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, May 07, 2005

Market Week in Review 

S&P 500 1,171.35 +1.25%*

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Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was positive considering the rise in energy prices, increase in interest rates and debt worries at GM/Ford. The S&P 500 has now broken out of the trading range it has been in since mid-April. The advance/decline rose, almost every sector gained and volume was average on the week. Small-cap, Cyclical and Tech shares all outperformed as worries over slowing US growth subsided. Measures of investor anxiety were mixed on the week. However, the AAII % Bulls fell again which is a big positive. The decline in the CRB Index was also a positive, considering the gain in energy prices. In my opinion, the longer oil stays above $50, the greater the chances of a substantial decline in its price during the second half of the year. I continue to believe the contango in the crude futures market, slowing demand, excess supply and a stable US dollar, will result in a much larger decline in oil prices than almost anyone expects. I suspect the decline has already begun and will accelerate within the next 6 weeks. The continuing weakness in Gold is likely more evidence that inflation fears have peaked.

*5-Day % Change
Posted by: Gary / 2:06 AM

Weekly Scoreboard* 

Indices
S&P 500 1,171.35 +1.25%
DJIA 10,345.40 +1.50%
NASDAQ 1,967.35 +2.38%
Russell 2000 596.52 +2.96%
DJ Wilshire 5000 11,535.55 +1.48%
S&P Equity Long/Short Index 1,005.40 +.15%
S&P Barra Growth 565.95 +1.27%
S&P Barra Value 601.02 +1.24%
Morgan Stanley Consumer 580.36 +.89%
Morgan Stanley Cyclical 713.33 +2.28%
Morgan Stanley Technology 448.27 +2.68%
Transports 3,533.66 +3.13%
Utilities 364.88 -1.77%
Bloomberg Crude Oil % Bulls 35.0 +60.4%
Put/Call 1.05 +2.94%
NYSE Arms .95 +10.47%
Volatility(VIX) 14.05 -8.23%
ISE Sentiment 163.0 +20.74%
AAII % Bulls 28.57 -3.97%
US Dollar 84.62 +.27%
CRB 300.46 -1.08%

Futures Spot Prices
Crude Oil 50.96 +3.58%
Unleaded Gasoline 147.60 -.27%
Natural Gas 6.62 +.85%
Heating Oil 143.11 +1.21%
Gold 426.90 -.93%
Base Metals 122.82 -1.72%
Copper 143.65 -1.10%
10-year US Treasury Yield 4.26% +1.43%
Average 30-year Mortgage Rate 5.75% -.52%

Leading Sectors
Steel +7.57%
Oil Tankers +5.23%
Insurance +4.58%

Lagging Sectors
Disk Drives -.11%
Broadcasting -1.08%
Telecom -1.68%

*5-Day % Change
Posted by: Gary / 12:08 AM

Friday, May 06, 2005

Stocks Quietly Higher Mid-day On Strong Employment Report 

Indices
S&P 500 1,173.55 +.08%
DJIA 10,379.91 +.38%
NASDAQ 1,965.70 +.20%
Russell 2000 596.87 +.21%
DJ Wilshire 5000 11,551.20 +.08%
S&P Barra Growth 566.91 +.15%
S&P Barra Value 601.85 -.06%
Morgan Stanley Consumer 581.56 -.18%
Morgan Stanley Cyclical 714.42 +.50%
Morgan Stanley Technology 446.85 +.31%
Transports 3,531.02 +.07%
Utilities 366.04 -.11%
Put/Call 1.06 unch.
NYSE Arms .74 -45.67%
Volatility(VIX) 13.68 -2.15%
ISE Sentiment 144.00 +29.7%
US Dollar 84.50 +.67%
CRB 300.30 +.03%

Futures Spot Prices
Crude Oil 51.25 +.83%
Unleaded Gasoline 148.35 +.29%
Natural Gas 6.64 -.61%
Heating Oil 143.50 -.60%
Gold 426.90 -.88%
Base Metals 122.82 +.54%
Copper 144.00 +.70%
10-year US Treasury Yield 4.26% +2.68%

Leading Sectors
Steel +1.92%
I-Banks +1.82%
Software +1.12%

Lagging Sectors
Gold & Silver -.68%
Banks -.77%
Airlines -.80%
BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Internet, Homebuilding and Gaming longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are rising and volume is below average. Measures of investor anxiety are lower, however the AAII % Bulls fell again this week to 28.57%. This is a big positive and bodes well for an extension of the recent rally. Today’s overall market action is modestly positive considering the increase in long-term rates and energy prices. In further evidence that inflation fears have peaked, gold is breaking down today. I expect US stocks to trade modestly higher into the close on short-covering, bargain-hunting and more optimism over US economic growth.
Posted by: Gary / 2:03 PM

Today's Headlines 

Bloomberg:
- China’s economic growth is “still too high,” Deputy Finance Minister Li Yong said.
- Mittal Steel, the world’s largest steelmaker, has shut two US mills for maintenance work. They will be restarted “when business conditions demand.”
- General Electric increased its second-quarter profit forecast by 1 cent a share after restating results for prior years because of changes in derivatives accounting.
- Crude oil is rising on speculation the US economy is stronger than some had anticipated after the better-than-expected employment report.
- US Treasuries are falling, pushing the two-year note to its biggest decline in a year, after the economy last month created more jobs than forecast.
- The US dollar is climbing the most in six weeks against the euro and is rising versus the yen as expectations for further Fed rates hikes increased.

CNBC:
- Hicks, Muse, Tate & Furst plans to sell 22.5 million shares of Clear Channel Communications, most of the 37.5 million shares it owns.

Wall Street Journal:
- Hewlett-Packard and Lexmark International face rising competition from brokers who buy empty cartridges and resell them to be refilled.
- The median pay of US mutual-fund managers, including salary and bonus, is $390,000, 34% higher than two years ago and higher than the $330,000 median figure for hedge fund managers.

NY Times:
- US House lawmakers approved $200 million in aid for Palestinians, and the White House welcomed the vote.

Boston Globe:
- Boston’s business costs were 36% higher than the national average in 2003, making it the most costly city in which to do business in the US.

Boston Herald:
- Analogic plansto begin tests of its new Cobra explosives detection machine today at Boston’s Logan International Airport, which may give the US a better way of spotting weapons or bombs.

Frankfurter Allgemeine Zeitung:
- Merrill Lynch global markets and investment banking head Greg Fleming expects mergers worldwide to increase between 15 and 25% this year.
Posted by: Gary / 12:47 PM

Job Market Still Healthy 

- The Unemployment Rate for April came in at 5.2% versus estimates of 5.2% and 5.2% in March.
- Average Hourly Earnings for April rose .3% versus estimates of a .2% increase and a .3% gain in March.
- The Change in Non-farm Payrolls for April rose to 274K versus estimates of 174K and an upwardly revised 146K in March.
- The Change in Manufacturing Payrolls for April rose to -6K versus estimates of -5K and -7K in March.
- Average Weekly Hours for April rose to 33.9 versus estimates of 33.7 and 33.7 in March.

Bottom Line: Today’s strong jobs report was further bolstered by an upward revision of 93,000 more jobs created in February and March than previously thought. Stand-out sectors included an increase in retail employment of 24,000 in April after a decline of 2,100 in March. As well, construction jobs rose by 47,000 after an increase of 29,000 the prior month. This bodes well for an acceleration of new home starts. Moreover, I continue to believe consumer spending will remain healthy throughout the year as interest rates stay low, inflation decelerates, job prospects/incomes improve modestly, sentiment rises and gas prices fall.
Posted by: Gary / 10:51 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:40 AM

Friday Watch 

Late-Night Headlines
Bloomberg:
- JP Morgan Chase said the SEC's Midwest office may recommend filing suit against the company's Bank One Corp. unit and former employee.
- SBC Communications lost a request with US regulators to keep video and high-speed Internet services free from the same set of rules that apply to voice and other Web products sold by phone companies.
- Australia's central bank said inflation pressures have eased and March's interest-rate increase has damped consumer demand, signaling it may keep borrowing costs unchanged in coming months.
- Prime Minister Tony Blair led his Labour Party to victory in yesterday's election, television projections showed, putting him on course to become Britain's first Labour leader to win a third straight term.
- Crude oil prices are more likely to fall than rise as US inventories near a six-year high boost confidence that refiners will meet peak summer gasoline demand, a Bloomberg survey shows.

