Oh, happy day. After several lethargic to down days, the market put on its rally hat today, with the Nasdaq leading the index brat pack with a 3% gain. The FOOL 50 added on a nice 2.5%.

Commentators from New York to Boise wondered aloud if there were any rational reasons for the big bounce. Was it "quarter-end positioning" from fund managers? Was this the beginning of the road back for stocks? Has Alan Greenspan changed his toothbrush? As one technical analyst said, we have "no support for a bullish interpretation" -- ah yeah, whatever that means.

Also today, Warren Buffett hired Arnold Schwarzenegger to be his personal trainer, saying, "I want to be the Uberlord of the financial world until I'm 110 -- while eating as many Dilly bars as humanly possible."

In today's Motley Fool Take:

AOL Buddies With Verizon

If you think you can't escape instant messaging now, just wait until it goes wireless. AOL Time Warner(NYSE: AOL) is teaming up with Verizon(NYSE: VZ) to give Verizon Wireless customers text access to their America Online Buddy Lists.

The message here? This is more than just the country's leading Internet provider hooking up with the country's leading wireless carrier. It's two companies trying to differentiate their products at a time when communication services are a commodity.

America Online longs for the good old days when it had exclusive content and a captive audience. As information flooded the Web, it became harder to grow a subscriber base when users were defecting to bargain-priced Internet service providers.

AOL's trying to recapture some of that magic, and it's smart enough to realize that folks who use the AOL Instant Messenger and have a cellular account with Verizon will be less likely to say "goodbye" in favor of another online provider.

Both stocks could use a little good news right now. Verizon stock has been halved over the past year, and AOL Time Warner's carnage has been even worse. So this new venture is interesting. It hooks the anchors deep into both America Online and Verizon subscribers, and it's viral in that it plays off Buddy Lists, possibly winning defectors from either camp back into the family.

Discussion Board of the Day

There is a lot more to AOL Time Warner than instant messaging. How is it faring on other fronts? How did the company do at the Emmy's over the weekend? Is it really going to sell CNN? All this and more -- in the AOL Time Warner discussion board. Only on Fool.com.

Quote of Note

"If it keeps up, man will atrophy all his limbs but the push-button finger." -- Frank Lloyd Wright

The Price of Bonds

Generally, you're going to get the same price for a share of Coca-Cola(NYSE: KO) from a full-service broker in Hawaii as you would from a discount broker in New York. However, that's not the case with bonds.

Most bonds don't trade on a centralized exchange. And instead of charging a commission, most brokerages (discount and full-service) imbed a "markup" in the price of the bond. This makes it difficult -- if not impossible -- to know what fees you paid.

A recent issue of BusinessWeek highlighted the problem. The magazine test-drove the bond sites of five online brokerages -- Schwab(NYSE: SCH), E*Trade(NYSE: ET), TD Waterhouse, Harrisdirect, Fidelity -- and found them wanting.

While these outfits call themselves "discount brokers," the "discount" applies only to stock transactions. Buying bonds, especially smaller amounts, can be expensive. BusinessWeek found, for example, that a single General Electric(NYSE: GE) bond that matures in 2007 would yield just 2.5% after fees, if bought through Schwab. Compare that to the 3.4% yield on a Treasury note maturing in the same year, which is considered a safer investment.

Additionally, the markup on a bond may not be disclosed. Schwab and TD Waterhouse charge a minimum markup of around $50 per purchase, and will reveal the actual markup to customers who ask. E*Trade and Fidelity won't reveal their markups and charge transaction fees of $40 and $50, respectively, on smaller orders. Harrisdirect, on the other hand, tells investors up front that it charges a flat $45 fee on purchases of 15 corporate bonds or less.

What's a fixed-income investor to do? Here are some ideas:

  • Avoid buying bonds in small quantities.
  • Bond funds can be cost-effective, but they have their own problems. Look for short to intermediate maturity bond funds. The shorter the maturity, the less the value of the funds will react to the whims of interest rates.
  • There is no need to buy Treasury securities from a broker or through a mutual fund. You can buy them from Uncle Sam, commission-free, at TreasuryDirect.

Call Your Boss a Fool!

Think you know more about this finance stuff than we do? Believe you might as well work here, given all your comments and analyses? Good! We're looking for a couple of smarty-pants Fools to join our team as writer/analysts. Head on over to jobs.fool.com, and see the listings under Editorial. Show us what you can do, and we might just agree with you!

Fed Said Recovery Ahead

The Federal Reserve's Open Market Committee yesterday voted to keep short-term interest rates at the current 1.75% -- the lowest rate in more than 40 years.

