BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Retail longs and Telecom longs. I added to my (SII) short and (ILMN) long today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is modestly lower, sector performance is mixed and volume is above average. I see a number of small-/mid-cap “growth” stocks breaking out on volume even as the Russell 2000 remains flat today. Considering last week's strong market action, today's underlying tone remains very constructive. American Metal Market is reporting that Red Kite Management Ltd. holds almost all of the aluminum inventories tracked by the London Metals Exchange. This is the hedge fund that was rumored to be blowing up last week on copper losses. I continue to believe that the extent to which "paper demand" from investment funds has been driving most commodity prices to insane levels is vastly underestimated. Notwithstanding this historic speculation, the CRB Index is down 17.3% from May highs. As commodity-oriented fund redemptions accelerate over the intermediate term, I suspect that this will lead to even lower prices than would otherwise be the case as leveraged long positions are unwound and downside speculation by surviving funds increases. I expect US stocks to trade mixed-to-higher into the close from current levels on more economic optimism and stable long-term rates/energy prices.
Monday, February 05, 2007
Stocks Mixed into Final Hour as Profit-taking Offsets More Positive Economic Data
Today's Headlines
Bloomberg:
- Carl Icahn, the billionaire activist investor, offered to pay $2.31 billion for the 84% of auto-parts maker Lear Corp.(LEA) that he doesn’t own.
- CBS Corp.’s(CBS) telecast of the Indianapolis Colts’ Super Bowl victory over the Chicago Bears last night earned the game’s highest rating in seven years.
- State Street(STT) agreed to buy Investors Financial Services(IFIN) for $4.5 billion, intensifying consolidation in the trustee-funds industry.
- Almost half of children ages 10 to 17 said they saw pornography online in the year before they were surveyed, a study says.
- US economic growth may slow to 2.7% this year, helping inflation to decelerate further, the White House predicted in its 2008 budget proposal.
- Apple Inc.(AAPL) ended a legal dispute with the Beatles over rights to use the Apple name and logos, potentially clearing the way for the company to distribute the group’s music through its iTunes online store.
- US women aged 30 and older are having babies at the highest rate since 1964, while teenagers are having fewer than ever, a study showed.
- Jim Rogers, who predicted the start of the commodities rally in 1999, said more hedge funds may collapse after the demise of Amaranth Advisors LLC and a report of losses by metals-trading hedge fund Red Kite Management Ltd.
- Crude oil is falling .40/bbl. on speculation that US fuel stockpiles are sufficient to meet demand.
- Shares of Verenex Energy, a Canadian explorer, jumped to a record after the discovery of an oil field in Libya, the holder of Africa’s largest reserves.
- The cost of hiring oil tankers will fall for the next two years as a rush of new vessels enters service, forcing owners to compete on price, McQuilling Brokerage Partners said.
Wall Street Journal:
- Simon Property Group and hedge fund Farallon Capital Management made a $1.56 billion offer for Mills Corp.(MLS), topping a $1.35 billion agreement with Brookfield Asset Management.
- CCMP Capital Advisors and GS Capital Partners agreed to buy Triad Hospitals(TRI) for $4.7 billion in cash.
- Apple Inc.(AAPL) has advised some iPod and iTunes users to delay upgrading their computers to Windows Vista because iTunes software might not work well with the new Microsoft Corp.(MSFT) operating system, citing Apple.
American Metal Market:
- Red Kite Management Ltd. holds most of the aluminum inventories tracked by the London Metal Exchange. Red Kite may hold about 90% of total LME-monitored stockpiles with help from an unnamed trading company. The metals hedge fund’s aluminum trading position is probably “illiquid.”
Financial Times:
- The bidding contest for Equity Office Properties Trust(EOP) between Blackstone Group LP and Vornado Realty Trust(VNO) shows how much more private-equity firms might bid if challenged.
Financial Times Deutschland:
- SAP AG’s sales in the US will rise more than 15% this year, citing Bill McDermott, the company’s head of Americas.
Bild:
- BASF AG CECO Juergen Hambrecht has demanded a binding worldwide agreement to reduce polluting emissions. The consumption of heating oil could be cut to three liters per square meter from the current level of about 25 liters with the help of triple-glazed windows and insulated facades.
London-based Times:
- Buido Mantega, Brazil’s finance minister, said his country wants to develop joint projects with British companies to bring ethanol to the UK.
Kathimerini:
- Cyprus could have significant oil deposits in at least two years, citing studies for the Cypriot government. A huge deposit called Eratoshenes was found south of the island and another has been identified in the Kylikeia basin, stretching from the shores of northern Cyprus to the coast of Turkey.
