8/10/02 Not A Laughing Matter

"It is easy in the United States," said Robert J. Gordon, an economist at Northwestern University, "to get sharp and sudden declines in hours by laying off workers and eliminating overtime, and this contributes to healthy productivity growth in hard times."

8/10/02 A Chuckle For Saturday

WHY WE LOVE CHILDREN
A kindergarten pupil told his teacher he'd found a cat. She asked him
if it
was dead or alive. "Dead." She was informed. "How do you know?" she
asked
her pupil. "Because I pissed in its ear and it didn't move," answered
the
child innocently. "You did WHAT?!?" The teacher exclaimed in
surprise.
"You know," explained the boy, "I leaned over and went 'Psssst!' and it
didn't move."
_________________________________________________
A small boy is sent to bed by his father. Five minutes later.
"Daaa-ad...." "What? "I'm thirsty. Can you bring drink of water?"
"No.
You had your chance. Lights out." Five minutes later: "Da-aaaad....."
"WHAT?" "I'm THIRSTY. Can I have a drink of water??" "I told you NO!"
If
you ask again, I'll have to spank you!!" Five minutes later......
"Daaaa-aaaad....." "WHAT!" "When you come in to spank me, can you
bring a
drink of water?"
________________________________________________
An exasperated mother, whose son was always getting into mischief,
finally
asked him, "How do you expect to get into Heaven?" The boy thought it
over
and said, "Well, I'll run in and out and in and out and keep slamming
the
door until St. Peter says, 'For Heaven's sake, Dylan, come in or stay
out!"
_________________________________________________
One summer evening during a violent thunderstorm a mother was tucking
her
son into bed. She was about to turn off the light when he asked with a
tremor in his voice, "Mommy, will you sleep with me tonight?" The
mother
smiled and gave him a reassuring hug. "I can't dear," she said. "I
have to
sleep in Daddy's room." A long silence was broken at last by his shaky
little voice: "The big sissy."
_________________________________________________
It was that time, during the Sunday morning service, for the children's
sermon. All the children were invited to come forward. One little
girl was
wearing a particularly pretty dress and, as she sat down, the pastor
leaned
over and said, "That is a very pretty dress. Is it your Easter Dress?"
The
little girl replied, directly into the pastor's clip-on microphone,
"Yes and
my Mom say it's a bitch to iron."
_________________________________________________
When I was six months pregnant with my third child, my three year old
came
into the room when I was just getting ready to get into the shower.
She
said," Mommy, you are getting fat!" I replied, "Yes, honey, remember
Mommy
has a baby growing in her tummy" "I know," she replied, but what's
growing
in your butt?"
_________________________________________________
A little boy was doing his math homework. He said to himself, "Two
plus
five, that son of a bitch is seven. Three plus six, that son of a
bitch is
nine...." His mother heard what he was saying and gasped, "What are
you
doing?" The little boy answered, "I'm doing my math homework, Mom."
"And
this is how your teacher taught you to do it?" the mother asked.
"Yes," he
answered. Infuriated, the mother asked the teacher the next day, "What
are
you teaching my son in math?" The teacher replied, "Right now, we are
learning addition." The mother asked, "And are you teaching them to
say two
plus two, that son of a bitch is four?" After the teacher stopped
laughing,
she answered, "What I taught them was, two plus two, THE SUM OF WHICH,
is
four."
_________________________________________________
One day the first grade teacher was reading the story of Chicken Little
to
her class. She came to the part of the story where Chicken Little
tried to
warn the farmer. She read, ".... and so Chicken Little went up to the
farmer and said, "The sky is falling, the sky is falling!" The teacher
paused then asked the class, "And what do you think that farmer said?"
One
little girl raised her hand and said, "I think he said: 'Holy Shit! A
talking chicken!'" The teacher was unable to teach for the next 10
minutes.

8/9/02 Gov't Revised Numbers #2

It has been brought to my attention that Senator Hollings from S. Carolina has just demanded that budget director Daniels attest to the gov't financial statements.

8/9/02 Gov't Revised Numbers

On Aug.14 company officials will need to validate their reported numbers. That's a wonderful idea. If Paul O'Neil were still running Alcoa, he'd be doing just that; however, he is ONLY Sec. of the Treasury, and therefore, GDP numbers can continue to be revised. When initially released, the press makes a big deal about the GDP number. Then a month later a revised GDP number is provided. This is absolute crap. What's good for the goose is good for the gander. Find someone who can provide the real number in a timely manner, and clear the deck with the others. It's time the public demanded the best from gov't officials. It's a privilege to vote and a privilege to be an American citizen. Many have died so we can have these privileges.

