Between the Hedges Between the Hedges

Portfolio Manager's commentary on investing and trading in the U.S. financial markets

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Saturday, October 02, 2004

Economic Week in Review 

ECRI Weekly Leading Index 131.50 +.08%

New Home Sales for August rose to 1184K versus estimates of 1155K and 1082K in July. The 9.4% gain, propelled by the lowest mortgage rates in four months, is helping sustain strong U.S. economic growth, Bloomberg reported. "We are in the midst of, I would say, the biggest worldwide housing boom ever," said Robert Shiller, an economics professor at Yale University, Bloomberg said. The median selling price for a new home climbed 9.7% from a year earlier to $208,900. The average rate on a 30-year fixed mortgage fell to 5.87% in August from 6.06% in July, Bloomberg reported. The inventory of new homes for sale fell to a 4.2 months supply from 4.4 months in July, Bloomberg said. Finally some 1.16 million homes will be sold this year, another record, up from an all-time high of 1.085 million last year. "Anything over a million is a super strong level," said Stuart Hoffman, chief economist for PNC Financial. "The housing market is still very hot."

Consumer Confidence for September was 96.8 versus estimates of 99.5 and a reading of 98.7 in August. "It's possible this is an echo from some earlier sluggishness in the economy, and not necessarily indicative of what is going on today", said Robert DiClemente, chief economist at Citigroup Global Markets. Moreover, a gauge of optimism about the economic outlook over the next six months rose to 97.6 this month from 97.3 in August, and consumers said the job market and their own income prospects will improve, Bloomberg reported. As well the percentage of consumers planning to buy a major appliance rose to 29.9%, Bloomberg said. The confidence index has averaged 96.1 so far this year, compared with 79.8 for all of last year.

The final 2Q GDP reading showed 3.3% growth versus earlier estimates of 3.0% and 2.8%. Personal Consumption rose 1.6%, meeting estimates. As well, the GDP Price Deflator rose 3.2%, meeting forecasts. "The soft patch is over, and we expect stronger growth in the third quarter," said Nariman Behravesh, chief economist at Global Insight. The economy may expand at a 3.8% rate this quarter and 4.3% for the year, according to a separate Bloomberg News survey. Moreover, the International Monetary Fund said worldwide economic growth will reach 5% this year, the most in 30 years. "This is a very robust economy and it looks like it's going to have legs," said James Owen, CEO of Caterpillar Inc. "We're shipping as much as we can ship and have done a lot of hiring." The core personal consumption expenditures price index, a measure of inflation closely watched by Fed policy makers, increase at a very modest 1.7% rate, Bloomberg said. Finally, corporate profits after taxes rose 18.5% in the 12 months that ended in June, Bloomberg reported.

Personal Incomes rose .4% in August versus estimates of .4% rise and a .2% increase in July. Personal Spending remained flat in August versus estimates of a .1% increase and a 1.1% gain in July. The pause in spending followed a larger than previously estimated gain in July. Incomes, helped by larger factory payrolls, rose 5% from the same month last year. This increase is significantly better than the pace of inflation and suggests consumer spending will accelerate, Bloomberg reported. "Spending for the third quarter, which ends today, is going to be fairly strong, and the prospects for the fourth quarter are good," said Gary Bigg, an economist at Banc of America Securities.

Initial Jobless Claims for last week were 369K versus estimates of 343K and 351K the prior week. Continuing Claims were 2873K versus estimates of 2875K and 2876K prior. Hurricanes Charley, Frances and Ivan swept across southern U.S. states over the past six week, causing billions of dollars of damage and disrupting business activity, Bloomberg said. "The increase is mainly caused by hurricane affects," said James O'Sullivan, senior economist at UBS Securities. The U.S. has added 1.4 million jobs this year, Bloomberg reported.

The Chicago Purchasing Manager Index for September rose to 61.3 versus estimates of 58.0 and a reading of 57.3 in August. Readings above 50 mean growth, and September is the 17th month of uninterrupted expansion, Bloomberg reported. "Capital spending has strengthened considerably this year as manufacturers rebuild inventories and capacity," said William Hummer, chief economist at Wayne Hummer Investments. The increase in the factory index bolsters expectations the economy is strengthening after a slowdown in the second quarter, Bloomberg said. The Chicago purchasers' employment index rose to 53.9 in September from 51.1 in August as manufacturers hired in the region to meet strong demand. Finally, the group's index of prices paid for raw materials dropped in September, Bloomberg said.

The final reading on the Univ. of Mich. Consumer Confidence Index for September was 94.2 versus a prior estimate of 96.0 and a reading of 95.8 in August. A major factor for the decline was likely weather as four hurricanes hit Florida and neighboring states, Bloomberg reported. When the university's sentiment index exceeds its long-term average of 88, the political party in office tends to keep the White House, according to a research report issued last month by economists at CSFB.

Construction Spending for August rose .8% versus estimates of a .4% gain and an upwardly revised 1.1% increase in July. Private residential construction, which accounts for more than half the total, rose 1.7% to an all-time record annual rate of $550.6 billion, Bloomberg reported. "Low interest rates will help support economic growth of as much as 4% over the next year, even with crude oil near $50/bbl., said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The housing market has remained very strong and commercial construction is recovering nicely with the economy as some of the overcapacity from the late-90's bubble has been worked off, Bloomberg reported.

ISM Manufacturing for September was 58.5 versus estimates of 58.4 and a reading of 59.0 in August. ISM Prices Paid was 76.0 versus estimates of 81.0 and a reading of 81.5 in August. The manufacturing group's employment index increased to 58.1 from 55.7 in August, Bloomberg said. "Outside of some elevation in the auto sector, inventories remain below desired levels across most of the economy, so further elevated levels of inventory restocking are likely going forward," said Ted Wieseman, an economist at Morgan Stanley. For the year, business spending on new factories, equipment and software is projected to rise 9.5%, almost three times the 3.3% gain last year and the most since 1998, according to Blue Chip Economic Indicators. "There is now a belief that this recovery is sustainable for some years to come," said Lynn McPheeters, CFO of Caterpillar.

Total Vehicle Sales for September were 17.5M versus estimates of 16.7M and 16.6M in August. Domestic Vehicle Sales for September were 14.3M versus estimates of 13.4M and 13.5M in August. U.S. auto sales rose 10% in September, led by a 25% gain at General Motors and increases for DaimlerChrysler AG and Toyota Motor, Bloomberg reported. Average spending on incentives rose 12% to $4,523 in September, according to estimates from CNW Market Research. New models at companies such as Chrysler also helped lure buyers, Bloomberg said. U.S. sales were led by a 17% rise for trucks, Bloomberg data showed. Moreover, U.S. carmakers' market share topped 60% for the first time this year, climbing to 61.7%, while Asian carmakers such as Toyota and Honda fell to 32%, the second straight monthly decline, Bloomberg said.

