BETWEEN THE HEDGES

Tuesday, December 06, 2005

Wednesday Watch

Posted by Gary .....at 11:45 PM

Late-Night Headlines
Bloomberg:
- Australia’s economy grew .2% in the third quarter, the slowest pace in a year, as the government cut spending and exports fell.
- Microsoft was found to have breached antitrust rules by South Korea, a ruling that may encourage regulators in Asia to challenge the company’s practice of selling programs in bundles.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GNW, MUR, BLS and BEN.
- Reiterated Underperform on GM.

Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
CENT/.30
DCN/-.02
HOV/2.42
TTC/.10
VTS/.20

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude drawdown of 1.9 million barrels. Gasoline inventories are estimated to rise 1.05 million barrels and distillate supplies are expected to rise 1.75 million barrels. Finally, refinery utilization is expected to rise .5%.

3:00 pm EST
- Consumer Credit for October is estimated to rise to $5.0 billion versus -$.1 billion in September.

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

Stocks Close Modestly Higher after Late-day Profit-taking

Posted by Gary .....at 8:10 PM

Indices
S&P 500 1,263.70 +.13%
DJIA 10,856.86 +.20%
NASDAQ 2,260.76 +.14%
Russell 2000 687.58 +.15%
DJ Wilshire 5000 12,644.00 +.12%
S&P Barra Growth 604.90 +.13%
S&P Barra Value 654.42 +.12%
Morgan Stanley Consumer 593.16 +.09%
Morgan Stanley Cyclical 784.26 +.64%
Morgan Stanley Technology 533.89 +.49%
Transports 4,128.49 +1.02%
Utilities 404.06 -.04%
Put/Call .78 -8.24%
NYSE Arms .82 -11.92%
Volatility(VIX) 11.52 -.69%
ISE Sentiment 187.00 -1.58%
US Dollar 91.40 -.04%
CRB 324.29 -.40%

Futures Spot Prices
Crude Oil 60.03 +.15%
Unleaded Gasoline 158.35 unch.
Natural Gas 13.54 +.38%
Heating Oil 177.60 +.23%
Gold 514.60 +.16%
Base Metals 151.11 -.32%
Copper 198.90 +.10%
10-year US Treasury Yield 4.49% +.17%

Leading Sectors
Gold & Silver +2.80%
Airlines +2.0%
Computer Hardware +1.37%

Lagging Sectors
Biotech -.55%
Drugs -.56%
I-Banks -.63%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on HRZ, KR and IMCL.

Afternoon/Evening Headlines
Bloomberg:
- Saddam Hussein said the Baghdad Court trying him for a massacre is “unjust” and he won’t return when it reconvenes tomorrow.
- Carina Perelli, the head of the United Nations’ elections assistance agency, has been fired for what the organization’s leaders described as “sexual and professional harassment” of her staff.
- Apple Computer started selling “Law & Order” and other top-rated NBC shows on its iTunes online store to help fuel sales of its iPod video players.
- Rupert Murdoch’s News Corp. forecast a sixfold annual increase in sales at its Internet businesses, driven by more than $1 billion in acquisitions including MySpace.com.
- Research In Motion isn’t negotiating to settle a patent lawsuit that may shut down its BlackBerry e-mail service in the US.
- US Treasuries rallied, sending the 10-year note to its biggest gain in three weeks, after a government report showing labor costs fell for the second consecutive quarter.

AP:
- Most Americans and a majority of people in the UK, France and South Korea said torturing those suspected of terrorism is justified in certain cases, citing an AP-Ipsos poll.

Asahi:
- Japan will lift its two-year-old ban on US and Canadian beef as early as Dec. 12.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Computer longs, Retail longs and Medical longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished modestly higher, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s action was neutral given the afternoon profit-taking. According to N.Y. consulting firm Strategic Insight, new inflows into international stock funds are projected at $150 billion this year, boosting assets above the $1 trillion mark. To put this in perspective, this would be a 41% increase above last year's record of $106 billion. Moreover, the last mania for international stocks peaked in 1994 and saw inflows of only $66 billion. Between the mania for negatively correlated/low-correlation U.S. strategies -- such as commodity and market neutral funds -- and the flood of money into international funds, there has been relatively little interest in U.S. stocks. Don't be surprised to see these trends reverse over the intermediate term, pushing investors back into more positively correlated U.S. stock funds. As well, a slowing housing market should boost interest in U.S. equities.

Stocks Sharply Higher Mid-day as Largest Component of Inflation Declines for 2nd Straight Quarter

Posted by Gary .....at 2:03 PM

Indices
S&P 500 1,271.63 +.76%
DJIA 10,914.57 +.74%
NASDAQ 2,276.27 +.83%
Russell 2000 692.68 +.89%
DJ Wilshire 5000 12,722.30 +.74%
S&P Barra Growth 608.77 +.78%
S&P Barra Value 658.84 +.81%
Morgan Stanley Consumer 596.04 +.57%
Morgan Stanley Cyclical 788.71 +1.24%
Morgan Stanley Technology 538.51 +1.36%
Transports 4,163.53 +1.88%
Utilities 405.00 +.19%
Put/Call .84 -1.18%
NYSE Arms .56 -39.91%
Volatility(VIX) 10.99 -5.26%
ISE Sentiment 201.00 +5.79%
US Dollar 91.47 unch.
CRB 325.09 -.15%

Futures Spot Prices
Crude Oil 60.35 +.73%
Unleaded Gasoline 158.55 -.27%
Natural Gas 13.73 +.51%
Heating Oil 177.90 -.59%
Gold 513.50 +.18%
Base Metals 151.11 -.32%
Copper 198.90 -.92%
10-year US Treasury Yield 4.48% -1.77%

