BETWEEN THE HEDGES

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares 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.

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Stocks Finish at Session Highs, Boosted by Gaming, HMO, Hospital, Bank, Networking, Semi, Steel, Oil Service and Coal Shares

Posted by Gary .....at 4:08 PM

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Stocks Rising into Final Hour on Less Financial Sector Pessimism, Short-Covering, Lower Long-Term Rates, Falling Inflation Expectations

Posted by Gary .....at 3:41 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Steel longs, Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 1.26% and is very high at 25.13. The ISE Sentiment Index is low at 109.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .59. The Euro Financial Sector Credit Default Swap Index is falling 1.03% today to 84.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 1.33% to 113.46 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.02% to 27 basis points. The TED spread is now down 439 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.59% to 37.69 basis points. The Libor-OIS spread is falling .65% to 26 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.82%, which is down 84 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Given the declines in weekly retail sales reported during July, today’s negative monthly number shouldn’t have been a surprise. I suspect retail sales will show decent improvement this month. It is a large positive to see inflation expectations and long-term rates coming in today. Cyclicals have traded well throughout the session. Coal, Oil Service, Networking, Steel, Gaming, Bank and Semi shares are especially strong, rising 2%+. Preliminary August Consumer Confidence should meet or exceed estimates tomorrow. Nikkei futures indicate an +43 open in Japan and DAX futures indicate an +7 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, diminishing financial sector pessimism, falling inflation expectations, investment manager performance anxiety and declining healthcare reform concerns.

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Today's Headlines

Posted by Gary .....at 3:08 PM

Bloomberg:

- Investment-grade bonds from large banks and financial institutions, utilities and some energy companies make “compelling” purchases, according to Pacific Investment Management Co. LLC. “Yield spreads for high-quality investment grade corporate bonds are still wide relative to historical levels, and we think attractive risk-adjusted value still exists in certain areas of this market,” he said. “There is a clear disconnect between financial markets and underlying fundamentals.”

- Ford Motor Co.(F), benefiting from the Obama administration’s “cash-for-clunkers” program, said it’s boosting factory output by 26 percent in the second half to meet the increased demand. Ford, the only major U.S. automaker to avoid bankruptcy, is raising North American production by 18 percent in the third quarter to 495,000 cars and trucks. Fourth-quarter output climbs 33 percent, the Dearborn, Michigan-based company said today. The Ford Focus small car and the Escape small sport-utility vehicle are among the top 10 sellers in the federal program that gives consumers as much as $4,500 to trade in an older car for a fuel-efficient auto. Other leading sellers, such as the Fusion sedan, helped Ford post its first monthly sales increase in July since 2007 as auto demand picks up across the industry. “The Ford Escape and Focus are flying off dealer lots and we’re doing all we can to ensure our dealers are well stocked,” Mark Fields, Ford’s president of the Americas, said in a statement. “We also are planning a significant increase in fourth-quarter production compared with last year, continuing to match production to the real demand.”

- Copper rose to the highest in more than 10 months in New York and London on speculation that demand is reviving after the Federal Reserve said the U.S. recession is easing and the two biggest euro-zone economies expanded. The U.S. economy is “leveling out,” the central bank said yesterday as it pledged to keep interest rates low for an “extended period.” Second-quarter gross domestic product rose a seasonally adjusted 0.3 percent from the first quarter in both Germany and France, the nations’ statistics offices said today. Economists surveyed by Bloomberg had predicted contractions. Copper for September delivery gained 7.85 cents, or 2.8 percent, to $2.902 a pound on the New York Mercantile Exchange’s Comex unit at 8:24 a.m. local time. The contract climbed as high as $2.93, the highest intraday price since Sept. 29.

- Monsanto Co.(MON), the world’s largest seed maker, plans to charge as much as 42 percent more for its new genetically modified seeds next year than older offerings because they increase farmers’ output. Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co.(DOW), will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace.

- Warren Buffett’s Berkshire Hathaway Inc.(BRK/A) provided more details on writedowns of equity securities after U.S. regulators asked the company in April “to clarify the facts and circumstances” involved in valuing stocks. Berkshire told the Securities and Exchange Commission that it wrote down stocks when “there was considerable uncertainty in the business prospects” of companies. Berkshire didn’t write down equities when “in management’s judgment the future earnings potential and underlying business economics of these companies were favorable,” according to a May 22 letter from Chief Financial Officer Marc Hamburg to the SEC. Berkshire has been under pressure from the SEC to improve disclosure as the recession weighed on results.

- Crude oil may plunge to less than $10 a barrel in the next decade after surging to a record $147 last year, said Robert Prechter, who achieved fame for cautioning on Oct. 5, 1987, that stocks would crash. “I expect crude oil prices to fall below $10 a barrel sometime over the next decade,” Prechter, founder of Elliott Wave International Inc., said in an e-mail yesterday. “It took many years for it to achieve $147.50, and it will take a long while for the full retreat to occur.” Oil should fall to between $4 and $10 a barrel based on a technical analysis called Elliott Wave principle, Prechter said in the Elliott Wave Theorist report last month.