Bottom Line: Overall, last week's economic data were positive. The strong number of new homes sold for August was exceptional considering the very bad weather in much of the country. Better employment prospects, higher incomes and lower interest rates will continue to propel home sales, through year-end. Consumer confidence readings likely fell in September as a result of the very negative political rhetoric, multiple hurricanes, increased violence in Iraq and the media's continuing intense focus on all that is negative. Consumer confidence should also improve through year-end. The U.S. economy is currently on pace to achieve 4.3% growth this year, the best performance since the heights of the bubble in 1999. Inflation readings are falling and income growth is accelerating, which bodes well for this holiday shopping season. The affects of the hurricanes are still hurting employment, however recent surveys and rebuilding point to a surge in hiring during the fourth quarter. Manufacturing, after a brief pause, is accelerating and is contributing meaningfully to economic growth. Finally, the fact that consumers are buying trucks and SUVs again in a big way likely means that higher gas prices are being offset by other positive factors, such as low interest rates, better incomes and employment prospects.
Posted by: Gary / 2:34 AM

Friday, October 01, 2004

Weekly Scoreboard* 

Indices
S&P 500 1,131.50 +1.93%
Dow 10,192.65 +1.45%
NASDAQ 1,942.20 +3.34%
Russell 2000 585.03 +3.37%
S&P Equity Long/Short Index 971.53 +.21%
Put/Call .95 +2.15%
NYSE Arms .46 -56.19%
Volatility(VIX) 12.75 -10.71%
AAII % Bulls 41.07 -19.82%
US Dollar 87.63 -.77%
CRB 285.24 +2.69%

Futures Spot Prices
Gold 421.20 +2.76%
Crude Oil 50.12 +2.49%
Unleaded Gasoline 135.22 +1.67%
Natural Gas 6.79 +11.86%
Base Metals 120.06 +3.50%
10-year US Treasury Yield 4.19% +3.97%
Average 30-year Mortgage Rate 5.72% +.35%

Leading Sectors
Disk Drives +8.37%
Iron/Steel +6.28%
Software +5.67%

Lagging Sectors
Homebuilders +.23%
Retail -.32%
Drugs -.69%

*% Gain or loss for the week
Posted by: Gary / 6:47 PM

***Alert*** 

There will not be a mid-day update today due to a scheduling conflict.

Bottom Line: The Portfolio is higher today on strength in my semiconductor, internet, biotech and Chinese ADR longs. I have not traded today and the Portfolio is still 125% net long.
Posted by: Gary / 12:42 PM

Friday Watch 

Earnings of Note
Company/Estimate
ERES/.16
THO/.53

Splits
None of note.

Economic Data
Final Univ. of Mich. Consumer Confidence reading for September estimated at 96.0 versus 95.8 in August.
Construction Spending for August estimated up .4% versus a .4% rise in July.
ISM Manufacturing for September estimated at 58.3 versus 59.0 in August.
ISM Prices Paid for September estimated at 80.9 versus 81.5 in August.
Total Vehicle Sales for September estimated at 16.7M versus 16.6M in August.
Domestic Vehicle Sales for September estimated at 13.3M versus 13.5M in August.

Recommendations
Goldman Sachs reiterated Underperform on FGP and Outperform on GLK, NFX, DVN, SLB, STZ, MUR. Standard Motor Products(SMP) shares may reach $25 in a year, Business Week reported. Advanced Medical Optics(AVO) shares may reach $46 in a year, Business Week reported.

Late-Night News
Asian indices are higher on falling energy prices and optimism over better economic growth in the region. U.S. economic growth and falling oil prices. Taiwan President Shui-bian alluded to the possibility of the island holding a referendum on independence, reviving a contentious issue with China, Bloomberg reported. The decline in global music sales has slowed for the first time in four years, the Independent reported. Wal-Mart plans to set up a fully owned subsidiary in India for buying goods, carrying out quality checks and factory inspections of companies that deliver goods, the Economic Times reported. BHP Billiton, the world's biggest mining company, said Chinese customers will buy more than half the nickel from its planned $1.4 billion expansion in Australia, increasing sales into the fastest-growing market for the metal, Bloomberg reported. Fewer crude oil traders and analysts expect prices to rise next week after futures reached a record $50.47 in NY on Tuesday, a Bloomberg survey shows. Japanese stocks are gaining after the central bank's Tankan survey showed confidence among executives at the nation's largest manufacturers rose more than expected to the highest level in 13 years and household spending and job reports indicated better growth, Bloomberg reported. North Korean Leader Kim Jong Il's personal physician was caught by Chinese agents after the doctor fled the communist nation to China, South Korea's Munwha Ilbo newspaper reported.

Late-Night Trading
Asian Indices are +.25% to +1.25% on average.
S&P 500 indicated -.20%.
NASDAQ 100 indicated -.28%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on better economic data, an end to the first presidential debate, gains in Asia, declining oil prices and short-covering. The Portfolio is 125% net long heading into tomorrow.
Posted by: Gary / 12:46 AM

Thursday, September 30, 2004

Thursday Close 

S&P 500 1,114.58 -.02%
NASDAQ 1,896.84 +.15%

Leading Sectors
Iron/Steel +2.52%
Commodity +1.45%
Papers +1.40%

Lagging Sectors
Retail -.31%
Airlines -1.54%
Drugs -2.56%

Other
Crude Oil 49.46 -.36%
Natural Gas 6.64 -2.34%
Gold 420.00 -.10%
Base Metals 121.28 +3.41%
U.S. Dollar 87.38 -.82%
10-Yr. T-note Yield 4.12 +.80%
VIX 13.34 +.98%
Put/Call .82 -2.38%
NYSE Arms .94 +18.99%

After-hours Movers
NFLX +4.41% after saying it will work with Tivo(TIVO) to develop a service to offer videos to download from the Internet.
OXM +4.4% after beating 1Q estimates and reiterating outlook.
TIVO +5.14% on NFLX news.
RIMM -4.2% on profit-taking after beating 2Q estimates, reiterating 3Q guidance and raising 4Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on MET and LMT.

After-hours News
U.S. stocks finished mixed today on better economic data and a plunge in the shares of Merck. After the close, News Corp.'s own polling suggests it will win support for a move to the U.S., the Australian Financial Review reported. Japanese auto companies such as Toyota Motor and shipbuilders will agree to let steelmakers boost prices, Nikkei English News said. Merck's recall of its Vioxx painkiller surprised pharmacies in the U.S. and Canada, leaving them unprepared to handle questions from concerned patients and doctors looking for alternatives and trying to get information about possible reimbursement, Bloomberg reported. Scientific studies of Merck's Vioxx arthritis medicine, withdrawn from the market today, showed as early as four years ago that the painkiller was linked to elevated risk of heart disease, Bloomberg said. U.K. Prime Minister Blair is to go to the hospital for routine heart surgery Friday, Bloomberg reported. U.S. military forces have begun a "major offensive" to seize Samarra, Iraq, in an attempt to rid the area of insurgents, CNN reported.

