BETWEEN THE HEDGES

Thursday, September 28, 2006

Friday Watch

Posted by Gary .....at 11:37 PM

Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY on signs slowing demand growth may extend above-average fuel stockpiles in the US.
- Research In Motion Ltd.(RIMM), maker of the BlackBerry device, said second-quarter profit rose 27% as more consumers sought phones with e-mail service and Internet access. The shares surged 20% in after-hours trading.
- The US Senate joined the House in authorizing President Bush to begin military war-crimes trials of suspected terrorists detained at the US Navy Base at Guantanamo Bay, Cuba.
- Japan’s industrial production rebounded as accelerating export growth prompted manufacturers to increase output.
- Copper in Shanghai declined on signs of slowing demand in the US, the world’s second-largest user of the metal.

Wall Street Journal:
- Goldman Sachs(GS) was the top-earning investment bank in Asia, excluding Japan, in the first nine months of the year, according to figures provided by Dealogic Plc.

Financial Times:
- Time Warner Inc.(TWX), the world’s largest media company, is putting its cable network at the center of a strategy to capture a large part of the digital distribution of movies and television shows.

Chronicle of Philanthropy:
- Hispanic charities in the US saw their contributions more than double as they attracted the attention of some of the country’s largest charitable foundations.

Late Buy/Sell Recommendations
Citigroup:
- Lowered its estimates for the euro and yen against the dollar heading into next year, on the expectation the US currency will stage a rally in 2007.

Night Trading
Asian Indices are -.25% to +.505% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.25%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (COCO)/.13
- (GPN)/.43

Upcoming Splits
- (ATE) 1-for-2
- (PCU) 2-for-1
- (GEO) 3-for-2

Economic Releases
8:30 am EST
- Personal Income for August is estimated to rise .3% versus a .5% gain in July.
- Personal Spending for August is estimated to rise .2% versus a .8% gain in July.
- PCE Core for August is estimated to rise .2% versus a .1% gain in July.

9:45 am EST
- Final Univ. of Mich. Consumer Confidence for September is estimated to rise to 85.0 versus a reading of 84.4 in August.

10:00 am EST
- The Chicago Purchasing Manager for September is estimated to fall to 55.7 versus a reading of 57.1 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Dow Jones Industrial Average Finishes 4 Points from All-time Closing High

Posted by Gary .....at 5:04 PM

Indices
S&P 500 1,339.15 +.19%
DJIA 11,718.45 +.25%
NASDAQ 2,270.02 +.29%
Russell 2000 732.56 +.00%
Wilshire 5000 13,360.81 +.16%
S&P Barra Growth 621.96 +.17%
S&P Barra Value 715.05 +.21%
Morgan Stanley Consumer 656.04 +.13%
Morgan Stanley Cyclical 825.39 +.50%
Morgan Stanley Technology 534.84 +.76%
Transports 4,466.54 -.31%
Utilities 432.90 -.44%
Put/Call .85 +1.19%
NYSE Arms 1.03 -7.07%
Volatility(VIX) 11.72 +1.21%
ISE Sentiment 101.0 -12.17%
US Dollar 85.76 +.08%
CRB 305.13 +.27%

Futures Spot Prices
Crude Oil 62.51 -.71%
Unleaded Gasoline 150.00 -2.59%
Natural Gas 5.37 -5.19%
Heating Oil 170.90 -.30%
Gold 607.50 -.56%
Base Metals 233.87 +.28%
Copper 342.65 -.04%
10-year US Treasury Yield 4.61% +.34%

Leading Sectors
Semis +.95%
Computer Services +.83%
Internet +.67%

Lagging Sectors
Gold & Silver -.61%
Airlines -1.35%
Oil Tankers -1.66%

Evening Review
Detailed Market Summary
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- OPEC members are cutting production on a “voluntary basis,” Platts reported, citing acting secretary-general, Mohammed Barkindo. Barkindo said he met with Saudi Arabian Oil Minister Ali al-Naimi earlier this week and that the country is already reducing output. Kuwait won’t cut production based on current prices. Oil is trading down .50 despite this news.
- Natural gas dropped another 5% on record-high inventories and mild weather.
- Former American International Group(AIG) Chairman Maurice “Hank” Greenberg and the Starr Foundation will give Yale University $50 million to support China-related education program.
- Vega Select Opportunities hedge fund, known for making large bets on the bond market, dropped 8.3% in the first three weeks of September as prices for US Treasuries climbed.
- Lumber prices in Chicago fell to the lowest in more than three years on speculation Canadian suppliers are boosting shipments to the US to earn more before implementation of a softwood-lumber trading accord.
- Starbucks(SBUX) will begin selling warm breakfast sandwiches at NY-area stores next week after testing them in Seattle and Chicago.