- Crude oil prices, which have surged 60% this year, may not rise above $80 a barrel because spare production capacity among OPEC member has swollen. In March the 12-member group could have produced 6.84 million barrels a day above its actual production, if needed, the most since 2001, according to a monthly Bloomberg News survey of oil companies, producers and analysts. That margin was 6.11 million barrels last month. “The Saudis are happy with oil in the $70-to-$80 range,” Mueller said. “It’s low enough to stop development of some oil sands and alternative energy sources while not hurting the economy. If prices rose above $75 they would open the spigot.”

- Goldman Sachs Group Inc.(GS) and JPMorgan Chase & Co.(JPM) would be barred from a planned U.S. carbon- emissions market or face trading restrictions under proposals by Democratic senators crafting climate change legislation. At least nine members of the majority party say speculation by Wall Street banks may cause excessive price swings in the cap-and-trade system of pollution allowances at the center of President Barack Obama’s plan to curb global warming. The senators say they may limit participation to polluters needing permits, ban derivatives or impose stricter regulations than exist in today’s energy markets. “The volatility that has existed in the oil market is exactly what we don’t want to happen in carbon markets,” said Senator Maria Cantwell, a Democrat from Washington state who wants to exclude financial companies from the carbon market. “The banks contributed to that, and the banks continue to contribute to it.” Goldman Sachs spokesman Michael Duvally said the company had no comment. The bank “will continue to act as a market maker in emissions trading,” including carbon dioxide, according to an environmental policy paper it issued. Markets will have inadequate liquidity without bank participation, Bill Winters, co-chief executive officer of JPMorgan’s investment bank, said at a July 23 press conference in New York. Carbon markets “will die, and the temperature on the planet will go up by a couple of degrees, more than it would have otherwise, and we’ll be really sorry about it,” Winters said. Senator Byron Dorgan, a North Dakota Democrat, said he will oppose creating any carbon-trading market. “It won’t be very long before we have derivatives, we’ll have swaps, we’ll have synthetic swaps, you name it, we’ll have all of them and it’ll be a field day for speculation,” Dorgan said July 17 on the Senate floor. “There is a growing faction of senators demonizing the potential role Wall Street will have in pollution derivatives markets, and with good reason,” said Tyson Slocum, energy program director for Public Citizen, a Washington-based advocacy group. “The odds are that the Senate simply has too many hurdles to overcome to get this bill done this year.”

- The Libor-OIS spread narrowed to a level former Federal Reserve Chairman Alan Greenspan said he regarded as “normal,” adding to evidence the freeze in credit markets is thawing. The spread, which gauges the reluctance among banks to lend, fell 1 basis point to 25 basis points today, the least since Jan. 24, 2008. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse in September. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points. Financial markets “improved further in recent weeks,” the Fed said yesterday.

- Treasuries rose as a report showing retail sales unexpectedly fell in July suggested inflation remains restrained, helping to spur higher-than-forecast demand at a record $15 billion auction of 30-year bonds. Ten-year note yields touched their lowest levels in over a week as retail sales fell 0.1 percent in July, the first drop in three months.

Wall Street Journal:

- A credit crisis is brewing in "microfinance," the business of making the tiniest loans in the world. Microlending fights poverty by helping poor people finance small businesses -- snack stalls, fruit trees, milk-producing buffaloes -- in slums and other places where it's tough to get a normal loan. But what began as a social experiment to aid the world's poorest has also shown it can turn a profit. That has attracted private-equity funds and other foreign investors, who've poured billions of dollars over the past few years into microfinance world-wide. The result: Today in India, some poor neighborhoods are being "carpet-bombed" with loans, says Rajalaxmi Kamath, a researcher at the Indian Institute of Management Bangalore who studies the issue. In India, microloans outstanding grew 72% in the year ended March 31, 2008, totaling $1.24 billion, according to Sa-Dhan, an industry association in New Delhi. "We fear a bubble," says Jacques Grivel of the Luxembourg-based Finethic, a $100 million investment fund that focuses on Latin America, Eastern Europe and Asia, though it has no exposure to India. "Too much money is chasing too few good candidates."

- Team Obama is suffering from Extended Campaign Syndrome. In an election, campaign staffers are often just trying to survive until the next week or the next primary. They cut corners because they are fatigued or under pressure. They can be purposely combative and even portray critics as enemies. Carrying this mindset into the White House can get you into trouble, a lesson the Obama administration is now learning the hard way. For example, there's a video being circulated online of Barack Obama telling the Illinois AFL-CIO in 2003, "I happen to be a proponent of a single payer universal health-care program . . . we may not get there immediately" and then telling an SEIU Health Care Forum in 2007, "I don't think we're going to be able to eliminate employer coverage immediately. There's going to be some transition process. I can envision a decade out or 15 years out or 20 years out where we've got a much more portable system."

