Wednesday Watch

Late-Night Headlines
Bloomberg:
- The US stock market posted its best start to a second quarter since 1938 after Lehman Brothers(LEH) and UBS AG(UBS) said they are raising $19 billion to replenish capital, spurring speculation that banks can weather further credit losses.
- Securities sales by UBS AG(UBS) and Lehman Brothers(LEH) underpinned a rally in financial stocks that may signal an end to eight months of market turmoil.
- Gold plunged below $900 an ounce for the first time in six weeks as investors shifted money to equities on signs banks are rebounding from US subprime-mortgage losses. “If the dollar continues to rally, gold and commodities are going to get murdered,” said Leonard Kaplan, president of Prospector Asset Management.
- Democratic presidential candidate Hillary Clinton, campaigning in Pennsylvania, defended herself against claims she has wavered on NAFTA, a deal that’s unpopular in much of the state. Clinton told reporters in Philadelphia that she fought against NAFTA during the 1992 presidential campaign of her husband Bill and again in White House meetings as first lady. She said she refrained from public criticism after Bill Clinton opted to support the 1993 trade agreement.
- The US dollar may extend its advance against the euro on speculation the world’s largest financial institutions will weather credit market losses.
- Stock hedge funds, unsure about which direction the markets would move, sat on a record amount of cash as the industry headed for its biggest quarterly loss in almost six years.
- Apple Inc.’s(AAPL) retail stores are running out of iPhones, a sign the company may soon introduce a new version of the Web-surfing handset, Piper Jaffray said.
- Executives from the world’s top oil companies, in a congressional hearing today, told US lawmakers that competition and high costs justify the industry’s opposition to taxes increases.
- Blackstone Group LP(BX), manager of the world’s biggest leveraged buyout fund, raised a record $10.9 billion to invest in property as the US housing slump pushes global real-estate prices lower.
- The Asian Development Bank lowered its growth forecasts for Asia’s developing economies as a global slowdown weighs on exports and expansions in China and India cool. Asia excluding Japan is predicted to expand 7.6% this year, down from 8.7% last year and less than a September estimate of 8.2%, the Manila-based lender said today.
- The cost of protecting Japanese and Australian bonds from default plunged, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 25 basis points to 104 in Tokyo, according to Morgan Stanley. The Australian benchmark declined 21.5 basis points to 130.5 basis points in Sydney, Citigroup said.
- China, the world’s largest steelmaking nation, may produce 8.4% more of the alloy this year. Steel production may rise to 530 million metric tons, Zou Jian, head of the China Metallurgical Mining Enterprise Assoc., said.

Wall Street Journal:
- Thornburg Mortgage(TMA), the “jumbo” mortgage lender, will start making loans within days after raising $1.35 billion to stave off bankruptcy, citing CEO Larry Goldstone.

MarketWatch.com:
- Hedge-fund hemorrhage. $60 billion liquidated in last three years, shrinking investor options.
- With over $3 trillion worth of foreign currencies changing hands every day, a growing number of retail investors who seek a boost to their portfolios and a hedge for the falling dollar are viewing the high liquidity of foreign exchange trading as a tonic for troubled times.
- Those curiously strong Transports.
- Legislation to rescue the collapsed housing market has been given new life in the Senate, as the bipartisan leaders reached an agreement Tuesday on how to move forward.

NY Times:
- To See a Stock Market Bubble Bursting, Look at Shanghai. The Shanghai Composite has plunged 45% from its high, reached last October. Other parts of Asia are as bad or worse. In India, stock prices have plunged 31% in Mumbai; they are off 31% in Japan and a whopping 53% in Vietnam, another booming economy. There are worries that a prolonged downturn could reverberate through China’s financial markets – especially since a large number of corporations had aggressively shifted money, sometimes secretly, to play the market. By some estimates, 15 to 20% of the profits reported last year by publicly traded companies in Shanghai that are NOT in banking or finance came from stock trading gains. Companies with primary businesses like selling electricity, or even sports jackets, were moonlighting by trading stocks, hoping to bolster their earnings.
- Microsoft(MSFT) won an international standards designation for its open document format, according to a copy of voting results obtained Tuesday, apparently ending a divisive year-long battle with some of its software rivals before a global standards-setting organization.
- CBS Moves Ahead With News Division Job Cuts.

