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, June 04, 2005

Market Week in Review 

S&P 500 1,196.06 -.13%

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Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was mixed. The advance/decline rose slightly, sector performance was mixed and volume was about average on the week. Measures of investor anxiety were mixed. The AAII % Bulls rose again, but is still only around average levels. Mortgage rates continued to drop and are now only 41 basis points away from all-time lows set in June 2003. Long-term treasury yields fell significantly as multiple measures of inflation fell, concerns over global growth rose, the US dollar rallied and the Fed's Fisher made dovish comments. Fisher said that "there's room to tighten a little bit further" and that "we're in the eighth inning of the rate cycle.” I am now more confident in my prediction of a few weeks ago that the Fed would raise 25 basis points at the June meeting and remove the word "measured" from the policy statement, thus paving the way for a "pause" in their rate of hikes. Commodity prices rose sharply as investors began to anticipate an end to the Fed rate hikes and strengthening demand. Energy was especially strong even as inventories climbed further. Oil supplies last week were 11.4% higher than a year ago at this time. Crude inventories were 26 million barrels, or 8.4% above the five-year average. Stockpiles have now risen in 14 of the last 16 weeks. API implied US crude demand last week was down 2.68% from a year earlier. I believe the recent commodity rally will be short-lived as global growth falls more than is generally expected, supplies increase and the US dollar rises further.
Posted by: Gary / 12:34 AM

Friday, June 03, 2005

Weekly Scoreboard* 

Indices
S&P 500 1,196.06 -.13%
DJIA 10,460.97 -.73%
NASDAQ 2,071.43 unch.
Russell 2000 620.30 +.91%
DJ Wilshire 5000 11,833.39 +.17%
S&P Equity Long/Short Index 1,011.89 +.71%
S&P Barra Growth 577.39 -.38%
S&P Barra Value 614.19 +.11%
Morgan Stanley Consumer 583.64 -.95%
Morgan Stanley Cyclical 721.97 -.40%
Morgan Stanley Technology 482.75 +.08%
Transports 3,629.10 -.20%
Utilities 369.14 +1.60%
S&P 500 Cum A/D Line 7,538 +3.52%
Bloomberg Crude Oil % Bulls 44.0% -23.0%
Put/Call .99 +22.22%
NYSE Arms 1.50 +130.77%
Volatility(VIX) 12.15 -.74%
ISE Sentiment 170.00 -.58%
AAII % Bulls 48.61 +10.13%
US Dollar 88.04 +1.37%
CRB 306.70 +2.20%

Futures Spot Prices
Crude Oil 55.03 +8.11%
Unleaded Gasoline 155.71 +7.31%
Natural Gas 6.88 +10.52%
Heating Oil 159.95 +10.77%
Gold 424.50 +.43%
Base Metals 127.00 +4.06%
Copper 155.75 +7.75%
10-year US Treasury Yield 3.98% -2.41%
Average 30-year Mortgage Rate 5.62% -.53%

Leading Sectors
Gold & Silver +5.75%
Airlines +4.75%
Oil Service +3.03%

Lagging Sectors
Drugs -1.74%
Biotech -2.23%
Computer Hardware -2.40%

*5-Day % Change
Posted by: Gary / 5:58 PM

Stocks Lower Mid-day on Growth Concerns 

Indices
S&P 500 1,197.36 -.58%
DJIA 10,475.24 -.77%
NASDAQ 2,075.98 -1.04%
Russell 2000 621.42 -.61%
DJ Wilshire 5000 11,843.40 -.56%
S&P Barra Growth 578.10 -.76%
S&P Barra Value 614.23 -.48%
Morgan Stanley Consumer 583.95 -.79%
Morgan Stanley Cyclical 723.95 -.54%
Morgan Stanley Technology 483.30 -1.03%
Transports 3,624.61 -.69%
Utilities 368.05 -.10%
Put/Call 1.02 +7.37%
NYSE Arms 1.46 +27.75%
Volatility(VIX) 12.31 +3.97%
ISE Sentiment 166.00 -4.60%
US Dollar 88.05 +.34%
CRB 306.37 +.73%

Futures Spot Prices
Crude Oil 54.50 +1.62%
Unleaded Gasoline 154.30 +1.82%
Natural Gas 6.85 +.53%
Heating Oil 158.50 +2.78%
Gold 425.60 +.21%
Base Metals 127.00 +3.02%
Copper 155.80 +2.74%
10-year US Treasury Yield 3.96% +1.65%

Leading Sectors
Gold & Silver +1.37%
HMOs +1.10%
Oil Tankers +.93%

Lagging Sectors
Software -1.35%
Biotech -1.68%
Computer Hardware -1.69%
BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet and Homebuilding longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is about average. Measures of investor anxiety are higher. Today’s overall market action is slightly negative, given recent gains and disappointing economic data. While treasuries are overbought near-term, I think a continuation of the recent rally is likely over the intermediate-term. I see further U.S. dollar gains, a flight of capital into the U.S., improving U.S. budget/trade deficits, slowing global growth and decelerating inflation readings as the catalysts. I expect US stocks to trade modestly higher into the close on short-covering and subsiding Fed worries.
Posted by: Gary / 1:56 PM

Today's Headlines 

Bloomberg:
- Honda Motor, the no. 5 automaker in the US, said it will increase production of sport-utility vehicles and minivans at its factory in Lincoln, Alabama this year to meet rising demand.
- The EU will urge OPEC next week to boost production to prevent oil prices from doing more harm to Europe’s economy, said the EU’s top energy official.
- SAC Capital Advisers, the $6 billion hedge fund company run by Steven Cohen, may let investors put money in its funds for the first time since the firm opened in 1992.
- L-3 Communications plans to buy Titan for about $2.65 billion in cash and debt to increase sales of secure computer networks to US military and intelligence agencies.
- US 10-year Treasuries fell the most in seven days as some traders and investors said a rally that pushed yields to their lowest in more than a year was excessive.
- Crude oil is rising, heading for a second straight weekly gain, on speculation that refiners will struggle to meet growing demand for gasoline and diesel.
- The euro headed for its biggest weekly drop against the dollar since January after French and Dutch voters rejected the EU constitution.

Wall Street Journal:
- John Mack, former co-chief executive of CSFB, will join Pequot Capital Management as the hedge fund’s chairman.
- The US administration is giving a new priority to relations with China as a result of that country’s growing power and influence and potential to become a global rival.
- Time Warne Book Group and other US publishers are finding themselves stuck with an increasing amount of books stores can’t sell.
- Alcoa said its contract talks with the United Steelworkers of America will go before an arbitrator at the end of July.
- WildBlue Communications plans this week to become the first company to offer mass market Internet service via satellite.

NY Times:
- Time Warner’s AOL unit will introduce a free Internet portal at its AOL.com Web site to attract new customers and keep subscribers.

Washington Post:
- President Bush is poised to send dozens of new judicial nominations to the Senate in the next few weeks.

LA Times:
- California lawmakers yesterday passed two bills that would require weapons makers to stamp bullets sold in the state with an identification number or stamp one on when a weapon is fired.

Orange County Register:
- Bill Gross, the chief investment officer for PIMCO, said Chris Cox is the “perfect” choice to become the next chairman of the SEC.

Reuters:
- Italy should consider abandoning the euro and going back to the lira, citing Italian Labor Minister Roberto Maroni.

Financial Times:
- Agco is in talks with First Tractor to make Massey Ferguson tractors in China for the first time.

Aftenposten:
- Norwegian support for joining the European Union slumped after French and Dutch voters rejected the EU’s constitution in referendums in the past week.

Hurriyet:
- Turkey’s chances of becoming a European Union member have been reduced by French and Dutch rejections of the union’s constitution.

Sun:
- Two-thirds of all UK residents think there should be a referendum in the country on the EU constitution, yet only 22% are in favor of it.

Boersen:
- Danes will reject the proposed EU constitution in a September 27 referendum, following France and the Netherlands, citing Greens Analysis Institute poll.

