flowers on the brick and
wooded monument that stands next to
the bridge and a

Hundred years from the window of the 
old woman who first saw the 
glinting helmets and heard the 
halfhearted scream roll
into the grass.
        Adam Hanft

      Falling towers
Falling towers call old men to arms to avenge a tragic deed, led by those who with youthful charms any war they did not need. We watch in fascination every day. It's like a movie scene of old, men riding horses in the cold dusty arid rocky desert far away. As real folks seek to right the wrongs, what does it mean for we who sit in comfort and free to win a war we fight not for. So quick to chase a nebulous foe through rock and sand and snow while mourning those who died in pain for a scoundrel's ephemeral gain. Where is the leadership that hopes and cares for all mankind, who knows today may salve a wound that tomorrow will fester more.       BL 25 April 2002

And tomorrow is another day.

10 September 2002

PLEASE NOTE: We have been having troubles with our calls to and from Chicago and it is sometimes necessary to dial our number several times to get the call to go through. We are told the problem is the result of AT&T and Ameritech not being able to mesh systems in Madison. We are little fish in a big pond and there are three telephone companies involved so we don't know where to complain which would do no good anyway. Hopefully the problem will be solved.

6:17am and as we arrive for work we see that the futures are suggesting a higher opening for stocks. Ford announced that it expects a profit in the third quarter and that has had a positive effect. Ford of course said there will be special charges that will not be included in operating earnings. Moreover Ford remains cash flow negative. Intel says business is not getting better and Genentech's breast cancer drug Avastin has failed in trials. DNA is expected to drop about 20% on the opening on that news. Nokia said sales will be lower and Heinz reported lower operating earnings but within estimates. Heinz also reported special charges that were excluded from operating earnings. This is the first time in three quarters that Heinz has had special charges after having special charges for seventeen straight quarters before this year.

7:50am and the stock futures continue to point to a higher opening. Short term Treasury prices are lower with the two-year up to a 2.20% yield from 2% a few days ago. No Fed easing is in the cards and the stock markets look like they will be higher today. The tenor of the talking heads suggests a patriotic rally this week barring any misfortunes.

Gap CEO Mickey Drexler exercised options for 14 million shares at $5 and change per share and sold 11 million of the exercised shares to raise money for the exercise and tax consequences. Some folks are suggesting this is a positive. We don't think Drexler's actions mean anything since he didn't put up any cash. He winds up with 4 million free shares courtesy of GPS shareholders.

10:45am and we have been fooling around with our phones so haven't had time for a post. The DJIA is up 45 points and the other measures the same percentage. Breadth is positive and more stocks are up than down. The tech stocks are mostly all green. There are very few big movers. The biotech stocks are lower in sympathy with Genentech's $3 per share loss on the bad news this morning.

11:00am and the Justice Department led by General John Ashcroft and Homeland Commander Tom Ridge have placed America on level risk ORANGE for terrorist attack. Take all necessary precautions. We have deployed our patrol dogs Tubby and Pooper and they report no perimeter violations on our farm at this time.

12:32pm and stock market activity is at a minimum. VP Cheney has been sent to his hidden secure location. Fear not though, Rush Limbaugh will interview him tomorrow so we will know all is well. He will call Rush from his secure location on a secure phone in a secure manner at 1:06 pm EDT to talk with Rush. Pins and needles.

1:12pm and short Treasury notes have rallied on the heightened terror alert warning. There is some talk that traders plan on getting long ahead of 9/11 since we had a big rally on July 5 when there was no terrorist activity on July 4. That may be true but the stock markets also put in their low for the year after that date.

1:36pm and Congress is getting tough on business. They have referred Martha Stewart's written statements to Congress to the Justice Department for prosecution. So now General John Ashcroft can drop everything and get to work wiping out crime in the corporate suites of America by prosecuting Martha Stewart for saving $20,000 if she did something wrong at all. There is something surreal about Orange, and Green and Yellow alerts, and the Martha Media Madness, and secret hideaways and the President of Pakistan visiting his brother in Hinsdale Illinois on the anniversary of 9/11.

1:42pm and meanwhile the stock markets are trying to inch higher. Treasuries remain strong.

