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Thursday, January 11, 2007
Stocks Sharply Higher into Final Hour on Another Plunge in Oil and Rising Economic Optimism
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Telecom longs, Medical longs, Retail longs, Biotech longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Oil Movements is saying that OPEC shipments of crude are rising 1.5% this month from December. This is likely the reason for oil's $3 per barrel decline in the last few hours. The commodity continues to trade very poorly. OPEC tried to defend it at $60, then at $58 and then at $55. OPEC has never had much success stopping a substantial decline in the past. As I have said many times before, the longer oil stays anywhere near current levels, the greater the long-term demand destruction, which is already pervasive globally. A CNBC commentator just asked why natural gas is plunging 6%. Natural gas inventories are at all-time high levels and 18% above the five-year average for this time of the year. The long-term average price for natural gas is $4.63. Prices anywhere near current levels are absurd, in my opinion. The same thing that has been driving the mania for most commodities -- namely, historic speculation by investment funds -- has been keeping natural gas levitating at sky-high prices. The CRB Index is now in a bear market, falling 21.4% from May 2006 record highs. Natural gas is falling because the mania for commodities is ending. Forced liquidations and redemptions are likely just beginning for the hordes of newly minted commodity funds, and downside speculation has just begun. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, lower energy prices and bargain-hunting.
Today's Headlines
Bloomberg:
- US stocks are rallying, pushing the DJIA to another record, as a four-day slide in oil prices bolstered earnings prospects for technology companies, retailers and banks.
- Crude oil is dropping below $52/bbl. for the first time in 19 months, falling to $51.90/bbl.
- Will $1 trillion become a curse for the four-year rally in emerging-market stocks, as it was for the Internet bubble of the 1990s? The question arises because the value of China’s stock market exceeded this threshold yesterday and Russia’s did so last month. Before then, no emerging market had ever been so large.
- Federal Reserve Bank of Boston President Cathy Minehan, who never dissented in interest-rate decisions since taking office in 1994, will retire this year.
- General Motors(GM) said it expects to improve automotive earnings and cash flow this year and will increase the amount of money it spends on developing new models.
- Toyota Motor Corp.(TM) may build as many as five North American assembly plants in the next 10 years.
- The Bank of England unexpectedly raised its benchmark interest rate by a quarter-point, the third increase since August.
- OPEC’s president said crude oil’s plunge to $53 a barrel is “unacceptable” and urged members to comply with pledged production cuts.
- Natural gas is plunging over 6% as inventories at record highs and 18% above the five-year average for this time of year cuts record speculation by investment funds for the commodity.
- The CRB Index is in bear market territory, falling 21.3% from
Wall Street Journal:
- A group of four big US banks met with Bush administration officials on Jan. 4 to voice their concerns about impending international capital standards known as Basel II.
- Primax Electronics Ltd., Entery Industrial and other Taiwanese companies could benefit if Apple Inc.’s(AAPL) new iPhone multimedia mobile phone becomes successful.
- General Motors(GM), Ford Motor(F) and Toyota Motor(TM) are trying to attract younger buyers for models such as the Buick, Lincoln, and Lexus that usually appeal more to older drivers.
- IBM(IBM) was awarded more patents last year by the US Patent and Trademark Office than any other company for the 14th year in a row.
- Apple’s(AAPL) iPhone is worth waiting for if you can afford its initial $499 price, Walt Mossberg wrote.
- Top US brokerage firms are garnering handsome profits after making changes to the way in which investors’ idle cash balances are treated.
NY Times:
- US states that provided $500 million of the $3.3 billion spent on insulin in the US in 2005 want the FDA to set standards for a generic version of the drug.
AP:
- US airport security trays may carry advertising for laptops, luxury cars and other products, as part of a program that lets companies give supplies to airports in exchange for marketing rights.
Reuters:
- Pfizer Inc.(PFE) may seek to offer an over-the-counter version of its Viagra anti-impotence drug.
Washington Post:
- The US government shouldn’t be forced to negotiate prescription drug prices for Medicare because the private market is already doing the job well, wrote Michael Leavitt, secretary of health and human services. The typical monthly premium for the drug benefit has dropped from $22 from $38, showing that competition in private industry can control prices, Leavitt said. The Veterans Affairs health system, often cited as an example of successful government price negotiations, doesn’t cover numerous newer drugs that Medicare does, such as Pfizer’s(PFE) Lipitor, the best-selling anti-cholesterol pill.
Financial Times:
- Hedge-fund investors are finding it harder to find managers who can meet their expectations, citing a Deutsche Bank AG survey.
Les Echos:
- French drug sales barely grew last year and may be just as lackluster this year, pharmaceutical industry body LEEM estimated. French people cut their consumption of drugs as doctors, under pressure from the government, prescribed fewer antibiotics, antidepressants and cholesterol medicines. They also bought more generics. The government last year also cut reimbursements on a list of drugs that it says didn’t show enough medical benefits.