Le Monde:
- Total SA, Europe’s largest oil refiner, was implicated in an investigation into Iraq’s oil-for-food program.
Posted by: Gary / 1:14 PM

Unemployment Falls, ISM Non-manufacturing Still Healthy 

- The Unemployment Rate fell to 5.1% in May versus estimates of a 5.2% rate and a 5.2% rate in April.
- Average Hourly Earnings for May rose .2% versus estimates of a .2% increase and a .3% gain in April.
- The Change in Non-farm payrolls for May was 78K versus estimates of 175K and 274K in April.
- The Change in Manufacturing payrolls for May was -7K versus estimates of -5K and -9K in April.
- The ISM Non-manufacturing Index for May fell to 58.5 versus estimates of 60.0 and a reading of 61.7 in April.

BOTTOM LINE: US employers added 78,000 workers to their payrolls last month, the fewest since August 2003. The unemployment rate unexpectedly fell to 5.1% from 5.2% in April and is now the lowest since September 2001. There were job gains in education and health services, while losses were mainly in the information services, real estate and leisure/hospitality industries. This report should quell fears of an increase in unit labor costs and strengthen the view that the Fed has one more tightening before a “pause.”

The ISM Non-manufacturing Index fell to a two-year low in May, but is still at relatively high levels. The index of new orders for non-manufacturing companies rose to 59.7 from 58.8. The index of order backlogs rose to 56.5 from 54.0. Export orders increased to 62.0 from 52.5. The gauge of prices paid declined to 57.9 from 61.9. This is the lowest level for prices paid since August 2003 and is down 22% since October 2004. This is the third inflation measure in the last week that showed a substantial deceleration.


Posted by: Gary / 11:03 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 / 9:43 AM

Friday Watch 

Late-Night Headlines
Bloomberg:
- Crude oil stockpiles have risen 14 of the last 16 weeks and are now 8.4% above the five-year average.
- All Nippon Airways, Asia's second-largest airline by sales, said it may use Boeing's 777-300ER aircraft to replace 53 of its largest airplanes, passing over the A380 model made by Airbus SAS.
- Wal-Mart shareholders, who have seen their shares post their biggest yearly decline in 11 years during the past twelve months, may press CEO Scott to make management changes at the company's annual meeting today.
- Google may follow the precedent of Berkshire Hathaway's chairman, Warren Buffett, and avoid splitting its shares even though the stock price is among the 10 highest in US markets.

Wall Street Journal:
- Sony's incoming CEO Howard Stringer will probably extend efforts to streamline the company's management as he seeks to revive the company.

NY Times:
- Nike has ended its endorsement agreement with NY Yankees first baseman Jason Giambi, whose name has been linked to steroid use.

China Daily:
- China may veto a proposed resolution to expand the UN Security Council and give permanent seats to Japan, Germany, India and Brazil.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MFE.

Business Week:
- American Science and Engineering(ASEI), a maker of X-ray and imaging systems that detect explosives, illegal drugs and smuggled goods, may rise to $54 a share in a year as demand from the US and foreign governments rises.
- Peet's Coffee & Tea(PEET) shares may double in two years driven by earnings and sales growth, citing ThinkEquity Partners CEO Michael Moe.
- Alaska Airlines' parent may make a bid to buy America West Airlines(AWA), without disrupting the latter's plan to merge with US Airways.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated unch.
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
None of note

Splits
None of note

Economic Releases
8:30 EST:
- The Unemployment Rate for May is estimated at 5.2% versus 5.2% in April.
- Average Hourly Earnings for May is estimated to rise .2% versus a .3% gain in April.
- The Change in Non-farm Payrolls for May is estimated at 175K versus 274K in April.
- The Change in Manufacturing Payrolls for May is estimated at -5K versus -6K in April.
- Average Weekly Hours for May is estimated to fall to 33.8 versus 33.9 in April.

10:00 EST:
- ISM Non-Manufacturing for May is estimated to fall to 60.0 versus 61.7 in April.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in technology shares in the region. I expect US equities to open mixed on slightly disappointing economic data. However, stocks may rise later in the day on lower energy prices and diminishing Fed worries. The Portfolio is 100% net long heading into the day.
Posted by: Gary / 1:16 AM

Thursday, June 02, 2005

Stocks Finish Higher as Oil Prices Reverse Lower 

Indices
S&P 500 1,204.29 +.17%
DJIA 10,553.49 +.03%
NASDAQ 2,097.80 +.48%
Russell 2000 625.24 +.24%
DJ Wilshire 5000 11,910.22 +.21%
S&P Barra Growth 582.59 +.22%
S&P Barra Value 617.17 +.12%
Morgan Stanley Consumer 588.54 +.04%
Morgan Stanley Cyclical 727.79 +.19%
Morgan Stanley Technology 488.32 +.75%
Transports 3,649.96 +.44%
Utilities 368.40 -.04%
Put/Call .95 +39.71%
NYSE Arms 1.15 +43.11%
Volatility(VIX) 11.84 -4.21%
ISE Sentiment 174.00 +32.82%
US Dollar 87.75 -.41%
CRB 304.16 -.06%

Futures Spot Prices
Crude Oil 53.57 -1.89%
Unleaded Gasoline 151.47 -1.91%
Natural Gas 6.80 +.18%
Heating Oil 153.90 -.06%
Gold 424.10 -.16%
Base Metals 123.28 +1.30%
Copper 151.00 -.43%
10-year US Treasury Yield 3.90% +.48%

Leading Sectors
Airlines +5.91%
Disk Drives +3.18%
Oil Tankers +2.34%

Lagging Sectors
Biotech -.23%
Gold & Silver -.70%
Computer Hardware -1.00%

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 FCD.

Afternoon/Evening Headlines
Bloomberg:
- US anti-dumping laws hurt consumers and businesses by artificially inflating prices, two of President Bush’s former economic advisers write in the latest issue of the journal Foreign Affairs.
- President Chirac’s popularity plunged to a record low 24% following the May 29 defeat of the European Union constitution referendum.
- Toyota Motor slashed the time it took to build a car in North America last year by 5.9%, the biggest efficiency gain in an annual survey of auto plants.
- Morgan Stanley will move 2,300 jobs to lower Manhattan and add 578 positions in the next five years.
- Phelps Dodge plans to spend $210 million on a project to process the metal by a new leaching technology to cut costs, closing a New Mexico smelter and an Arizona refinery permanently.
- Apple Computer will issue $50 vouchers or extended service warranties as part of a tentative settlement with customers who experienced battery problems with older versions of the iPod music player.
- The Duke/CFO Magazine global CFO survey says: Capital spending and employment growth to slow due to interest rates, high fuel costs, healthcare costs and lack of pricing power.

Nikkei English:
- Honda Motor plans to increase production at its four North American plants by 7% to 1.5 million automobiles a year by its fiscal 2007.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Steel shorts and Homebuilding longs offset losses in my Energy-related shorts. I took profits in a few QQQQs and added to my FFIV long, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline finished modestly higher, most sectors rose and volume was average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was slightly positive ahead of tomorrow’s jobs report. Expectations are for a rise of 175K in non-farm payrolls vs. a gain of 274K last month. Given the upward revision to 1Q unit labor costs, I would like to see a number below 200K. I think this will be the case. Investors would likely welcome a change between 75K-200K. Above 250K would probably spark fears that the labor market is becoming too tight and thus quell recent speculation of a Fed pause. Below 75K could renew fears of a U.S. hard landing.
Posted by: Gary / 5:59 PM

Stocks Mixed Mid-day Ahead of Tomorrow's Jobs Report 

Indices
S&P 500 1,201.63 -.05%
DJIA 10,533.46 -.15%
NASDAQ 2,089.99 +.11%
Russell 2000 623.78 +.01%
DJ Wilshire 5000 11,887.23 +.02%
S&P Barra Growth 581.63 +.06%
S&P Barra Value 615.91 -.08%
Morgan Stanley Consumer 587.44 -.14%
Morgan Stanley Cyclical 726.35 -.02%
Morgan Stanley Technology 486.10 +.29%
Transports 3,642.10 +.23%
Utilities 368.56 +.01%
Put/Call .95 +39.71%
NYSE Arms 1.14 +42.90%
Volatility(VIX) 12.19 -1.38%
ISE Sentiment 210.00 +60.31%
US Dollar 87.84 -.31%
CRB 305.33 +.33%

Futures Spot Prices
Crude Oil 54.60 -.09%
Unleaded Gasoline 154.80 +.25%
Natural Gas 7.00 +2.96%
Heating Oil 157.80 +2.47%
Gold 424.80 +1.70%
Base Metals 123.28 +1.30%
Copper 151.65 +2.09%
10-year US Treasury Yield 3.89% +.19%