AP:
- UN Secretary-General Kofi Annan said more than twice as many UN peacekeepers and staff members were accused of sexual abuse in 2004 than the year before.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MCK, TRI, INTC, BBG and HMA.
- Reiterated Underperform on PFG, ROIAK, MU, WGR, WTW and DRI.

Business Week:
- The shares of Cooper Cameron(CAM), the maker of oil and gas drilling equipment, will rise after trailing the industry's gains.
- The shares of Varian Semiconductor Equipment Associates(VSEA) may rise 40% in the next year as earnings may increase on demand from chipmakers.
- Shares of American Greetings(AM) are worth buying because the company has a strong cash flow and it may buy back as much as 11% of its stock in the next year.

Night Trading
Asian Indices are +.25% to +1.25% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated -.03%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
BRK/A/910.00
MLS/.22
OATS/-.05

Splits
None of note

Economic Releases
8:30 EST:
- The unemployment rate for April is estimated at 5.2% versus a 5.2% rate in March.
- Average Hourly Earnings for April are estimated to rise .2% versus a .3% gain in March.
- The Change in Non-farm Payrolls for April is estimated to rise to 174K versus 110K in March.
- The Change in Manufacturing Payrolls for April is estimated to rise to -5K versus -8K in March.

3:00 EST:
- Consumer Credit for March is estimated to rise to $6.4B versus $5.6B in February.

BOTTOM LINE: Asian indices are higher, spurred by gains in exporting shares in the region. I expect US equities to open modestly higher on a positive reaction to tomorrow's employment report. While I don't have a good feel for whether or not non-farm payrolls will meet expectations, I do believe that only a much lower-than-expected number of below 100,000 would hurt stocks. Under this scenario, which is very unlikely, fears of a US hard landing would resurface. The Portfolio is 100% net long heading into tomorrow.
Posted by: Gary / 12:52 AM

Thursday, May 05, 2005

Stocks Consolidate After Yesterday's Strong Performance 

Indices
S&P 500 1,172.63 -.26%
DJIA 10,340.38 -.43%
NASDAQ 1,961.80 -.02%
Russell 2000 595.64 +.07%
DJ Wilshire 5000 11,541.79 -.18%
S&P Barra Growth 566.08 -.19%
S&P Barra Value 602.19 -.32%
Morgan Stanley Consumer 582.61 -.34%
Morgan Stanley Cyclical 710.87 -.45%
Morgan Stanley Technology 445.47 -.22%
Transports 3,528.85 +.26%
Utilities 366.44 -.82%
Put/Call 1.06 +11.58%
NYSE Arms 1.37 +179.94%
Volatility(VIX) 13.98 +.94%
ISE Sentiment 118.00 -10.61%
US Dollar 83.90 -.12%
CRB 300.20 -.26%

Futures Spot Prices
Crude Oil 51.26 +2.23%
Unleaded Gasoline 148.76 +1.45%
Natural Gas 6.70 +1.07%
Heating Oil 145.15 -.21%
Gold 431.10 +.09%
Base Metals 122.16 +.71%
Copper 143.00 unch.
10-year US Treasury Yield 4.14% -.90%

Leading Sectors
Oil Tankers +2.39%
Energy +.95%
Homebuilders +.87%

Lagging Sectors
Steel -.84%
Networking -.96%
Disk Drives -1.89%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on COH, ARO, NKE, LIZ, PMMAY and CBG.
- Reiterated Underperform on GPI.

Afternoon/Evening Headlines
Bloomberg:
- The US government is proposing that a mandatory national cattle identification system be in place by 2009 to help control outbreaks of livestock illnesses such as foot and mouth disease and mad cow disease.
- US Treasury notes advanced after S&P cuts its credit ratings on GM and Ford to junk, driving investors to the haven of government debt.
- Boeing won an order from Northwest Airlines for 18 of its new 787 airplanes valued at about $2.16 billion, beating Airbus SAS for the third time in two weeks.
- US House Ways and Means Committee Chairman Thomas cautioned Democrats to drop preconditions on their willingness to negotiate a bill that shores up Social Security.

Reuters:
- Martha Stewart Living Omnimedia is close to a deal with a “major cable company” to air its new television show starring its founder, Martha Stewart.

Financial Times:
- India plans to start special economic zones similar to those in China and ease restrictions on bank ownership to attract foreign investment.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet long and Energy-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market improved into the afternoon as the advance/decline finished nearly unchanged, sector performance improved and volume was average. Measures of investor anxiety were higher into the close. Overall, today’s market action was slightly positive considering the GM and Ford debt downgrades, a rise in energy prices and yesterday’s strong performance. As I stated earlier in the day, I believe the odds of the Fed going on hold after the June meeting have risen substantially over the last 24 hours based on the auto debt downgrades and today’s Fed comments. Oil below $50/bbl. and the Fed slowing its pace of rate hikes are two key factors in my bullish view.
Posted by: Gary / 5:18 PM

Stocks Modestly Lower Mid-day on GM and Ford Debt Downgrades 

Indices
S&P 500 1,170.27 -.46%
DJIA 10,322.42 -.60%
NASDAQ 1,955.81 -.33%
Russell 2000 592.78 -.41%
DJ Wilshire 5000 11,515.06 -.40%
S&P Barra Growth 564.92 -.39%
S&P Barra Value 600.91 -.54%
Morgan Stanley Consumer 581.07 -.60%
Morgan Stanley Cyclical 709.61 -.62%
Morgan Stanley Technology 444.85 -.36%
Transports 3,525.56 +.17%
Utilities 364.77 -1.28%
Put/Call .98 +3.16%
NYSE Arms 1.35 +176.82%
Volatility(VIX) 14.28 +3.10%
ISE Sentiment 118.00 -10.61%
US Dollar 84.01 +.01%
CRB 299.25 -.57%

Futures Spot Prices
Crude Oil 49.80 -.76%
Unleaded Gasoline 145.40 -.85%
Natural Gas 6.62 -.08%
Heating Oil 143.00 -1.68%
Gold 430.30 +.07%
Base Metals 122.16 +.71%
Copper 143.10 +.14%
10-year US Treasury Yield 4.16% -.42%

Leading Sectors
Oil Tankers +1.90%
Retail +.67%
Homebuilders +.66%

Lagging Sectors
Steel -1.04%
Networking -1.08%
Disk Drives -1.93%
BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is slightly lower, most sectors are declining and volume is above-average. Measures of investor anxiety are higher. Today’s overall market action is neutral considering the F and GM debt downgrades and yesterday’s sharp gains. The debt downgrades raise the odds that the Fed will pause sooner-than most expect. It is also a positive to see the CRB Index back below 300. I expect US stocks to trade higher into the close on short-covering, bargain-hunting and more optimism the Fed will slow their pace of rate hikes.
Posted by: Gary / 2:15 PM

Today's Headlines 

Bloomberg:
- Wal-Mart Stores said April sales rose .9%, the smallest gain in five months, as record-high gas prices had more shoppers limiting purchases to food and other necessities.
- Merck named company insider Richard Clark to succeed CEO Gilmartin, whose almost 11-year tenure included losing the company’s spot as the world’s largest drugmaker and the recall of the Vioxx painkiller.
- GM and Ford had their debt ratings cut to junk by S&P.

Wall Street Journal:
- The US budget proposal for fiscal 2006 would more than double premiums paid by companies to the Pension Benefit Guaranty over the next five years.
- Some US environmentalists are breaking with longstanding opposition to cutting trees and say the best way to save forests may be by using them.
- Northrop Grumman is pondering whether to link up with the French company EADS to bid against Boeing for a contract to supply aerial-refueling tankers to the US Defense Department.
- More US executives like 87-year-old billionaire Kirk Kerkorian are staying at the desks into the seventh and eighth decades of their lives, defying common expectations that most people retire at 65.
- Massey Energy, the fourth-biggest US coal producer, and other coal mining companies are facing shortages of workers that may curtail expansion plans and cause electricity prices to rise.
- The Chicago Merc will list futures on three exchange-traded funds next month.
- More companies are being targeted by blackmailers who threaten to paralyze computer systems unless they are paid tens or hundreds of thousands of dollars.
- Lawyer Sean Coffey’s tactics have boosted demand for him in the field of class-action securities litigation, and his next target is HealthSouth.
- Royal Philips Electronics, LG Electronics and Samsung Electronics may benefit as flat-panel screen prices recover.

