BETWEEN THE HEDGES

Tuesday, December 27, 2005

Wednesday Watch

Posted by Gary .....at 11:45 PM

Late-Night Headlines
Bloomberg:
- Sharp Corp., the world’s top maker of liquid-crystal display televisions, will raise panel output by at least 10% to meet demand driven by soccer’s World Cup and the Winter Olympics, according to executives.
- Growth in Australia’s economy will accelerate to 3.3% next year as exports and business investment surge, economists said.
- The board of NY’s main transit union voted tonight in favor of a contract offer to end a dispute that sparked a three-day subway and bus strike last week, the union said.

Late Buy/Sell Recommendations
Goldman Sachs:
- None of note

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
- None of note

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ABC 2-for-1

Economic Releases
10:00 am EST
- Consumer Confidence for December is estimated to rise to 102.5 versus a reading of 98.9 in November.

BOTTOM LINE: Asian indices are mostly lower, dragged down by financial shares in the region. I expect US equities to open modestly lower and to rally modestly into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Session Lows, Led by Energy Shares

Posted by Gary .....at 5:48 PM

Indices
S&P 500 1,256.54 -.96%
DJIA 10,777.77 -.97%
NASDAQ 2,226.89 -1.0%
Russell 2000 676.58 -1.44%
DJ Wilshire 5000 12,566.31 -1.0%
S&P Barra Growth 600.91 -1.03%
S&P Barra Value 651.33 -.88%
Morgan Stanley Consumer 595.44 -.60%
Morgan Stanley Cyclical 786.89 -.75%
Morgan Stanley Technology 528.46 -.84%
Transports 4,216.26 -1.18%
Utilities 409.02 -.64%
Put/Call .88 +27.54%
NYSE Arms 1.66 +27.86%
Volatility(VIX) 11.57 +12.66%
ISE Sentiment 197.00 +23.13%
US Dollar 91.17 +.43%
CRB 324.59 -.53%

Futures Spot Prices
Crude Oil 57.80 -.62%
Unleaded Gasoline 151.30 -.03%
Natural Gas 10.97 -.43%
Heating Oil 163.65 -.03%
Gold 510.10 unch.
Base Metals 153.51 +.63%
Copper 206.95 +.10%
10-year US Treasury Yield 4.33% -.98%

Leading Sectors
Airlines +1.55%
Homebuilders -.05%
Telecom -.15%

Lagging Sectors
Coal -1.98%
Energy -2.82%
Oil Service -3.13%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BSX.

Afternoon/Evening Headlines
Bloomberg:
- First Data Corp. shares rose as much as 1.6% after a report today that the company is in discussions with unidentified private equity firms about a sale of its Western Union subsidiary.
- Poland’s two-month-old government plans to keep soldiers in Iraq next year, countering the previous cabinet’s pledge to pull out of the US-led operation by this week.
- Fidelity National Financial, the biggest US title insurer, agreed to buy Sedgwick CMS Holdings for $635 million to offer third-party claims management services to Fortune 500 companies.
- Natural gas futures plunged 10%, the largest one-day drop in almost 3 years, as warmer-than-normal weather slashed demand for the furnace fuel.
- US Treasury notes rose on speculation a decline in 10-year yields to below two-year yields may foreshadow an economic slowdown.
- Hurricanes Katrina, Rita and Wilma may cost insurers $57.6 billion, more than double the annual record for US natural disasters, a consulting firm said.

Reuters:
- Iraq’s political leaders plan to meet their country’s interim president in his Kurdish homeland in the next few days to lay the groundwork for a new government, citing a senior government official.

CNBC:
- Mortgage-backed securities are attractive because of their high yields relative to government and corporate debt and their credit quality, Paul McCulley, a managing director at PIMCO said.

BOTTOM LINE: The Portfolio finished lower today on losses in my Medical longs, Internet longs and Semi longs. I covered some of my IWM and QQQQ shorts, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was very light. Measures of investor anxiety were mostly higher into the close. The 4-basis-point decline in the 10-year Treasury note yield, besides energy declines, worried traders today. I continue to believe U.S. growth is slowing to average rates from vigorous levels before the hurricanes. This, combined with decelerating inflation readings and rising demand for U.S. assets, helped boost bonds. I do not believe bond gains are foreshadowing a meaningful slowdown in U.S. economic activity.