But something unusual happened in the vote. Two of the 12 voting members argued for a rate cut. It was the first time since 1998 that members voted differently than Chief Alan Greenspan, who headed to England after the meeting to be knighted by Queen Elizabeth. (Really!)

In their statement, the majority voters reasoned that their "accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, should be sufficient to foster an improving business climate." The dissenters were likely worried about continued sliding in consumer confidence and an increase in unemployment and poverty.

A key concern is deflation, which could result from continued sluggishness in our economy. The Fed is believed to be ready to fight that with aggressive interest rate cuts, if necessary. Some foresee a possible future cut of at least half a percentage point.

Be glad you're not a member of the Federal Open Market Committee. Their already difficult job of keeping the economy cranking hasn't gotten any easier lately, what with the recent spate of corporate malfeasance; the ensuing loss of confidence in the stock market coupled with a multi-year bear market; and now the increasing possibility of war against Iraq and heightened global unrest. Yikes.

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AutoZone Fires on All Cylinders

You always have to watch the quiet ones. As the market's roiling, and consumer spending seems ghostlike, car parts and accessories retailer AutoZone(NYSE: AZO) is zipping along like it's nothing doing.

Before thinking car parts are, like, so boring, consider this: AutoZone's stock is up about 60% over the last year and has nearly doubled twice in two years. Got your attention now?

The Memphis-based company reported strong fourth-quarter and fiscal year-end results this morning. Fourth-quarter sales grew 12% to $1.84 billion. Diluted quarterly earnings per share came in at $1.73, ahead of last year's $1.07, excluding a charge in that quarter. (Last year's fourth-quarter EPS with the charge was $0.24.)

For the year, AutoZone's sales improved 10.5% to $5.32 billion, with $4 per share in diluted earnings. Its same-store sales grew by 8.8%. An extra week in the fourth quarter helped results, as did the company's 6% reduction in diluted shares outstanding for the year -- not that it particularly needed assistance.

AutoZone generated $290 million in free cash flow in 2001, and through just the first nine months of 2002, it had already racked up $307 million. Capital expenditures for the year were about 30% below last year's, so it will certainly throw off more free cash for this year than last.

And what does it do with all that free cash? Luckily for shareholders, it makes very smart choices. Its capital management is a thing to behold. AutoZone demands a return on its invested capital of at least 15%. It achieved an amazing 19.8% this year, by continuing to buy back loads of shares, and by slowing its new store build-out.

Sales up, earnings up, expenses down, free cash flow up, debt down, margins up. It doesn't get much prettier than this. The only question, then, is whether AutoZone's shares will continue to reward investors after their skyrocketing rise over the last two years.

At current levels, the stock's priced for perfection, which is exactly what AutoZone's been delivering. It is a solid company, but with little room for error. Betting on how long the perfection will last is a bit too risky here, at least for our tastes.

Quick Takes

Mega-conglomerate General Electric(NYSE: GE) says it's "on track" to meet its third-quarter earnings targets. Analysts expect the company to turn a profit of about $0.41 a share. Senior Vice President for Global Research Scott Donnelly will speak to analysts tomorrow, and you can listen in via webcast at 8:30 a.m. ET.

Meanwhile, not-so-mega-anymore conglomerate Tyco(NYSE: TYC) sharply lowered its fourth-quarter estimates. Instead of earning $0.45 to $0.47 a share, new CEO Edward Breen is now expecting $0.30 to $0.33 instead.

On the corporate corruption front, former Enron CFO Andrew Fastow may be indicted on fraud charges as early as next week, according to USA Today.... Shares of Xerox(NYSE: XRX) settled down today after an 11% drop yesterday. The company says the U.S. attorney's office in Connecticut is investigating past accounting matters that were already reviewed by the SEC.

A day after Dynegy(NYSE: DYN) agreed to pay $3 million to settle an SEC investigation into "round trip" trading and other matters, the company's shares fell after it revealed it had furnished "inaccurate information" to publications that report on index prices.

In local news, health officials have finally discovered what made 29 students ill last week at Mid-County Elementary School. Under intense questioning, cafeteria cook Gertrude Higgins admitted she accidentally used Lemon Fresh Joy instead of egg white in the final batch of lemon meringue cookie bars.

And Finally...

Today on Fool.com: Zeke Ashton has found a fund he can trust.... The Rule Maker Port takes another stab at a syringe giant.... In Fool's School, suggestions for how to plan and pay for college.

Bob Bobala, Robert Brokamp, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim