BETWEEN THE HEDGES

Monday, May 22, 2006

Tuesday Watch

Posted by Gary .....at 8:57 PM

Late-Night Headlines
Bloomberg:
- Hedge fund manager David Tepper of Appaloosa Management LP, had almost 75% of his fund’s $1.3 billion in assets in Microsoft(MSFT), Oracle(ORCL) and Cisco Systems(CSCO) at the end of March.
- NYC won its highest-ever credit rating on $34.2 billion in bonds after S&P said a surge in Wall Street profits and runaway real estate prices boosted revenue in the most populous US city.
- Daniel Ellsberg, who leaked secret Vietnam War documents, said the NY Times’ decision to publish classified information on domestic surveillance was “necessary” for democracy.
- Bank of Japan Governor Toshihiko Fukui suggested the yen’s strength is likely to be temporary.
- The US dollar strengthened against the yen on speculation sliding share prices and raw materials will spur flows into less risky assets such as US Treasuries.
- Indian stocks may extend their three-day, 14% plunge as some overseas investors judge local shares expensive given the outlook for earnings.

Financial Times:
- News Corp.’s(NWS/A) MySpace.com social networking Web site is seeking to link up with a large Internet search engine.

China Daily:
- Dell’s(DELL) sales of personal computers in China rose 29% in the three months starting Feb. 1, 2006, citing Dell Asia Pacific President Steve Felice.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.0% to -.50% on average.
S&P 500 indicated +.21%.
NASDAQ 100 indicated +.24%.

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Earnings of Note
Company/EPS Estimate
- (BGP)/-.24
- (CBRL)/.50
- (CSC)/1.13
- (MDT)/.62
- (PVH)/.73
- (TECD)/.32
- (TOL)/1.03

Upcoming Splits
- (JCOM) 2-for-1
- (NHY) 5-for-1
- (UN) 3-for-1
- (UL)

Economic Releases
10:00 am EST
- Richmond Fed Index for May is estimated to fall to 14 versus a reading of 18 in April.

BOTTOM LINE: Asian indices are lower, weighed down by exporting stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Worries Over Future Growth

Posted by Gary .....at 4:43 PM

Indices
S&P 500 1,262.07 -.39%
DJIA 11,125.33 -.17%
NASDAQ 2,172.86 -.96%
Russell 2000 715.25 -1.01%
Wilshire 5000 12,709.79 -.52%
S&P Barra Growth 585.03 -.37%
S&P Barra Value 675.18 -.41%
Morgan Stanley Consumer 602.64 +.03%
Morgan Stanley Cyclical 823.87 -1.32%
Morgan Stanley Technology 501.44 -.77%
Transports 4,650.34 +.52%
Utilities 399.55 +.71%
Put/Call 1.21 -.82%
NYSE Arms 1.54 +72.87%
Volatility(VIX) 17.54 +3.03%
ISE Sentiment 191.00 +36.43%
US Dollar 84.33 -.65%
CRB 344.21 +1.64%

Futures Spot Prices
Crude Oil 69.23 +1.02%
Unleaded Gasoline 205.85 +.05%
Natural Gas 6.30 +.41%
Heating Oil 193.26 +.65%
Gold 656.50 -.18%
Base Metals 225.00 +1.12%
Copper 343.50 -.77%
10-year US Treasury Yield 5.03% -.44%

Leading Sectors
Broadcasting +.79%
Utilities +.71%
Tobacco +.50%

Lagging Sectors
Semis -4.19%
Alternative Energy -4.54%
Steel -4.94%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
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Economic Calendar
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GuruFocus.com
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After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- People over 65, who are at greatest risk of death from influenza, may need four times the standard level of flu vaccine for effective protection, researchers say.
- Investment strategists Thomas McManus of Banc of America Securities and Ed Keon of Prudential Equity Group defended US stocks amid their biggest correction in three years.
- The average US pump price for regular gasoline fell 6.4 cents to $2.88 a gallon in the week ended today, the US Energy Dept. said.

AP:
- Stephens Inc., the brokerage firm based in Little Rock, Arkansas, said it will divide its business into two segments with each controlled by different family members.

Memphis Commercial Appeal:
- FedEx Corp.(FDX) will buy trucking company Watkins Motor Lines to extend freight services into Mexico and Canada.

