BETWEEN THE HEDGES

Monday, April 17, 2006

Tuesday Watch

Posted by Gary .....at 10:54 PM

Late-Night Headlines
Bloomberg:
- Berkshire Hathaway(BRK/A) agreed to buy Russell Corp.(RML) for almost $600 million in cash to add to its apparel businesses.
- Calpine Corp. said it will take more than $7 billion in charges to reduce the value of its assets as it restructures under bankruptcy protection.
- Lenovo Group Ltd., China’s largest PC maker, will buy $1.2 billion of Microsoft’s Windows software over the next year as part of efforts to curb piracy of the world’s most popular operating system software.

Financial Times:
- Amazon.com(AMZN) is selling grocery products and will offer delivery to become the leading one-stop Internet site in the US, citing the company.
- Goldman Sachs(GS) CEO Paulson warned executives to stop using the firm’s money to back unsolicited bids because they risk damaging relationships with corporate clients.

London-based Times:
- Google(GOOG) may today say it will start an online travel Web site to rival Expedia(EXPE) and Sabre Holdings’(TSG) Travelocity.com.

Late Buy/Sell Recommendations
Raymond James:
- Raised CACI to Outperform, target $74.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
- (ALL)/1.66
- (AMGN)/.89
- (ASO)/.51
- (BSX)/.46
- (BCR)/.79
- (CYMI)/.42
- (DJ)/.15
- (DHI)/1.11
- (RE)/3.06
- (FITB)/.64
- (FCX)/.88
- (GILD)/.53
- (IBM)/1.05
- (JNJ)/.98
- (KEY)/.69
- (LLTC)/.38
- (MAT)/.00
- (MEL)/.49
- (MER)/.32
- (MOT)/.29
- (BTU)/.44
- (STX)/.52
- (STT)/.77
- (TER)/.20
- (TXN)/.32
- (UNH)/.64
- (USB)/.62
- (WM)/.90
- (WFC)/1.20
- (YHOO)/.11

Upcoming Splits
- (CB) 2-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for March is estimated to rise .4% versus a 1.4% decline in February.
- The PPI Ex Food & Energy for March is estimated to rise .2% versus a .3% rise in February.
- Housing Starts for March are estimated to fall to 2030K versus 2120K in February.
- Building Permits for March are estimated to fall to 2100K versus 2179K in February.

2:00 pm EST
- Minutes of March. 28th FOMC Meeting.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial stocks in the region. I expect US equities to open modestly higher and to trade modestly lower into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Finish Lower on Worries Over Consumer Spending

Posted by Gary .....at 5:05 PM

Indices
S&P 500 1,285.33 -.29%
DJIA 11,073.78 -.57%
NASDAQ 2,311.16 -.64%
Russell 2000 749.47 .22%
Wilshire 5000 12,999.46 -.25%
S&P Barra Growth 602.35 -.42%
S&P Barra Value 680.20 -.16%
Morgan Stanley Consumer 595.90 -.46%
Morgan Stanley Cyclical 828.28 -.05%
Morgan Stanley Technology 546.49 -.68%
Transports 4,586.29 -1.28%
Utilities 382.84 +.09%
Put/Call .78 -7.14%
NYSE Arms 1.03 +46.57%
Volatility(VIX) 12.58 +1.62%
ISE Sentiment 188.00 +79.05%
US Dollar 88.65 -1.05%
CRB 348.46 +1.79%

Futures Spot Prices
Crude Oil 70.34 -.09%
Unleaded Gasoline 216.52 -.21%
Natural Gas 7.59 +.17%
Heating Oil 202.30 unch.
Gold 617.50 -.21%
Base Metals 197.30 +.42%
Copper 289.60 +.03%
10-year US Treasury Yield 5.0% -.74%

Leading Sectors
Gold & Silver +4.29%
Steel +2.19%
Energy +1.78%

Lagging Sectors
HMOs -1.49%
Computer Hardware -1.69%
Airlines -5.56%

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Afternoon Recommendations
Morgan Stanley:
- Rated VCG Overweight, target $14.
- Downgraded IWA to Underweight, target $16.

Afternoon/Evening Headlines
Bloomberg:
- Eli Lilly’s(LLY) Evista osteoporosis drug safely cuts in half a women’s risk of getting invasive breast cancer, a government study found.
- Merrill Lynch’s(MER) strategy of putting less money at risk in trading and acquisitions than its Wall Street rivals is making it one of the cheapest stocks in the US securities industry.
- Chinese and Russian diplomats said they would block imposition of the first UN penalties on Sudanese military and militia leaders accused of committing crimes against humanity in the nation’s Darfur region.
- Symantec Corp.(SYMC) said the IRS is seeking at least $1 billion in additional taxes from the company.
- Two Duke University lacrosse players were indicted in the alleged rape of a women in a case that’s raised racial tensions between the predominantly white school and the largely black city where it’s located.

Washington Times:
- Three out of four lawmakers on the US Senate Finance and House Ways and Means committees, which write the nation’s tax laws, use professional tax preparers to complete their annual returns.