3:02pm and the DJIA close 83 points higher and the NASDAQ gained 1% while the S&P 500 was up about .7%. Volume was light. Breadth was positive on the NYSE and the NASDAQ. The stock markets will open around 11 am tomorrow, after the ceremonies at the WTC site.

Tomorrow is not just another day.

9 September 2002

7:03am and as we begin the day the stock futures are slightly lower. Citigroup has fired Michael Carpenter its former head of investment banking. We guess he was the only one at Citigroup who knew the bad stuff was occurring. It was a long weekend for us so we have to do a bit of reading to catch up.

In our reading we learned that Carpenter wasn't fired he was just moved to become head of global investment. Say what?

8:29am and the stock markets will open a bit lower as bonds show strength. Ford Credit bonds remain under pressure because some analysts are looking at Ford and GM financials and the results of the 0% financing that is resulting in huge car sales. The term profitless prosperity comes to mind. The analysis doesn't paint a pretty picture since the common theme is that capital infusions are going to be needed in the finance arms and the parent corporations because of the drain on profits caused by the financing losses.

9:04am and the major stock measures are all down over 1%. A Merrill analyst thinks the dividend may be cut at JP Morgan. The brouhaha over retired CEO Jack Welch's perks at GE, the united front war talk from the Bush Administration over the weekend and the 9/11 memorials are all too much to create buying interest this morning. We also think that the new patriotism will prevent any major selling from developing this week. And so we are not expecting much of consequence in the markets.

AOL Time Warner has reduced projected advertising revenues for the AOL division to the low end. On the positive side Nextel announce good subscriber growth and that has placed a bid in the wireless companies. Tech stocks look to be under selling pressure. Breadth is 3/1 negative as is down volume versus up volume.

We bought Treasury Bills last Friday and not the two year notes because we just want a place to park our money for the next month. We don't want to assume any market risk. We think the two year has a 2% risk to principal on any good economic news. Bad economic news will cause further drops in the stock market and we will want to sell the bills and buy stocks if that occurs.

10:10am and oil prices keep rising as the White House continues to harangue Iraq. Priced at $29.85 oil will probably exceed $30 per barrel by Wednesday. The stock markets have rallied a bit but still remain lower in holiday like trading. We are going off for a few hours to run errands. Don't think we will miss much.

11:44am and we are back with the stock and bond markets unchanged from when we left. As we said earlier, there is too much distraction this week in the real world for the stock markets to do very much. And we don't have a lot to say either except we are happy to be in cash and observing.

1:21pm and we were just awakened from a nice nap by our first call of the day. We don't get much sleep at night since we are still on bat patrol. Bat patrol requires early morning vigilance to make sure the bats go to the barn where they belong rather then the attic of the house where they don't belong. We are happy to report that they are remaining out of the house. We helped the last one leave Saturday night from the living room after it performed some farewell swoops that got our blood flowing. Luckily we had our grandson's fish landing net available to make a marvelous midair scoop and flip out the porch door. The final caulking process on the house begins tomorrow and will make permanent the temporary seals put in place by batman last week. Now we have to deal with the mice who entering the house because winter is coming. Ah! The joys of country living.

While we were imitating Rip Van Winkle this afternoon the stock markets rallied to up 1%. Volume remains extremely light. It looks like program buying is occurring. With interest rates so low there may also be asset reallocation from bonds to stocks by large institutions.

2:13pm and consumer credit rose $10.8 billion in July. That number was up from June. Don't whether the rise is good or bad.

3:02pm and the DJIA closed up 90 points. The S&P 500 gained about 1% and the NASDAQ rose about .8%. Breadth on the NYSE was positive while it was negative on the NASDAQ. Volume was light.

And tomorrow is another day.

6 September 2002

6:44am and for those interested the last bat left our house about 2am and all are now living somewhere else we hope. As we sit down for TGIF the stock futures are indicating a higher opening. Intel traded higher last night after its conference call and that has given a better tone to the market this morning. Payroll increase or decrease is announced at 7:30am and that is the number for today's markets to trade off. The markets have so little to move them right now that we'll await that number.