BOTTOM LINE: The Portfolio finished lower today as losses in my Semi longs and Medical longs more than offset gains in my Base Metal shorts and Energy-related shorts. I covered some of my (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, almost every sector fell and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bearish. The problem with today's slight comeback from morning lows is that it was led mainly by energy stocks as oil reversed higher. I don't think a broad market rally is sustainable that is led by commodities. Having said that, I am still hopeful a double bottom in the major averages occurred this morning as anxiety measures spiked higher. I will closely monitor signs of emerging leadership before becoming further convinced of a bottom in equities.

Stocks Lower into Final Hour on Weakness in Commodity and Tech Shares

Posted by Gary .....at 3:05 PM

BOTTOM LINE: The Portfolio is lower into the final hour as losses in my Semi longs and Medical longs are more than offsetting gains in my Base Metal shorts and Energy-related shorts. I added to my (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is above average. The iShares MSCI Emerging Markets Index (EEM), which I am short, is down 15% in two weeks. The end of the emerging markets and commodities manias are currently resulting in pain for the broad market. But I continue to believe that U.S. stocks will be huge beneficiaries from this development over the intermediate-term as demand for U.S. assets increases, the U.S. dollar firms, consumer confidence rises, the negativity bubble deflates further, inflation worries subside and long-term interest rates remain relatively low. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and bargain hunting.

Today's Headlines

Posted by Gary .....at 2:35 PM

Bloomberg:
- Federal investigators said in court papers that they videotaped Louisiana Democratic Representative William Jefferson accepting a leather briefcase packed with $100,000 in cash from a government witness in a bribery investigation.
- MGM Mirage(MGM), Harrah’s Entertainment(HET) and other US casino operators are increasing pressure on Congress to consider legalizing online gambling.
- US corporate bonds may rebound from the worst week in a year as investors gain confidence the Fed will combat inflation while the economy grows, according to JPMorgan Chase.
- Germany and China agreed Iran shouldn’t be allowed to develop nuclear weapons, German Chancellor Angela Merkel said today in Beijing after meeting Chinese Premier Wen Jiabao.
- UK Prime Minister Tony Blair arrived in Baghdad today to show support for the new government created by Iraqi Prime Minister Nuri al-Maliki.
- Emerging market stocks declined for a 10th day, the longest losing streak in eight years, as investors fled riskier assets around the world because of sliding commodity prices.
- UK Prime Minister Tony Blair said he expects Iraq’s security forces to reach full strength by the end of the year, paving the way for Western troops to withdraw from the country.
- Euronext NV, Europe’s second-largest stock exchange, said its board prefers NYSE Group’s(NYX) $10.2 billion takeover offer to a competing proposal by Deutsche Boerse AG.
- The US probe into executive stock-option grants widened, as Juniper Networks(JNPR) and Openwave Systems(OPWV) said they were contacted by regulators.
- US Treasuries are rallying, pushing the 10-year yield below 5%, spurred by declining commodity prices and a flight to safety.

Wall Street Journal:
- Microsoft Corp.(MSFT), under pressure form European antitrust regulators, has begun to produce “vastly improved” technical instructions in the US to help rival companies write software that works smoothly with Microsoft’s Windows operating system.
- John Browne, the CEO of BP Plc, said natural gas will ultimately take over from oil as the main kind of energy production in Alaska. His comments can be interpreted as an indication of confidence that a proposed 3,400-kilometer gas pipeline to Canada and the rest of the US will be built. He added that gas reserves on the Alaskan North Slope are very large but largely untapped.
- The Smithsonian Institution non-profit record label has agreed to market its library of folk music and other recordings over the Internet services such as Apple Computer’s(AAPL) iTunes Music Store.

NY Times:
- US Attorney General Alberto Gonzales said the government has the legal power to prosecute reporters for publishing classified information.

USA Today:
- Ticketmaster plans to begin auctioning the best seats for many top summer concert tours.

Financial Times:
- News Corp.’s(NWS/A) MySpace.com social networking Web site may have Google Inc.(GOOG) and Microsoft Corp.(MSFT) competing for its Internet search engine business when its current contracts expire.

Tehran Times:
- Iran expects its international oil exchange, scheduled to open in 2007, to increase the country’s annual oil revenue by $10 billion, or about 22%.

Valor Economico:
- Brazil Fund Inc.(BZF), one of the first investment funds that allowed foreigners to buy Brazilian shares, will shut down and sell off its $1.1 billion portfolio.

Economic Releases

Posted by Gary .....at 10:58 AM

- None of note