Walter P.
St. Louis, Missouri

Mark Guerrero
Dallas, TX

Charles Snell
Beverly Hills, CA

Robert Stroz
Reno, NV

Sitting Around the Table Sept 12, 2003 Dow Jones 9430 NASDAQ 1839 S&P 500 1013 September 12, 2003

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Buy what you know

The market seems a little toppy to us, which means it's somewhat tired. Now we think we have a substantial bull market ahead of us. This doesn't mean that it's going to be a straight line up. That's not the way it works. At any given time different stocks will move at different speeds, no different than a highway. The highway metaphor is appropriate by the way. We thought days ago that retail stocks were starting to get tired. Now we still think they have a way to go on the upside, but if you're tired, it means you want to take a breather. We therefore exited out of Ann Taylor and Kohl's, just before they headed lower. This will be true of other groups as well.

We want to talk about just a few stocks today, and we will do more next week.

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Alcan (AL $38.81)

It looks like they are going to complete a successful European merger which is driving the stock higher today. It's up near three points. We think this one will finish up somewhere around $44 to potentially $50 per share. This is a true cyclical stock. It will therefore respond appropriately to aluminum earnings cycles. We will talk about this next week. Right now the stock has the mid $40's targeted.

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Johnson & Johnson (JNJ $51.60)

Last quarter, JNJ was the worst performing stock on the NYSE and that was part of the motivation why we put the stock on the Stock Table after such a disastrous quarter, stock wise. In our opinion, either this quarter or next, JNJ will reverse its performance of last quarter and become one of the top DOW performers. Look at companies like Guidant, Boston Scientific, and Medtronic and you will see big PE ratios. JNJ is cheap by any historical standards and those standards go back a hundred years in this case. This company runs like clock work, and may have the best performing management team in the business. They are transparent, competent and get it done. You can go to bed at night owning JNJ.

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McDonald's (MCD $23.33)

We saw a double in MCD on our first go round. We think it now goes into the $30's on this move. Wall Street will be surprised by this, but we think they will get on board in the next few months. We can just feel it happening

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Another topic

You may have read, actually we know you have, the stories about the $150 million in compensation that is being paid to the Chairman of the New York Stock Exchange over a period of years. Our opinion is simple. Please write this down and think about it.

IN AMERICA, YOU DO NOT GET PAID WHAT YOU ARE WORTH, YOU GET PAID WHAT YOU NEGOTIATE

Now think about it. People tell us all the time that baseball players are not worth a hundred million dollar contract. We respond, hey, it's not about what you're worth, it's about what they are able to get (negotiate). If George Steinbrenner wasn't making big bucks off his team, he wouldn't be paying big bucks to players. The owners can cry all they want, but they are paying it because they make it themselves, and they are making some economic rate of return or you would close the business. They pity is Mickey Mantle and Willie Mays, and Sandy Koufax never got to negotiate in a FREE MARKET. What would get Mickey Mantle get today? They asked him before he died. His response was, "I don't know, all I know is I'd be saying to Steinbrenner, how you doing, partner."

Now somehow Dick Grasso managed to get a Board of Directors to give him a $150 million in compensation. He got it done, it's legal, and other then asking him to resign, there's not a dam thing anyone can do about it. Now, here's the real deal. In every story, there's the surface story that we all read, that we are all spoon fed and swallow like the baby swallows mother's milk. We then take the story and run it through our filters. The filters ask the questions, are we conservatives, liberals, Democrats, or Republicans? This is how we get to OUR REALITY of a situation. By the way, our reality, doesn't mean it is REALITY. Take Clinton and the sexual escapades in the White House. Ask a Republican, the answer is immoral, should have been impeached (he was by the way, the Senate didn't convict). Ask a Democrat, the answer, it was no big deal, a great President. Same set of facts, different filters.

The above is true for all of life, and we have lived our lives with this understanding implicit in our thinking. Let's apply it to Mr. Grasso. The NYSE is not a public company the way Citibank, GM, Microsoft or any other company is. Those companies are fighting for their lives on a daily basis. Those Chairmen are at risk, big risk. They make bets, that involving betting the whole company. The NYSE is a private club and a quasi- monopoly. You don't as a rule pay private club presidents, the same as people who are at risk. If you want to pay them big money, you pay it on the basis of performance. The biggest year the NYSE has had in the last ten, resulted in a bottom line of $31 million. That's right, it's a pittance compared to the numbers you thought. That's because it's a private club. How do you justify his pay package against that kind of bottom line, and that's their biggest year in the last ten.

The answer is you can't. That job is a figurehead job, always has been, always will be. They argued, look at what he did after September 11th in getting the exchange going again. Now do you think anyone else would have failed? Any one of a thousand guys on Wall Street, most of whom we know could have gotten it going again. One of us at the firm had a mentor years ago. This is 30 years ago, his name was Truman Bidwell. He was Chairman of the Board of Governors of the NYSE. A very powerful job, folks, we know something about this function. The Board in this case of Grasso is the Chairman's friends. He handpicked the compensation committee and then he says he had nothing to do with it. They were his pals and they gave him the store, and who pays for it, you the investor through fees. It's price fixing, plain and fancy.

The saddest thing of all to us is this, the chief function of the NYSE is ascertaining proper corporate governance regarding the 2000 plus companies it supervises. Guess what? If you can't get it done for yourself, how are you going to get it done for someone else? Are you surprised, don't be, let us blow your mind out. Listen to this.

Let's say you serve one term in Congress, that's 2 years for the House or 6 for the Senate. You are entitled to a pension that comes to $15,000 per month for the rest of your life. When you retire from Congress, you are entitled to draw the same pay until you die, adjusted upwards only for cost of living adjustments (COLA). One more thing, very few people know this. Every elected official at a Federal level has a campaign chest. Right now as an example, Chuck Schumer (Democrat, NY) has $17 million in his campaign chest. If a Senator or Congressman chooses not to run, they can retire and keep the war chest subject we assume to ordinary income rates. This was true two years ago, we do not know if the law was changed recently, but who would change this law, the Congress? We don't think so.

We are telling you this because SUNLIGHT IS THE BEST DISENFECTANT IN THE WORLD. If you know the truth and deal with the truth, you can truly effectuate change. What did the Bible say; the truth shall set you free? That's pretty good information for the stock market too, more next week.

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