NY Times:
- A location committee for California stem cell research efforts will choose between San Francisco, Sacramento and San Diego as the city that will house research headquarters.

Washington Post:
- Increased US imports of Chinese textile goods hasn’t reduced purchases from US clothing makers.
- The US military is examining reports that Abu Musab al-Zarqawi, leader of the al-Qaeda network in Iraq, may be ill or wounded and was present in a hospital last week in the al-Anbar province.

Fort Worth Star-Telegram:
- American Airlines and its pilots union are opposing legislation that would increase the mandatory retirement age for commercial pilots to 65 from 60.
Posted by: Gary / 1:05 PM

Modest Job Creation is a Positive 

- Preliminary 1Q Non-farm Productivity rose 2.6% versus estimates of a 1.8% increase and a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs rose 2.2% versus estimates of a 2.0% gain and a 1.7% increase in 4Q.
- Initial Jobless Claims for last week rose to 333K versus estimates of 323K and 322K the prior week.
- Continuing Claims rose to 2589K versus estimates of 2595K and 2551K prior.

Bottom Line: While unit labor costs, which account for two-thirds of inflation, exceeded estimates slightly, investors are focusing more on the much better-than-expected productivity number. As long as productivity remains elevated, it is unlikely we will see unit labor costs rise substantially. As a result, hiring will remain modest by historic standards and inflation will remain well in check.

The four-week moving average of jobless claims fell to 321,500. This is the lowest since April 7, 2001. Moreover, the Challenger, Gray & Christmas report released earlier in the week showed job cuts are at the lowest level in almost five years and 20% less than in April of last year. I continue to believe the US economy can create at least 100,000 to 125,000 jobs on average through year-end which will keep the unemployment rate low by historic standards.
Posted by: Gary / 11:18 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:44 AM

Wednesday, May 04, 2005

Thursday Watch 

Late-Night Headlines
Bloomberg:
- The South Korean won and Taiwan dollar may decline this year as traders say prices rallied too far on speculation China, the two economies' biggest export market, will allow its currency to strengthen.

NY Times:
- Kohlberg Kravis Roberts and Goldman Sachs are among US buyout firms on a German Parliament-compiled list of companies believed to have benefited excessively from investing in Germany.

AFP:
- Saudi Arabia is ready to sign key nuclear safeguard agreements.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on IBM, AMLN, NFP and DELL.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
ATVI/.01
ATK/1.25
BRL/.62
CLX/.77
CVS/.68
CNO/.41
DISH/.39
FLR/.57
G/.43
JNY/.70
MFE/.19
MCK/.73
PIXR/.47
SINA/.22
SGMS/.24
WMB/.22

Splits
None of note

Economic Releases
8:30 EST:
- Preliminary 1Q Non-farm Productivity is estimated to rise 1.8% versus a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 2.0% versus a 1.3% increase in 4Q.
- Initial Jobless Claims are estimated to rise to 323K versus 320K the prior week.
- Continuing Claims are estimated to rise to 2595K versus 2555K prior.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in Taiwan on speculation of improving relations with China. I expect US equities to open modestly lower on worries over slowing retail sales. Unseasonably wet/mild weather and high energy prices likely dampened sales in April. I will look to buy this sector on weakness over the coming weeks as I believe lower energy prices, low interest rates, lower inflation, higher stock prices, modestly improving real incomes/job prospects, rising sentiment and a good housing market will provide a tailwind for these stocks in the second half of the year. The Portfolio is 100% net long heading into tomorrow.
Posted by: Gary / 9:55 PM

Stocks Finish Sharply Higher on Increasing Optimism 

Indices
S&P 500 1,175.65 +1.25%
DJIA 10,384.64 +1.24%
NASDAQ 1,962.23 +1.51%
Russell 2000 595.26 +1.84%
DJ Wilshire 5000 11,562.16 +1.27%
S&P Barra Growth 567.16 +.97%
S&P Barra Value 604.15 +1.53%
Morgan Stanley Consumer 584.60 +.78%
Morgan Stanley Cyclical 714.08 +1.69%
Morgan Stanley Technology 446.44 +1.63%
Transports 3,519.69 +1.65%
Utilities 369.48 +.11%
Put/Call .95 +13.10%
NYSE Arms .50 +53.37%
Volatility(VIX) 13.85 -4.68%
ISE Sentiment 134.00 +8.06%
US Dollar 83.98 -.63%
CRB 300.97 +.43%

Futures Spot Prices
Crude Oil 50.32 +.38%
Unleaded Gasoline 147.15 +.35%
Natural Gas 6.64 +.23%
Heating Oil 145.65 +.14%
Gold 430.60 +.14%
Base Metals 121.30 -1.14%
Copper 143.25 +.24%
10-year US Treasury Yield 4.18% +.38%

Leading Sectors
Steel +2.11%
Airlines +2.09%
Gold & Silver +1.10%

Lagging Sectors
Oil Tankers -2.14%
Energy -2.33%
Oil Service -2.63%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BC, SBUX, WON and DEX.

Afternoon/Evening Headlines
Bloomberg:
- The FBI is probing the US insurance industry to determine whether insurance fraud is “the next big one,” following the savings and loan crisis of the 1980s and the corporate fraud scandals that began in 2001.
- Kirk Kerkorian, who shook up Chrysler with a hostile takeover bid a decade ago, disclosed he is building an 8.8% stake in GM, sending GM shares to their biggest gain in more than 40 years.
- Lazard Ltd. raised $854.6 million in an IPO today.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet, Gaming and Computer longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive as the advance/decline finished at its daily highs, every sector rose and volume was average. Measures of investor anxiety were mostly lower. Overall, today’s market action was very positive considering the bounce in energy prices. The S&P 500 has now broken out of its recent trading range to the upside. Today’s action was likely the result of more investors coming around to the view that we are moving to sustainable less inflationary growth. The positive sentiment change towards GM was also a major factor today.
Posted by: Gary / 6:45 PM

Stocks Sharply Higher Mid-day on Optimism Over Recent Economic Data 

Indices
S&P 500 1,172.74 +.99%
DJIA 10,359.59 +1.0%
NASDAQ 1,956.57 +1.20%
Russell 2000 593.13 +1.48%
DJ Wilshire 5000 11,532.19 +1.01%
S&P Barra Growth 565.46 +.66%
S&P Barra Value 602.87 +1.31%
Morgan Stanley Consumer 583.31 +.55%
Morgan Stanley Cyclical 712.33 +1.44%
Morgan Stanley Technology 445.31 +1.38%
Transports 3,510.00 +1.37%
Utilities 368.19 -.24%
Put/Call 1.05 +25.00%
NYSE Arms .55 -48.84%
Volatility(VIX) 13.94 -4.06%
ISE Sentiment 125.00 +.81%
US Dollar 84.02 -.58%
CRB 300.26 +.19%

Futures Spot Prices
Crude Oil 50.15 +1.31%
Unleaded Gasoline 146.70 +.52%
Natural Gas 6.61 +1.61%
Heating Oil 145.10 +1.04%
Gold 430.00 unch.
Base Metals 121.30 -1.14%
Copper 144.35 -.79%
10-year US Treasury Yield 4.18% +.43%

Leading Sectors
Steel +4.45%
I-Banks +3.36%
Insurance +2.87%

Lagging Sectors
Software +.49%
Alternative Energy +.49%
Computer Services +.30%
BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet, Computer and Gaming longs. I added a few longs from various sectors this morning and covered a short, thus leaving the Portfolio 100% net long. One of my new longs is EBAY and I am using a $31.75 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, almost every sector is advancing and volume is decent. Measures of investor anxiety are mostly lower. Today’s overall market action is positive as stocks are maintaining gains even with the reversal in oil prices this morning. The S&P 500 and DJIA are breaking out of their recent trading ranges on decent volume and breadth. The fact that long-term interest rates are barely higher today even with the stock rally, better-than expected ISM report and speculation over a return of the 30-year long-bond is a big positive. Copper prices are falling again today as technicals for the metal continue to weaken. I expect US stocks to trade higher into the close on a moderating in energy prices, short-covering, bargain-hunting and more optimism over the US economy.
Posted by: Gary / 2:32 PM

Today's Headlines 

Bloomberg:
- US Treasury note yields are no longer the “conundrum” Fed Chairman Greenspan said they were in February, given signs of slowing global economic growth, according to Paul McCulley, a managing director at PIMCO.
- Abu al-Faraj, a Libyan national and one of the most senior leaders in the global al-Qaeda terrorist network, has been captured in northern Pakistan.
- The European Central Bank kept interest rates at a six-decade low as the outlook for economic growth in the 12 nations sharing the euro deteriorates.
- Investor Kirk Kerkorian offered to buy as many as 28 million shares of GM for $31 each.
- The US Treasury said it is considering whether to resume selling 30-year bonds, a security it eliminated four years ago.