BOTTOM LINE: The Portfolio finished higher today on strength in my security, Chinese ADR and steel longs. I did not trade in the afternoon and the Portfolio remains 125% net long. Considering the drops in shares of MRK and FNM, today's action was pretty good. The Bloomberg US Iron/Steel Index hit a 5-year high today and is poised to move higher as global economic growth accelerates. As well, long-term interest rates are heading higher on signs of stronger economic growth. I continue to expect U.S. economic growth to reach 4.5-5% during the fourth quarter and that the stock market will begin to anticipate this in the later part of October, embarking on a very strong year-end rally.
Posted by: Gary / 6:15 PM

Mid-day Update 

S&P 500 1,113.82 -.09%
NASDAQ 1,897.78 +.20%

Leading Sectors
Iron/Steel +1.84%
Commodity +1.44%
HMOs +1.21%

Lagging Sectors
Biotech -.37%
Airlines -2.05%
Drugs -2.62%

Other
Crude Oil 50.04 +1.04%
Natural Gas 6.79 -1.75%
Gold 420.40 -.02%
Base Metals 121.28 +3.41%
U.S. Dollar 87.39 -.79%
10-Yr. T-note Yield 4.14% +1.27%
VIX 13.44 +1.74%
Put/Call .80 -4.76%
NYSE Arms .99 +25.32%

Market Movers
MRK -25.5% after withdrawing its Vioxx painkiller, which generated $2.5 billion is sales last year, because of a link to heart attacks and strokes.
ERES -17.4% after Advest downgrade to Buy, target $21.40.
FNM -4.7% after saying the Justice Dept. is considering whether to conduct a criminal investigation into accounting fraud.
NSTK +12.34% on continued optimism over its nasal spray for obesity.
ACH +6.7% after saying it raised its alumina price by 5% a ton following gains in the import cost of the aluminum metal raw material.
CRAI +8.4% after beating 3Q estimates and boosting 04 guidance.
IMDC +5.1% after announcing that Patricia Walker has accepted the new position of Chief Scientific Officer and Executive VP for Clinical and Regulatory Affairs.
ARRO +5.69% after meeting 4Q estimates and reiterating 05 outlook.
CLSR -33.5% after cutting 3Q/04 outlook.
TLB -9.3% after cutting 3Q forecast and multiple downgrades.
ANN -6.3% on TLB news.

Economic Data
Personal Income for August rose .4% versus estimates of a .4% rise and a .2% increase in July.
Personal Spending for August rose 0.0% versus estimates of a .1% rise and a 1.1% increase in July.
PCE Deflator (YoY) for August rose 2.1% versus estimates of a 2.2% increase and a 2.4% rise in July.
PCE Core (YoY) for August increased 1.4% versus estimates of a 1.5% rise and a 1.4% increase in July.
Initial Jobless Claims for last week were 369K versus estimates of 343K and 351K the prior week.
Continuing Claims were 2873K versus estimates of 2875K and 2876K prior.
Chicago Purchasing Manager for September rose to 61.3 versus estimates of 58.0 and a reading of 57.3 in August.

Recommendations
Goldman Sachs reiterated Outperform on SPLS, PFE, BSX, ATYT and ASN. Citi SmithBarney reiterated Buy on MAR, target $58. Citi rated GNW Buy, target $28. Citi reiterated Buy on GE, target $38. Citi reiterated Buy on AIG, target $80. Citi reiterated Sell on RNR, target $46. Citi reiterated Buy on FHN, target $50. Citi reiterated Buy on WFR, target $14. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on SPLS, target $35. Citi reiterated Buy on FLEX, target $22. COP raised to Buy at Deutsche Bank, target $91. CG rated Outperform at CSFB, target $28. SIRI raised to Overweight at JP Morgan. LRCX rated Underweight at Morgan Stanley, target $19.40. PFE raised to Outperform at Schwab SoundView, target $41. KLAC rated Overweight at Morgan Stanley, target $45. CYMI rated Overweight at Morgan Stanley, target $35.

Mid-day News
U.S. stocks are mixed mid-day as better economic data is being offset by concerns in the pharmaceutical sector. Merck said it's withdrawing its Vioxx painkiller from the market because of data showing and increased risk of heart attack and stroke after 18 months of treatment, Bloomberg reported. Wal-Mart may be planning to sell high-definition televisions in its stores under its own label, the NY Post reported. Kmart Holding is considering moving its corporate headquarters to Atlanta from suburban Detroit, the Detroit, the Detroit News reported. About 15,000 employees of Atlantic City, New Jersey, casinos owned by companies including Harrah's Entertainment, Caesars Entertainment and Aztar may strike tomorrow if union leaders and management don't agree on a new contract, the Star-Ledger reported. DuPont is introducing impact-resistant roofs, safe rooms and products designed to minimize damage to buildings during hurricanes and other natural disasters, the Wall Street Journal reported. Merck CEO Gilmartin told CNBC that the drugmaker's dividend won't be cut after the company's decision to withdraw its Vioxx painkiller because it may be unsafe. One of the organizers of the March 11 Madrid terrorist bombings received a monthly stipend of $2,495 from a Saudi cleric, El Mundo reported. Warburg Pincus may raise more than $8 billion for the world's biggest buyout and venture capital fund next year, Bloomberg reported. Copper prices in NY are rising today to the highest levels in nine years on strong demand from China and the U.S., Bloomberg reported. The frequency and strength of small earthquakes occurring near Washington state's Mount St. Helens accelerated for a second day, raising expectations that the volcano may erupt for the first time in almost 20 years, Bloomberg reported. Iraqi Prime Minister Allawi said attacks by insurgents won't stop elections taking place as planned in January and appealed to the international community to stand by Iraq in its attempts to defeat extremists, Bloomberg said. Business in the Chicago area, a center of manufacturing, grew at a faster pace than expected in September as orders and hiring gained, Bloomberg reported. Daily oil output in the Gulf is still close to 500,000 barrels below pre-storm levels, prompting further gains in the commodity, Bloomberg said.

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Chinese ADR, security and steel longs. I have not traded and the Portfolio is still 125% net long. The tone of the market is ok today, considering the damage to Merck, one of the world's largest pharmaceutical companies and a large component in the DJIA. The underlying strength in the Chicago Purchasing Manager report is welcome and bodes well for economic growth in the fourth quarter. It is also a positive that oil inventories rose this last week even with production in the Gulf at lower levels. I expect U.S. stocks to rise into the close on short-covering, end-of-quarter window dressing and better economic data.
Posted by: Gary / 11:45 AM

Thursday Watch 

Earnings of Note
Company/Estimate
CMN/.27
STZ/.70
FDO/.26

Splits
None of note.