Leading Sectors
Airlines +4.74%
Disk Drives +3.34%
Oil Tankers +2.04%

Lagging Sectors
Insurance -.45%
Banks -.47%
Computer Hardware -1.35%
BOTTOM LINE: The Portfolio is slightly 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 slightly negative as the advance/decline line is slightly lower, most sectors are higher and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is neutral, given recent gains and mixed economic data. Many believe the Fed's Fisher does not speak for most other Fed members. He is being portrayed in some circles as an inexperienced loose cannon who should be ignored. If his dovish comments yesterday were so off-the-mark, why hasn't any other Fed member attempted damage control? The Fed's Stern had his chance today and didn't take it. I expect US stocks to trade mixed-to-higher into the close on short-covering and subsiding Fed worries.
Posted by: Gary / 2:19 PM

Today's Headlines 

Bloomberg:
- China’s benchmark Shanghai Composite Index slumped to an eight-year low on concern that the second phase of the government’s plan to cut its shareholdings will result in a flood of poor-quality stock.
- US Commerce Secretary Carlos Gutierrez called on China to crack down harder on copyright piracy and open its markets further to US products or risk a protectionist backlash that would hurt both economies.
- Sun Microsystems agreed to buy Storage Technology for $4.1 billion.
- US retailer from Target to Neiman Marcus posted better-than-expected sales gains in May as bigger paychecks overcame the effect of cold weather on spending.
- Motorola had its credit rating raised by Moody’s for the first time in 17 years, reflecting greater-than-expected gains in sales and profit.
- The US dollar fell the most in six weeks against the euro as strategists said a three-week decline in US Treasury yields made US debt less attractive to international investors.

Wall Street Journal:
- A European Union antitrust investigation into US-based Johnson & Johnson’s proposed $25.4 billion takeover of Guidant is focused on whether the merger would damage smaller competitors and keep prices high for cardiovascular devices.
- China’s government is trying to control the spread of Christianity that has increased the number of Catholics and Protestants to 45 million from six million 25 years ago.
- SBC Communications and other providers are regaining customers who want landline service because of lower pricing and better transmission than on cell phones.
- US homeowners are increasingly finding that installing solar-powered electricity generators can pay off, as states including California, NY and Texas now offer loans, rebates and other programs.
- The link between Viagra and vision defects is far from certain, citing ophthalmologists.
- Orlando, Florida, travelers may speed through airport security as early as next month with the help of a $79.95 identity card.
- Psychemedics Corp., PharmChem’s Phamatech and Q3 Innovations may benefit from increasing demand for their in-home drug-testing kits as parents watch for drug use in their children.
- Merck will begin television, radio and print advertisements this week in the first corporate brand campaign in the drugmaker’s 144-year history.
Cnet Networks is offering plot summaries, photographs and video clips of television shows from the 1940s to the present on a Web site called TV.com.

NY Times:
- The rejection of the European Union’s proposed constitution by French and Dutch voters this week reflected growing dissatisfaction with the continent’s leaders.
- Yahoo! plans to revive the live concert television show “PepsiSmash” on its Internet site through a collection of short video segments available on demand.
- Richard Braddock, the former president of Citicorp and former chairman of Priceline.com, has been named chairman of FreshDirect, a NY-based Internet grocer, signaling a possible move toward an IPO.

Boston Globe:
- Biogen Idec has told the FDA that a fourth patient may have developed a rare neurological disorder after being treated with the multiple sclerosis drug Tysabri.

Washington Post:
- A US rule that took effect yesterday requires all companies and individuals to destroy private consumer information obtained from credit bureaus and other information providers.

San Francisco Chronicle:
- A California bill aimed at permitting doctor-assisted suicide was rescued from likely defeat in the Sate Assembly when the authors used a parliamentary move to shift the bill to the Senate.

AP:
- South Korean cloning science specialist Hwang Woo Suk said he wants to open a stem-cell bank this year to help speed the search to grow replacement tissue.

AFP:
- Boeing may book more aircraft orders this year than Airbus SAS.

Financial Times:
- Western observers are underestimating problems in the Chinese economy, even as Chinese entrepreneurs step up their criticisms of internal barriers to doing business in the country, said Yasheng Huang, an associate professor in the MIT’s Sloan School.

Moscow Times:
- Starbucks opened its first store in Moscow amid a trademark dispute with an eponymous Russian company.

Globe and Mail:
- Lowe’s is preparing to expand into Canada.
- E*Trade Financial may revive merger discussions with TD Waterhouse after Ameritrade Holding said it’s in talks to buy Waterhouse after Ameritrade Holding said it’s in talks to buy Waterhouse’s US assets.
Posted by: Gary / 1:28 PM

Labor Costs Rise, Factory Orders Accelerate and Oil Inventories Rise 

- Final 1Q Non-farm Productivity rose 2.9% versus estimates of a 3.0% rise and a 2.6% prior estimate.
- Final 1Q Unit Labor Costs rose 3.3% versus estimates of a 2.2% increase and a 2.2% prior estimate.
- Initial Jobless Claims for last week rose to 350K versus estimates of 325 and 325K the prior week.
- Continuing Claims rose to 2602K versus estimates of 2581K and 2570K prior.
- Factory Orders for April rose .9% versus estimates of a 1.1% gain and an upwardly revised .7% increase in March.
- Summary of Weekly Petroleum Data for the Week Ending May 27, 2005.
- The EIA said crude inventories rose 1.49M barrels versus estimates of a 250K rise. Distillate fuel inventories rose 783K barrels versus estimates of a 1.45M barrel rise. Gasoline inventories rose 1.3M barrels versus estimates of a 400K rise. Natural Gas inventories rose 86 bcf to 1778 bcf versus estimates of a rise of 89 bcf.

BOTTOM LINE: Productivity rose in the first quarter at the fastest pace in 9 months. Productivity gains exceeded 4.0% in each of the last three years. At no time in history had there even been back-to-back increases greater than 4.0%. The year-over-year increase in unit labor costs was 4.3%, the most since the third quarter of 2000. While this increase is higher than I would like to see, there is little evidence that these costs are being passed to the consumer. Moreover, increasing labor costs haven’t pressured corporate profits to any extent. US corporate profits grew 4.5% in the first quarter and accounted for the largest share of the US economy since early 1967. I also expect moderating job gains over the coming months to dampen labor costs somewhat going forward.

The number of Americans filing first-time applications for jobless benefits rose last week to a 2-month high as a result of temporary layoffs in the automobile industry. Even with the increase last week, claims have averaged 328,000 so far this year, down from 343,000 for all of 2004, when the job market was the strongest in five years. The four-week moving average of claims, a less volatile measure, rose to 334,500 from 331,000. The four-week moving average of continuing claims rose to 2.59 million, from 2.586 million. The insured unemployment rate, which moves with the US unemployment rate, held at 2.0%.

US factory orders rose the most since November, spurred by demand for autos, aircraft and computers. Excluding transportation equipment, orders fell .2%. Orders for capital goods excluding aircraft, a proxy for future business investment, rose 1.7% in April after declining 1.6% in March. I continue to expect overall weaker factory activity as companies cut inventory to healthier levels.

Oil is steady even with another rise in inventories during the seasonably strong driving period. The perception that demand will accelerate in 4Q from last year’s rates is propping up energy. I continue to believe this perception will change over the coming months, resulting in a substantial fall in crude prices.
Posted by: Gary / 11:25 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 / 9:41 AM

Thursday Watch 

Late-Night Headlines
Bloomberg:
- Microsoft agreed to change its Windows XP operating software to address fresh antitrust concerns that traces of programs consumers choose to hide still appear on their computer screens.
- SEC Chairman Donaldson's resignation may spark a battle to reduce the agency's reach over corporate America and Wall Street.

Wall Street Journal:
- Citigroup is in discussion to exchange its Smith Barney mutual fund business with Legg Mason.

AP:
- President Bush will nominate California Republican Representative Christopher Cox to be the new chairman of the SEC, replacing William Donaldson.

Economic Daily News:
- Nvidia Corp. and ATI Technologies have chosen Taiwan Semiconductor Manufacturing as their only supplier of chips that use 90-nanometer technology.