Wall Street Journal:
- Coca-Cola, Unilever Plc and McDonald’s are phasing out hydrofluorocarbons, a chemical cooler that is believed to contribute to global warming.
- Sanofi-Pasteur, the biggest US supplier of flu vaccines, and Chiron already have sold almost all their available stockpiles of flu vaccines six months before the flu season normally starts.
- Symantec has obtained a broad patent for virus-scanning technology that may help defend against competition from rivals including Microsoft.
- American Tower may announce today an agreement to acquire SpectraSite for about $3 billion in stock, to become the US’s largest communications tower operation.
- Japanese wig maker Aderans is trying to clone hair cells resistant to a particular hormone that causes hair loss.

NY Times:
- US airlines added 134 non-stop routes in the past year as larger carriers such as Delta Air compete with so-called low fare airlines such as Southwest for customers.
- Microsoft plans to expand its headquarters in Redmond, Washington, by 2.2 million square feet as it begins constructing two office buildings this year.
- Wal-Mart is under pressure from community groups and lawmakers to raise wages.

Chicago Tribune:
- Nike Inc. will stop selling shoes to Sears Holding in a decision that it said was part of the normal process of reviewing accounts.
- Baxter Intl. will increase spending on research and development this year at a rate faster than sales growth.

USA Today:
- The US federal government plans to start collecting full names and birth dates of domestic air travelers this summer to screen passengers for possible ties to terrorism.
Posted by: Gary / 1:14 PM

Energy Inventories Soaring and Another Strong Consumer Report 

- ISM Non-Manufacturing for April fell to 61.7 versus estimates of 61.0 and a reading of 63.1 in March.
- Summary of Weekly Petroleum Data for the Week Ending April 29, 2005.
- Crude inventories rose 2.6M barrels versus estimates of a 1.25M rise. Distillate fuel inventories fell 300K barrels versus estimates of a 575K rise. Gasoline inventories rose 2.2M barrels versus estimates of a 875K rise.

Bottom Line: The ISM Non-Manufacturing is holding just under the 62.4 average for all of last year. This is an exceptionally strong level, considering services account for 85% of the US economy. This is still near the all-time high that was set last year in April at 66.9. However, components within the index show a continuation of the recent deceleration is likely. Measures for new orders, order backlogs, inventories and employment were modestly weaker. Once again, another measure of inflation showed deceleration. The prices paid component of this index fell to 61.9 from 65.6 the prior month.

Home Sales are booming. Auto sales yesterday were the strongest in long time, especially considering the lack of incentives compared to prior months. Now, a report shows the largest part of the US economy, the service sector, is still very healthy. I continue to believe that US growth is slowing to more healthy sustainable levels. The case for a US hard landing is growing harder by the day.

OPEC’s daily production last month rose an average of 280,000 barrels from the prior month. This is the highest level that OPEC has pumped since October 1979. US supplies for crude are now near 6-year highs. With global demand falling, the US dollar firmer and supply at very high levels, I continue to believe we have seen the highs in oil prices for this cycle. As I have stated before, the contango that currently characterizes the oil futures market will result in a steeper decline than most expect once perceptions change. I expect crude to reach around $35-$40/bbl. sometime during the second half of the year and that it will average around $30-$35/bbl. during 2006. If I am correct, most energy-related companies will show very little earnings growth next year. Momentum and growth investors that have recently turned to commodity stocks will be very disappointed under this scenario.
Posted by: Gary / 11:24 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 10:12 AM

Wednesday Watch 

Late-Night Headlines
Bloomberg:
- US 10-year Treasury notes rose after the Fed said it forgot to add to it policy statement today that long-term inflation expectations are "well-contained."
- Patients whose arteries are being propped open with drug-coated heat stents made by Johnson & Johnson and Boston Scientific may be twice as likely to develop lethal blood clots as previously thought, a trial found.
- Toyota Motor, Honda Motor and Nissan Motor, Asia's largest automakers, led Japanese and South Korean companies to record US market share in April, helped by fuel-efficient cars and small sport-utility vehicles.
- Global concern over N. Korea's push to develop nuclear weapons is mounting and the issue has reached "critical point."
- The US dollar is falling in Asia after the Fed said inflation is "well contained," raising speculation it will slow the pace of interest-rate increases later this year.
- Fresenius Medical Care AG agreed to acquire Renal Care Group for $3.5B, 22% higher than yesterday's closing price.

NY Times:
- Johnson & Johnson's heart-failure drug Natrecor may be banned by heart doctors at the Cleveland Clinic, one of the largest cardiac-care centers in the US, citing Eric E. Topol, the clinic's chairman of cardiovascular medicine.

Wen Wei Po:
- China's steel industry may face a 5.7% profit slide as the government cuts tax rebates on some steel exports.

The Standard:
- Starbucks plans to add 10 shops a year each in Hong Kong and in southern China.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform PXD, AVP, LVS, YHOO, CSCO, EPD and HD.
- Reiterated Underperform on BA and PPS.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.07%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
BEC/.64
CI/1.51
DF/.42
DUK/.43
GNSS/.03
IACI/.20
LM/.97
QLGC/.47
SPW/.24
SYMC/.24
THQI/.21
TWX/.17
UVN/.10
WFMI/.58
ZBRA/.44

Splits
HUBG 2-for-1

Economic Releases
10:00 EST:
- ISM Non-Manufacturing for April is estimated to fall to 61.0 versus a reading of 63.1 in March.

BOTTOM LINE: Asian indices are mostly higher, led by exporter shares in the region. I expect US equities to open modestly higher on optimism that the Fed is nearing an end to the current pace of rate hikes. Gains may accelerate later in the day on any further decline in energy prices. I expect the Fed to raise rates one more time at the June meeting before pausing. Decelerating measures of inflation and US growth of around 2.5% will likely provide the catalysts. The Portfolio is 75% net long heading into tomorrow.
Posted by: Gary / 1:28 AM

Tuesday, May 03, 2005

Stocks Finish Mixed in Choppy Trading 

Indices
S&P 500 1,161.17 -.09%
DJIA 10,256.95 +.05%
NASDAQ 1,933.07 +.23%
Russell 2000 584.48 -.24%
DJ Wilshire 5000 11,417.08 -.09%
S&P Barra Growth 561.74 +.04%
S&P Barra Value 595.07 -.21%
Morgan Stanley Consumer 580.09 +.02%
Morgan Stanley Cyclical 702.21 +.08%
Morgan Stanley Technology 439.26 +.45%
Transports 3,462.65 -.61%
Utilities 369.06 -1.11%
Put/Call .84 -10.64%
NYSE Arms 1.08 +16.46%
Volatility(VIX) 14.53 -3.90%
ISE Sentiment 124.00 -24.84%
US Dollar 84.36 -.15%
CRB 299.69 -1.06%

Futures Spot Prices
Crude Oil 49.43 -2.93%
Unleaded Gasoline 145.50 -3.93%
Natural Gas 6.51 -2.82%
Heating Oil 143.50 -1.93%
Gold 429.20 +.35%
Base Metals 122.70 -1.82%
Copper 144.20 -.10%
10-year US Treasury Yield 4.15% -.71%

Leading Sectors
Steel +2.11%
Airlines +2.09%
Gold & Silver +1.10%

Lagging Sectors
Oil Tankers -2.14%
Energy -2.33%
Oil Service -2.63%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on TYC, YHOO and AVP.

Afternoon/Evening Headlines
Bloomberg:
- Crude oil fell $1.42/bbl. in NY to the lowest in more than two months on speculation that US inventories rose last week as increased OPEC shipments arrived and refineries boosted gasoline production.
- Federal Reserve policy markers raised the benchmark US interest rate a quarter-point to 3% and restated a plan to carry out further increases at a “measured” pace to head off faster inflation.