Le Parisien:
- France’s Socialist Party will raise income taxes for the country’s highest earners if elected, citing party leader Francois Hollande. The higher taxes would be for those who earn $77,832 annually. That would cancel out tax cuts implemented by the current government.
Gestion:
- Peru’s currency will fall against the US dollar this year as a decline in commodity prices slows US dollar inflows, citing central bank President Julio Velarde.
- US stocks are rallying, pushing the DJIA to another record, as a four-day slide in oil prices bolstered earnings prospects for technology companies, retailers and banks.
- Crude oil is dropping below $52/bbl. for the first time in 19 months, falling to $51.90/bbl.
- Will $1 trillion become a curse for the four-year rally in emerging-market stocks, as it was for the Internet bubble of the 1990s? The question arises because the value of China’s stock market exceeded this threshold yesterday and Russia’s did so last month. Before then, no emerging market had ever been so large.
- Federal Reserve Bank of Boston President Cathy Minehan, who never dissented in interest-rate decisions since taking office in 1994, will retire this year.
- General Motors(GM) said it expects to improve automotive earnings and cash flow this year and will increase the amount of money it spends on developing new models.
- Toyota Motor Corp.(TM) may build as many as five North American assembly plants in the next 10 years.
- The Bank of England unexpectedly raised its benchmark interest rate by a quarter-point, the third increase since August.
- OPEC’s president said crude oil’s plunge to $53 a barrel is “unacceptable” and urged members to comply with pledged production cuts.
- Natural gas is plunging over 6% as inventories at record highs and 18% above the five-year average for this time of year cuts record speculation by investment funds for the commodity.
- The CRB Index is in bear market territory, falling 21.3% from
Wall Street Journal:
- A group of four big US banks met with Bush administration officials on Jan. 4 to voice their concerns about impending international capital standards known as Basel II.
- Primax Electronics Ltd., Entery Industrial and other Taiwanese companies could benefit if Apple Inc.’s(AAPL) new iPhone multimedia mobile phone becomes successful.
- General Motors(GM), Ford Motor(F) and Toyota Motor(TM) are trying to attract younger buyers for models such as the Buick, Lincoln, and Lexus that usually appeal more to older drivers.
- IBM(IBM) was awarded more patents last year by the US Patent and Trademark Office than any other company for the 14th year in a row.
- Apple’s(AAPL) iPhone is worth waiting for if you can afford its initial $499 price, Walt Mossberg wrote.
- Top US brokerage firms are garnering handsome profits after making changes to the way in which investors’ idle cash balances are treated.
NY Times:
- US states that provided $500 million of the $3.3 billion spent on insulin in the US in 2005 want the FDA to set standards for a generic version of the drug.
AP:
- US airport security trays may carry advertising for laptops, luxury cars and other products, as part of a program that lets companies give supplies to airports in exchange for marketing rights.
Reuters:
- Pfizer Inc.(PFE) may seek to offer an over-the-counter version of its Viagra anti-impotence drug.
Washington Post:
- The US government shouldn’t be forced to negotiate prescription drug prices for Medicare because the private market is already doing the job well, wrote Michael Leavitt, secretary of health and human services. The typical monthly premium for the drug benefit has dropped from $22 from $38, showing that competition in private industry can control prices, Leavitt said. The Veterans Affairs health system, often cited as an example of successful government price negotiations, doesn’t cover numerous newer drugs that Medicare does, such as Pfizer’s(PFE) Lipitor, the best-selling anti-cholesterol pill.
Financial Times:
- Hedge-fund investors are finding it harder to find managers who can meet their expectations, citing a Deutsche Bank AG survey.
Les Echos:
- French drug sales barely grew last year and may be just as lackluster this year, pharmaceutical industry body LEEM estimated. French people cut their consumption of drugs as doctors, under pressure from the government, prescribed fewer antibiotics, antidepressants and cholesterol medicines. They also bought more generics. The government last year also cut reimbursements on a list of drugs that it says didn’t show enough medical benefits.
Le Parisien:
- France’s Socialist Party will raise income taxes for the country’s highest earners if elected, citing party leader Francois Hollande. The higher taxes would be for those who earn $77,832 annually. That would cancel out tax cuts implemented by the current government.
Gestion:
- Peru’s currency will fall against the US dollar this year as a decline in commodity prices slows US dollar inflows, citing central bank President Julio Velarde.
Job Market Still Healthy
- Initial Jobless Claims for last week were 299K versus estimates of 320K and 325K the prior week.
- Continuing Claims fell to 2428K versus estimates of 2450K and 2431K prior.
- Continuing Claims fell to 2428K versus estimates of 2450K and 2431K prior.
BOTTOM LINE: First-time claims for state unemployment benefits in the US fell more than expected last week, reflecting a firm labor market and distortions to government figures caused by the holidays, Bloomberg said. The four-week moving-average of claims declined to 314,750, the lowest since Nov. 11. The unemployment rate among those eligible for jobless benefits, which tracks the US unemployment rate, remained steady at 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.
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