Economic Data
Personal Income for August estimated up .4% versus a .1% rise in July.
Personal Spending for August estimated up .1% versus a .8% increase in July.
PCE Deflator (YoY) for August estimated up 2.2% versus a 2.4% rise in July.
PCE Core (Yoy) for August estimated up 1.5% versus a 1.5% increase in July.
Initial Jobless Claims for last week are estimated at 343K versus 350K the prior week.
Continuing Claims are estimated at 2875K versus 2883K prior.
Chicago Purchasing Manager for September estimated at 58.0 versus 57.3 in August.

Recommendations
Goldman Sachs reiterated Attractive view of Non-life Insurance industry. Goldman reiterated Outperform on IBM, TYC, GE and Underperform on FHN, PGL, FHCC.

Late-Night News
Asian indices are higher on optimism over better U.S. economic growth and falling oil prices. About $14 billion should be spent upgrading power plants and transmission lines in the U.S. Rocky Mountain states, the AP reported. Genentech's breast-cancer treatment Herceptin may work in some types of lung cancer, Reuters reported. CEOs of three of the world's biggest automakers asked Treasury Secretary John Snow to urge Japan not to resume yen sales that they say unfairly make Japanese cars less expensive in the U.S., Bloomberg reported. Caterpillar, its rival Komatsu and SGS SA, which test mineral samples, said sales are rising in Mongolia from a surge in mining exploration in the country, Bloomberg reported. U.S. Medicare advisers in November will assess the safety and cost of surgery as a way for patients to lose weight, the NY Times reported.

Late-Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated +.10%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on better economic data, gains in Asia, declining oil prices, short-covering and end-of-the-quarter window dressing. The Portfolio is 125% net long heading into tomorrow.
Posted by: Gary / 2:30 AM

Wednesday, September 29, 2004

Wednesday Close 

S&P 500 1,114.80 +.43%
NASDAQ 1,893.94 +1.29%

Leading Sectors
Disk Drives +2.91%
Airlines +2.21%
Semis +1.85%

Lagging Sectors
Energy -1.18%
Oil Service -1.51%
Broadcasting -2.20%

Other
Crude Oil 49.56 -.68%
Natural Gas 6.91 +8.82%
Gold 414.90 +.17%
Base Metals 117.28 +.88%
U.S. Dollar 88.07 -.05%
10-Yr. T-note Yield 4.09% +2.10%
VIX 13.21 -4.48%
Put/Call .84 -6.67%
NYSE Arms .79 -11.24%

After-hours Movers
TLB -8.29% after cutting 3Q forecast.
RECN -4.84% after substantially beating 1Q estimates and saying future hiring may hurt operating income.
NARA +4.15%

Recommendations
Goldman Sachs reiterated Outperform on PFE. Goldman reiterated Underperform on TSG and S.

After-hours News
U.S. stocks rose today, led by technology shares, after oil prices fell and an economic report showed faster economic growth than originally expected. After the close, Saudi Arabia's top religious authority banned the use of camera cellular phones, saying the devices are responsible for helping to spread "obscenity," the AP reported. The Montreal Expos said they're moving to Washington next season, bringing Major League Baseball back to the nation's capital after a 33-year absence, Bloomberg said. The chairman of a U.S. Congress panel responsible for Fannie Mae gained authority to subpoena executives at the biggest U.S. mortgage finance company for information related to allegations of accounting violations, Bloomberg reported. AIG said the U.S. Department of Justice is investigating the company for helping PNC Financial Services remove bad loans from its books, Bloomberg said. A judge struck down portions of the USA Patriot Act requiring Internet and telephone companies to surrender customer records sought in terrorism investigations and barring notice to clients that their data was handed over, Bloomberg reported. Micron Technology reported a second-straight quarterly profit as sales jumped 34%, Bloomberg reported. Delphi said the U.S. SEC is investigating $86.5 million of the company's transactions with computer-services provider Electronic Data Systems, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as my rising internet and homebuilding longs offset losses in my commodity-related longs. I covered a few technology shorts in the afternoon and added some semiconductor longs, leaving the Portfolio 125% net long. One of my new longs is BRCM and I am using a $26.50 stop-loss on this position. Volume increased and the advance/decline line was pretty strong today. However, measures of investor complacency rose again. The major U.S. indices will likely remain strong through week's end.
Posted by: Gary / 7:17 PM

Mid-day Uddate 

S&P 500 1,110.61 +.05%
NASDAQ 1,889.26 +1.03%

Leading Sectors
Disk Drives +2.76%
Semis +2.29%
Airlines +2.07%

Lagging Sectors
Energy -1.48%
Broadcasting -1.72%
Oil Service -2.19%

Other
Crude Oil 48.60 -2.71%
Natural Gas 6.73 +7.70%
Gold 415.20 +.24%
Base Metals 117.28 +.88%
U.S. Dollar 88.19 +.10%
10-Yr. T-note Yield 4.09% +2.20%
VIX 13.33 -3.62%
Put/Call .73 -18.89%
NYSE Arms 1.05 +17.98%

Market Movers
ORBZ +30.8% after Cendant(CD) agreed to buy it for $1.25 billion.
GOOG +4.0% after Morgan Stanley rated it Overweight.
IACI +5.6% on ORBZ news.
JMDT +41.0% on strong IPO demand.
CAT +3.9% on continued optimism over earnings forecast.
PFCB +5.5% after meeting 3Q estimates.
SHFL +5.8% as Calyon Securities rated it Add.
INSP +5.1% as Raymond James rated it Strong Buy.
BLUD +7.8% after beating 1Q estimates and raising 05 forecast.
PCLN +9.6% on ORBZ news.
PDX -15.2% after lowering 3Q/4Q outlook.
CPC -12.7% after cutting 04 guidance and multiple downgrades.
TSCO -5.8% after lowering 3Q forecast.

Economic Data
Final 2Q GDP rose 3.3% versus estimates of 3.0% and a prior estimate of 2.8%.
Final 2Q Personal Consumption rose 1.6% versus estimates of 1.6% and a prior estimate of 1.6%.
Final 2Q Price Deflator rose 3.2% versus estimates of 3.2% and a prior estimate of 3.2%.

Recommendations
Goldman Sachs reiterated Outperform on MDT, AMT, SLR, BIIB, AMGN, GDT, MET, CCL, RCL, GCI, CAT, Goldman reiterated Underperform on FHCC and DJ. Citi SmithBarney rated DEX Sell, target $19. Citi said to Buy WMT on weakness, target $65. Citi reiterated Sell on CLX, target $47. Citi reiterated Buy on AMGN, target $90. Citi reiterated Buy on LOW, target $67. Citi reiterated Sell on GDT, target $54. JNY raised to Overweight at JP Morgan. SPH cut to Reduce at UBS, target $32. WPI rated Outperform at CSFB, target $37. IPXL rated Outperform at CSFB, target $22. MAR raised to Sector Outperform at CIBC. LQI raised to Sector Outperform at CIBC.