People's Daily:
- Property prices and transaction volume in 11 major Chinese cities fell after the government unveiled measures last month to curb real estate speculation.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SBUX, FMD, CAL, MDT and ARO.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.02%.
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
JTX/1.38
SFL/.50
TTWO/-.13

Splits
COP 2-for-1
EGN 2-for-1
RESP 2-for-1

Economic Releases
8:30 EST:
- Final 1Q Non-farm Productivity is estimated to rise 3.0% versus a prior estimate of a 2.6% increase.
- Final 1Q Unit Labor Costs is estimated to rise 2.1% versus a prior estimated of a 2.2% gain.
- Initial Jobless Claims for last week are estimated to rise to 325K versus 323K the prior week.
- Continuing Claims are estimated to rise to 2581K versus 2574K prior.

10:00 EST:
- Factory Orders for April are estimated to rise 1.1% versus a .1% gain in March.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in exporting and energy shares in the region. I expect US equities to open mixed as optimism over an end to Fed rate hikes offsets higher energy prices. The Portfolio is 100% net long heading into the day.
Posted by: Gary / 1:04 AM

Wednesday, June 01, 2005

Stocks Close Higher Even as Energy Prices Finish at Session Highs 

Indices
S&P 500 1,202.22 +.90%
DJIA 10,549.87 +.79%
NASDAQ 2,087.86 +.95%
Russell 2000 623.74 +1.14%
DJ Wilshire 5000 11,884.67 +.90%
S&P Barra Growth 581.29 +.96%
S&P Barra Value 616.42 +.84%
Morgan Stanley Consumer 588.30 +.65%
Morgan Stanley Cyclical 726.43 +.85%
Morgan Stanley Technology 484.69 +1.22%
Transports 3,633.86 +.95%
Utilities 368.54 +.93%
Put/Call .68 -29.90%
NYSE Arms .80 -48.30%
Volatility(VIX) 12.36 -7.0%
ISE Sentiment 131.00 -31.77%
US Dollar 88.11 +.40%
CRB 304.33 +1.16%

Futures Spot Prices
Crude Oil 54.27 +4.43%
Unleaded Gasoline 153.50 +4.64%
Natural Gas 6.72 +5.42%
Heating Oil 153.47 +5.88%
Gold 417.60 -.31%
Base Metals 121.70 +.70%
Copper 148.20 +1.75%
10-year US Treasury Yield 3.88% -2.43%

Leading Sectors
Gold & Silver +1.97%
Energy +1.86%
Internet +1.37%

Lagging Sectors
Defense -.31%
Oil Tankers -1.24%
Oil Tankers -1.28%

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 FMD, SBC, UTX and AIG.

Afternoon/Evening Headlines
Bloomberg:
- Dutch voters rejected the European Union’s constitution, dealing a second blow to European integration three days after the treaty was defeated in France, causing the euro to plunge.
- UK Prime Minister Blair came under pressure from European Union leaders not to scrap a British referendum on the EU constitution after the Netherlands became the second country to reject the new rulebook.
- JP Morgan Chase said second-quarter trading results through May 31 were “the worst the firm has experienced in some time.”
- The SEC has asked a US judge to appoint a receiver to take control of Amerindo Investment Advisors, after its two co-founders, Alberto Vilar and Gary Tanaka, were jailed on criminal charges last week.
- Ford Motor and GM, which are losing share to Asian competitors, had US sales declines of more than 11% in May, prompting North American production cuts and increased sales incentives.

Wall Street Journal:
- EBay agreed to buy Shopping.com for about $620 million in cash.

AP:
- Palestinian Authority President Abbas underwent angioplasty yesterday after being admitted to an Amman, Jordan, hospital for fatigue.

Reuters:
- Nextel Communications CEO Donahue expects the mobile-phone company to meet or beat forecasts for this year.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet, Retail and Homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline finished higher, almost every sector rose and volume was average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was modestly positive, considering the Fed’s Fisher’s dovish comments. Rising energy prices likely muted an otherwise more vigorous rally.
Posted by: Gary / 7:07 PM

Stocks Higher Mid-day on Diminishing Fed Fears and Lower Inflation 

Indices

S&P 500 1,204.26 +1.07%

DJIA 10,569.01 +.97%

NASDAQ 2,092.24 +1.14%

Russell 2000 624.09 +1.20%

DJ Wilshire 5000 11,901.87 +1.05%

S&P Barra Growth 581.83 +1.06%

S&P Barra Value 617.62 +1.03%

Morgan Stanley Consumer 587.71 +.55%

Morgan Stanley Cyclical 728.74 +1.17%

Morgan Stanley Technology 486.86 +1.67%

Transports 3,637.89 +1.08%

Utilities 369.52 +1.20%

Put/Call .56 -42.27%

NYSE Arms .62 -59.67%

Volatility(VIX) 12.29 -7.52%

ISE Sentiment 129.00 -32.81%

US Dollar 88.06 +.34%

CRB 303.04 +.74%

Futures Spot Prices

Crude Oil 53.75 +3.43%

Unleaded Gasoline 151.80 +3.61%

Natural Gas 6.62 +3.78%

Heating Oil 152.50 +5.28%

Gold 417.70 -.29%

Base Metals 121.70 +.70%

Copper 148.70 +2.09%

10-year US Treasury Yield 3.90% -1.81%

Leading Sectors

Energy +2.21%

Gold & Silver +2.14%

Gaming +1.78%

Lagging Sectors

Telecom -.15%

Defense -.29%

Oil Tankers -.83%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Homebuilding, Retail and Wireless longs. I added a number of new longs this morning, thus leaving the Portfolio 100% net long. One of my new longs is GME and I am using a $28 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is above average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive, given the rise in energy prices and disappointing ISM report. The Fed's Fisher said on CNBC today that "there's room to tighten a little bit further" and that "we're in the eighth inning of rate cycle.” I am more confident than ever that the Fed is almost ready to "pause." However, I would not be surprised to see conflicting comments over the next couple of weeks from Fed speakers. Fisher's comments today were not a mistake or the result of inexperience, in my opinion. They were the first attempt at changing perceptions in an orderly manner before the June 30 meeting. I expect US stocks to trade mixed into the close as rising energy prices and growth worries are offset by lower long-term interest rates, subsiding Fed worries and decelerating inflation.
Posted by: Gary / 2:14 PM

Today's Headlines 

Bloomberg:

- Global emergency oil reserves total about 4 billion barrels and are sufficient to cover a major supply disruption in a producing country, said Claude Mandil, executive director of the IEA.
- MGM Mirage is looking for more projects in the southern Chinese city of Macau as it prepares to build a $975 million casino hotel in the only place in China where casino gambling is legal.

- Dutch voters will probably reject the European Union constitution in a referendum today, opinion polls show, as French President Chirac promised renewed efforts to reduce high unemployment following the defeat of the treaty in France.

- The European Central Bank cut its growth forecast for the 12 countries sharing the euro to 1.4% from 1.6%.

- Electronic Arts today will announce an agreement with Qualcomm aimed at grabbing a bigger slice of the $1.3 billion market for games played on mobile phones.

- SBC Communications, the largest provider of high-speed Internet access on digital subscriber lines, cut the price for its standard DSL service by 25% to add more customers.

- William Donaldson, chairman of the SEC, plans to resign as the top regulator for the world’s biggest financial market on June 30.

- UN Secretary-General Kofi Annan yesterday fired Joseph Stephanides, an official in the Iraq/UN oil-for-food program, for misconduct in the awarding of a contract to a company that inspected humanitarian goods imported by Saddam’ regime.

- US junk bonds in May turned in their best performance of the year, as concern faded that GM and Ford would swamp the market for high-yield, high-risk debt after their credit ratings were cut to below investment-grade.

- US Treasuries are rising, pushing 10-year yields down to the lowest since April 2004, after the ISM’s monthly manufacturing, prices paid and employment indices all fell.

- The euro fell to an eight-month low against the dollar after manufacturing in the region contracted and the European Central Bank and European Commission cut their economic growth forecasts.

- Crude oil is rising for a seventh straight session as refinery malfunctions raised concern that refiners won’t produce enough gasoline to meet peak demand this summer.

