HEADS ARE SPINNING AGAIN!

Two days ago the bond market was crashing, stocks were in a slump and concerns of an economic slowdown were great. Today, the worm has turned. Economically sensitive stocks such as semi-conductors, transports and energy are super strong. Interest sensitive such as utilities, banks and retailers are weak. The market is clearly "voting" that the economy is indeed strong. The market has accepted that the strong employment numbers are positive because the ten year treasuries are trading around 4%. After the big up move two days ago, bonds were hammered yesterday and are taking another hit today. Again, a lot of folks are voting their belief that the economy and or inflation are about to pick up steam. The pressure on insurance companies to buy long bonds for matching purposes has apparently subsided.

Sold Wachovia Bank

I have been easing out of commercial bank stocks for awhile. Today in a monitored account we sold half our Wachovia Bank position. The stock has done very well but banks tend to under-perform in a rising rate market. I see a real estate recession coming in about 5 years and do not want to be near a bank stock by the time the recession arrives.

Texas instruments (TXN) is my top performing stock today. Last week, I did not have enough cash to double my position so I purchased call options on 5 times the shares I wanted. The stock is strong again today and the options are zooming.

LVLT and TIVO

I have made no decision on either of these losers. I have contemplated doubling up for a month to work a tax swap. It would be nice to see signs of a bottom first.

With VZ and Q bidding for MCIP, it would seem that LVLT would get some action. The word is that the phone companies are going after the commercial relationships of T and MCIP and not the "communications backbone". It still seems to me that new audio-video services will require the use of the "backbone".

It would be nice to see the new TIVO box. It has taken a long time to develop. Wonder if it can compete with the "big boys".

Krispy Kreme (KKD)

A reader wants to know if it is time to buy KKD. My guess is absolutely not. As I said at $20 a share, at $16 a share, at $10 a share and at $8 a share, one should not try to catch a falling knife and one should not invest in companies that cannot issue a financial statement. I have admitted that as a favorite local company it was hard for me to turn loose. I held my shares too long and lost a small amount of money. However, when the mud hits the fan, I know better than to stand too close.

Yes, the turn around team has taken decisive action. The easy decision was to sell the company plane for $30 Million. Laying off 125 headquarters staff was a little tougher. Now the hard stuff has to happen. Some cuts to the bone are needed.

I think it was David Dreman who published a study maybe twenty years ago that showed one should always wait at least a year before touching a distressed stock. I doubt the time needed has shortened. In many cases it takes a year to stabilize and another year to make progress. Waiting for a year or so gives one the chance to see if the company can escape bankruptcy or a distressed sale. Those who bought K-Mart at this point in the cycle lost 100% of their investment. Those who bought the bonds made the big bucks. Those who bought the new stock after bankruptcy did very well. I do not have the accounting expertise needed; I plan to stay away.

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