7:32am and the payroll number was up 39,000. There will be no rate cut today. The unemployment rate dropped from 5.9% to 5.7%. Manufacturing payrolls dropped while service payrolls rose more than 100,000. Those are the figures until they are revised next month. The stock futures are rising and short Treasuries prices are dropping with yields rising. Bond traders don't like the good news number. Our guess is that if the markets open higher they will sell off.

All the financial types are calling for more tax cuts especially the elimination of double taxation of dividends and cutting the capital gains rate. How convenient that the tax breaks they seek will benefit them but also the least number of people, just as the continuing tax breaks from last year are doing.

The WSJ reports that Citigroup is in talks with the FTC to settle charges of "predatory lending" for a fine of $200 million. The too big to fail theory certainly applies to Citigroup. Citigroup's Salomon unit is also embroiled in the WorldCom/Enron et al.. That's two strikes and if we add in the IMF bailouts in South America of dumb loans we could make a case for three strikes in one year. But why can't the folks at the top, as part of these settlements, be required to resign and give up their retirement benefits as part of the settlement? The potential loss of retirement benefits might go a long way in helping to keep officers on the straight and narrow. Probably not, but might.

8:15am and the markets should open about 1% higher based on how the futures are trading.

8:35am and the DJIA is up 1.5% while the NASDAQ is up 3%. The rally will start to fail from these levels. Short covering in the techs won't last and there are no real investors in those issues yet. Only folks who own at higher levels and are praying to get out own tech stocks now.

9:38am and the stock measures have given back a bit of the gain but still remain higher for the day. Breadth and volume numbers are strongly positive although volume remains below normal. Tonight Rosh Hashanah begins so trading may tail off this afternoon.

11:03am and the markets remain range bound at higher levels. War with Iraq talk is increasing and there is an implied assumption in all we hear and read that the actual war will be a walk in the park. It probably will be but….. and eventually the stock markets will start worrying about the but before they celebrate the victory.

Hedge funds that have been down for a year or two are closing their doors. That's because a hedge fund has to make back all its losses before it can start collecting performance fees which is where the real gravy is in the hedge fund business.

12:12pm and the popular measures are at their highs for the day with the S&P and DJIA both up 2% and the NASDAQ up 4%. Breadth is 3/1 positive on the NYSE and volume is very light for a Friday. It seems that the memorial week and observances have already started with the slowing ticker tape. Our screen is mostly money green but almost all the stocks we sold are below where we sold them. Since the 876 level on the S&P 500 held yesterday we would guess that we may be range bound between that number and an upper number of 920 for the next week barring any unforeseen events.

1:40pm and as the markets move higher we have purchased US Treasury bills yielding 1.63% to maturity on 12/05/2002 in our accounts that have over $100,000 in cash in them. We don't like holding large amounts of cash in accounts for extended periods even though the money is insured. We are also picking up 50 basis points in yield over the return on cash for the three months. Should we decide to get back into stocks in the next month or two we'll sell the Treasury bills as a package.

2:12pm and as we enter the last hour of trading it looks like our morning guess will be wrong because stocks look like they want to close higher for the day.

3:02pm and the DJIA closed up 143 points. The S&P 500 was up 1.6% and the NASDAQ was up 3.5%. As of September 6, 2002 the Model Portfolio has a value of $429,943 or up $139 for the year. The Model is composed of $400,000 in Treasury bills due 12/05/02 and the rest is cash. For the year the DJIA is down 16%, the S&P 500 is down 22% and the NASDAQ is down 32%. The Summer Lemley Letter has been posted.

L'shanah tovah. My you be inscribed and sealed for a good year.

And tomorrow is another day.

5 September 2002

6:59am and as we begin the day the stock futures are pointing to a down opening. Treasury bonds continue to attract buyers even at record low yields. Wal-Mart same store sales growth was below 4% which was a disappointment and indicative of a slowdown in consumer spending. Japan rallied almost 2% overnight while Europe is down in midday trading. The stock markets continue to suffer from the general malaise in the economy and the lack of any defining news or stimulative actions.

The way the stock futures are starting the day is a total disconnect from the way stocks closed yesterday. This lack of continuity from day to day has been a hallmark of the last few months of market action and gives support to a theory that outside influences continue to have as much effect on the stock markets as technical and fundamental internals. With 9/11 only six days away the jitteriness of the markets will continue.