Wall Street Journal:

- General Motors is expected to announce steep discounts to the general public today similar to GM employee-offered incentives, in an effort to unload inventories.

- Procter & Gamble is focusing on finding out what products suit women most rather than the ones that are most technologically elaborate.

- Evercore Partners is considering conducting an IPO, to profit from several previous financial advisory firm offerings.

- A book based on disclosures by former FBI official W. Mark Felt that he was “Deep Throat,” the anonymous person who helped the Washington Post uncover the Watergate scandal, could get an advance of as much as $1 million.

- The growth of China’s steel industry may slow, Shanghai Baosteel Group Corp Chairwoman Xie Qihua said in an interview.

- Wells Fargo is slicing online trading fees for clients who hold at least $25,000 in balances at the bank, following cuts by other brokerages in recent months.

- Bank of America will require Internet customers to register their computers with the bank and assign a digital image to it which will pop up when ever the user accesses his account.

- Shares of companies that own and operate crude-oil tankers have fallen this year and short-sellers are betting that they’ll fall further.

- Seven executives at Blockbuster sold 560,000 Class A shares of the company’s stock for $5.5 million.

- The Safe Blood for Africa Foundation is working to provide safe blood transfusions in Africa by improving donor screening and blood testing.

- Deere and Orvis are taking advantage of the US real estate boom by entering into separate luxury property ventures.

NY Times:

- Delta Air Lines’ Song low-fare unit plans to announce new non-stop service between Boston and California today.

NY Post:

- Michael Dell, chairman and founder of Dell Inc., plans to put a “substantial” amount of money from his personal investments into a hedge fund venture.

Philadelphia Inquirer:

- A Pennsylvania law that would legalize gambling to pay for property-tax reform was rejected by 400 of the state’s 501 local school districts over the weekend.

AP:

- Connecticut and Massachusetts lawmakers approved measures yesterday to encourage stem cell research in those states.

AFP:

- OPEC will probably decide to keep pumping oil at its current level when it meets in Vienna on June 15, the group’s president said today.
Posted by: Gary / 1:16 PM

Construction Sets Another Record, Manufacturing Slowing, Inflation Decelerating 

- Construction Spending for April rose .5% versus estimates of a .6% increase and an upwardly revised .6% gain in March.
- ISM Manufacturing for May fell to 51.4 versus estimates of 52.0 and a reading of 53.3 in April.
- ISM Prices Paid for May fell to 58.0 versus estimates of 67.5 and a reading of 71.0 in April.

BOTTOM LINE: US construction spending rose in April to an all-time record level. Homebuilding gained .6% and accounted for more than half the total. Non-residential construction rose 1.3% in April, the highest since May 2002. Construction of commercial buildings rose 3.8%. Thirty-year mortgage rates have averaged 5.78% this year, near the four-decade low of 5.21% seen in June 2003. The average since the start of 1980 is 9.58%. I continue to believe construction will help sustain modest US growth through at least year-end.

The pace of US manufacturing growth slowed in May for a sixth straight month. The index is the lowest since June 2003. However, it wasn’t as bad as I had feared. The new orders gauge of the index fell to 51.7 from 53.7 in April. The production index fell to 54.9 from 56.7. The ISM Prices Paid Index fell to 58.0, the lowest since September 2003, from 71 in April. Prices Paid has now plunged 34.1% since April 30, 2004. The employment component of the index decreased to 48.8 from 52.3 in April. The French vote and much better inflation readings are spurring the recent rally in bonds. I do not agree with those that say it is projecting a substantial fall in US growth. The ongoing inventory correction will likely continue for a couple more months. However, I expect manufacturing activity to accelerate thereafter as consumer spending remains very healthy.
Posted by: Gary / 10:48 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 / 9:24 AM

Wednesday Watch 

Late-Night Headlines
Bloomberg:
- MGM Mirage said it's looking for more projects in the southern Chinese city of Macau in addition to a $975 million casino hotel being built in the former Portuguese enclave.
- School Specialty, which sells educational products to schools, agreed to be acquired by private buyout firm Bain Capital Parters LLC.
- Australia's economy grew less than expected in the first quarter as business investment shrank and farm output stalled, reinforcing expectations the central bank has finished raising interest rates this year.

Wall Street Journal:
- Lego Holdings AS, the Danish toy maker known for its plastic stackable bricks, is close to selling its theme parks to Blackstone Group LP for $462.1 million.

Financial Times:
- General Motors and Ford Motor may announce more cuts in their North American output.

Shanghai Daily:
- Shanghai imposed new taxes to cool an overheating property market.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MDT, AIG, MSFT, DIS and BSX.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.13%.
NASDAQ 100 indicated +.06%.

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
CMVT/.11
CPRT/.31
EASI/.53
NMG/A/1.55

Splits
GIL 2-for-1
PDS 2-for-1
WLP 2-for-1

Economic Releases
8:00 EST:
- Construction Spending for April is estimated to rise .6% versus a .5% increase in March.
- ISM Manufacturing for May is estimated to fall to 52.1 from 53.3 in April.
- ISM Prices Paid for May is estimated to fall to 67.5 from 71.0 in April.

Afternoon:
- Total Vehicles Sales for May are estimated to fall to 16.7M versus 17.5M in April.
- Domestic Vehicle Sales for May are estimated to fall to 13.5M versus 13.9M in April.

BOTTOM LINE: Asian indices are mixed as gains in Australia offset losses in China. I expect US equities to open modestly lower on worries over slowing global growth. The Portfolio is 50% net long heading into the day.
Posted by: Gary / 2:05 AM

Tuesday, May 31, 2005

Stocks Finish Modestly Lower on Growth Concerns and a Rebound in Oil Prices 

Indices
S&P 500 1,191.50 -.61%
DJIA 10,467.48 -.71%
NASDAQ 2,068.22 -.36%
Russell 2000 616.71 -.03%
DJ Wilshire 5000 11,778.43 -.47%
S&P Barra Growth 575.74 -.72%
S&P Barra Value 611.31 -.50%
Morgan Stanley Consumer 584.50 -.70%
Morgan Stanley Cyclical 720.28 -.75%
Morgan Stanley Technology 478.84 -.53%
Transports 3,599.58 -.65%
Utilities 363.33 +.23%
Put/Call .97 +19.75%
NYSE Arms 1.55 +25.94%
Volatility(VIX) 13.29 +9.38%
ISE Sentiment 192.00 +12.28%
US Dollar 87.76 +.94%
CRB 300.83 -.02%

Futures Spot Prices
Crude Oil 52.14 +.56%
Unleaded Gasoline 146.94 -.40%
Natural Gas 6.43 +.94%
Heating Oil 145.19 +.42%
Gold 419.10 -.85%
Base Metals 120.86 -.97%
Copper 145.10 +.52%
10-year US Treasury Yield 3.98% -2.16%

Leading Sectors
Airlines +1.11%
Hospitals +.88%
I-Banks +.78%

Lagging Sectors
Biotech -.98%
Computer Hardware -1.20%
Oil Tankers -1.71%

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 DIS, BSX, MSFT and BC.

Afternoon/Evening Headlines
Bloomberg:
- United Airlines and the Machinists union reached an agreement on concessions from about 20,000 bad handlers, reservation agents and customer-service workers, the final labor accord the carrier sought to help exit bankruptcy.
- Walt Disney’s ABC broadcast television network said advance advertising sales for next season rose about 30% to $2.7 billion after ABC gained viewers with hits including “Desperate Housewives.”
- US Treasuries rose the most in three months after an index of Chicago-area business fell more than forecast and a reading of inflation fell, pushing 10-year yields below 4% for the first time since February.

Financial Times:
- Chinese publicly traded companies should prepare for the sale of unlisted, state-owned shares.