CNBC:
- Bill Gross, CIO at PIMCO and manager of the world’s largest bond fund, said the Fed may stop raising interest rates later this year.
AP:
- NY’s Court of Appeals will allow video lottery terminals because they operate like a traditional lottery rather than a slow machine.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs and Energy-related shorts. I added some QQQQ longs, added ERTS short and added to some of my Energy-related shorts in the afternoon, thus leaving the Portfolio 75% net long. I am using a stop-loss of $55 on the ERTS short. The tone of the market finished mixed into the close as the advance/decline finished slightly higher, sector performance was mixed and volume was average. Measures of investor anxiety were mostly higher. Overall, today’s market action was neutral considering the Fed’s lack of acknowledgement of slowing growth and today’s decline in energy prices. The Fed’s comments were neither hawkish or dovish, but somewhere in between.
Posted by: Gary / 4:39 PM

Stocks Mixed Ahead of Fed 

Indices
S&P 500 1,160.96 -.11%
DJIA 10,249.79 -.01%
NASDAQ 1,933.73 +.27%
Russell 2000 585.90 +.01%
DJ Wilshire 5000 11,419.93 -.06%
S&P Barra Growth 561.22 -.05%
S&P Barra Value 595.37 -.16%
Morgan Stanley Consumer 579.13 -.15%
Morgan Stanley Cyclical 702.64 +.14%
Morgan Stanley Technology 439.32 +.46%
Transports 3,471.46 -.36%
Utilities 369.01 -1.12%
Put/Call .77 -18.09%
NYSE Arms 1.13 +20.75%
Volatility(VIX) 15.08 -.26%
ISE Sentiment 143.00 -13.3%
US Dollar 84.40 -.11%
CRB 300.88 -.66%

Futures Spot Prices
Crude Oil 50.15 -1.51%
Unleaded Gasoline 148.20 -2.15%
Natural Gas 6.58 -1.60%
Heating Oil 145.50 -.56%
Gold 428.30 -.49%
Base Metals 122.70 -1.82%
Copper 144.40 -.76%
10-year US Treasury Yield 4.18% -.09%

Leading Sectors
Steel +2.12%
Airlines +1.27%
Software +.93%

Lagging Sectors
Oil Tankers -1.46%
Oil Service -1.83%
Energy -1.83%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs and Energy-related shorts. I have not traded this morning, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is barely higher, most sectors are higher and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is neutral, considering the better-than-expected factory orders report and decline in energy prices. Stocks have pretty much flat-lined after the open ahead of the Fed announcement at 2:15 EST. I expect US stocks to trade higher into the close after the Fed boosts rates 25 basis points, leaves the “measured” language and makes more dovish comments. Oil breaking back below $50/bbl. should also boost stocks.
Posted by: Gary / 1:40 PM

Today's Headlines 

Bloomberg:
- The government of Afghanistan plans to build its first international railway, linking the former Taliban stronghold city of Kandahar in the south, to Pakistan.
- DaimlerChrysler AG said April sales of Chrysler and Mercedes-Benz vehicles rose 8.7%.
- Ford Motor said US sales of cars and trucks fell 1.5% in April.
- Nissan said US sales of cars and trucks soared 32%.
- Iran rejects US and European efforts to block its development of nuclear technology, and is determined to continue a uranium enrichment program.
- Crude oil is falling in NY on signs that US inventories rose last week as increased OPEC shipments arrived and refineries boosted gasoline production.

Wall Street Journal:
- US companies have been boosting training programs to address shortages in necessary skills among workers and a decline in skilled laborers.
- New scanners made by GE, Philips Electronics, Siemens and Toshiba may help physicians spot coronary artery disease better than traditional angiograms.

NY Times:
- Forstmann Little & Co., the buyout firm run by Theodore Forstmann, agreed to buy 24 Hour Fitness Worldwide, the world’s biggest closely held fitness center chain, for $1.6 billion.
- AIG’s accounting errors may have boosted the insurance company’s operating income figures in the five years by about 3.8%.
- US Congress is likely to pass a law requiring states to verify whether every driver’s license applicant is legally in the country in an effort to prevent terrorist attacks.
- Air Evac Lifeteam, Air Methods Corp. and Petroleum Helicopters Inc. are part of a growing industry of medical helicopters that are becoming routine forms of transportation at public expense.

Philadelphia Inquirer:
- Campbell Soup Co. introduced its new line of Gold Label premium soups at a food show in Chicago.

Boston Globe:
- Massachusetts collected $2 billion in taxes in April, the biggest one-month take ever, and Governor Mitt Romney reacted with another call to trim taxes.

Focus-Money:
- BMW AG will halt production at its US plan in Spartanburg, South Carolina, for longer than usual during this year’s Christmas holiday period amid subdued demand for the X5 and Z4 models.
Posted by: Gary / 12:40 PM

Factory Orders Exceed Expectations 

- Factory Orders for March rose .1% versus estimates of a 1.2% decline and a downwardly revised .5% fall in February.

Bottom Line: The .1% gain in factory orders is more evidence that economic growth is slowing to more sustainable and less inflationary levels. An 18% increase in orders for petroleum and coal products accounted for most of the “better-than-expected number.” However, today’s report also showed orders for capital goods excluding aircraft, a gauge of future business investment rose 10.4% from the first quarter of 2004. While the rate of increase is slower than last year, this is still a healthy gain.
Posted by: Gary / 10:51 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:37 AM

Tuesday Watch 

Late-Night Headlines
Bloomberg:
- GE received a subpoena from the SEC about a type of policy used by its insurance unit that can be misused to smooth earnings.
- Lenovo Group Ltd. appointed IBM's Stephen Ward as CEO after completing the $1.25 billion takeover of IBM's PC division.

Wall Street Journal:
- Fidelity Investments' Abigail P. Johnson, head of the largest US mutual fund company's money management unit, will be transferred to another unit and succeeded by Fidelity executive Stephen P. Jones.

China Times:
- Taiwan is developing long-range missiles.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MDT, HEP and EMC.
- Reiterated Underperform on MCRL and PFG.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.04%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
AG/.24
CMX/.43
CEPH/.52
CVH/1.06
ERTS/.09
EMR/.81
KOSP/.55
LVS/.25
LTR/1.73
MACR/.21
MMC/.49
MXIM/.38
MBI/1.34
MET/.86
NTE/.22
KWK/.20
SHRP/.95
SBL/.11
THC/-.04
RIG/.17
TYC/.47
VRTS/.24

Splits
TBL 2-for-1
HCSG 3-for-2

Economic Releases
10:00 EST:
- Factory Orders for March are estimated to fall 1.2% versus a .2% increase in February.

2:15 EST:
- The FOMC is expected to raise its benchmark rate 25 basis points to 3.0% from 2.75%.

Afternoon:
- Total Vehicle Sales for April are estimated at 16.8M versus 16.8M in March.
- Domestic Vehicle Sales for April are estimated at 13.3M versus 13.5M in March.

BOTTOM LINE: Asian indices are mostly higher, led by technology shares in the region. I expect US equities to open modestly higher on short-covering ahead of the Fed announcement. I expect the Fed to raise their benchmark rate by 25 basis points, keep the "measured" language and make more dovish comments. The market should rally further in the afternoon on the news. The Portfolio is 75% net long heading into tomorrow.
Posted by: Gary / 12:57 AM

Monday, May 02, 2005

Stocks Finish Quietly Higher Ahead of Fed 

Indices
S&P 500 1,162.16 +.46%
DJIA 10,251.70 +.58%
NASDAQ 1,928.65 +.36%
Russell 2000 585.86 +1.12%
DJ Wilshire 5000 11,426.87 +.52%
S&P Barra Growth 561.51 +.47%
S&P Barra Value 596.31 +.45%
Morgan Stanley Consumer 579.98 +.83%
Morgan Stanley Cyclical 701.67 +.61%
Morgan Stanley Technology 437.31 +.17%
Transports 3,483.83 +1.67%
Utilities 373.19 +.46%
Put/Call .94 -7.84%
NYSE Arms .93 +7.29%
Volatility(VIX) 15.12 -1.24%
ISE Sentiment 165.00 +22.2%
US Dollar 84.49 +.07%
CRB 302.89 -.28%

Futures Spot Prices
Crude Oil 50.82 -.20%
Unleaded Gasoline 151.10 -.23%
Natural Gas 6.67 -.33%
Heating Oil 146.10 -.15%
Gold 430.70 +.05%
Base Metals 124.97 +1.10%
Copper 145.00 -.34%
10-year US Treasury Yield 4.18% -.23%

Leading Sectors
Oil Service +2.78%
Oil Tankers +2.37%
Energy +1.96%

Lagging Sectors
Broadcasting -.61%
Telecom -1.16%
I-Banks -1.92%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW, GD, PFE and AMGN.
- Reiterated Attractive view of Drug Retailers.