La Republic:
- Intel Corp.(INTC) Chairman Craig Barrett expects the health-care market for microchips to expand.
- Carl Icahn, the billionaire activist investor, offered to pay $2.31 billion for the 84% of auto-parts maker Lear Corp.(LEA) that he doesn’t own.
- CBS Corp.’s(CBS) telecast of the Indianapolis Colts’ Super Bowl victory over the Chicago Bears last night earned the game’s highest rating in seven years.
- State Street(STT) agreed to buy Investors Financial Services(IFIN) for $4.5 billion, intensifying consolidation in the trustee-funds industry.
- Almost half of children ages 10 to 17 said they saw pornography online in the year before they were surveyed, a study says.
- US economic growth may slow to 2.7% this year, helping inflation to decelerate further, the White House predicted in its 2008 budget proposal.
- Apple Inc.(AAPL) ended a legal dispute with the Beatles over rights to use the Apple name and logos, potentially clearing the way for the company to distribute the group’s music through its iTunes online store.
- US women aged 30 and older are having babies at the highest rate since 1964, while teenagers are having fewer than ever, a study showed.
- Jim Rogers, who predicted the start of the commodities rally in 1999, said more hedge funds may collapse after the demise of Amaranth Advisors LLC and a report of losses by metals-trading hedge fund Red Kite Management Ltd.
- Crude oil is falling .40/bbl. on speculation that US fuel stockpiles are sufficient to meet demand.
- Shares of Verenex Energy, a Canadian explorer, jumped to a record after the discovery of an oil field in Libya, the holder of Africa’s largest reserves.
- The cost of hiring oil tankers will fall for the next two years as a rush of new vessels enters service, forcing owners to compete on price, McQuilling Brokerage Partners said.
Wall Street Journal:
- Simon Property Group and hedge fund Farallon Capital Management made a $1.56 billion offer for Mills Corp.(MLS), topping a $1.35 billion agreement with Brookfield Asset Management.
- CCMP Capital Advisors and GS Capital Partners agreed to buy Triad Hospitals(TRI) for $4.7 billion in cash.
- Apple Inc.(AAPL) has advised some iPod and iTunes users to delay upgrading their computers to Windows Vista because iTunes software might not work well with the new Microsoft Corp.(MSFT) operating system, citing Apple.
American Metal Market:
- Red Kite Management Ltd. holds most of the aluminum inventories tracked by the London Metal Exchange. Red Kite may hold about 90% of total LME-monitored stockpiles with help from an unnamed trading company. The metals hedge fund’s aluminum trading position is probably “illiquid.”
Financial Times:
- The bidding contest for Equity Office Properties Trust(EOP) between Blackstone Group LP and Vornado Realty Trust(VNO) shows how much more private-equity firms might bid if challenged.
Financial Times Deutschland:
- SAP AG’s sales in the US will rise more than 15% this year, citing Bill McDermott, the company’s head of Americas.
Bild:
- BASF AG CECO Juergen Hambrecht has demanded a binding worldwide agreement to reduce polluting emissions. The consumption of heating oil could be cut to three liters per square meter from the current level of about 25 liters with the help of triple-glazed windows and insulated facades.
London-based Times:
- Buido Mantega, Brazil’s finance minister, said his country wants to develop joint projects with British companies to bring ethanol to the UK.
Kathimerini:
- Cyprus could have significant oil deposits in at least two years, citing studies for the Cypriot government. A huge deposit called Eratoshenes was found south of the island and another has been identified in the Kylikeia basin, stretching from the shores of northern Cyprus to the coast of Turkey.
La Republic:
- Intel Corp.(INTC) Chairman Craig Barrett expects the health-care market for microchips to expand.
ISM Non-Manufacturing Healthy, Prices Paid Falls Again
- ISM Non-Manufacturing for January rose to 59.0 versus estimates of 57.0 and a downwardly revised 56.7 in December.
BOTTOM LINE: Growth at US service industries accelerated last month as companies trimmed excess inventories, a sign that increased consumer spending is bolstering the economic expansion, Bloomberg reported. ISM non-manufacturing is a gauge of industries that make up almost 90% of the economy. The Prices Paid component declined to 55.2 versus 59.7 the prior month. The employment component of the index fell to 51.7 from 53.2 in December. The inventories component fell to 47, the lowest since June 2003, versus 53.5 in December. The average price of a gallon of gas has declined 29% from last year’s peak of $3.04 to $2.23 a gallon last month. I continue to believe consumer spending will remain healthy and likely accelerate over the intermediate-term as wage continue to meaningfully outpace inflation, unemployment stays low, gas prices fall further, stocks rise, sentiment improves, housing stabilizes at relatively high levels, more seasonal weather arrives and interest rates remain low.
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