There was a huge car bomb explosion in Kabul this morning in which 22 people were killed and many more injured. Later there was an assassination attempt on interim President Karzai. The Afghan government has asked for more international peacekeepers but the US has refused to provide any. Afghanistan is already off the radar screen. These geopolitical events are affecting the US stock markets and influencing foreign decisions on investment in the US.

7:30am and second quarter productivity was revised to up 1.5%. Jobless claims dropped 8000 after being revised to up 8000 last month and still remain above 400,000. Treasuries are very strong and issuance of corporate debt is being stepped up with interest rates at historically low levels. While lower interest rates are exciting for traders, for most investors lower rates are a two edged sword. The lower rates help on mortgage refinancing but hurt on income generation. Thus the income of older folks is reduced by the low rates as younger folks get money to spend by refinancing their mortgages. The low rates are forcing retired folks to invade principal, and the reality is that refinancing is allowing younger folks to spend the equity appreciation in their house. So both groups are being forced to reduce their assets in order to continue a life style they can't afford. An economy dependent on this type of spending is not a healthy economy.

8:41am and the stock markets have given back all of yesterday's gains. CSX is going to open significantly lower as they disappoint the street big time. Norfolk Southern is off $1.25 in sympathy. We are adding those two stocks to our watch to buy list.

9:46am and taking the talking heads have apprised us that today's economic data was mixed. There is now a 50/50 chance that the Fed will cut the discount rate at the next meeting according to the gambling odds on the floor of the CBOT. Stock measures are down 2% and breadth is negative and the reverse of yesterday. The stock markets are now lower than they were at Tuesday's close. We see no reason for a rally today. The DJIA is getting back to its July lows faster than the S&P 500. What's interesting is that two of the most recent additions to the DJIA, INTC and MSFT, which were added to jazz the DJIA, are causing the most grief. Intel gives guidance tonight and if the share price breaks $15 on any bad news a drop to single digits in the share price could be next. Microsoft seems to be heading back down to its three year low of $41.

10:05am and asset allocation programs moving money from bonds to stock are currently underway. The major stock measures have rallied 1% but still remain 1% lower.

10:20am and a first strike on Iraq will soon be reality. It won't happen till after the elections because it's to the Republicans advantage to keep the talk shows and print media focusing on Iraq rather than other subjects. Also the White House knows it can win the vote right now and in a lame duck session, but the vote will be close in the Senate. The WH would probably like to wait to see how the elections resolve the Senate because if the Republicans retake control in the New Year they will control the agenda and the terms of the resolutions supporting the President. Since Saddam doesn't yet have nuclear weapons there is no harm in waiting and much to be gained by building support for war.

One option for Saddam that we haven't seen discussed is his ability to destroy Iraq's and Kuwait's oil fields with nuclear contamination if he really believes the US is going to strike.

11:16am and the popular measures are now heading back down after recovering more than half of their early morning loss in several program related rallies.

12:34pm and the markets are edging higher.

1:11pm and the markets are back down 1%. We spent the last hour with Bat Man, the fellow who is going to evict the 150 big brown bats that decided that the eaves on our farm house were the perfect place to take up residence. Since their babies are now grown and flying on their own it is time for all the bats to move to the barn or someone else's house. It's a great business and only in America could a person figure out how to earn a livelihood evicting bats. This job sort of reminds us of the fly fishermen who throw the fish back for other fishermen to catch. When we asked Bat Man where the bats go when they can't get into our house tomorrow he told us they find another house. We asked him for some extra calling cards for when our neighbors tell us that some big brown bats have invaded their house. We hope our neighbors don't make the connection.

The markets continue to meander with no conviction. Breadth and up/down volume statistics remain negative.

2:01pm and entering the last hour the major measures are down 1.5%. Volume remains light. Philip Morris and Proctor & Gamble are the only DJIA stocks in the green column at this time.

3:02pm and the DJIA, S&P 500 both close over 1.6% lower with the NASDAQ 3% lower crushed by INTC and MSFT.

And tomorrow is another day.

4 September 2002

6:45am and the stock futures are indicating a higher opening. The big news today is Iraq and 9/11 and we don't know how either will affect market decisions. As the 9/11 remembrances begin on TV to culminate in a day of 24/24 total coverage and remembrance on the actual date, we would guess that trading volume will remain low and that the stock markets will go into a holding pattern next Monday.