Afternoon/Evening Headlines
Bloomberg:
- Prudential Equity Group’s chief investment strategist, told clients to raise their allocation for US stocks to 80%.
- MCI Inc. accepted an increased takeover offer from Verizon Communications, snubbing a bid from Qwest Communications that is more than $1 billion higher.
- Crude oil rose, rebounding from a two-month low, after Algeria’s energy minister Khelil said that OPEC should boost production to meet “very strong” demand.
- The Fed this week will drop its year-old commitment to increase rates at a “measured” pace, according to five of Wall Street’s 22 biggest bond-trading firms surveyed by Bloomberg.
- Hewlett-Packard agreed to pay bigger rival EMC Corp. $325 million over five years to end lawsuits over patents.

LA Times:
- Los Angeles County office vacancies fell 3 percentage points to 14% in the first quarter as businesses continue to expand.

BOTTOM LINE: The Portfolio finished unchanged as gains in my Computer and Internet longs offset losses in my Commodity-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market improved modestly into the close as the advance/decline finished slightly higher, most sectors rose and volume was light. Measures of investor anxiety were mostly lower. Overall, today’s market action was modestly positive considering Friday’s gains and the rise in energy prices. I expect the Fed’s comments tomorrow to result in an extension of the recent rally.
Posted by: Gary / 7:10 PM

Stocks Mixed Mid-day on Rising Energy Prices 

Indices
S&P 500 1,155.54 -.11%
DJIA 10,197.61 +.05%
NASDAQ 1,917.89 -.20%
Russell 2000 579.72 +.06%
DJ Wilshire 5000 11,361.60 -.05%
S&P Barra Growth 558.73 -.03%
S&P Barra Value 593.02 -.11%
Morgan Stanley Consumer 576.98 +.32%
Morgan Stanley Cyclical 697.32 -.02%
Morgan Stanley Technology 435.50 -.25%
Transports 3,460.34 +.98%
Utilities 372.23 +.20%
Put/Call .99 -2.94%
NYSE Arms .95 +11.62%
Volatility(VIX) 15.63 +2.09%
ISE Sentiment 141.00 +4.44%
US Dollar 84.55 +.14%
CRB 302.40 -.44%

Futures Spot Prices
Crude Oil 50.65 +1.77%
Unleaded Gasoline 148.00 -1.08%
Natural Gas 6.61 +.46%
Heating Oil 143.70 +.78%
Gold 430.90 -1.19%
Base Metals 124.97 +1.10%
Copper 145.50 -.61%
10-year US Treasury Yield 4.19% -.14%

Leading Sectors
Insurance +1.46%
Oil Service +1.43%
Oil Tankers +1.32%

Lagging Sectors
Papers -.74%
Steel -.88%
I-Banks -2.56%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Computer and Internet longs are being offset by losses in my Oil Tankers shorts. I took profits in some of my trading longs this morning, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mixed. Today’s overall market action is mildly positive, considering Friday’s gains, rising energy prices and the market’s oversold state. Ried, Thunberg's weekly index measuring the outlook for U.S. government debt rose for the first time in a month last week to 41 from 40. Readings below 50 mean investors continue to anticipate a rise in yields by the end of June. This reading continues to be bullish for bonds. As well, 70% of their survey's participants expect the Fed to refer to signs of sluggish economic growth in their policy statement. I expect US stocks to trade mixed into the close as short-covering and bargain-hunting offset apprehensions ahead of the Fed meeting and rising energy prices.
Posted by: Gary / 2:25 PM

Today's Headlines 

Bloomberg:
- GM, after selling an average of about $13.5 billion of unsecured bonds annually for the past decade, may stay out of the market this year as investors demand yields typically paid by companies with credit ratings five levels lower.
- Obesity is growing fastest among people in households that earn more than $60,000 a year, reversing a trend of higher rates of obesity among the poor, according to a study for the American Heart Assoc.
- Crude oil fell to a two-month low this morning amid speculation that slower economic growth in the US, Europe and Japan and increased output will bolster stockpiles.

Wall Street Journal:
- Oracle isn’t in talks now to buy Siebel Systems.
- The US newspaper industry may face the steepest decline in readership in more than 10 years when circulation figures are released today.
- News Corp.’s Fox News, ABC, CBS and NBC face a challenge for young viewers from Univision Communications, the largest US Spanish-language television and radio broadcaster.
- Texans are giving up their longstanding fondness for SUVs, as the cost of filling them up reaches almost $100.
- Slower growth in Europe, Japan and Canada is expected to push US exports below 2004 levels, citing economists.
- Brazil refused $40 million in US grants to fight AIDS because of a clause requiring recipients to discourage prostitution.

NY Times:
- Dominion Resources and Exelon Corp. are among power companies planning to build nuclear reactors as rising natural gas prices make other energy sources more expensive.
- McDonald’s, Kraft Foods and PepsiCo are among companies that have hired more than two dozen nutrition experts and scientists for their advisory boards, as food companies have been threatened with lawsuits over diet-related illnesses.
- Penalties against US companies that repeatedly commit workplace safety violations may rise as government agencies coordinate to apply laws often used to prosecute white-collar criminals.
- Verizon may raise its $7.6 billion offer for MCI Inc. if MCI agrees to state publicly that some of its customers are against Qwest’s competing offer.
- GM’s Saturn and Hummer brands and Ford’s Volvo division are among the growing number of automaker units led by women.
- Novell said that it purchased a set of electronic commerce patents in a bankruptcy auction on Dec. 6.

NY Post:
- AOL Music has signed a sponsorship agreement with GM’s Chevrolet, the online service’s largest advertising deal.

Boston Globe:
- Executives of medical device companies in Massachusetts said they plan to hire as many as 5,000 people within three years.

Financial Times:
- High oil prices have reduced the incentive for divestments in the North Sea oil business and companies are now developing assets rather than selling them.

Le Parisien:
- France’s Industry Minister Devedjian said EU countries should sell some of their oil reserves when speculators boost prices.

eHomeday.com:
- New home prices in Shanghai, China’s biggest commercial city, fell last month after the government raised interest rates and tightened rules for mortgages.
Posted by: Gary / 1:09 PM

Construction Booming, ISM Still Healthy 

- Construction Spending for March rose .5% versus estimates of a .3% increase and an upwardly revised .5% increase in February.
- ISM Manufacturing for April fell to 53.3 in April versus estimates of 55.0 and a reading of 55.2 in March.
- ISM Prices Paid for April fell to 71.0 versus estimates of 71.2 and a reading of 73.0 in March.

Bottom Line: The rise in construction spending to a record $1.052 trillion annual rate was driven by increased work on new homes, factories and commercial buildings. Construction spending has risen every month since January of last year, the best performance on record. The record pace of new home sales and rising builder backlogs will spur further gains in construction. This should cushion any economic weakness over the coming months. For the first quarter, construction is up 9.3%(YoY).

The modest decline in the ISM should have been anticipated after the GDP report. The production index component of the ISM, a measure of the work being performed, actually rose to 56.7 versus estimates of 56.5. As well, the new export orders component of the index rose to 57.2 from 55.4. Considering the rise in commodity prices during the first part of the year, the decline in the prices paid index is a big positive and corresponds with the drop in the Chicago Purchasing Manager’s prices paid component. The first quarter rise in inventories may limit factory demand over the next few months.