Mid-day News
U.S. stocks are rising mid-day as energy prices fall and a report showed economic growth exceeded expectations for the third-quarter. Sprint plans to provide Internet and telephone service to a chain of U.S. coffeehouses owned by the National Federation of Coffee Growers of Columbia, the NY Times reported. Burger King signed up a franchise partner to open its first restaurants in Brazil, Valor Economico reported. China will pursue reunification with Taiwan through peaceful means to keep the country whole, China Central TV said. Martha Stewart will serve her prison term for obstruction of justice at a facility in West Virginia, CNBC reported. Many Floridians are suffering depression and anxiety after living through four hurricanes in six weeks, the AP reported. Senator Brownback said lawmakers from the U.S. senate and House of Representatives agreed to raise the maximum fines for broadcasting indecency, the LA Times reported. A measure of the number of applications to buy a home or refinance existing mortgages rose last week to the highest level since early May, Bloomberg reported. ConocoPhillips will buy 7.6% of OAO Lukoil of Russia for $1.99 billion and said it may raise that stake further, Bloomberg reported. SpaceShipOne, financed by Microsoft co-founder Paul Allen and built by aviation pioneer Burt Rutan, rocketed high over the California desert early today in a quest to win a $10 million competition designed to accelerate space tourism, Bloomberg said. The IMF said world economic growth will be a very robust 4.3% in 2005 after reaching 5.0% this year, the strongest in almost 30 years, Bloomberg reported. Crude oil fell for the first session in 10 after the Energy Department reported an unexpected increase in U.S. stockpiles, easing concern about the production and shipping disruptions caused by Hurricane Ivan, Bloomberg reported. U.S. GDP growth rose 3.3%, more than previously forecast for the third-quarter, on stronger exports and inventory rebuilding, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher mid-day on strength in my internet and homebuilding longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is pretty good on the unexpected build in oil inventories and better economic growth. Considering recent disruptions, the build bodes well for further declines in oil prices. Interest rates should continue heading modestly high through year-end on a reacceleration in U.S. economic growth. Shorting TLT is one way to play this. I expect stocks to continue moving modestly higher over the next couple of days on short-covering, end-of-the-quarter window dressing, better economic data, declining energy prices and the Presidential debate.
Posted by: Gary / 2:36 PM

Wednesday Watch 

Earnings of Note
Company/Estimate
AM/.00
ARRO/.34
BLUD/.14
MKC/.32
MU/.20
RECN/.32

Splits
CATY 2-for-1

Economic Data
Final 2Q GDP estimated +3.0% versus a prior estimate of +2.8%.
Final 2Q Personal Consumption estimated +1.6% versus a prior estimate of +1.6%.
Final 2Q GDP Price Deflator estimated +3.2% versus a prior estimate of +3.2%.

Recommendations
Goldman Sachs reiterated Outperform on DVN, SLR, AMT, CLX and AMGN.

Late-Night News
Asian indices are quietly mixed as strength in Australian shares is being offset by weakness in Hong Kong. The U.S. may bring North Korea before the United Nations Security Council if the communist country doesn't continue talks to dismantle its nuclear programs, Agence France-Presse reported. Funds owned by AMP Ltd., Australia's largest life insurer, raised their stake in Fisher & Paykel Appliances Holdings to 5.2%, betting that U.S. distribution and technology accords will bolster earnings, Bloomberg reported. Toyota Motor and Nissan Motor may start production in Russia to boost their market share in what is expected to be the world's third-fastest growing car market over the next four years, Bloomberg said. China's university graduates face increasing pressure to find jobs, with the number of students expected to complete their degrees in 2005 rising 21% from this year to 3.38 million, the official Xinhua news agency said. The dollar fell against the yen in Asia after Federal Reserve Bank of Kansas President Hoenig said a lower dollar helped with the U.S. trade deficit and that the news on inflation is good, Bloomberg reported. Taiwan may have the technology to mass produce mid-range missiles capable of striking Shanghai in two years, a lawmaker said, adding teeth to Premier Yu Shyi-kun's warning that the island will retaliate if China attacks, Bloomberg reported. American International Group Chairman Greenberg said he may buy U.S. property and casualty competitors stung by losses, Bloomberg said.

Late-Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated +.04%

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on a continuation of today's rally. I will closely watch the market's reaction to the energy inventory data before shifting the Portfolio's market exposure. The Portfolio is 100% net long heading into tomorrow.
Posted by: Gary / 12:13 AM

Tuesday, September 28, 2004

Tuesday Close 

S&P 500 1,110.06 +.59%
NASDAQ 1,869.87 +.54%

Leading Sectors
Iron/Steel +4.10%
Airlines +3.33%
Commodity +2.78%

Lagging Sectors
Networking -.40%
Semis -.87%
Homebuilders -1.49%

Other
Crude Oil 49.88 -.04%
Natural Gas 6.45 +1.56%
Gold 414.00 -.05%
Base Metals 116.26 -.75%
U.S. Dollar 88.11 -.20%
10-Yr. T-note Yield 4.00% +.38%
VIX 13.83 -5.40%
Put/Call .90 -7.22%
NYSE Arms .89 -44.38%

After-hours Movers
IACI +3.85% on ORBZ news.
ORBZ +27.59% on reports it may be purchased by Cendant for about $1.2 billion.
PCLN +11.61% on ORBZ news.

Recommendations
Goldman Sachs reiterated Outperform on JNPR, AYE and MET.

After-hours News
U.S. stocks rose today, led by surging commodity-related shares. After the close, China Minmetals has put in place the financing needed for a planned $5 billion takeover of Canada's biggest mining company, Noranda Inc., Reuters reported. Medicare, the U.S. medical-cost reimbursement program for the elderly, will increase the number of heart conditions that qualify for treatment with implantable cardiac defibrillators, CNBC said. Caterpillar raised its 2004 sales forecast and said revenue next year will increase by about 10% from this year as demand for its machines and engines grows, Bloomberg said. Preparations for Afghanistan's presidential election on Oct. 9 are "on track," a United Nations official said.

