Walter P.
St. Louis, Missouri

Mark Guerrero
Dallas, TX

Charles Snell
Beverly Hills, CA

Robert Stroz
Reno, NV

Sitting Around the Table Oct 9, 2003 Dow Jones 9705 NASDAQ 1921 S&P 500 1042 October 9, 2003

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Interesting Times

Arnold Schwarzenegger's landslide win in California is a breath of fresh air in a less than clean political environment. As you know we are straight shooters here, but we do have to be careful. We have zero political bias; we are solely interested in what will make you money in the market. We have also lived too long. Thank God for the young people who can still believe in Santa Claus, the tooth fairy, and politicians being honest guys and girls.

It's interesting to be older and have your illusions burst, or in this instance, your beliefs confirmed. There use to be a time in this country when being elected to public service was a matter of being a good citizen. You wanted to do what was right and it involved SACRIFICE. It meant LESS PAY. Now it means making far more money than most could hope to achieve in private life. Some of these guys have built $10 to $20 million net worth statements without taking financial risk.

We remember Lyndon Johnson, our 36th President who never, ever held a real job in the private sector. He served in government his entire life. He was born dirt poor, and yet managed by the end of his life to create a $100 million estate. What a guy? We prefer to admire Sam Rayburn, who was the Speaker of the House of Representatives when it was a far, far more powerful position than it is today. Mr. Sam, as he was called, could pass or kill a bill at will, yet when he died, he left a total estate of $5,000.

Now look at Cruz Bustamante, he's the Lieutenant Governor of California. The man takes $4 million in cash from the Indians who control the casinos in the state and he has no shame about it. Yet, he manages to put on a respectable showing in the Governor's race Tuesday. The casinos in California in exchange for the cash, pay very little in taxes to the state. Connecticut on the other hand gets hundreds of millions of dollars in taxes from their two casinos, Mohegan Sun, and Foxwoods. What a life being a politician.

On the other hand, we could all go to work for the New York Stock Exchange where newly appointed Chairman John Reed announced today that the number 2 and 3 persons working for the NYSE have retirement packages amounting to $30 million apiece. Don't you love it? Again, we are dealing with two non-risk takers making a financial killing while the poor bastards (JFK loved this term, we are taking it from him) on the floor of the exchange are at risk every second of the day trying to make a living.

Before releasing the compensation arrangements of the two individuals mentioned above, Chairman Reed told the players on the floor, "You are not going to like what you hear". He also promised to release the pay scales of 60 other NYSE employees. What a planet we live on. Thank God for entrepreneurs. Did you know that the Fortune 500 corporations in America have net-net, not created a single new job in the last 10 years. Every job of the 20 million or so that was created, came from small companies growing into larger companies. We guess, so much for loyalty to big corporations that are the masters of the laying off people.

Speaking of politicians, how about Vice President Dick Cheney's old firm Halliburton getting a multi-billion non-bid contract to help reconstruct Iraq. There use to be a time in this country when the mere appearance of impropriety was sufficient to nullify such transactions. This all changed when President Clinton was caught committing an impropriety in the Oval Office, and basically said, "I ain't leaving". What do you do for an encore after that? The answer is nothing.

What happened to those "Weapons of Mass Destruction" in Iraq? Even this one has us perplexed, and let us tell you, we are connected to some of the best information out there. It just doesn't make sense. First of all, if Saddam had no weapons, why did he allow himself to forgo $99 billion in oil revenues that he was denied by the United Nations for almost 10 years? Was Saddam bluffing all those years? Did Saddam not make those weapons? Forget about us being Americans for 30 seconds. Forget about us being Democrats, Republicans, hawks or doves. Let's just go with the facts and try to ferret out reality and see where it takes us. At least, that's what we try to do with the market. Go with the reality.

Here's the deal in a nutshell. We have a deck of cards with 52 Iraqi government officials that we want to take into custody. We have captured 38 of the 52. Every one of them is a potential suicide and they know it. They live at our mercy. It is not possible that these 38 high ranking government officials do not know about the weapons programs that Saddam instituted. A dictator can't do this alone. Nobody has talked because the weapons never existed. It's as simple as that. Look, very few people can keep a secret, and 38 people certainly can't. So Saddam was bluffing; we still have to find and kill him to make most of the problem go away.

Let's talk about a few stocks

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Motorola MOT $13.95

It's going to be a big, big winner for us. This stock is terribly cheap, selling at a little over one times sales while the competitors are at 3 times sales. The stock's price has been in the doldrums for a very long time. When a spring gets coiled and then is allowed to release, the move on the upside is always quite dramatic, and that's what we think happens to Motorola. The new management team is being assembled. They will be able to have the clout to effectuate the necessary turnaround that will take place. They are spinning off the semiconductor business that is worth far more in the open market place than it is worth as a segment of the parent company.

This stock should move to $20 per share, and be a homerun for us. Not only does this make sense to us, but we can SMELL it. Our friend Bert always relied on his sense of smell in the market. He had a great sense, and a good feel for timing. He owned part of a brokerage firm called Tasek, Peturek, Ostrow and Company. He got forced out just prior to the collapse of the market 20 years ago. Bert always carried a copy of a check in his wallet for $21 million. It was his compensation for the buyout arrangement. Had the company waited 3 more months, the check would have been for zero, because they went out of business. Such is life. Bert had the smell though, and we have that same smell for Motorola.

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Newell Rubbermaid NWL $22.94

It's selling at a ridiculously low price earnings ratio. This is a $23 stock with a $1.78 coming in next year. That means it sells at less than 13 times earnings. Do you really think this company a year from today is going to be 13 times earnings? We don't think so. You have the wind from a growing economy at its back. Hey, if California is going to teach anybody anything, it's going to teach President Bush that sitting incumbents can get thrown out of office if you don't turn the economy around.

NWL's business is a lock on the economy. People need these products. People are constantly buying these products. It's a multibillion dollar business and resin prices look okay at worst. This stock goes right back into the $30's and then we will reassess it.

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Rayovac Corporation ROV $15.77

The stock has $18 to $20 written all over it. The company has closed on its acquisition of the Remington Shaver company. It will add over 20 cents to 04 earnings. That's big news folks. There are both synergies and post merger acquisition savings associated with this merger. The stock will earn $1.64 in 9/04. That's under 11 times earnings. The stock should be $18 to $20 in the next couple of quarters.

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Kohl's Corporation KSS $53.35

We think over the next few months, you are going to make interesting bucks with this stock. What's holding the stock back over the next few weeks is a tough October comparison. The stock should certainly start to react within two to three weeks. We are looking for wonderful results in the second half of 03, and remember this company is going to triple its store base in the next several years.

The stock is trading at 22 times next year's consensus estimates. This is still 30% below the two year average. To get to $70 per share, all we need is for this stock to trade at 24 times the one year out earnings per share estimate. At $70 per share, Kohl's would still be 25% below its average multiple of the last two years which is 32. Kohl's is a winning concept and you should consider owning it.

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