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Stat Sheet Week Ending June 10th 2006

• Notice - Website upgrade and new look
• SplitMaster Basic System--No question


• SplitMaster Big Dipper System--Holding on, but....


• Options--How full is the glass?


• Chart Indicator--Have you taken advantage?


• Split comments--Numbers


• Economy Reports and Commentary--Can we get these options?


• Today's Thought


NOTICE - Website upgrade and new look---
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We are excited to announce that we will be updating our website. This system change will take place Saturday night between the hours of 6:00pm and Midnight. Unfortunately, our site will be unavailable between those times. Watch for the new look and increased efficiency of our site. These changes are being made to better serve you. If you have any problems or questions with the new system please contact us at contact us

SplitMaster Basic System---
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There is no question that our splitters have taken some big hits. However, they are not alone, by any stretch of the imagination. Huge valuations have been shaved from a great number of stocks in general. This is an emotional market, and while technical support levels were breeched, there was a major recovery on Thursday, and the markets seemed to want to at least try to hold the bottoms reached earlier. Bob Pisani, of CNBC, was on Friday morning, going over results in the past 1 month. He went down a list of stocks that have dropped 25-35% in 1 month, and some of our splitters were on the list. He stated that very severe damage has been done, and we certainly agree with him on that. The problem is that there is still very good value in the splitters, but the technical issues have outweighed everything else. Ultimately, we think that earnings will eventually rise to the top in setting a stock price. Let's look at an example. HES did well as a Big Dipper, but lost in the Basic System--and it was showing a profit on Monday, by the way. Anyway, the PE on HES is currently 8 and the growth for this current quarter (June, 2006) is expected to be 84% over last year's same quarter. The next quarter is expected to come in at 58% over quarter 2005 and the year is expected to be 62% over the 2005 year. Holy moly, what do people want? If that doesn't show emotional action in the market, I don't know what does.

Oil hasn't dropped much from the all time high, and as this is being typed, it is still over $70/barrel. That builds in a lot of profit for the oil companies, with plenty of room for profit at prices well down into the 60's. We have not lost faith in stock splits, let me reassure you. When you are looking at the worst time in 22 years (S+P for May), that is extremely important. Once this is out of the way, we feel there will be a return to normalcy and that, to us, means a return to profits in the Basic System.

Our consistently repeated statement is that we look at results from the beginning of the year to the end of the year. We mentioned those 22 year lows for the S+P May results. It is only fair that we again look at the splitters' record of 31 straight years of winning records. The split systems are still ahead for the year--and we are enthusiastic about the rest of the year (even allowing for the dreaded 3rd quarter, which will have tighter standards on this time frame, as far as holding time for the splitters. Nothing goes in the same direction forever. Hey, if stocks dropped 25-30% in one month, does that mean that in 3-4 months they are going to go to zero? I'd bet everything I have that such an event would not and will not happen.

Big Dipper System---
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We did appreciate the very good move in HES (as a dipper), which we closed out this week when it hit our target sell price and showed a $15.10 profit. That made 2 out of the 7 dippers that have closed in June that reached the target sell price quickly. Thank goodness for them, for even the Big Dipper is facing some pretty big losers. That is especially surprising to us, as it is so unusual to see. After all, we don't buy it until it drops to a set price that has proven very effective in the past. To us, this action is a confirmation of how totally out of character this market has been. We don't believe that every single stock on the potential BD list ever hit the target buy price--until now. We just shake our heads in wonderment. We are going to remember this for a long, long time---and we will make sure we make notes about how low these prices did go. We also cannot help but think that there are some terrific bargains out there right now. Will they become even better bargains? We sure don't know, but they are still bargains right now in our books.

Options---
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Ugly can't even begin to describe the current option picture--but--let's see how we compare it to the glass of water. How full is the glass? Or how empty is it? Right now, the glass looks pretty empty, but we can also believe that there is lots of room for the glass to get full. Or, let's expand the water example---all over the world we have dams storing water. From time to time there are droughts and the dams see much of their water levels drop to record levels. We have seen it happen all over. Yes, there are record droughts--but--there are also record rain levels that follow at some point, and the dam not only gets full, but has to have water released to ease the pressure. Feast or famine in water--or crops--or---the stock markets. We at SplitMaster have lost a great deal of our own money during this crash, and while we certainly suffer--along with most other investors, we continue to have faith that the "rains" will soon come again, and fill up our coffers. There is just too much history in the investment world and it all gets down to value. And believe me, when the big boys (institutions, hedge funds, mutual funds) determine that the market has gone down low enough, they will be sitting there with a tremendous amount of cash, and they will jump in with both feet. Jim Cramer gave a good explanation on CNBC about how a lot of this works--and he said that the hedge funds exit sectors and it is done so fast, the individual investor doesn't have time to match it. Of course, this drop isn't in one day, but it is relatively quick and we have to lick our wounds while the big boys count their cash. But, they will get back in again, and the only thing we don't know is ---when?

As in the splitting programs that deal in stock, we look at the larger picture. Is this going to be the year that we go from Jan. 1 to Dec. 31 and show a net loss? We refuse to believe that. As has been stated thousands of times, there is always the first time for everything. When we look at the bubble bursting net yearly losses that stretched over 3 straight years (another first time happening) in 2000, 2001 and 2002, we saw really huge losses (and Nas hasn't made it halfway back from the 2000 high levels). Then we compare it to our SplitMaster results for that same time frame and splitters made profits each and every year of that general market crash. I don't want it to sound like bragging, but facts are facts, and to us, those facts are impressive. If we can overcome that period in investment history, why shouldn't we remain optimistic about the future? Believe me, we suffer from the current bleeding, but we feel there is a good tomorrow coming.