Nihon Keizai:
- Yahoo Japan Corp. will work with Nikko Cordial Securities and E*Trade Securities to begin brokerage business as early as August.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs and Base Metal and Energy-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was mildly negative today as the advance/decline finished slightly lower, most sectors declined and volume was light. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was slightly negative. I expect economic data tomorrow to come in mixed, resulting in another mildly negative day for stocks. An ISM reading below 50, which I expect, would make it very hard for the Fed to continue raising rates at the current pace. I continue to expect 10-year T-note yields to test 04 lows over the coming weeks.
Posted by: Gary / 7:33 PM

Stocks Quietly Lower Mid-day on Growth Worries 

Indices
S&P 500 1,193.99 -.40%
DJIA 10,494.60 -.45%
NASDAQ 2,069.58 -.30%
Russell 2000 617.42 +.08%
DJ Wilshire 5000 11,797.58 -.31%
S&P Barra Growth 577.48 -.42%
S&P Barra Value 612.08 -.37%
Morgan Stanley Consumer 585.85 -.47%
Morgan Stanley Cyclical 721.34 -.60%
Morgan Stanley Technology 478.98 -.50%
Transports 3,607.96 -.42%
Utilities 365.35 +.08%
Put/Call 1.08 +33.33%
NYSE Arms 1.74 +41.34%
Volatility(VIX) 13.11 +7.82%
ISE Sentiment 209.00 +22.22%
US Dollar 87.65 +.82%
CRB 300.38 -.17%

Futures Spot Prices
Crude Oil 51.65 -.39%
Unleaded Gasoline 146.20 -.90%
Natural Gas 6.33 -.55%
Heating Oil 144.60 +.01%
Gold 418.40 -1.02%
Base Metals 120.86 -.97%
Copper 145.50 +.80%
10-year US Treasury Yield 4.00% -1.60%

Leading Sectors
Airlines +1.86%
Hospitals +.82%
I-Banks +.38%

Lagging Sectors
Steel -.90%
Oil Service -.93%
Oil Tankers -1.44%
BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs and Base Metal and Energy-related shorts. I have not traded today and the Portfolio is still 50% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is very light. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral, given last week’s gains, global growth concerns and mixed US economic data. I expect US stocks to trade mixed-to-higher into the close as slowing growth concerns are offset by lower-long term interest rates and better consumer sentiment. NYSE short interest as a percentage of total shares reached 2.4% as of today, an all-time high. I continue to see a "negativity bubble." Morgan Stanley's Stephen Roach, who has been predicting interest rates would soar for several years, is now changing his tune. He is now saying the 10-year T-note yield will hit 3.5% within the next 12 months. Roach seems to agree with my view of a continuing fall in commodity prices as a result of slowing global demand. As I stated a few months ago, I believe the new breed of "perma bears" will begin switching arguments from inflation to deflation over the coming months.
Posted by: Gary / 2:02 PM

Today's Headlines 

Bloomberg:
- Russia isn’t ready to join the WTO, US Commerce Secretary Carlos Gutierrez said.
- A provision added to a federal bill that would reform government-sponsored enterprises could lead to as much as $1.6 billion of tax-exempt debt for affordable-housing and community-development projects, the Bond Buyer reported.
- Iraqi President Jalal Talabani said today that the trial of ousted dictator Saddam Hussein for crimes against humanity may begin in two months.
- Frontline Ltd., the world’s biggest oil-tanker company by capacity, reported its smallest profit gain in three quarters as sales growth barely increased, raising concern that global shipping markets have peaked.
- French Prime Minister Jean-Pierre Raffarin quit as President Jacques Chirac moves to win back confidence in this government after losing a referendum on the European Union’s constitution two days ago.
- AIG lowered five years of profit by $3.9 billion to correct improper accounting.
- The US Supreme Court unanimously overturned accounting firm Arthur Andersen’s conviction for obstructing an investigation into energy trader Enron Corp.
- W. Mark Felt, the second in command at the FBI in the early 1970s, has revealed in the July 2005 issue of Vanity Fair magazine that he was “Deep Throat,” the source who helped Washington Post reporters Bob Woodward and Carl Bernstein uncover the Watergate break-in.
- Morgan Stanley Chief Economist Stephen Roach said he is no longer bearish on bonds, and that yields on 10-year Treasuries may fall to 3.5% over the next year.
- The euro fell to a seven-month low against the US dollar on concern France’s rejection of the EU constitution will slow the region’s economic integration.
- US Treasuries are rallying, commodities are dropping and the US dollar is rising on France’s rejection of the EU constitution.

Wall Street Journal:
- DreamWorks Animation SKG miscalculated sales for “Shrek 2” because the company didn’t understand the fast changing pace of the DVD market.
- Shares of Bed Bath & Beyond are being snapped up by hedge funds that know a bargain when they see one.
- US doctors are testing whether so-called smart drugs such as Novartis AG’s Gleevec and Genentech’s Avastin will help children fight cancer as well as adults.
- UnitedHealth Group, Aetna and other US health insurers are marketing policies for the 45 million Americans without insurance offering cheaper programs with fewer benefits.
- Purdue Pharma LP, which makes the OxyContin painkiller, and wholesaler HD Smith plan to use radio-frequency identification tags to record the movement of drugs.
- The US housing market isn’t in a “bubble” destined to burst, according to Brian Wesbury, chief investment strategist at Claymore Advisors.
- Wal-Mart caters to a growing number of Hispanic shoppers at its stores by offering a free magazine called Viviendo and printing monthly ad circulars in English and Spanish.
- GM and Ford are focusing on building sales in India, the world’s fastest growing auto market.

Chicago Sun-Times:
- Illinois lawmakers are poised to limit the awards from medical lawsuits over concerns that rising costs for malpractice insurance are prompting doctors to leave the state.

Dow Jones Newswires:
- Samsung Electronics raised its forecast for 2005 worldwide handset sales because of “robust” shipments during the first quarter.

USA Today:
- More US states are increasing their minimum wages, pushing hourly rates above $7 in some and reducing the role of the federal minimum wage.

Financial Times:
- A “poisonous” regulatory environment in the US played a part in the fall of the value of mergers and acquisitions in the financial services industry.
- Ameritrade Holding is in “advanced talks” to buy Toronto-Dominion Bank’s TD Waterhouse brokerage.

Hurriyet:
-Turkey’s probable entry into the European Union was the fifth most-cited reason by French voters who rejected the EU constitution in the May 29 referendum.
Posted by: Gary / 12:45 PM

Confidence Rebounds, Chicago-area Weaker 

- Consumer Confidence for May rose to 102.2 versus estimates of 96.1 and a reading of 97.5 in April.
- Chicago Purchasing Manager for May fell to 54.1 versus estimates of 61.4 and a reading of 65.6 in April.

BOTTOM LINE: US consumer sentiment unexpectedly rose in May for the first time in four months. Rising stock prices, a booming housing market, lower long-term interest rates, lower gas prices and an improving labor market boosted confidence. The present situation component of the index rose to 116.7 from 113.8. The % of consumers who saw jobs as plentiful rose to 22.6% from 20.4% in April. The percentage expecting more jobs to be available six months from now increased to 14.9% from 14.0%. Those expecting fewer jobs fell to 15.9% from 18.4%. The percentage expecting to buy a home in the next six months dropped to 3.5% from 4.1%. However, those expecting to purchase an auto increased to 7.6% from 5.8%. Confidence in New England experienced the greatest regional gain, rising 24.2% to 92.40 from 74.40. We have likely seen the lows in sentiment for the year.

The Chicago PMI fell in May to the lowest level in almost two years. The employment component of the index fell to 54.7 from 62.3, while the new orders index declined to 57.9 from 71.0. On the positive side, the prices paid component fell to 54.3 from 66.1. The prices paid index has now plunged by 38.9% since November 30, 2004. I expect the ISM Manufacturing Index to fall below expectations tomorrow, as well.