BOTTOM LINE: The Portfolio finished lower today on losses in my Networking longs, Computer longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 25% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bearish. The fact that the bond market acknowledged weaker data today is a positive. Given the news, my measures of intraday investor complacency are relatively muted, which is a negative short-term. In my opinion, commodities have entered a "blow off" phase as they ignore all bearish data and rise sharply on any bullish data. I expect market bears to overreach once again over the coming weeks, providing another excellent entry point on the long side.

Stocks Lower into Final Hour on Rising Energy Prices and Weaker Housing Data

Posted by Gary .....at 3:05 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Networking longs, Computer longs and Energy-related shorts. I added to my (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 25% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is light. The NAHB Housing Market Index fell to 50 in April vs. estimates of 55 and a reading of 54 in March. This is the lowest level since November 2001. I continue to believe the slowdown in housing will result in consumer spending falling back to average rates from robust levels. U.S. economic growth has likely peaked for the year during the first quarter. This should also result in a peak in long-term rates and commodity prices. A continuation of recent market turbulence is likely in the near term as investors shift from more cyclical sectors into more growth oriented shares. I expect US stocks to trade mixed-to-lower into the close from current levels as worries over consumer spending more than offset bargain hunting and lower long-term rates.

Today's Headlines

Posted by Gary .....at 12:07 PM

Bloomberg:
- Avigdor Lieberman, who may become Israel’s next internal security minister, said the country must consider taking unspecified “unilateral” action to stop Iran from developing nuclear weapons.
- The Russian government should invest some of the windfall oil revenue held in its Stabilization Fund in foreign stocks to reduce the economy’s dependence on high oil prices, the World Bank said.
- Wal-Mart Stores(WMT) is roiling major suppliers with a plan to cut inventories.
- The US dollar declined the most since January versus the euro and posted its biggest loss in a month against the yen as traders pared bets that the Fed will raise its benchmark interest rate twice more this year.
- Joshua Bolten, the new White House chief of staff, indicated he’s preparing to make changes in the Bush administration, telling senior aides today to “refresh, re-engage or quit now.”
- The bidding contest for Aztar Corp.(AZR) intensified as Columbia Sussex Corp. offered $1.68 billion for the owner of the Tropicana casino in Las Vegas, topping three rival offers.
- Crude oil is rising, touching $70/bbl. in NY for the first time since Hurricane Katrina, on speculation the dispute over Iran’s nuclear program may disrupt shipments.

Wall Street Journal:
- Corning Inc.(GLW) has staged a spectacular recovery and now has a market capitalization of $42 billion and debt that’s rated investment-grade.
- General Electric’s USA Network unit and Major League Gaming Inc. have reached an agreement to provide video game tournaments over cable television.
- China Construction Bank is in early talks with Bear Stearns(BSC) that might result in the Chinese state-owned bank buying a minority stake in the securities firm.
- General Mills(GIS), Kraft Foods and other consumer-product companies are boosting Internet advertising as more people turn to online media.
- More US states are approving restrictions on using cell phones while driving to prevent distractions that can lead to accidents.

MoneyToday:
- Samsung and IBM(IBM) agreed to team up to sell printers.

NY Times:
- Many European governments, including some that have criticized US anti-terrorism measures, are now broadening their surveillance and prosecuting powers.
- Hasbro(HAS) expects to begin selling a toy line of six Pussycat Dolls, modeled after the rhythm-and-blues-influenced pop group.
- US Representative Steve Buyer, an Indiana Republican, is co-sponsoring a bill to limit anti-war demonstrations at military funerals.

AP:
- Time Warner’s(TWX) AOL has joined Shanghai Media & Entertainment Group’s broadband unit to broadcast more than three hours of daily Chinese programming.

Financial Times:
- A surge in hiring by investment banks as they report record profits is pushing up salary levels for bankers.
- Multi-strategy hedge funds, which offer the same diversification benefits, for lower fees, as funds of funds, are putting pressure on the latter to prove they add value.

NY Manufacturing Slows, Prices Paid Falls Again, Foreign Demand for US Assets Still Very Strong

Posted by Gary .....at 10:36 AM

- Empire Manufacturing for April fell to 15.8 versus estimates of 24.3 and a reading of 29.0 in March.
- Net Foreign Security Purchases for February rose to $86.9 billion versus estimates of $60.0 billion and an upwardly revised $69.1 billion in January.

BOTTOM LINE: Manufacturing in New York State expanded at a slower pace in April as growth in sales and orders eased, Bloomberg reported. The component of the index measuring the outlook for the next six months rose to 42.7 versus 38.1 the prior month. The employment component of the index fell to 17.4 versus 20.1 in March. The New Orders component of the index fell to 14.1 versus 27.0 the prior month. The Index of Prices Paid fell to 37.9 versus 39.3 in March. The Prices Paid Index has now fallen 37.4% from November 2005 highs. Manufacturing will likely decelerate over the coming months, but continue to add to US economic growth.

International investors increased their net holdings of US assets by $86.9 billion in February amid strong demand for US bonds and faster economic growth, Bloomberg said. The UK, China and OPEC countries all increased their holdings of US Treasuries in February. Caribbean banking centers, which are considered a barometer of hedge fund activity, cut their Treasury holdings by $11 billion. Foreigners’ holdings of US stocks rose $16.5 billion. I expect foreign demand for US assets to remain very strong over the intermediate-term.