Japan made a new low last night with the Nikkei down 1.5%, while Europe stabilized and the German Dax is up a bit while the FTSE is slightly lower. No real company news to report.

7:30am and now it looks like a mixed opening. Ann Taylor reported August same store sales down 7% but says earnings are on track to be $1.63 for the year. We remember when we used to live and die with ANN back in the early 1990s. No more.

8:35am and the markets are higher in light trading.

9:58pm and the rally is fading as President Bush appears live on CNBC to explain his Iraq position. Volume remains light and news is non existent.

11:35pm and the stock markets are mixed. We've been preparing the very late Summer Lemley Letter and so we have been remiss with our posting. But there really is not much happening as the markets digest yesterday's big sell off and decide where to go next. Walgreen came in on the light side with same store sales growth, and front store same store sales were actually down a bit less than 1%. It's been a while since WAG posted any sort of negative comp. The shares are richly priced at over 30 times earnings and so we don't own WAG although it's always on our crash buy list.

The Navy wants $2.8 billion from Boeing and GD but the share prices of both are rallying. If the stock markets continue their meandering for a while longer we may see a rally develop later today. Even the bears don't want a straight down market.

12:13pm and the markets remain mixed. Yesterday we mentioned that there were rumors of Ford filing bankruptcy. A client called and inquired since he owned Ford Credit notes due next year. We said that we were 99.9% certain that Ford will not file bankruptcy since the Ford family depends on Ford stock for their livelihood. But in the same breath we also mentioned that we wouldn't own Ford Credit bonds for the 4% they are yielding. If we want to assume rumor risk or real risk we would rather own the common stock. On an after tax basis the actual dollar gain owning $100,000 in Ford Credit notes at 4% versus Treasuries at 2% is about $1000. That's not enough money. Better to buy 1000 shares of Ford at $11. If there is no bankruptcy, when the economy recovers so will Ford. If there is a bankruptcy, a 1/10 of 1% risk, the bonds will go down in value much more than the 1000 shares of stock.

1:35 pm and rally time is upon us. Breadth is 2/1 positive, up volume is 3/1 over down volume and the popular measures are up 1%. It will be interesting to watch the last hour.

We know there has been a lot of activity in client accounts the last month and that is because we didn't believe the rally off the July lows. By the time we did believe the rally, the SPDRs and DIAs had moved too much for us to use them to participate in the continued rally. So we bought a number of stocks and made 10% to 25% on quick moves and then moved back to cash. Had we not, accounts would now be down 10% to 20% rather than flat to up 5% or down 5% for the year. For example we sold FLM at $12 and it is now $7. We sold Z at $11 and it is $9, SBC at $28 and now $24. A year from now all these stocks may be substantially higher than our sale prices, but between now and then we are betting we can repurchase all at lower prices. Our current cash holdings give us the ability to choose our next entry point and to watch safely from the sidelines till we are ready to commit.

2:02pm and the DJIA is up 110 points and climbing. Merrill Lynch announced that their third quarter revenues would be below expectations. Merrill stock rallied because there is a rumor floating that UBS Warburg is going to make a buyout offer. Now it's a convenient rumor when releasing negative news.

US auto sales were strong with the 0% financing incentive programs helping. Ford and GM sales were up in the teens and Daimler Chrysler sales were up over 20%. How profitable the sales were is another question for another day.

2:05pm and we now have a confluence of the 1987 Crash, the 1990 War with Iraq, and the 1998 Long Term Capital debacle. President Bush began his campaign to invade Iraq today. The 1987 Crash occurred after the stock markets as measured by the DJIA had already corrected 20% from the top, rallied back and then fell 20% again. Then the markets crashed. Finally the collapse of major companies into bankruptcy certainly has an affinity with the Long Term Capital mess except the Fed is not rescuing those companies. For all these reasons and comparisons we are all cash in most accounts. The only accounts not all cash are those that do not like a lot of trading.

3:02pm and the DJIA closed up 1.5% and the S&P 500 and the NASDAQ were up 2%. Down 4% yesterday, up 2% today.

And tomorrow is another day.