8/8/02 Posting #3
The Scoreboard

Since starting this blog, some have commented that I appear overly negative. Everyone is entitled to their opinion and that includes me. Often I have stated that I do not make recommendations on individual stocks. Rather I try to mention potential opportunities which each person might investigate.

Over the past few weeks I have mentioned the following stocks: Pfizer, Merck, Microsoft, GE, JP Morgan, and Citigroup. In order of mention they have risen from 26 to 33; from 39 1/2 to 50 1/2; 42 to 49; 26 to 32; 20 to 26; and 25 1/2 to 33 1/2. There have been opportunities in this market as there are in every market. Searching them out requires a good deal of work and study.

The market makes us humble and I shall look stupid and out of synch many times in the future. The idea, however, is not to be too proud, and therefore, admit mistakes and cut one's losses. Let the winners ride until proven otherwise. Give yourself a chance to hit a tape measure homerun. Maybe you won't hit 600 out of the park but you'll hit a few- that's more than most can probably say.

8/8/02 Posting #2
Deflation Is Not Tame Inflation

In July the PPI fell 0.2% and over the past 12 months 1.1%. This is the first year over year decline in the PPI since 1998.
One can expect profit margins to be continually squeezed at the producer level, and one result will be increased layoffs.
Someone reading this will state that the jobless numbers released today were quite positive. My answer is relative to what. The number of people out of work remains high, and in my view, will increase in the future.

The second result of the PPI falling will be the lowering of inventories being carried on the books. You are starting to see this at the retail level. If inventories are kept exceptionally lean, then economic activity will be reduced- especially at the manufacturing level. Retail same store sales were lower than expected for July and that was true even for WalMart and Target. I feel this weakness will carry forth into the near future. As I have pointed out previously, the common stocks for both companies topped out several months ago. In other words, the market was able to once again forecast accurately.

8/8/02 Gold

From 1981 gold was in a 20 year bear market, and then it reached $250 per ounce and just stopped going down in price. There wasn't any big news, and slowly it has risen to well over $300 an ounce. Given the size of the decline over the 20 years this rise is minimal at best. Recently, gold hit a 5 month low at $300 per ounce and bounced up from that level.

There are some good reasons for the rise in gold. Production of gold will be declining for the next several years. Secondly, some of the big producers, such as, Barrick have been hedging their production year in and year out and have now decided to go into the market and buy back some of those hedges. That appears to be a smart policy with gold in the early stages of a bull market.

In the end, supply and demand as well as psychology will determine the future price for gold. India is the largest purchaser of gold, and India's economy is very strong at the moment. That should provide a floor under the demand for gold.

8/7/02 Posting #4
The National Debt Clock, which ran from 1989 until late 2000 in Manhattan, was turned back on last week.

8/7/02 Posting #3
Nat'l Bureau of Economic Research

Reuter's reports The National Bureau of Economic Research said on Wednesday it was not yet ready to make a formal call that the U.S. recession has ended, saying it will first need to rule out the possibility of a ``hypothetical'' second leg to the economic downturn.

8/7/02 Posting #2
The West Nile Virus and Containing "The Enron"

The West Nile was first detected in the U.S. in 1999. No one knows for certain when Enron's wrongdoings were first uncovered. The West Nile has spread to 34 states, and hundreds have been impacted and close to two dozen have died. Many more have been touched by Enron; however, it is diffficult to attach a specific death to Enron. Heartache and financial ruin are much easier to delineate.

There is a vaccine for the West Nile but immunization to this point is only for horses and not for humans. Humans cannot contract the West Nile from horses. My suggestion is that we stay in close proximity to horse's asses, and that should alleviate some of our concerns. As for Enron, the jury is still out. It is doubtful that an inoculation program can assist those already "infected". The good news is there is an abundance of horses asses. Just stay upwind and away from the hot air.

8/7/02 Cisco's Quarterly Reporting

Cisco went public in 1990, and the company and the stock for many years produced a tape measure home run- we're talking out of the park and into the next county. The last few years have proven to be difficult for Cisco, and another side is peeking through the infrastructure carnage.

Each quarter Cisco steers the analysts to earnings estimates which the company is able to beat. Last evening the stock rallied a point after the release. They beat expectations thru cost cutting. Nothing wrong with that except the revenue figures did not meet expectations. Management discussed extending the stock repurchase program. The stock has dropped over 85% from its highs. How about management buying stock for their own account, and not using the $21 billion in cash in the corporate till for the repurchase.

Management discussed making acquisitions when the economy turns around. Warren Buffett buys companies in bad times, and in reality, bad economies should bring bargains to the fore.