NY Times:

- Small-business owners hoping for some assistance of the sort given to the nation’s biggest banks applauded when the Small Business Administration unveiled a lending program in May. Washington officials and some lenders predicted that the program, providing emergency bridge loans as part of the economic stimulus package, would save jobs and provide a lifeline for vulnerable businesses. Many in the banking industry expected it to be fully subscribed in months. But the program is off to a slow start, and many banks, including some of the largest, appear reluctant to take part. With $255 million, the program is prepared to make about 10,000 loans of up to $35,000 each. As of Monday, the agency reported that only 1,127 loans, totaling $36.8 million, had been extended.

MarketWatch:
- U.S. retail sales unexpectedly fell 0.1% in July, as soft sales for most types of merchandise offset a boost from the government's cash-for-clunkers subsidy, the Commerce Department reported Thursday. It was the first decline for seasonally adjusted sales in three months. The report shows that consumer spending is still weak despite attempts by the government to stimulate demand. Sales at most kinds of stores declined in July.

The Detroit News:

- The Obama administration will not make public the detailed compensation plans for the highest employees at seven companies that have accepted bailout loans. General Motors Co., Chrysler Group LLC, GMAC Inc. and Chrysler Financial are among the seven in the process of submitting compensation plans for their top 25 executives by Friday, and will outline proposals for their top 100 execs in the coming months. The four auto sector companies have received more than $80 billion in taxpayer loans -- though Chrysler Financial has repaid its $1.5 billion loan. Last week, GM submitted several hundred pages outlining its pay practices, said spokesman Tom Wilkinson, but doesn't plan to make the list public.

AllThingsDigital:

- Time to get the rumor mill kicked into high gear: Multiple music industry sources say Apple executives have told them the company is planning one of its famed keynote events for the week of September 7th. But in true Apple fashion, the company has been non-committal about the exact date of the event, or what it will be showing off.

NY Post:

- First it was the banks and automakers that got a helping hand from Uncle Sam -- and soon some New York City apartment complexes could get one, too. A bill winding its way through Congress proposes to prop up deteriorating apartment complexes by injecting $2 billion from the Troubled Asset Relief Program into an effort to stabilize multifamily properties in default or foreclosure. The bill, which is called the TARP for Main Street Act and was sponsored by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Rep. Nydia Velazquez (D-Brooklyn and Manhattan), would use TARP funds that have been returned by banks and plow it into programs that, according to the bill, would create "sustainable financing" for the complexes as well as provide funding for property rehabilitation.The House is considering the measure, which focuses on apartment buildings with units that are either rent stabilized or receive government subsidies.

Rassmussen:

- For the first time in over two years of polling, voters trust Republicans slightly more than Democrats on the handling of the issue of health care. The latest Rasmussen Reports national telephone survey shows that voters favor the GOP on the issue 44% to 41%. Democrats held a four-point lead on the issue last month and a 10-point lead in June.

Politico:

- He may be presiding over two wars and facing a terror threat at home and abroad, but you'd hardly know it from listening to President Barack Obama speak. Obama has uttered more than a half-million words in public since taking office Jan. 20 — and a POLITICO analysis of nearly every word in this vast public record shows that domestic topics dominate, so much so that Obama sounds more like a peacetime president than a commander in chief with more than 100,000 troops in the field.

StreetInsider.com:

- Ken Griffin's Citadel hedge fund showed a 4.85%, or 7,067,768 share, stake in UAL Corporation (UAUA) in a 13G filing. The firm held 900,666 shares at the quarter ended 3/31/09. A 13G indicates a passive filing.

Reuters:
- Walmart Stores Inc(WMT) posted better-than-expected quarterly earnings on Thursday as a clampdown on inventory offset falling sales, and the company forecast a full-year profit that could beat Wall Street estimates, sending its shares up 1.7 percent.

- IBM(IBM) said on Thursday it expects revenue at its analytics business to grow by around 15 to 20 percent from next year on, as the fledgling unit wins more contracts. International Business Machines Corp (IBM) said the analytics business, which helps clients plot trends, predict risk and cut costs, is likely to account for more than $2 billion in revenue in 2010 -- a fraction of IBM's 2008 revenue of $103.6 billion. This year, revenue from analytics could grow by about 10 percent, it said.

- Venezuelan President Hugo Chavez is unleashing an avalanche of laws to regulate business and promote "Marxist trade," a new push to build a socialist economy in the shopping-mad, oil-exporting nation. Chavez, a close ally of Cuba who fully embraced socialism in 2007, has steadily increased the role of the state in the OPEC member's economy with a slew of nationalizations and tough controls on prices and foreign exchange. Following are some of the key laws currently being discussed in the national assembly:

Kyodo News:

- Japan's crude steel output in the current fiscal year is likely to fall to the lowest level in nearly 40 years due to weak demand amid the global economic slowdown, according to industry projections made available by Thursday.

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