BOTTOM LINE: The Portfolio finished unchanged today as my rising steel and internet longs offset my declining homebuilding and security longs. I covered a few technology shorts and added some new Chinese ADR longs in the afternoon, leaving the Portfolio 100% net long. One of my new longs is ACH and I am using a stop-loss of $60.45 on this position. The tone of the market improved quite a bit in the afternoon, despite rising energy prices, as volume picked-up and the advance/decline line finished at its highs for the day. However, measures of investor anxiety fell again and are approaching very complacent levels. U.S. stocks should drift modestly higher through week's end on better economic data, short-covering, the Presidential debate and end-of-the quarter window-dressing. Tomorrow's reaction to the energy inventory data will also help determine the market's short-term direction.
Posted by: Gary / 6:41 PM

Mid-day Update 

S&P 500 1,106.87 +.30%
NASDAQ 1,861.67 +.10%

Leading Sectors
Iron/Steel +2.93%
Airlines +2.79%
Commodity +2.56%

Lagging Sectors
Networking -1.46%
Homebuilders -1.46%
Semis -1.58%

Other
Crude Oil 49.80 +.52%
Natural Gas 5.51 +4.71%
Gold 413.40 +.66%
Base Metals 116.26 -.75%
U.S. Dollar 88.18 -.12%
10-Yr. T-note Yield 4.02 +.72%
VIX 14.23 -2.67%
Put/Call .90 -7.22%
NYSE Arms 1.12 -30.0%

Market Movers
AGIX +57.6% after saying its experimental drug for clogged arteries significantly reduced the amount of fatty plaque in blood vessels.
JNPR -5.1% on Friedman Billings downgrade to Market Perform.
NABI +16.2% after announcing positive test results for its antismoking vaccine.
GGC +7.9% after saying full-year sales would be better than estimates.
CNC +11.7% after agreeing to buy two health plans for about $93 million to gain patients in Kansas and Missouri.
GOOG +4.1% after multiple Buy ratings by underwriters.
STTX +10.7% after substantially boosting 4Q and 04 outlook.
IMCL +5.46% after Friedman, Billings upgrade to Outperform.
TZOO -13.8% on profit-taking.
DJO -13.2% after lowering 3Q/4Q guidance.
SNA -11.2% after lowering 3Q/04 outlook and Robert Baird downgrade to Underperform.

Economic Data
Consumer Confidence for September was 96.8 versus estimates of 99.5.

Recommendations
GOOG rated Outperform at CSFB, target $145. LWSN raised to Overweight at JP Morgan. GOOG rated Outperform at Thomas Weisel. GOOG rated Overweight at JP Morgan. UTEK raised to Buy at Merrill Lynch, target $22. GOOG rated Overweight at Morgan Stanley. Goldman Sachs reiterated Outperform on RIG, DO, KSS, GDT, Goldman reiterated Underperform on PBG. Goldman reiterated Attractive view of Oil Service sector, favorites are RIG, DO, SLB, BHI and SII. Citi SmithBarney says to Buy DOW and LYO. Citi reiterated Buy on PRE, target $69. Citi reiterated Buy on EMC, target $13.50. Citi reiterated Buy on SMTC, target $24. Citi reiterated Sell on ISIL, target $14. Citi reiterated Buy on AFC, target $36. Citi reiterated Buy on WR, target $22.50. Citi reiterated Buy on NPSP, target $25.

Mid-day News
U.S. stocks are modestly higher mid-day as a weaker consumer confidence report is being more than offset by strength in commodity-related stocks. Saudi Arabia will raise oil production to 11 million barrels a day, the AP reported. Fannie Mae's need to restate earnings will be decided by the SEC, Reuters reported. A top al-Qaeda leader was seen in July meeting in Honduras with leaders of a Salvadoran criminal gang that has roots in the U.S., including a presence in Washington, D.C., the Washington Times reported. Major League Baseball may disclose that Washington, D.C. will be the new home of the Montreal Expos on Thursday, the AP reported. The San Francisco 49ers professional football team sold the naming right to Candlestick Park to Monster Cable Products for about $6 million over four years, the San Francisco Chronicle reported. Amazon.com and Microsoft filed lawsuits to fight "spoofing" and "phishing," or the use of forged e-mail that purports to come from Amazon.com, Hotmail.com and other domains, Bloomberg reported. Bonds of Allstate and other home and auto insurers are holding steady after Hurricane Jeanne became the fourth storm in seven weeks to hit Florida and generate as much as $26 billion of damage claims, Bloomberg said. SpaceShipOne, a spacecraft financed by Microsoft co-founder Paul Allen, will travel more than 62 miles above the California desert tomorrow in its first official attempt to win a $10 million competition to encourage space tourism, Bloomberg reported. Cisco Systems will sell 180,000 phones that transmit phone calls over the Internet to Bank of America, Bloomberg reported. The value of derivatives traded outside exchanges more than doubled to $1.2 trillion a day in the three years through April led by dollar-denominated interest-rate contracts, the Bank for International Settlements said. Google, whose shares are up 39% since its IPO, may rise further as it boosts advertising revenue and international sales, CSFB and JP Morgan said in research reports. Foreign-exchange trading surged to a record daily average of $1.9 trillion this year as hedge funds and other money managers increases bets on currencies, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly lower mid-day as declines in my security and homebuilding longs are more than offsetting my declining semi and software shorts. I added a few alternative energy, wireless and internet longs this morning, leaving the Portfolio 50% net long. One of my new longs is PLUG and I am using a $5.90 stop-loss on this position. End-of-the quarter window-dressing, better economic data, the Presidential debate and short-covering should push stocks modestly higher over the next few days.
Posted by: Gary / 2:57 PM

Tuesday Watch 

Earnings of Note
Company/Estimate
EMMS/.21
SLR/.04

Splits
None of note.

Economic Data
Consumer Confidence for September estimated at 99.5 versus 98.2 in August.

Recommendations
Goldman Sachs said to Buy AIG, ALL, ENH and RE on any weakness. Goldman reiterated Outperform on DVN and Underperform on QGENF.

Late-Night News
Asian indices are mostly lower on continuing worries that high energy prices will hurt exporters in the region. It may take "18 months to two years" to boost earnings at Coca-Cola, the Financial Times reported, citing Chairman and CEO Isdell. North Korea has "weaponized" the enriched uranium from 8,000 spent nuclear fuel rods, the AP reported. AT&T agreed to a doubling of the interest premium on its bank credit line after the telephone company's bond rating was lowered to non-investment grade, Bloomberg reported. China may award an $8 billion order for four nuclear reactors to an overseas supplier such as Areva SA, Westinghouse Electric or Siemens AG as part of the world's biggest nuclear power construction program, Bloomberg said. Pfizer appealed China's revocation of its Viagra patent in a case that may test the nation's commitment to stronger protection for intellectual property rights, Bloomberg reported. Crude oil is rising above $50/bbl. in NY on concern rebel attacks in Nigeria may reduce supply from Africa's biggest oil producer at a time when U.S. inventories are close to a 29-year low, Bloomberg said. America Coming Together, a 527 political group backed by billionaire hedge fund manager George Soros, is paying 1,500 people $8-$12 an hour to go door-to-door in 17 battleground states to register voters, urging them to vote for Senator Kerry, Bloomberg Reported. The group has raised $80 million and is the best-funded get-out-the-vote effort in Democratic Party history, Bloomberg said.