3 September 2002

7:08am and we begin a new month. Over the Labor Day weekend Consolidated Freightways filed bankruptcy and fired 15,000 folks. Japan dropped 3% overnight and McDonalds is reducing the fat content in their French fries. $52 billion was removed from stock mutual funds in July. The stock futures are down about 1% and indicate a lower opening as Europe is down about 2%.

7:30am and the more we watch CNBC the more we understand why folks lose money by following the advice of talking head gurus. Their mutual fund "expert" was just on suggesting investment in mortgage backed securities for income rather than Treasury bonds since mortgage backed securities yield a bit more than Treasuries. That's because he thinks interest rates are going to rise and thus the GNMA securities won't have their mortgages redeemed and the investor will be able to continue to receive the slightly higher interest rate paid by these securities. Unfortunately, the mutual fund guru neglected to mention or doesn't know that the value of the GNMA will drop as interest rate rise and the drop will wipe out any advantage of the slightly higher interest payments.

8:32am and we are down 115 points on the DJIA with the S&P 500 and NASDAQ down 1.5%. The screen is mostly red. There may be a bounce but there doesn't seem to be much good news to sustain any rally today. The Consolidated Freightways news affected us, although the talking heads weren't much interested. Don't know why they weren't.

9:01am and job layoff announcements were announced at 118,000 for August versus 87,000 in July. The markets are down about 2%. The Nikkei is about to break support and could plunge 1000 more points according to technicians. It's starting to get ugly.

CFSB has downgraded UAL to sell. Great call, the stock is at $3 per share.

9:12am and the ISM manufacturing index came in weaker than expected. That fact suggests a Fed rate cut and so Treasuries are rallying. DJIA down 2.5% and the S&P 500 and NASDAQ are off 3%. The sell off needs to stop soon or serious support levels will be broken. It is happening too fast.

10:36am and the markets have stabilized at down about 3%. Over the weekend we were thinking about the risks of being in stocks. And then we realized that's why we have gone to cash. We are afraid of losing money a lot more than we are worried about not making money. The late lamented bull market was good to us and we plan on keeping what we made. There will be a buying opportunity in the next month or two. Today is not it.

11:01am and the stock markets are making no progress. Gurus are calling for a cut in the capital gains tax rate and the elimination of taxation of dividends to get the stock markets going up. We don't think so, but such actions will bring the return of tax avoidance schemes with big commissions for financial houses. That's what it's all about anyway.

12:06pm and volume is 20/1 on the downside on the NASDAQ and 10/1 on the NYSE. Volume remains very light. Breath is 3/1 negative. Stocks seem stuck at down 3% and the light volume is either a plus or a minus, we don't know which. We don't have any desire to trade today because we have no feel for what's happening,

1:54pm and the markets remain down 3%. CNBC is so concerned they have a fellow on who created the www.savemartha.com website to sell shirts and hats that say SAVE MARTHA on them. Only in America. Without a pick up in volume it is hard to tell what today means. On the market web sites we follow the bulls and bears seem evenly split. We remain chicken and while stocks are below where we bought them for a bounce in early August, we have no desire to force the issue today.

Some of the bad news today was a downgrade of Citigroup, talk of a Ford bankruptcy, talk of a UAL bankruptcy, the bankruptcy of Consolidated Freightways with the loss of 15,000 jobs, news that IBM is going to lay off another 4,000 folks and continued talk of war with Iraq. And you wonder why the markets can't rally? There is the old saw to buy on bad news and coupled with the wall of worry it may be time to start nibbling. But we'll pass since the markets are doing exactly what we thought and said they would. And so we will stick to our timetable and not be rushed.

3:02pm and the DJIA closed down 355 points or 4% at 8307. The NASDAQ was down 4% and so was the S&P 500. Volume was light, breadth was 3/1 down and down volume was 9/1 versus up volume.

And tomorrow is another day.

September 2002 Thoughts

August 2002 Thoughts

July 2002 Thoughts

June 2002 Thoughts

May 2002 Thoughts

April 2002 Thoughts

March 2002 Thoughts

February 2002 Thoughts

January 2002 Thoughts

December 2001 Thoughts

November 2001 Thoughts

October 2001 Thoughts
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.