Posted by: Gary / 10:57 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 / 9:38 AM

Monday Watch 

Weekend Headlines
Bloomberg:
- France rejected the European Union's constitution in a national referendum, dealing a blow to President Jacques Chirac and European integration.
- China said it canceled export tariffs on 81 textile products amid a growing row with the US and the European Union over a surge in shipments since global quotas ended on Jan. 1.
- UK Prime Minister Tony Blair signaled he may scrap plans for a referendum on adopting the European Union constitution after French voters rejected the treaty.
- The US trade representative's office said it will ask the WTO to rule that European government loans to airplane maker Airbus SAS are illegal, setting up the biggest-ever dispute in WTO history.
- Crude oil is falling for the first time in six days on speculation US inventories will be sufficient to meet demand from refiners during the second half of the year.
- American International Group plans to restate five years of earnings today, and its correction of accounting flaws may make it easier for the company to settle a lawsuit with NY AG Spitzer.
- The Russian government will probably seize the rest of OAO Yukos Oil's assets, regardless of who is elected to the company's board.
- Norwegian support for joining the European Union fell to the lowest since 2001 in May, dropping for a third consecutive month, according to a poll by Sentio-Norsk Statistikk.
- Saudi Arabia's King Fahd Bin Abdul Aziz al-Saud is "doing well" and his medical tests are proceeding in a "normal way" a day after he was admitted to a hospital.
- Wal-Mart Stores said May sales at US stores open at least one year rose about 2.5% as shoppers spent more on groceries.
- Walt Disney's ESPN has told the NHL it won't exercise a contract option to televise games for the 2005-06 season.
- The European Central Bank may lower its 2005 growth forecast for the third time in six months and leave its key interest rate unchanged as business confidence slumps, surveys of economists showed.
- The euro fell to a seven-month low in Asia and had its biggest fluctuation of any currency on concern the rejection of the EU Constitution will slow the region's economic integration.

Wall Street Journal:
- Deutsche Bank AG, Royal Bank of Scotland Group Plc, BNP Paribas SA and Societe Generale SA are among European banks considering an offer for Germany's Commerzbank AG.
- Oil companies in Canada are racing to build pipelines between northern Alberta and the Pacific Coast amid increasing demand for the country's oil from China and the US.
- Hewlett-Packard will use Intel's Itanium chip in its NonStop computer line.

Barron's:
- The $1 trillion hedge-fund industry may face slowing investments and smaller fees as performance declines because there are too few investment opportunities and a shortage of talented fund managers.

New York Times:
- BAE Systems Plc and Northrop Grumman are vying to win a contract to supply US commercial airliners with systems designed to foil heat-seeking missiles.
- The US Chamber of Commerce, the Heritage Foundation, Families USA, Johnson & Johnson, Pfizer and 19 other groups are working together to devise a way for uninsured Americans to get health coverage.
- Companies such as closely held Winergy are seeking permission to build wind-turbine farms off the New Jersey coast as an alternative to energy from coal-fired power plants.
- ABC's "Good Morning America," the No. 2 US morning news show, is stealing viewers and forcing changes at rival NBC's "Today" show, the most profitable program on television.
- US FBI agents are making a bigger effort to go undercover to find terrorists and disturb their plans.

San Francisco Chronicle:
- Mobile-phone sales rose 17% to 180.6 million units worldwide in the first quarter from the year-earlier period, driven by consumer demand for camera phones and special offers.

Charlotte Observer:
- US Airways Group said Wellington Management agreed to invest $150 million in the airline after it acquires America West Holdings Corp.

Detroit Free Press:
- General Motors is expected next week to announce the expansion of its employee discounts to all consumers as the automaker seeks to winnow the number of unsold vehicles on dealers' lots.

Star-Ledger:
- The perception that New Jersey is steeped in political corruption is more widespread than at any time in recent memory.

New York Post:
- New York Police Commissioner Ray Kelly wants the city to install about 400 surveillance cameras on high-crime streets.
- Zoom Systems, a San Francisco technology company, is marketing vending machines that can dispense consumer items including cell phones, Apple Computer iPods and portable DVD players.

AP:
- A Florida physician and a martial-arts expert in New York have been arrested for conspiring to aid terrorists.
- Wines prices at $11 and higher are selling better than less expensive bottles.

Financial Times:
- Advanced Micro Devices may introduce its first processors operating with two cores for desktop PCs tomorrow to compete with Intel.
- RadioShack's mobile phone products business is "a very long-term, sustainable" part of the No. 3 US electronics chain's future, citing an interview with CEO Edmondson.

Sunday Times:
- French rejection of the European Union constitution may see investors sell the euro and could lead to low economic growth and high inflation, or stagflation, for the region, citing economists.

AFP:
- Polling booths opened today in Beirut as Lebanon began its first general election since Syria withdrew its soldiers after a 29-year military presence.
- Al-Qaeda leader in Iraq Abu Musab al-Zarqawi has been "lightly" wounded, citing a voice message attributed to Zarqawi and posted on the Internet.

Korea Herald:
- GE's finance unit is in final talks to invest $399 million in Hyundai Card Co., becoming the second-largest shareholder in the South Korean card issuer.

Economic Observer:
- China will scrap a 20% tax on stock dividends from June 1 as part of an attempt to bolster the nation's share markets.

Yomiuri newspaper:
- A regional Japanese government will ban sales to minors of the video game "Grand Theft Auto III," made by a US company Rockstar North and distributed in Japan by Capcom Co.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on FDO, WCI, SLR, AIG, mixed on LPNT, TSO, CREE, XOM, NSS and negative on DUK, VLO.

Forbes on Fox:
- Had guests that were positive on XLE and mixed on SBUX, CSCO, DPZ, NKE, CI.

Cashin' In:
- Had guests that were positive on PTR, BIIB, HLT, mixed on OEH, PSD, DO and negative on ELN, GG, GT.

Cavuto on Business:
- Had guests that were positive on DELL, FL and mixed on BA.

Business Week:
- Named its Top 100 Small Companies.

Barron's:
- Had positive comments on PLT, GS and AZR.
- Had negative comments on AMLN, RHAT, CNWK, DJTE, PSUN, HLF, NUS, GS and A.

Goldman Sachs:
- Reiterated Outperform on FRNT, EBAY and LIZ.
- Reiterated Underperform on CVH and HRB.

Night Trading
Asian indices are unch. to +.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.06%.

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
HOV/1.61
SHLD/.40
TEX/.51
SMTC/.15
UNFI/.25

Splits
AGR/A 1-for-10
SRX 2-for-1
TMX 2-for-1
UNH 2-for-1

Economic Releases
10:00 a.m. EST
- Chicago Purchasing Manager for May is estimated to fall to 61.8 versus a reading of 65.6 in April.
- Consumer Confidence for May is estimated to fall to 96.0 versus 97.7 in April.

BOTTOM LINE: Asian Indices are mostly higher on strength in exporting shares in the region. I expect US stocks to open mixed as profit-taking offsets a rising dollar and lower long-term interest rates. The Portfolio is 50% net long heading into the week.
Posted by: Gary / 1:45 AM

Monday, May 30, 2005

Chart of Interest 

Image hosted by Photobucket.com
Posted by: Gary / 2:24 PM

Weekly Outlook 

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

Economic reports for the week include:

Mon. - US Markets Closed
Tues. - Chicago Purchasing Manager, Consumer Confidence
Wed. - Construction Spending, ISM Manufacturing, ISM Prices Paid, Vehicle Sales
Thur. - Final 1Q Non-farm Productivity, Final 1Q Unit Labor Costs, Initial Jobless Claims, Factory Orders
Fri. - Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, ISM Non-Manufacturing

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

Mon. - US Market Closed
Tues. - Hovnanian Enterprises(HOV), Sear Holdings(SHLD)
Wed. - ADC Telecommunications(ADCTD), Comverse Technology(CMVT), Copart Inc.(CPRT), Neiman-Marcus Group(NMG/A)
Thur. - Take-Two Interactive(TTWO)
Fri. - None of note

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

Mon. - US Markets Closed
Tue. - ALTR Business Update, NVLS Mid-Quarter Update
Wed. - Friedman Billings Growth Conference, CSFB Supply Chain Conference, Smith Barney Semi Conference, Sanford C. Bernstein Strategic Decisions Conference, Goldman Sachs Power and Utility Conference, SG Cowen Tech Conference, Lehman Brothers Wireless/Wireline Conference
Thur. - Lehman Brothers Wireless/Wireline Conference, Sanford C. Bernstein Strategic Decisions Conference, Goldman Sachs Power and Utility Conference, SG Cowen Tech Conference, Smith Barney Semi Conference, Friedman Billings Growth Conference, Fed's Stern speaks
Fri. - Lehman Brothers Wireless/Wireline Conference, Goldman Sachs Power and Utility Conference, Sanford C. Bernstein Strategic Decisions Conference, Friedman Billings Growth Conference

BOTTOM LINE: I expect US stocks to finish the week mixed as profit-taking, global growth concerns and mixed economic data offset more optimism for a Fed "pause," a rising US dollar and lower inflation readings. As I expected, the French voted "no" to the EU Constitution. The ramifications of this are vastly underestimated in my opinion. This will likely spur further gains in the US dollar, boost demand for US Assets, dampen European growth and pressure commodity prices over the coming months. My trading indicators are still giving bullish signals and the Portfolio is 50% net long heading into the week.
Posted by: Gary / 12:57 AM

Sunday, May 29, 2005

Economic Week in Review 

ECRI Weekly Leading Index 132.90 -.15%

Existing Home Sales for April rose 4.5% to 7.18M, an all-time record, versus estimates of 6.9M and 6.87M in March. The median price of a previously owned US home topped $200,000 for the first time ever in April, capping the biggest increase in a quarter century, Bloomberg reported. A healthy job market and 30-year mortgage rates of less than 6% are fueling demand. During the last five years, the median sales price of an existing single family home has risen at an 8.1% annual rate. Federal Reserve Chairman Greenspan said the housing market has "a lot of local bubbles" and "a little froth." Investors' increased confidence that the Fed is keeping inflation at bay is holding down long-term rates, Bloomberg said. "Consumers are still apparently confident enough about their personal financial situations to undertake the housing investment despite the recent softness of confidence surveys," said Lynn Reaser, chief economist at Banc of America Capital.