Late-Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.04%

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on continuing worries over high oil prices and profit-taking. The Portfolio is 25% net short heading into tomorrow.
Posted by: Gary / 12:53 AM

Monday, September 27, 2004

Monday Close 

S&P 500 1,103.52 -.59%
NASDAQ 1,859.88 -1.04%

Leading Sectors
Broadcasting +1.03%
Homebuilders +.91%
Utilities +.31%

Lagging Sectors
Biotech -1.85%
Networking -2.31%
Airlines -4.01%

Other
Crude Oil 49.92 +.62%
Natural Gas 5.30 +.72%
Gold 410.40 -.07%
Base Metals 117.14 +.98%
U.S. Dollar 88.29 -.12%
10-Yr. T-note Yield 3.98% -.95%
VIX 14.62 +2.38%
Put/Call .97 +4.30%
NYSE Arms 1.60 +52.38%

After-hours Movers
AGIX +64.0% after saying its experimental drug for clogged arteries significantly reduced the amount of fatty plaque in blood vessels.
NSTK +4.7% on continued optimism over its nasal spray for obesity.
MCHX +8.3% after announcing agreements with two of the Internet's leading shopping services through its TrafficLeader subsidiary.
HGSI -5.4% after announcing that it intends to offer $200 million aggregate principal amount of convertible subordinated notes.
MCIP -5.1% after saying Leucadia National has sold its 5% stake for $20 million pretax profit.

Recommendations
Goldman Sachs reiterated Outperform on HOT, FD, HD, WAG, AGN, CAT and PPL.

After-hours News
U.S. stocks finished lower today on rising commodity prices and profit-taking. After the close, Apollo Management is the leading bidder for News Corp.'s Hughes Network Systems unit after offering $300 million, Dow Jones reported. Iraq and the International Monetary Fund likely will reach an agreement this week or next on a program aimed at rebuilding Iraq's economy, Goldman Sachs International Vice Chairman Hormats told CNBC. American Airlines dropped a $10 per round trip fare increase on most U.S. and U.S.-Canada flights after competitors declined to match the change on all routes, Bloomberg reported. Nextel Communications said it purchased 6 million of its own shares, and some shares of Nextel Partners, from Motorola, Bloomberg said. Orange-juice prices in NY surged the most in more than three years to a 15-month high on supply concerns after Hurricane Jeanne hit Florida, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slightly lower today as declines in my security longs offset gains in my homebuilding longs. I exited a few security-related longs in the afternoon as they hit stop-losses, thus leaving the Portfolio 25% net short. Volume was light today and the advance/decline line was poor. On the positive side, measures of investor anxiety are rising and interest rates continue to fall. I still expect homebuilders to reach all-time highs in the fourth quarter.
Posted by: Gary / 6:39 PM

Mid-day Update 

S&P 500 1,107.10 -.27%
NASDAQ 1,868.72 -.57%

Leading Sectors
Homebuilders +1.89%
Broadcasting +.38%
Drugs +.30%

Lagging Sectors
I-Banks -1.29%
Networking -1.31%
Airlines -3.45%

Other
Crude Oil 49.30 +.86%
Natural Gas 5.23 -2.91%
Gold 411.10 +.34%
Base Metals 117.02 +.88%
U.S. Dollar 88.21 -.21%
10-Yr. T-note Yield 3.99% -.76%
VIX 14.62 +2.38%
Put/Call .72 -22.58%
NYSE Arms 1.17 +11.43%

Market Movers
CX -7.5% after saying it agreed to buy RMC Group Plc for $4.15 billion to double revenue and expand in concrete markets in Europe and the U.S.
TOM -20.1% after saying U.S. authorities are investigating commissions the company paid to an overseas-purchasing unit.
VSEC +38.6% after saying it received a cost-plus-fixed-fee contract from the U.S. Navy valued as much as $1 billion.
NSTK +33.7% after announcing a global alliance with Merck(MRK) to develop an experimental nasal spray treatment for obesity.
PER +11.4% after boosting 3Q estimates.
CNCT after saying it had commenced the Phase III clinical trial program for Desilux, a low-potency topical steroid.
GMAI -14.7% on negative Barron's article.

Economic Data
New Home Sales for August were 1184K versus estimates of 1155K and 1082K in July.

Recommendations
Goldman Sachs reiterated Outperform on RE, ALL, ENH, AGN, FSL, HOT, KO, BSX, DNA, AMGN, STLD, FS, IGT, HD, GDT, MDT, MRVL and PFE. Goldman reiterated Underperform on AMCC. Citi SmithBarney reiterated Buy on MMM, target $95. Citi reiterated Buy on VIAB, target $50. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on HAL, target $44. Citi reiterated Sell on PGN, target $38.50. Citi reiterated Buy on UNM, target $20. Citi reiterated Buy on FNM, target $81. ISG raised to Outperform on CSFB. VISG rated Buy at UBS. WMT upgraded to Buy at Bank of America, target $60. JBLU, FRNT and AAI cut to Underweight at JP Morgan. FDO raised to Buy at Bank of America, target $33.50. IMOS raised to Outperform at Thomas Weisel, target $10. PTEN cut to Underweight at Morgan Stanley. TOM downgraded to Underweight, target $8.

Mid-day News
U.S. stocks are falling modestly mid-day on profit-taking and continuing fears over higher energy prices. IBM will invest $250 million over the next five years and employ1,000 people in a new business unit supporting products and services related to sensor networks, the NY Times reported. PalmSource will announce tomorrow its first operating system for so-called smart phones, the International Herald Tribune reported. Bank of America may close or merge as many as 38 mutual funds as part of its acquisition of FleetBoston Financial, the Boston Herald reported. Starbucks will raise beverage prices 11 cents on average, the Wall Street Journal reported. JP Morgan agreed to buy hedge fund company Highbridge Capital, Bloomberg reported. Anglo American Platinum, Impala Platinum and Northam Platinum may face strikes over pay at South African mines, crippling 60% of the world's platinum production and boosting prices of the metal, Bloomberg said. Walgreen said fourth-quarter profit rose 18%, helped by sales of prescription drugs, Bloomberg reported. Fannie Mae agreed to correct its bookkeeping policies to meet generally accepted accounting principles, Bloomberg said. A series of small tremors culminating in more than 10 larger earthquakes near Mount St. Helens may be a precursor to explosions, landslides and the release of ash clouds, the U.S. Geological Survey said. U.S. new home sales surged 9.4% in August, propelled by the lowest mortgage rates in four months, Bloomberg reported. Comcast is working with Time Warner to explore a potential transaction regarding bankrupt cable-tv operator Adelphia Communications, Bloomberg reported. Jeanne, the fourth hurricane to hit Florida in two months, weakened as it moved into Georgia, leaving behind a trail of destruction and at least 7 deaths, Bloomberg said. Crude oil is rising amid concern rebel attacks in Nigeria will reduce production and U.S. refiners will struggle to replenish supplies disrupted by Hurricane Ivan, Bloomberg reported.

BOTTOM LINE: The Portfolio is slightly lower mid-day as my declining security longs are more than offsetting my rising homebuilding longs. I have not traded today and the Portfolio is still market neutral. The tone of the market is negative today and the CRB is spiking up, mostly as a result of the hurricanes. I expect U.S. stocks to traded mixed into the afternoon.
Posted by: Gary / 12:45 PM

Monday Watch 

Earnings of Note
Company/Estimate
WAG/.31

Splits
AMWD 2-for-1
LM 3-for-2

Economic Data
New Home Sales for August estimated at 1155K versus 1134K in July.

