BETWEEN THE HEDGES

Tuesday, April 18, 2006

Wednesday Watch

Posted by Gary .....at 11:19 PM

Late-Night Headlines
Bloomberg:
- Ford Motor(F) is asking US lawmakers to change bankruptcy law so automakers and parts suppliers can recover their equipment and inventory held by companies that have filed for Chapter 11.
- Crude oil is falling in NY on speculation that US stockpiles rose for a fourth straight time last week.
- Nippon Oil Corp., Japan’s biggest petroleum refiner, plans to expand its fuel export potential to 10% of total production capacity this business year, seeking sales in China and Southeast Asia, as Japanese fuel demand falls.

Financial Times:
- EBay’s Skype said its China partner Tom Online filters cell phone text messages to comply with China’s censorship laws.
- Toyota Motor(TM) plans to offer a US vehicle by 2008 that can run on a mix of ethanol and gasoline, amid growing interest in so-called bio-fuels.

Daily Journal:
- Milberg Weiss Bershad & Schulman LLP, a securities class-action law firm, may be indicted for making illegal payments to plaintiffs.

Independent:
- Royal Dutch Shell Plc will today say it started production form its Cutter platform in the UK southern North Sea, the world’s first gas platform powered by wind and solar energy alone.

Securities Times:
- China’s investment in fixed assets rose 27.7% in the first quarter, a faster pace than the 22.8% of a year earlier.

Xinhua News:
- Cnooc Ltd. plans to invest $12.5 billion in the next five years to search for oil and gas near China’s coast.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.30%.

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Earnings of Note
Company/EPS Estimate
- (ABT)/.57
- (ADS)/.62
- (ASD)/.40
- (AMR)/-.77
- (AAPL)/.43
- (AZR)/.38
- (BLK)/1.12
- (CIT)/1.12
- (KO)/.48
- (CMA)/1.16
- (ET)/.33
- (EBAY)/.24
- (FSL)/.39
- (GD)/.84
- (HON)/.49
- (INTC)/.23
- (JPM)/.83
- (JNPR)/.19
- (JCI)/.75
- (KMI)/1.48
- (KFT)/.42
- (MDC)/2.25
- (NVLS)/.21
- (PFE)/.53
- (QCOM)/.40
- (RDN)/1.41
- (STJ)/.36
- (UTX)/.73

Upcoming Splits
- (PDA) 3-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for March is estimated to rise .4% versus a .1% gain in February.
- The CPI Ex Food & Energy for March is estimated to rise .2% versus a .1% gain in February.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude build of 2,300,000 barrels. Gasoline inventories are estimated to fall 2,200,000 barrels, and distillate supplies are expected to decrease by 1,400,000 barrels. Refinery utilization is expected to rise .20%.

BOTTOM LINE: Asian indices are higher, boosted by technology and other exporting stocks in the region after the US Fed hinted at an imminent “pause.” I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Rise Most in a Year as Investors See End to Fed Rate Hikes

Posted by Gary .....at 5:32 PM

Indices
S&P 500 1,307.65 +1.74%
DJIA 11,268.77 +1.76%
NASDAQ 2,356.14 +1.95%
Russell 2000 769.81 +2.71%
Wilshire 5000 13,231.40 +1.78%
S&P Barra Growth 611.49 +1.52%
S&P Barra Value 693.50 +1.96%
Morgan Stanley Consumer 603.27 +1.24%
Morgan Stanley Cyclical 848.94 +2.52%
Morgan Stanley Technology 555.24 +1.60%
Transports 4,700.10 +2.48%
Utilities 392.08 +2.41%
Put/Call .68 -12.82%
NYSE Arms .39 -62.0%
Volatility(VIX) 11.40 -9.38%
ISE Sentiment 136.00 -27.66%
US Dollar 88.21 -.49%
CRB 354.89 +1.85%

Futures Spot Prices
Crude Oil 71.08 -.38%
Unleaded Gasoline 221.00 -.63%
Natural Gas 7.95 -.72%
Heating Oil 204.50 -.28%
Gold 624.70 +.22%
Base Metals 206.20 +4.52%
Copper 298.45 +.45%
10-year US Treasury Yield 4.98% -.41%

Leading Sectors
Steel +4.02%
Homebuilders +3.54%
Semis +3.4%

Lagging Sectors
Restaurants +.61%
HMOs +.12%
Gaming -.15%

Evening Review
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In Play

Afternoon Recommendations
Oppenheimer:
- Rated TRAD Buy, target $17.50.

Afternoon/Evening Headlines
Bloomberg:
- Most Federal Reserve policy makers considered the end of their interest rate increases “was likely to be near,” while also citing the need for vigilance against inflation, minutes of their March meeting showed.
- US Treasuries rose as the minutes of the Fed’s most recent meeting on monetary policy boosted speculation the central bank will lift interest rates only once more.
- Texas Instruments(TXN) said first-quarter profit rose 42% as sales surged in India and China.
- International Business Machines(IBM) said first-quarter profit gained 22%.
- Amgen Inc.(AMGN) said first-quarter profit rose 17% as more doctors prescribed the Aranesp cancer drug.
- First quarter sales at Motorola(MOT) rose 23% on demand for high-end models in the US and Europe.
- Yahoo!(YHOO) said first-quarter profit rose 16% as users bought more display advertisements.