Posted by: Gary / 10:50 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
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Posted by: Gary / 9:40 AM

Monday Watch 

Weekend Headlines
Bloomberg:
- French voters planning to endorse the EU constitution in a referendum May 29 regained the lead against opponents of the proposed treaty for the first time in more than a month, a poll by TNS-Sofres showed.
- Wal-Mart Stores said US sales rose about .9% in April as shoppers bought more food.
- Berkshire Hathaway Chairman Warren Buffett is maintaining his bet against the US dollar after his company had about $310 million in first-quarter losses from his foreign currency bets.
- Warren Buffett praised Maurice "Hank" Greenberg, the ousted CEO of AIG, and defended the use of a type of reinsurance that has come under regulatory scrutiny.
- Warren Buffett, who campaigned for John Kerry, said he opposes President Bush's plan for small private accounts as part of the solution to the Social Security problem.
- Asian technology stocks, the region's worst performers in the past year, may rebound as forecasts by companies such as Taiwan Semiconductor Manufacturing and Elpida Memory show an industry-wide slump may be ending.
- Morgan Stanley said its board decided to keep Philip J. Purcell as Chairman and CEO, rejecting demands by former executives that he be ousted.
- Crude oil feel to a two-month low on speculation slower economic growth in the US, Europe and Japan and an increase in inventories will curb demand.
- North Korea's reported missile launch yesterday may be an effort to force the US into direct talks over the communist country's nuclear program.
- AIG prolonged a review of improper accounting and said corrections will lower its net worth by about $2.7 billion, $1 billion more than an earlier estimate.

Wall Street Journal:
- Washington Mutual received a letter from NY Attorney General Spitzer in connection with an investigation into mortgage lending practices.
- Private-equity firms Warburg Pincus and Texas Pacific Group are close to an agreement to buy retailer Neiman Marcus Group for $100 a share, or about $5 billion.

New York Times:
- Managers at AIG artificially boosted sales by booking insurance premiums before clients have formally agreed to purchase them.
- China's yuan appreciated for about 20 minutes yesterday to the strongest in a decade, boosting speculation the country's government may allow the currency to trade more freely.
- John Wiley & Sons doubled the initial printing of an unauthorized biography of Apple Computer's Steve Jobs to 100,000 because of increased interest in the book, "iCon: Steve Jobs, The Greatest Second Act in the History of Business."

Washington Post:
- US reports of credible terrorist threats against domestic targets have decreased by as much as 50% on average and are at their lowest level since before Sept. 11, 2001.

Rocky Mountain News:
- Lockheed Martin's Space Systems may win part of a $500 million contract to design and build the National Aeronautics and Space Administration's Mars Telecommunications Orbiter.

LA Times:
- Walt Disney is introducing interactive attractions at its theme parks designed to appeal to children raised on computer games, digital effects and mobile phones.

MLB.Com:
- Baseball commissioner Bud Selig wants a player caught using steroids for the first time to receive a 50-game suspension.

Newsweek:
- Billionaire Ken Langone expects to deliver the details of his proposal to buy the NYSE this week.

Sunday Times:
- Marconi Corp. is accelerating efforts to sell itself to a US, European or Chinese competitor.

Nihon Keizai:
- Toyota Motor will start producing Camry cars that run on both gasoline and battery-supplied electricity in the US next year.

Times of London:
- UK Prime Minister Toy Blair is headed for a majority of between 90 and 100 seats in the May 5 general election.

Estado de S. Paulo:
- Saudi Arabia is ready to use its spare capacity of 1.5 million barrels a day to ease prices when needed, said Abdallah S. Jum'ah, chief executive of Saudi Aramco.

Financial Mail:
- IBM will next month cut 15,000 jobs across Europe as part of a companywide reorganization.

Xinhua News Agency:
- China's phone-revenue growth slowed to 8.8% in the first quarter after companies offered cheaper rates amid competition.

South China Morning Post:
- Walt Disney is considering opening a theme park in India.

El Pais:
- Sun Microsystems plans to acquire companies to boost revenue, citing an interview with CEO Scott McNealy.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on PA, MOT, JNPR, CSCO and mixed on FDG, EBAY, MXIM, CMCSA, SBUX, HPQ.

Forbes on Fox:
- Had guests that were positive on SIRI, F, AW, NOVL, FEIC and SMMX.

Cashin' In:
- Had guests that were positive on CP, DYN, UPS, EBAY, mixed on BA, NKE, ERTS and negative on DTPI.

Cavuto on Business:
- Had guests that were positive on WLP, RAD, VZ and mixed on GLW, EEM and ABB.

Barron's:
- Had positive comments on SOV, NWS, IACI, AZR, IGT and HLT.
- Had negative comments on TM and SHRP.

Goldman Sachs:
- Reiterated Outperform on CCU and AMLN.

Night Trading
Asian indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.04%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
AVP/.35
CECO/.51
EDS/.03
HUM/.48
OSIP/-.67
PDLI/-.11
TSN/.17

Splits
CLC 2-for-1

Economic Releases
10:00 EST
- Construction Spending for March is estimated to rise .3% versus a .4% increase in February.
- ISM Manufacturing for April is estimated to fall to 55.0 versus a reading of 55.2 in March.
- ISM Prices Paid for April is estimated to fall to 72.1 versus a reading of 73.0 in March.

BOTTOM LINE: Asian Indices are mostly higher on optimism over earnings and lower energy prices. I expect US stocks to open modestly higher in the morning on bargain-hunting, short-covering and lower energy prices. The Portfolio is 100% net long heading into the week.
Posted by: Gary / 1:34 AM

Sunday, May 01, 2005

Weekly Outlook 

There are several important economic reports and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Construction Spending, ISM Manufacturing/Prices Paid
Tues. - Factory Orders, FOMC Rate Decision, Vehicle Sales
Wed. - ISM Non-Manufacturing
Thur. - 1Q Non-farm Productivity, 1Q Unit Labor Costs, Initial Jobless Claims
Fri. - Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, Consumer Credit

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Avon Products(AVP), Electronic Data Systems(EDS), Tyson Foods(TSN)
Tues. - Caremark Rx(CMX), Electronic Arts(ERTS), Emerson Electric(EMR), Marsh & McLennan(MMC), MBIA(MBI), Maxim Integrated(MXIM), Transocean Inc.(RIG), Tyco Intl.(TYC), Veritas Software(VRTS)
Wed. - Cigna(CI), Duke Energy(DUK), IAC/InterActiveCorp.(IACI), Time Warner(TWX), Univision Communications(UVN), Whole Foods Market(WFMI)
Thur. - CVS Corp.(CVS), EchoStar Communications(DISH), Gillette(G), McAfee(MFE), MCI Inc.(MCIP), McKesson(MCK)
Fri. - Berkshire Hathaway(BRK/A)

Other events that have market-moving potential this week include:

Mon. - Deutsche Bank Health Care Conference, Bear Stearns Aerospace/Defense Conference
Tue. - GM/F Sales Conference Call, Banc of America Basic Industries Conference, Merrill Tech Gathering Conference, Deutsche Bank Health Care Conference
Wed. - Banc of America Basic Industries Conference, JP Morgan Gaming & Lodging Conference, Morgan Stanley Healthcare Conference, Merrill Tech Gathering Conference, Deutsche Bank Health Care Conference
Thur. - Morgan Stanley Healthcare Conference, INTC Analyst Meeting, Morgan Stanley Media & Communications Conference, QCOM Analyst Meeting, SEBL Analyst Meeting, Fed's Greenspan speaks, Fed's Moskow speaks, Fed's Olson speaks
Fri. - Morgan Stanley Healthcare Conference, Morgan Stanley Media & Communications Conference

BOTTOM LINE: I expect US stocks to finish the week higher on bargain hunting, falling energy prices, short-covering, good earnings reports, less hawkish Fed comments and low long-term interest rates. However, if the Fed fails to acknowledge the recent weakening in some economic data points, stocks will likely remain mired in their recent trading range. The combination of the Fed hinting at a pause in the rate of hikes and oil moving back to the mid-$40s could push stocks substantially higher. While I am very confident we have seen the highs in oil for this cycle, I am not ruling out a countertrend rally over the next few weeks. Investor sentiment is still near levels normally associated with meaningful market bottoms. I continue to expect the second half of the year to be much better for US equities than the first half as inflation decelerates, commodities prices fall, long-term interest rates remain low, low valuations tempt investors, growth accelerates, the US dollar remains firm, employment continues to improve, consumer sentiment strengthens and merger activity continues. Homebuilder, Retail, Biotech, Airline, Financial, Internet and Gaming shares should outperform in the second half of the year, given my outlook. My trading indicators are still bearish and the Portfolio is 100% net long heading into the week.
Posted by: Gary / 9:52 PM

Economic Week in Review 

ECRI Weekly Leading Index 134.80 -.30%

Existing Home Sales for March rose to 6.89M versus estimates of 6.79M and an upwardly revised 6.82M in February. US sales of previously owned homes unexpectedly rose in March to the third-fastest pace ever as low interest rates and job gains encouraged buyers, Bloomberg said. The average 30-year mortgage rate is now 5.78%, down from 6.04% at the end of March and substantially below the two-decade average of 8%. The median price of an existing home rose 3.2% to $195,000, Bloomberg reported. "With wages rising, overall compensation rising, the job situation quite steady and maybe improving, the demand for housing is going to stay there," said Roger Kubarych, a senior adviser at HVB America and a former economist at the Fed. The supply of homes available for sale, another gauge of housing demand, fell to 4 months' worth in March from 4.1 months' worth the previous month.