SmartMoney:
- Given all the gloomy media coverage, you don’t need me to tell you that we’ve just come through the worst quarter for the stock market since 2002 and the Sept. 11 attacks. Much of the media has been positively wallowing in the bad news. As an investor, I love this.

FINalternatives:
- According to sentiment indicators released yesterday by Greenwich Alternative Investments, 58% of hedge fund managers are still bearish, while only 25% are bullish. Moreover, 58% are bearish on the US dollar and 25% are bullish.

Reuters:
- Fannie Mae(FNM), the largest provider of funding for US residential mortgages, has extended forbearance for troubled homeowners in a move the company expects to ease stress on its capital.
- HSBC Holdings, Europe’s largest lender, may make acquisitions in the US and has no plans to pull out of that market despite the subprime mortgage woes.
- US retail gasoline demand slipped 1.7% last week, which was the ninth decline in the last ten weeks.

Financial Times:
- Lehman Brothers(LEH) on Tuesday said it had sent information to the SEC about possible abusive short-selling in its shares in recent days. Erin Callan, Lehman CFO, said the SEC was examining whether hedge funds acted in concert to drive down the bank’s share price in the days following the near collapse of Bear Stearns(BSC). Such behavior could constitute market manipulation, subject to civil and criminal sanctions.
- Kohlberg Kravis Roberts has invested more than 60% of its new $17.5 billion global buy-out fund, which it only finished raising at the end of last year.
- The SEC is to be investigated by the US Congressional watchdog, after a senior senator questioned whether the agency had sufficient staff and funds to police the markets.
- Colombia’s heavy oil area could hold 20 billion barrels of recoverable resources, giving the country greater reserves than leading producers such as Mexico and Algeria, said its natural resources agency.

Financial Times Deutschland:
- The International Monetary Fund expects worldwide economic growth of 3.7% this year. The IMF had forecast global growth of 4.1% in January.

Canadian Business Online:
- A raft of investigations have recently been announced by financial regulators into the possibility that some hedge funds are spreading false rumors during the current financial turmoil to push down the prices of securities they have sold short. This kind of market manipulation, if it exists, would be particularly odious as it preys upon the weak and contributes to the crisis. Here are some recent reports:

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AOC), target $55.
- Reiterated Buy on (AUXL), target $43.
- Reiterated Buy on (PTV), target $35.

CSFB:
- Reiterated Outperform on (GILD). The D:A:D study results which showed an increased risk of myocardial infraction in patients exposed to abacavir and didanosine and were previously disclosed were published in The Lancet online. Along with the article publication was additional editorial commentary and a letter from GSK. While the stock has appreciated significantly since the D:A:D and ACTG news first came out, we believe the move has been justified as it will drive increased revenue, earnings, and growth.

Night Trading
Asian Indices are +.75% to +3.75% on average.
S&P 500 futures -.14%.
NASDAQ 100 futures -.20%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (KMX)/.16
- (LULU)/.19
- (RT)/.19
- (BBY)/1.65
- (MU)/-.36
- (MON)/1.75

Upcoming Splits
- None of note

Economic Releases
8:15 am EST
- ADP Employment Change for March is estimated at -45K versus -23K in February.

10:00 am EST
- Factory Orders for February are estimated to fall -.8% versus a -2.5% decline in January.

10:00 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 2,500,000 barrels versus an 88,000 barrel build the prior week. Gasoline supplies are expected to fall by -2,875,000 barrels versus a -3,285,000 barrel decline the prior week. Distillate supplies are estimated to fall by -1,600,000 barrels versus a -2,141,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by .45% versus a -1.68% decline the prior week.

Other Potential Market Movers
- The Fed’s Bernanke speaking, weekly MBA Mortgage Applications report, Challenger Job Cuts report, (ATG) analyst meeting, (DELL) analyst meeting, CIBC Real Estate Equities Conference, CTIA Wireless Conference, BMO Capital Global Fertilizer Conference, Morgan Stanley Global Electricity & Energy Conference and CSFB Asian Investment Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.