Stocks Sharply Lower Mid-day, Pressured by Energy Shares

Posted by Gary .....at 2:09 PM

Indices
S&P 500 1,258.83 -.77%
DJIA 10,800.19 -.76%
NASDAQ 2,229.91 -.87%
Russell 2000 677.68 -1.28%
DJ Wilshire 5000 12,587.37 -.83%
S&P Barra Growth 602.02 -.85%
S&P Barra Value 652.50 -.70%
Morgan Stanley Consumer 596.00 -.51%
Morgan Stanley Cyclical 788.37 -.56%
Morgan Stanley Technology 528.62 -.81%
Transports 4,219.88 -1.10%
Utilities 409.26 -.59%
Put/Call .93 +34.78%
NYSE Arms 1.55 +19.44%
Volatility(VIX) 11.50 +11.98%
ISE Sentiment 202.00 +26.25%
US Dollar 91.04 +.29%
CRB 323.87 -.75%

Futures Spot Prices
Crude Oil 57.65 -1.33%
Unleaded Gasoline 152.25 -1.81%
Natural Gas 11.01 -10.12%
Heating Oil 165.00 -3.24%
Gold 510.10 +.83%
Base Metals 153.51 +.63%
Copper 206.75 +1.60%
10-year US Treasury Yield 4.34% -.71%

Leading Sectors
Airlines +1.89%
Gold & Silver +.07%
Homebuilders +.05%

Lagging Sectors
Coal -2.16%
Energy -2.83%
Oil Service -3.20%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Medical longs and Semi longs. I added IWM and QQQQ shorts this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are lower and volume is light. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering the decline in energy prices, falling long-term rates and lack of normal seasonal strength. It appears to me the losses in the energy sector, which had been one of the best performing in 2005, are prompting hedge funds to take profits in most other winners. Gains by most funds are mediocre for the year and they do not want to slip into the red. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering.

Today's Headlines

Posted by Gary .....at 11:50 AM

Bloomberg:
- Boston Scientific plans to proceed with its $25 billion offer to buy Guidant Corp. even after the cardiac device maker said profits will sink because of product recalls.
- Hedge fund investors, frustrated by the lowest returns in three years, say they are giving more money to managers who bet on stocks and macroeconomic trends because they expect them to post the biggest gains in 2006.
- Guidant was barred by US regulators from exporting heart-rhythm devices from its principal plant in St. Paul, Minnesota, because of quality-system failures.
- Natural gas is plunging for a third day in NY, dropping almost 30% in 10 days, as warmer-than-normal weather slashed demand for the furnace fuel.

Wall Street Journal:
- Beijing’s Communist Party leadership has announced a campaign against bad manners as the city prepares to host an international throng of Olympic spectators in 2008.
- NY State AG Eliot Spitzer served subpoenas on Sony BMG Music Entertainment and Vivendi Universal’s Universal Music Group as part of an industry-wide investigation into pricing of digitally downloaded music.
- US Retail spending over the holiday shopping period rose a strong 8.7%, with the biggest increase in sales of home furnishings and consumer electronics.
- A lawsuit by as many as 1,000 employees of Cintas Corp. against unions trying to organize at the company’s plants may deter workers from supporting further organizing drive.
- GM will introduce sport-utility vehicles that consume less fuel next year, including a new version of the Chevy Tahoe, to help it reverse a decline in sales.
- Sanofi-Aventis SA investors hoping the company’s obesity drug Accomplia will become a miracle cure risk being disappointed.
- Gamco Investors’ Mario Gabelli’s involvement in more than a dozen bids for airwave licenses from the FCC have become the focus of a federal lawsuit.
- North Korea wants to end food aid from the UN and private charities to limit the international presence in the country, citing Richard Ragan, head of North Korean operations for the UN’s World Food Program.

NY Times:
- Michigan Governor Jennifer Granholm is courting Toyota Motor, which has said it may build an engine plant in the Midwest.
- Louisiana planners are seeking to move an entire string of seaside Cajun towns and villages and their 4,000 residents in Cameron Parish as much as 20 miles inland.
- Sears Holdings, Target and other US retailers are tightening store policies to discourage returns because of the extra labor they involve.

NY Post:
- NYC’s Department of Health is buying radiation-detection equipment for 33 private city hospitals to prepare for the possibility of a “dirty bomb” attack.

AP:
- US companies, which contributed millions of dollars in relief following tsunamis, hurricanes and earthquakes in 2005, found their philanthropic works gave them a competitive advantage in the marketplace.
- More than 10,000 Iraqi demonstrators backing Sunni Arab and secular Shiite politicians marched through the streets of Baghdad today to push for unity throughout the country.

AFP:
- Britain and Sweden are the only European countries that are likely to meet their Kyoto Protocol commitments on greenhouse gas emissions, citing a UK study.

BBC:
- Numerous mass graves with thousands of bodies have been discovered in Iraq since the ousting of dictator Saddam Hussein in 2003.

Manufacturing Slows in Mid-Atlantic, Outlook Improves

Posted by Gary .....at 10:44 AM

- The Richmond Fed Index for December fell to -2 versus estimates of 10 and a reading of 9 in November.

BOTTOM LINE: Manufacturing activity in the Central Atlantic region edged lower in December, Bloomberg reported. The shipments component of the index fell to 1 from 14. The new orders component fell to -2 from 10 and a gauge of manufacturing employment in the region fell to -6 from 0. However, measures of confidence improved as the expected shipments component rose 21 points to 50. The expected new orders component of the index rose 20 to 43. The index for expected manufacturing employment rose 11 points to 10. Finally, the planned capital expenditures component rose 6 points to 18. I continue to believe manufacturing will add to US economic growth over the intermediate-term as businesses increase spending, inventories are rebuilt and hurricane rebuilding accelerates.