CNBC:
- Most of Pirate Capital LLC’s analyst quit this morning following a dispute with Thomas Hudson, the founder of the $1.8 billion hedge fund.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was modestly bullish. The Dow Jones Industrial Average finished 4 points from an all-time closing high. However, the ISE Sentiment Index dropped another 12% to a very low 101.0. What is even more interesting is the persistent bearishness displayed by this group of options traders during the entire rally since July. The 50-day moving average of the ISE Sentiment Index is now the furthest below its 200-day moving-average since its inception in 2004. This bodes well for a continuation of recent broad market strength and a convincing breakout to new highs on the DJIA.

Stocks Slightly Higher into Final Hour on Short-covering and Reversal Lower in Oil

Posted by Gary .....at 3:22 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Retail longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. There are reports that OPEC is cutting production 5% with oil at $64 per barrel. If this report is true, it is incredibly short-sighted. Global demand for oil has been flat since December 2003 during a time of booming economic growth. Demand destruction is already pervasive. Most Americans feel as though they are funding terrorism by filling up their tanks. I do not believe we will ever again see the demand for gas-guzzling vehicles that we saw in recent years, even if gas prices continue to plunge. An OPEC cut with oil at $64 per barrel amid weakening global growth would only further deepen resentment and result in even greater long-term demand destruction. Oil is now .21 cents lower on the day despite the report. I will look to add to my energy-related shorts on any substantial increase in oil prices from current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and .

Today's Headlines

Posted by Gary .....at 2:31 PM

Bloomberg:
- Natural gas is falling another 5% on record inventories and mild weather.
- Billionaire Kirk Kerkorian, stepping up pressure on General Motors(GM) CEO Wagoner to consider an alliance, said his Tracinda Corp. may buy 12 million more shares.
- Billionaire investor Carl Icahn, seeking to oust half the board and take control of ImClone Systems, said he wants a new chief executive with biotech experience who can lead a more aggressive push to sell the cancer treatment Erbitux.
- Intel Corp.(INTC) shares are heading for their biggest weekly gain in three years after the company introduced new semiconductors designed to win back market shares from Advanced Micro Devices(AMD).
- Talks in Berlin between Iranian and European Union officials aimed at breaking the deadlock over Iran’s atomic program produced some progress.

Wall Street Journal:
- Steel inventories are growing in the US, partly due to a slowdown in auto manufacturing, and the trend is spawning worries of an oversupply and lower prices. Service centers, which purchase steel for resale to manufacturers, say that supplies in August were 3.1 months’ worth, up from 2.7 months from the same time a year ago. Steel imports so far this year are 40% higher and poised to beat the 98 record.
- Major League Soccer will allow advertising on the front of players’ jerseys next year.

NY Times:
- Rural US states are lagging more populous states in high-speed Internet service as companies focus on larger cities to more easily recoup their investments.
- Several prominent scientists have founded a group to work toward electing politicians “who respect evidence and understand the importance of using scientific advice in making public policy.” Members of Scientists and Engineers for America said that while the organization would be non-partisan, the Bush administration’s policies on climate change and stem cell research motivated them to act. Organizers include John Gibbons and Neal Lane, both science advisers during the Clinton administration.

USA Today:
- US officials are concerned about ensuring that the votes of about 3.7 million Americans living abroad and more than 400,000 military personal stationed overseas will be counted.

Scotsman:
- The maker of video game “Grand Theft Auto: Vice City”, Take-Two Interactive(TTWO) is being sued for $600 million by the family of three people killed by a teenage related in 2004. The action alleges the killer, who was 14, played the game “obsessively” for several months before he shot his father, stepmother and stepsister at a New Mexico ranch.

Globe and Mail:
- Statoil ASA, Norway’s largest oil and gas producer, is seeking to buy an oil sands development in Alberta for more than $900 million to add to production.

2Q Growth and Inflation Moderate, Job Market Healthy

Posted by Gary .....at 11:57 AM

BOTTOM LINE: US economic growth slowed to 2.6% in the second quarter, Bloomberg reported. Residential construction fell the most since 1995 during the second quarter, offsetting a 20.3% surge in commercial construction. Consumer spending rose at a 2.6% annual rate in the second quarter and is expected to accelerate to 3% next quarter. The PCE core, the Fed’s favorite inflation gauge, rose 2.7% versus a prior estimate of a 2.8% rise. Corporate profits soared 17.4% during the second-quarter from a year earlier. A gallon of regular gasoline at the pump cost $2.38 this week down from $2.85 during the second quarter. A recent Bloomberg/LA Times survey showed that 33% of Americans said lower gas prices were allowing them to spending more on other goods. As a result, the Intl. Council of Shopping Centers this week raised its September forecast for same-store-sales to 4% from a prior forecast of 3.5%. I expect 3Q GDP growth to dip to around 2.0-2.5% before rebounding back above 3% during the fourth quarter.

Fewer Americans filed for unemployment benefits last week, signaling the labor market remains healthy, Bloomberg reported. The four-week moving-average of claims fell to 315,500. The unemployment rate for those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. The unemployment rate last month fell to a historically low 4.7%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.