What's really hurting the bottomline at Cisco? The bear market is the culprit. The company can no longer sell naked puts on Cisco stock, have the puts go unexercised, and take the premium money on the puts into income. The heavy cream has disappeared. How many hundreds and hundreds of millions went into net income over the decade of the 90s? It's not just Cisco but also the majority of the large tech so-called growth companies. It sure beat new product introductions. Just pocket the premium money and go to the bank. It's 100% legal from an operating standpoint. From a disclosure point of view did the stockholders get an accurate reading? So now Cisco must resort to cost cutting instead of naked put selling. While it lasted, the latter was a joy ride.

8/6/02 Posting #2
The Fed Revisited

We have touched on this subject in prior postings; however, given today's rally, let's discuss it again. The reason given for the rally is the opinion that the Fed will lower interest rates. The market has already lowered interest rates. Short term treasury bills yield less than Fed Funds. The Fed may discuss policy and provide liquidity in the marketplace but the latter sets the yields in real time. Economists at Lehman, Deutsche Bank, and Dresdner Bank today predicted the Fed would lower rates between now and the end of the year. It's a little late for this prediction. Rates have been coming down sharply- especially recently - as stocks have declined to new lows.

I have previously indicated the need to watch the Fed Funds futures and the directions of their sentiment. This is a very good indicator. The sentiment has been strongly leaning towards lower interest rates.

The question one might pose is why the lowering of rates. The answer lies in the weak economy and the lack of demand, and it should provide a clue as to the direction of corporate profits. If profits continue to be weak, then stocks should mirror profits. Low interest rates do not ensure higher stock prices. Look at Japan for the past dozen years or so. In addition, low interest rates do not ensure higher corporate profits. Demand must improve before cash flow starts to perk up. At this point demand looks flat at best.

We don't get paid to be investing superpeople. Rationality will provide a better foundation for your portfolio to grow.

8/6/02 The Prices For A Safe Haven

With the backdrop of the Fed Funds rate at 1.75% the Treasury's auction began yesterday when $16 billion in three month treasury bills sold at a discount rate of 1.6% and a similar amount of six month treasury bills sold at roughly the same yield. Today $22 billion in four week bills will be sold as well as $22 billion in 5 year notes at an approximate yield of 3.1%.

It is significant to mention that 2 year treasuries now yield 1.9%, and this is a clear indication that bond investors believe the Fed may lower interest rates in the near future.

On Wednesday the Treasury will sell $18 billion in 10 year notes at an approximate yield of 4.2%.

Poor economic data may undermine the stock market but it sure provides a bull market for treasuries. The two year notes were first issued in 1972, and this is their lowest yield in 40 years. Considering the size of the U.S. deficit, one could argue the yields represent irrational exuberance for a safe haven.

8/5/02 Posting #3
Down Volume

With about 30 minutes left in the trading day it is clear that at least 1 billion shares will trade on both the New York Stock Exchange and the Nasdaq on down volume. The down/up volume ratio has expanded to between 6 and 7 to one on the downside.

We are seeing more comments about a double dip in profits and a double dip economy. Had you blinked it's possible you might have missed the upticks in profits and/or the economy.

8/5/02 Posting #2
Advance/Decline Volume

With 3 1/2 hours left in today's trading session there are twice as many stocks moving down as up; however, a closer look reveals that 5 times as much down volume has taken place as up volume. That ratio is obviously negative, and once again indicates the lack of buyers.
There are many pundits who continue to state that it is too late to sell. Clearly many investors don't agree.

8/05/02 The Fed

As always, the following represents my view, and in this case, many may disagree. Next Tuesday the Fed has their meeting relating to the economy and interest rates. Most believe that the Fed moves the markets. Rather, I feel the markets anticipate events and the Fed therefore is a follower. As such, I prefer to watch fed funds contracts and see what thew market in real time is telling us. I believe you have an advantage in doing so and I urge everyone to become familiar with these contracts.

8/04/02 The Market Decline

CNN recently took a poll concerning the 2 year market decline, and 46% responding said that this bear market would impact their ability to retire and the same 46% stated they would need to stay longer in their jobs prior to retiring. The poll did not inquire as to whether the 2 year decline had impacted their views on investing.

I would hope that this decline has made a change in people's investing behavior. Many Americans had never been thru a bear market. They hadn't invested in 1974 or 1981-82. I think this period has taught the vast majority of the investing public that they really didn't know the companies in which they had invested. A successful approach is to study a company prior to investing with the same view as if you were purchasing the whole company. This exercise will sharply reduce your errors in investing judgment and provide for more successful results.

Few people have the ability to look out 10 years and forecast cash flow over that period of time; however, it is wise to try to look down the "field" with a 2 to 3 year time horizon. That is doable with hard analysis, and to make money consistently in the stock market requires that discipline.