Chart Indicator---
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By this time, if you have been with us for any length of time, we think you can see how valuable the Chart Indicator is--and while it hasn't saved us from losses, it has saved us from more losses. Any one of you that has applied the CI to your other stock investments outside of splitters has saved yourself a lot of money. We had pointed out in the 5/27 newsletter how large the spread had gotten, and then we saw a rally. It wasn't enough to bring the CI to a positive position, but it did seem to indicate that a bottom was reached, at least for a while. The indexes seem to be in a precarious position. Friday the market opened up nicely, but we have grown to not being excited about that, as we have seen them turn down later on into the day. And--it happened again. The market opened up nicely and then turned south, and made an attempt to reverse upward. Very volatile markets and we have to wait them out. The spread, by the way, on the CI is currently 68, which is a bit encouraging--but just barely, as that is still a good sized number.

Stock Split Comments---
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We have pretty much covered the splitters and their actions, but we do want to say that we see the split announcements continue to dwindle, and that is to be expected--and desired. It is desired because of our belief that split announcements come from companies that are doing well, and many companies do not want to announce a split when the price has dropped drastically. So, in that respect, we are glad there isn't a long list of new split announcements.

The Economy---
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Before getting into the subject of the "other" type of options, we just want to give an opinion. It is a strong opinion, too and it pertains to the leader of the Federal Reserve, Mr. Bernanke. He just got through saying he wasn't going to speak up again outside of the official reporting times, and Monday, he did it again. It was a very noticeable speech because of his previous comments that he wouldn't do it. He gave this speech and repeated more hawkish comments that utterly devastated the markets. We don't think he has any credibility at all with the investing public as he makes out-of-turn statements, corrects himself for doing it, and then does it again. The markets hate uncertainty and that's all they are getting out of him. I'll bet it takes a long time before he can get a favorable following in the marketplace. Thank you, Mr. Bernanke--NOT !

OK, on to another topic that has been making the financial headlines recently. It is the subject of executive stock options issued by the companies. It just shows how typically low the common man is on the totem pole. We are going to win only if we get lucky enough to be on the winning side, completely by accident---but they don't win by accident; it appears, they are winning by what any sane person would call "cheating". Here are 2 scenarios that have been alleged to have happened in a number of companies. In one, the effective date of the executive option is back-dated to just before good news was issued and the company stock price jumped in value. That is somewhat similar to the charges made in the mutual fund industry where certain buyers or sellers were able to trade mutual funds after the markets closed, but they were able to trade at the closing prices. Thus, when good news came out after the close, they were able to buy at those closing prices, which were lower than the after-market prices or the next day's opening price. Or, vice-versa--when bad news came out, they were able to sell at the closing price, while the after-market and the next day's opening was lower. Boy, couldn't we all get rich doing that. -- Another exposed method is the alleged issuing of the options to the executives just before good news was released. This is slightly different, as the first method was back-dating the issuance, while this one isn't back-dated, but done just before good news is released that raises the stock price. They don't even know if that is illegal--can you imagine that?

Yep, we are just lucky if we happen to buy a stock just before good news is released--and we are unlucky if we buy it just before bad news or a downgrade happens. There seems to definitely be a different set of rules for "them" and "us". It might also explain how execs like Ken Lay of Enron still thinks he did nothing wrong---so many of the "big boys" play under a different set of rules than we do. I'm not even jealous, because I would have too much guilt if I could even be in a position to do those things. It's bad enough that someone can have 1.5 BILLION worth of stock options (true statement) and that they are issued at ridiculously low prices, far below the current open market price at the time of issuance. Don't get me wrong, I'm not opposed to a CEO making a great deal of money if it is based on a reasonable and fair incentive - one in which the whole company benefits -but not when it is unfair to the rest of the company or on a less than honest structure.

Then, that leads to another area of uproar lately, executive pay. There used to be a fairly standard percentage level between the top office and the average worker in the same company. Let's say that the CEO used to make 20 times what the average worker made. If times were good for the company, the CEO got a raise, but the average worker did too, and the percentage remained the same. Nowadays that is all thrown out the window. The CEO gets all the credit for good things (but he claims no knowledge of bad things that happen--Enron) and the average worker is lucky to get a cost of living raise. Even when the company doesn't do well, these big boys get huge bonuses. What ever happened to lowering the pay, or even firing them if things were bad enough. No siree--even if they fire him, the golden parachute kicks in and he/she is more than handsomely rewarded for doing a terrible job. A terrible job also usually means that the average worker not only doesn't get a job, he faces layoffs---and no golden parachute.

Another real sad thing, to me, is that when I go into a store, or contact a company, the person I talk with IS the company to me. They are the person that leave me with an impression, good or bad, about the company--and I think most people feel the same way. If you get treated real nice, you want to go back, and if you are treated in a rude or offensive manner, you don't want to go back. Company results are just as much the workers' doing as anyone's--it's just that policies may be set at the top, but execution is done at lower levels. We personally see the average worker--we hardly ever, ever see the CEO--except on TV, maybe. This disparity in pay between the top and average worker is a crying shame and I think it will come back to haunt these companies in the long run---at least I hope it comes back to haunt them, as it is not fair, it is not right, and it doesn't build any company loyalty, which is tremendously important, and another forgotten feature these days. All right, down off the soap box, but I feel strongly about it. (Can you tell?) In the words of John Lennon "A working class hero is something to be."

Today's Thought---
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It behooves us all to be interested in the future, because that's where we're going to spend the rest of our lives.... from a book, title unknown.

Mike




























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