Guardian:
- Spending on Internet advertising in the UK in the first three months of 2006 was the highest in two years.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Computer longs, Medical longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was very bullish. Considering oil hit an all-time high and long-term rates only fell 3 basis points today’s performance was even more impressive. The S&P 500 forward P/E is still a reasonable 15.5. This will likely decline further over the next few weeks as earnings exceed estimates and stock tread water before another push higher.

Stocks Sharply Higher into Final Hour as Investors Anticipate Fed "Pause"

Posted by Gary .....at 3:36 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Computer longs, Medical longs and Retail longs. I covered some of my (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 75% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is above average. The Johnson Redbook retail same-store sales index rose a robust 4.3% year over year last week vs. a 3.3% rise the prior week. This is the strongest reading since August 2005. The long-term average is a gain of around 2.5%. Notwithstanding this strong reading, retail sales growth is likely peaking for the year right now. I continue to believe a slowdown in housing will result in consumer spending slowing back to average levels, which should push U.S. GDP growth back down to average rates. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering as investors factor in an imminent Fed “pause.”

Today's Headlines

Posted by Gary .....at 1:18 PM

Bloomberg:
- Higher imports of liquefied natural gas and increased US natural-gas production are likely to push prices lower, RBC Capital Markets said.
- Two Duke University lacrosse players were arrested this morning on charges of raping a woman at a team party.
- Commodity prices rose to records as concern over Iran’s nuclear program sent oil to an all-time high and speculation stoked buying of metals by investment funds.
- US Treasuries are rising after a measure of producer prices increased less than forecast and housing starts fell.

Wall Street Journal:
- Gap Inc.(GPS) is set to say today that it has signed a franchise agreement to open stores in the Middle East.
- Saks Inc.(SKS) may today announce an agreement to license the Saks Fifth Avenue name for a store in Shanghai, marking the first entry by a luxury dept. store chain into China.
- McDonald’s Corp.(MCD) said it has been screening US chickens it uses in its fast-food outlets for avian flu for the past 10 months.
- General Motors(GM) and other US companies are putting product placement ads in comic books to attract the attention of men in their 20s.
- Michael Eisner, former chief executive of Walt Disney(DIS), will join the board of Veoh Networks, a company that wants to start a system for television broadcasting on the Internet.

NY Times:
- The NY Police Dept. has put almost 90 officer-mounted horses on patrol in some high-crime areas, and will almost double that to 160 within three years.
- Some US universities are offering courses in so-called services science.
- Iraqi and UN officials are seeking to restore Babylon, which was damaged again during the liberation of Iraq, into a cultural center, possibly even a theme park.
- Dow Chemical(DOW) has tripled its research into coal-based ingredients as it seeks an alternative to the rising prices of oil and natural gas, which are used as raw materials in manufacturing.

USA Today:
- Higher energy prices have slowed consumer and business spending, shaving economic growth by as much as 1 percentage point since prices began to rise in late-2003, citing a letter by Federal Reserve Chairman Ben Bernanke to a Republican congressman.

Minneapolis Star Tribune:
- The Mall of America, the largest US retail complex, plans to add a 6,000-seat performing arts center, a museum and a dinner theater to help attract older, more sophisticated customers.

East African Standard:
- China's Cnooc Ltd. signed an agreement with the Kenyan government to search for oil along the country’s coastline.

al-Riyadh:
- Saudi Arabian Oil Co. tested a new offshore gas field in the Persian Gulf.

Core Inflation Tame, Housing Continues to Slow

Posted by Gary .....at 10:46 AM

- The Producer Price Index for March rose .5% versus estimates of a .4% increase and a 1.4% decline in February.
- The PPI Ex Food & Energy for March rose .1% versus estimates of a .2% increase and a .3% gain in February.
- Housing Starts for March fell to 1960K versus estimates of 2025K and 2126K in February.
- Building Permits for March fell to 2059K versus estimates of 2100K and 2179K in February.

BOTTOM LINE: Producer prices in the US rose last month, while a smaller-than-expected rise in costs excluding fuel and food pointed to tame inflation, Bloomberg said. The .1% rise in the core rate was the smallest gain since November. Computers, metal-cutting machine tools and floor coverings all fell in price in March. Costs of intermediate goods, which are partially finished goods such as lumber or steel, fell .1% last month, the second straight fall. Raw materials fell 2.7%. Core producer prices rose 1.7% over the last 12 months. I continue to believe inflation readings will decelerate throughout most of the year.

Builders started work last month on the fewest new houses in a year as rising mortgage rates and record inventories of unsold homes discouraged new projects, Bloomberg said. Housing starts fell 7.8% in February, while Building Permits declined 5.5%. Starts fell 16% in the West, 8.2% in the Midwest, 4.8% in the South and .5% in the Northeast. I continue to expect housing to slow to average levels from historic highs. This will also help slow consumer spending and overall US growth back to average levels from robust rates.