Weekend Recommendations
Louis Rukeyser's Wall Street had guests that were positive on EK, INTC, DIA, PFE, BK and CMCSA. Wall St. Week w/Fortune had guests that were positive on CMCSA, NXTL, EBAY and EK. Bulls and Bears had guests that were positive on ERES, BAC, SLM, LDG, JBHT, CCL, AH, CL and mixed on KMRT, ORCL. Forbes on Fox had guests that were positive on INGR, QSTR, MSFT, WIT and MSO. Cashin' In had guests that were positive on FLIR, MMC, mixed on ISSX, KKD, ESPD, EDP and negative on MSO. Barron's had positive comments on BBI, F, TM, HMC, DCX and negative comments on VLKAY and GMAI. Goldman Sachs reiterated Outperform on EBAY. Goldman reiterated Attractive view on Gold stocks.

Weekend News
China may let its insurance companies buy stocks directly as early as next month, the 21st Century Business Herald said. Tesco Plc, Britain's biggest retailer, is testing RFID tags that will replace the bar code on products from bread to stereos, the Financial Times said. KarstadtQuelle AG, the largest German department store operator, plans to end its joint venture with Starbucks, Frankfurter Allgemeine Sonntagszeitung said. Iraq's Prime Minister Allawi and Secretary of State Colin Powell said they expected all Iraqis would participate in the election planned for January, the Washington Post reported. Semiconductor Manufacturing International has started making 12-inch wafers at its newest plant in Beijing, Xinhua news said. The world economy is at its best in five years, said IMF Managing Director Rodrigo Rato in an interview with El Pais. Senator Kerry, who supported extending a U.S. assault-weapons ban that expired two weeks ago, said that he owns a Chinese assault rifle, the NY Times reported. Viacom CEO Redstone said he will wait on a report by a panel investigating Dan Rather's use of questionable documents before deciding on the CBS News anchorman's future, Time magazine reported. Johnson & Johnson's may enter the hearing aid market and expand its over-the-counter drugs business in an effort to boost sales, the Financial Times said. France and Germany won't increase military aid to Iraq even if Senator Kerry wins the U.S. election, the Financial Times reported, citing French and German officials. Texas Instruments and Xilinx have cut chip orders at United Microelectronics after paring forecasts for their quarterly sales, the Commercial Times reported. Hewlett-Packard will stop making desktop computers based on Intel's Itanium chip, the Wall Street Journal reported. Asian traders said any declines in Fannie Mae debt, after regulators told the company to amend account ting procedures, are a buying opportunity, the Asian Wall Street Journal reported. U.S. oil inventories should make a quick recovery to normal levels after Hurricane Ivan disrupted supply to the U.S. Gulf of Mexico over the last two weeks, Qatar's oil minister said. Hurricane Jeanne, which slammed into Florida's Atlantic coast overnight, may cost insurers $6 billion to $14 billion, rivaling Hurricane Charley as the most expensive storm of the season, Bloomberg reported. Inco, the world's second-biggest nickel producer, and Falconbridge may spend $3.5 billion for the metal from Chinese stainless steel makers soars, Bloomberg said. The U.S. Army may reduce the length of time soldiers are required to spend in combat zones in Iraq and Afghanistan, the NY Times reported. Fannie Mae may have to sell assets or turn to investors to raise cash to meet its regulatory capital standards, the Wall Street Journal said.

Late-Night Trading
Asian indices are mixed, -.75% to +.25% on average.
S&P 500 indicated +.04%.
NASDAQ indicated +.04%

BOTTOM LINE: I expect U.S. stocks to open modestly lower in the morning on higher energy prices and greater-than-expected damage from Hurricane Jeanne. The Portfolio is market neutral heading into the week.
Posted by: Gary / 2:52 AM

Sunday, September 26, 2004

Chart of the Week 

Phelps Dodge Corporation


Bottom Line: Phelps Dodge(PD), the leading U.S. copper producer, rose 8.82% to a new all-time high last week. Accelerating demand for copper bodes well for future U.S. economic growth. I expect PD to break $100/share before year-end.
Posted by: Gary / 8:59 PM

Weekly Outlook 

There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week. Economic reports include New Home Sales, Consumer Confidence, Final 2Q GDP readings, Personal Income, Personal Spending, PCE Deflator, Initial Jobless Claims, Help Wanted Index, Chicago Purchasing Manager, Final Univ. of Mich. Consumer Confidence, Construction Spending, ISM Manufacturing/Prices Paid and Vehicle Sales. New Home Sales, Consumer Confidence, GDP readings, Personal Spending, Chicago Purchasing Manager and ISM all have market-moving potential.

Walgreen(WAG), Solectron(SLR), American Greeting(AM), Micron Technology(MU), Constellation Brands(STZ) and Family Dollar Stores(FDO) are some of the more important companies that release quarterly earnings this week. There are also a number of other events that have market-moving potential. The UBS Global Life Sciences Conference, Oil & Gas Investment Symposium West, Deutsche Bank Global Oil & Gas Conference, Merrill Lynch Media Conference, Thomas Weisel Consumer Conference, Fed's Hoenig speaking, CSFB Chemical Conference, Fed's McTeer speaking and the Fed's Geithner speaking could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week mixed as earnings worries and profit-taking offset better economic data and quarter-end window dressing. As well, investor complacency and the market's technically overbought state should lead to further consolidation. Investors are overreacting to slowing earnings growth as 3Q earnings are projected to rise 14.2% versus a historical average of 7%. Moreover, the negative-to-positive preannouncement ratio is currently around 2.0, below the market's long-term average. My short-term trading indicators are giving mixed signals and the Portfolio is market neutral(longs-shorts=0% market exposure) heading into the week.
Posted by: Gary / 8:10 PM

Market Week in Review 

S&P 500 1,110.11 -1.63%

Click here for the Weekly Wrap by Briefing.com

Bottom Line: Last week's market action was mostly negative as U.S. stocks fell, driving the S&P 500 to its first weekly loss in seven, amid disappointing earnings and rising energy prices. However, most cyclicals continued to hold up well, pointing towards a re-acceleration of economic growth. Moreover, the Base Metal Spot Price Index broke out last week, which also bodes well for a pick-up in growth. Many investors view the current decline in long-term interest rates as a forecast of very slow economic growth or recession. I do not agree with this assessment at this point and view the decline as a big positive. Measures of investor anxiety were mixed last week and will likely head higher over the next few weeks. Finally, most stocks remain technically overbought after recent gains.
Posted by: Gary / 5:36 PM

The positions and strategies discussed on Between the Hedges are offered for entertainment purposes and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any way, considered liable for the future investment performance of any securities or strategies discussed.

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