"Most Fed members regarded the recent slower growth of economic activity as likely to be transitory," according to the Fed Minutes from the May 3rd meeting. "All members regarded the stance of policy as accommodative and judged that the current level of short-term rates remained too low to be consistent with sustainable growth and stable prices in the long run." "Members agreed that they should continue along the course of removing policy accommodation at a measured pace conditional on the outlook for inflation and economic growth," the minutes said. Fed members suggested that "greater uncertainty called for eliminating or paring back forward-looking language from the statement – if not at this meeting then fairly soon," the statement said. Other members countered that the language did not preclude the Fed from raising rates or taking a pause, and that view prevailed at the meeting. Eventually, all members decided to keep the "measured pace" language.

Durable Goods Orders for April rose 1.9% versus estimates of a 1.3% gain and an upwardly revised 1.6% decline in March. Durables Ex Transportation for April fell .2% versus estimates of a 1.0% gain and an upwardly revised .2% rise in March. The rise in bookings for items made to last at least three years was the biggest since November and was spurred by demand for machinery, computers and aircraft. With consumers still spending and interest rates low, businesses are likely to keep replacing trucks, machinery and computers to meet demand. Orders for transportation equipment rose 8.2% after declining 6.5% in March. Bookings for vehicles increased 3.4% and aircraft orders surged 28% after slumping 22% the previous month. Machinery orders increased 2.2% last month after declining 4.9% in March. Orders for computers rose 16% last month after falling 5.3%. Orders for defense hardware fell 15% last month, following an 8.3% increase. Excluding defense, orders ex transportation in April rose 2.3%, the most since November 2004. Finally, bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, gained 1.6% last month, the most since January. "We still have good support from consumers and I think businesses will be investing actively," said Michael Moran, chief economist at Daiwa Securities America.

New Home Sales for April rose to 1316K versus estimates of 1325K and a downwardly revised 1313K in March. US new home sales increased in April to a record pace as historically low interest rates and job gains spurred sales. New home sales so far this year have averaged a 1.27M rate versus last year’s record 1.2M. Sales rose in two of the four regions in April. Sales surged 37.2% in the Northeast and rose 2.8% in the West. Sales fell 5.3% in the South and declined .5% in the Midwest. The median price rose to $230,800, a 3.8% rise from the same month last year. "Housing is not quite tapped out as a source of incremental growth, though we don't expect sales to rise much further through the second half," said Ian Shepherdson, chief US economist at High Frequency Economics.

Preliminary 1Q GDP rose 3.5% versus estimates of a 3.6% gain and a 3.1% prior estimate. Preliminary 1Q Personal Consumption rose 3.6% versus estimates of a 3.5% increase and a prior estimate of 3.5%. The US economy expanded at a greater rate in the first quarter than the government originally expected. "Energy prices may have contributed to caution in business spending, but consumer spending is still quite strong and real estate is through the roof," said Mike Englund, chief economist at Action Economics. Investment in housing accelerated. Residential housing construction rose at an 8.8% annual rate in the quarter, the best since mid-2004. The prior estimate was 5.7%, and it compares with 3.4% for the fourth quarter. The personal consumption expenditures prices index rose 2.1%, slower than the 2.7% in the fourth quarter. Corporate earnings adjusted for the value of inventories and depreciation of capital expenditures rose 4.5%, compared with a 13.5% rise in the fourth quarter of 2004.

Initial Jobless Claims for last week rose to 323K versus estimates of 325K and 322K the prior week. Continuing Claims fell to 2574K versus estimates of 2582K and 2596K prior. The Help Wanted Index for April stayed at 39 versus estimates of 40 and a reading of 39 in March. The four-week moving average of jobless claims rose to 330,500 from 330,000. The four-week moving-average of continuing claims rose to 2.587M, from 2.582M, which was a four-year low. The insured unemployment rate, which tends to move with the US unemployment rate, held at 2%. "These figures imply that this year is likely to continue with a pace of healthy job gains," said Richard DeKaser, chief economist at National City Corp.

Personal Income for April rose .7% versus estimates of a .7% increase and a .5% gain in March. Personal Spending for April rose .6% versus estimates of a .8% gain and an upwardly revised .9% increase in March. The PCE Deflator(YoY) for April rose 2.7% versus a 2.4% gain in March. The PCE Core(YoY) for April rose 1.6% versus a 1.7% gain in March. US personal spending rose for a third consecutive month, spurred by rising incomes as hiring accelerated. "The increase in incomes is completely under-appreciated as a driver of the expansion," said Steven Wieting, an economist at Citigroup Capital Markets

The Final Univ. of Mich. Consumer Confidence reading for May rose to 86.9 versus estimates of 86.0 and a prior estimate of 85.3. The current conditions index, which reflects whether it’s a good time to buy big-ticket items, actually rose to 104.9 in May from 104.4 in April. The improvement in the overall sentiment score from the mid-May preliminary estimate "is an encouraging sign," said Stephen Stanley, chief economist at RBS Greenwich Capital. "While consumers have been saying that they are worried, their spending patterns suggest otherwise. Look for further improvement in attitudes in June," he said.

BOTTOM LINE: Overall, last week's economic data were positive. Job growth, rising incomes and mortgage rates near a four-decade low will continue fueling home sales and spurring construction, which adds to economic growth. I continue to believe there is not a nation-wide bubble in housing, notwithstanding the attempts by many to suggest otherwise. I expect homebuilding stocks to outperform through at least year-end. I still expect the Fed to raise rates 25 basis points at the June meeting and remove the word "measured" from their policy statement, thus paving the way for a holding period with respect to rate hikes. The underlying strength in the Durable Goods report bodes well for a rebound in manufacturing activity at some point over the coming months. An improving trade deficit and strong consumer spending helped spur the 3.5% increase in 1Q GDP. This compares favorably to the 10-year average rate of US growth of 3.3%. GDP growth is likely slowing to around 2.5% this quarter, spurred by weakness in the manufacturing sector. Low interest rates, an end to the inventory correction, falling commodity prices, a booming housing market, improving consumer sentiment, rising stock prices, improving trade/budget deficits and a firmer US dollar should propel growth back to around average levels sometime during the third quarter. A recession in Europe or "hard landing" in China could potentially alter my future US growth expectations. The labor market remains healthy. However, a period of moderation is likely during the next few months. The PCE Core, the Fed’s favorite inflation gauge, rose 1.6%. This is well within their stated optimal range of 1.5-1.8%. Incomes were up 7.0% last month from April 2004, well above the inflation rate. This should continue to fuel consumer spending. High gas prices and incessant talk of a “housing bubble” continue to weigh on sentiment. However, the consumer continues to exhibit high levels of confidence by their actions. Record high home sales and better-than-expected retail sales illustrate this. The average price of self-serve gas is falling. Unleaded Gasoline futures have now declined 17.0% since the first week of April. Rising stock values, low long-term interest rates and a booming housing market should also help boost the next sentiment report. Finally, the ECRI Weekly Leading Index fell .15% to 132.90 and is still forecasting slowing, but healthy levels of economic activity.
Posted by: Gary / 12:23 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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