Consumer Confidence for April fell to 97.7 versus estimates of 98.0 and an upwardly revised 103.0 in March. Consumers were discouraged after gas rose to $2.32/gallon during the month. A slowdown in hiring and falling stock prices probably curbed optimism and spending as well, Bloomberg said. The present situation component of the index dropped to 113.6, the second straight decline, from 117. However, this component "remains at levels indicative of a healthy economy," said Lynn Franco, director of the Conference Board's Consumer Research Center. Moreover, consumers planning to buy a home in the next six months rose to 3.9% from 3.8%. That figure averaged 3.7% in 2004, when home sales were a record. Finally, consumers planning to buy a major-appliance rose to 31.5% from 30.8%, Bloomberg reported. "To be sure, the rise in energy prices seems to have taken a toll on consumer confidence and spending most recently," Fed Governor Kohn said. "But with financial conditions still accommodative, profits and cash flow still healthy, and incomes continuing to increase, most forecasters expect growth to remain solid."

New Home Sales for March rose 12.2% to 1431K, the highest level ever, versus estimates of 1190K and an upwardly revised 1275K in February. Sales so far this year have averaged a 1.295M rate, compared with last year's record 1.2M, Bloomberg reported. Mortgage rates within a percentage point of a four-decade low and job and income gains are encouraging buyers, helping power the economy, Bloomberg said. "Of course we all expect it to slow from the record of 2004, but to call it the end of the housing boom would be wrong," said Ellen Beeson, an economist at Bank of Tokyo-Mitsubishi. American home ownership and net worth are near all-time record levels, Bloomberg reported. Finally, the supply of new homes available for sale fell to 3.6 months' worth in March, the lowest level since August 2003, from 4.3 months' worth the previous month.

Durable Goods Orders for March fell 2.8% versus estimates of a .3% increase and a downwardly revised .2% decline in February. Durables Ex Transportation for March fell 1.0% versus estimates of a .5% increase and a .2% decline in February. "You are starting to see some evidence that the economy is losing momentum," said Steven Ricchiuto, chief US economist at ABN Amro. "We need to start taking some growth out of the second-quarter forecasts." Orders for transportation equipment fell 7.8%, spurred by a 23% decline in the volatile aircraft category, after falling .2% in February, Bloomberg reported. Ian Shepherdson, chief US economist at High Frequency Economics, said the report was probably skewed by the working days around Easter, which was in March rather than April. "These data are unreliable," said Shepherdson, the only economist who correctly forecast the decline. "Expect a hefty April rebound."

Advance 1Q GDP rose 3.1% versus estimates of 3.5% and a 3.8% increase in 4Q. Advance 1Q Personal Consumption rose 3.5% versus estimates of a 3.2% increase and a 2.3% gain in 4Q. Advance 1Q GDP Price Deflator rose 3.2% versus estimates of a 2.1% increase and a 2.3% gain in 4Q. The higher fuel costs that stung consumers may have made companies less inclined to invest as much in new equipment as orders slowed, economists said. The US trade deficit subtracted 1.49 percentage points from first-quarter growth, the most since the fourth quarter of 2002, Bloomberg said. The surge in oil prices led to a jump in the value of imports. Even though GDP growth failed to meet estimates, it is just below the 3.3% average of the expansion from 1991-2001, Bloomberg reported.

Initial Jobless Claims rose to 320K versus estimates of 320K and 299K the prior week. Continuing Claims fell to 2555K versus estimates of 2644K and 2631K prior. The Help Wanted Index for March fell to 39 versus estimates of 41 and a reading of 41 in February. The figures point to a "stable job market," said David Sloan, senior economist at 4Cast. Claims so far this year are averaging 325,529, compared with 353,300 at this point last year, the best year for hiring since the height of the bubble in 1999, Bloomberg said. The insured unemployment rate, which tends to track movements in the US employment rate, dropped to a four-year-low of 2%, after lingering at 2.1% since mid-January, Bloomberg reported.

Personal Income for March rose .5% versus estimates of a .4% gain and an upwardly revised .7% increase in February. Personal Spending for March rose .6% versus estimates of a .4% gain and a .4% increase in February. The PCE Deflator for March(YoY) rose 2.4% versus estimates of a 2.5% increase and a 2.2% gain in February. PCE Core for March(YoY) rose 1.7% versus estimates of a 1.7% increase and a 1.6% gain in February. "Solid income growth is keeping consumer spending steady," said Bruce Kasman, head of economic research at JP Morgan. Disposable incomes, when adjusted for inflation, were up 3.3% last month from March 2004. "Growth in real disposable income will be one of the key factors keeping consumer spending from retrenching more sharply," said Joseph Abate, a senior economist at Lehman Brothers. The PCE core, the Fed's favorite inflation gauge, is within the stated optimal range of 1.5-1.75%, Bloomberg said.

Employment Cost Index for 1Q rose .7% versus estimates of a 1.0% gain and a .7% increase in 4Q. US labor expenses unexpectedly increased at a slower pace in the first quarter, reflecting the smallest rise in benefit costs in three years, Bloomberg reported. "There's no clear evidence of rising wage inflation at this point," said Dean Maki, chief economist at Barclays Capital.

Final Univ. of Mich. Consumer Confidence for April fell to 87.7 versus estimates of 88.8 and a prior estimate of 88.7. Waning sentiment threatens to erode consumer spending, which accounts for more than two-thirds of the US economy. So far, the effects have been limited as evidenced by the strong personal spending report, Bloomberg said.

Chicago Purchasing Manager for April fell to 65.6 versus estimates of 62.5 and a reading of 69.2 in March, which was the highest reading in 16 years. "Despite the slowdown, manufacturing activity in the Chicago region is still expanding robustly," said Steven Wood, chief economist at Insight Economics. The index of prices paid by companies for materials and supplies fell to 66.1 from 68.2 the prior month, Bloomberg reported.

BOTTOM LINE: Overall, last week's economic data were mixed. Home sales are still booming and should remain healthy throughout the year. The recent decline in mortgage rates should offset some of the negative effects from unseasonably mild/wet weather in April. A home is the largest purchase most consumers make in their lives. The recent downturn in consumer sentiment is likely not as bad as perceived considering record home sales. Negative political rhetoric, declining stocks and high gas prices have been weighing on confidence. However, I expect rising stock prices, lower energy prices, a modestly improving labor market and low interest rates to boost the psyche of the consumer in the second half of the year. The sharp decline in Durable Goods Orders was likely a result of mostly temporary factors. GDP growth is slowing from high levels to more sustainable less inflationary rates. As I have stated before, GDP growth may temporarily slow to around 2% before bouncing back to over 3% in the second half of the year. The labor market continues to improve modestly. The pace of improvement will allow unemployment to gradually decline without spurring a substantial increase in unit labor costs, which are the main component of inflation. As well, the smallest increase in labor benefit costs in three years is a positive. The decline in the index of prices paid by the Chicago Purchasing Managers is remarkable considering the steep rise in commodity prices in the first quarter. Inflation remains only at average rates and will decelerate in the second half of the year. I continue to believe the fact that oil inventories are 6% above historical averages is likely a result of companies expecting even higher prices in the future, which has temporarily resulted in an artificial boost in demand. As perceptions change regarding the future direction of oil prices, this demand will evaporate and likely cause an even greater decline in the price of crude than would otherwise be the case. This appears to be happening sooner than I had anticipated. I expect crude prices will decline to $35/bbl. at some point in the second half of the year. Finally, the ECRI Weekly Leading Index fell .30% to 134.80 and is still forecasting healthy levels of economic activity.
Posted by: Gary / 2:29 AM

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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