Leading Sectors
Airlines +2.93%
Semis +2.34%
Retail +1.53%

Lagging Sectors
Foods -.05%
Drugs -.16%
Oil Tankers -.18%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet longs, Computer longs, Semi longs, Retail longs and Medical longs. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is about average. Measures of investor anxiety are lower. Overall, today’s market action is positive considering investors are rewarding positive news notwithstanding recent gains. The Johnson Redbook same-store sales index rose 3.3% year-over-year last week vs. a 3.9% rise the prior week. This week's gain is up from a 1.5% increase in late April, and it's the 31st week in a row that the index has risen 3% or more. This measure has been much more accurate than other gauges of retail activity I follow. The Morgan Stanley Retail Index (MVRX) has returned 12.0% since around mid-October. I continue to believe retailers will outperform through year-end. I expect US stocks to trade mixed-to-higher into the close on short-covering, more optimism and falling long-term rates.

Today's Headlines

Posted by Gary .....at 12:39 PM

Bloomberg:
- The trial of ousted dictator Saddam Hussein resumed today as a second witness testified that she was stripped naked, beaten and electrocuted by Iraqi officers repeatedly.
- Kirk Kerkorian may seek more influence at GM after losing $400 million on his recent investment.
- US Democrat John Murtha said on NBC’s “Today” show that the US should leave Iraq immediately.
- US Treasuries are rising substantially today, pushing the 10-year T-note up by the most in almost three weeks, after a government report showing labor costs fell last quarter more than initially estimated eased concern inflation will accelerate.

Wall Street Journal:
- Hyundai Motor, Toyota Motor, Nissan Motor and other Asian automakers are competing to hire automotive engineers and engineering students in the Detroit area as they try to develop more products for the US market.
- Sun Microsystems, Cisco Systems and other software and parts makers are using startup companies as laboratories to come up with new ideas for products that they hope will generate sales growth.
- Johnson & Johnson ranked first and Coca-Cola second in Reputation Quotient’s annual ranking of companies with the best reputation.
- The US Dept. of Energy and a group of companies including American Electric Power and Consol Energy have signed an agreement to build a coal-fired plant that removes carbon dioxide and other pollutants.
- E*Trade Financial plans to introduce a credit card today that allows customers to transfer balances from air-mile credit cards at low interest rates while keeping the reward points that go with those accounts.
- Time Warner and Microsoft are likely to conclude by the end of the month an agreement to set up an online advertising service that will compete with Google.
- Verizon Communications, AT&T, Sprint Nextel and other US phone companies are developing and offering consumers new gadgets and services that combine landline, wireless and Internet access.

NY Daily News:
- New York is the source of about half of all pirated DVDs sold in the US, citing the Motion Picture Association of America.

NY Times:
- Time Warner’s talks with Microsoft and Google involving its AOL unit may not lead to the sale of an AOL stake.
- Pay by Touch, a closely held maker of fingerprint-based payment technology, said it expects to announce the acquisition of rival BioPay LLC today for $82 million in cash and stock.

Interfax:
- Russian Foreign Minister Sergei Lavrov rejected US criticism of the country’s plans to sell anti-aircraft missile systems to Iran.

Reuters:
- Representatives from broadcast and cable-tv networks including CBS and NBC met privately this week to consider regulators’ concerns about indecent programming.

Kyodo News:
- Japan plans to extend the current mission of its Self-Defense Forces in Iraq for another year, citing the government’s new mission plan.

Largest Component of Inflation Declines Again, Factory Orders Rebound, Pending Home Sales Decline

Posted by Gary .....at 10:56 AM

- Final 3Q Non-farm Productivity rose 4.7% versus estimates of a 4.5% increase and a prior estimate of a 4.1% gain.
- Final 3Q Unit Labor Costs fell 1.0% versus estimates of a .9% decline and a prior estimate of a .5% decrease.
- Factory Orders for October rose 2.2% versus estimates of a 2.3% increase and an upwardly revised 1.4% decline in September.
- Pending Home Sales for October fell 3.2% versus estimates of a 1.2% decline and a downwardly revised 1.0% fall in September.

BOTTOM LINE: The productivity of US workers rose from July through September at the fastest pace in two years and labor costs dropped for a second quarter, easing concern that rising wages will fuel inflation, Bloomberg said. Moreover, 2Q unit labor costs were revised from a 1.8% increase to a 1.2% decline. Contained labor costs, the largest component of inflation, and the jump in productivity should all the Fed to make increasingly dovish comments going forward.

US factory orders increased for the second time in three months during October as the Gulf Coast recovered from hurricanes, suggesting production gains will fuel the economy in coming months, Bloomberg said. Unfilled business equipment orders rose 1.6% to the highest on record, implying demand was larger than manufacturers’ ability to produce. Commercial aircraft orders surged 51.0%. Orders for capital goods excluding aircraft, an indicator of future activity, gained 1.4%. The inventory-to-shipments ratio dropped to 1.17 months from 1.18 months in September.

Contracts to buy previously owned US homes fell more than expected in October as rising prices and borrowing costs pushed buyers out of the market, Bloomberg said. The Pending Home Sales Index has averaged 125.4 this year versus 120.03 last year. Moreover, sales of new and existing owned homes are still headed for another record year, the fifth in a row. I continue to believe the housing market is slowing to more healthy sustainable levels, not collapsing. This should also allow the Fed to become more dovish.