BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Semi longs and Retail longs. I added to my (EEM), (QQQQ) and (IWM) 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 below average. I suspect falling commodity stocks will lead to another bout of international stock selling tonight, which could lead to further weakness in U.S. stocks tomorrow morning. I expect US stocks to trade mixed into the close from current levels as economic worries offset short-covering.
Monday, June 05, 2006
Stocks Sharply Lower into Final Hour on Hawkish Fed Commentary and Housing Worries
Today's Headlines
Bloomberg:
- International Paper(IP) agreed to sell its coated and supercalendered papers unit to Apollo Management LP for about $1.4 billion, part of a strategy to trim debt and boost profit.
- American Medical Systems Holdings(AMMD) will acquire Laserscope(LSCP) for $715 million to expand prostate treatments.
- The US Supreme Court will consider whether public school districts can use race as a factor in assigning students to schools, agreeing to hear cases from Louisville, KY, and Seattle that may affect millions of children nationwide.
- Brookfield Properties(BPO) and Blackstone Group agreed to buy Trizec Properties(TRZ) in a transaction valued at $8.9 billion.
- Canada will more closely monitor its residents to make sure they don’t adopt the ideology of foreign terrorists after police arrested 17 people “inspired” by al-Qaeda in a foiled bomb plot this weekend.
- Alan Garcia, after claiming victory as Peru’s next president, vowed to increase trade ties with the US and challenge Venezuelan President Chavez’s efforts to expand his influence in Latin America.
- Fed Chairman Bernanke said recent increases in measures of inflation “are unwelcome” and he will ensure the trend isn’t sustained.
Wall Street Journal:
- Saudi Arabia’s crude-oil output fell to 9.1 million barrels a day in April because of weaker demand, and not because the Middle Eastern nation wants to limit supply, citing oil minister Ali al-Naimi.
- The US’s FAA is close to finalizing rules that will effectively conclude that jetliners with two engines are as safe as those with three or four and should have the same flexibility in flying long-distance routes.
- US hotel companies will probably report record profits this year as travelers dig deep into their pockets.
- PepsiCo(PEP) has installed energy-saving equipment at its Frito-Lay plan in Perry, Georgia, to suck water out of potatoes before they go into the fryer.
- Major US airlines including AMR Corp.’s(AMR) and UAL’s United Airlines are recovering from losses sooner than some analysts expected even with higher fuel costs.
NY Times:
- A growing number of Americans families are hiring private teachers to educate their children at home.
- Former Iraqi dictator Saddam Hussein may have killed as many as 180,000 Shiites during a 1991 rebellion and buried many of them in the country’s deserts. Iraq’s Human Rights Ministry has registered 200 mass graves in the past three years, including one 50 miles south of Baghdad that may contain as many as 15,000 corpses.
USA Today:
- US firefighters plan to use satellites and digital technology to control wildfires more effectively.
Washington Post:
- The death tax should be permanently eliminated because it discourages people form leaving assets to their relatives and burdens families as they deal with the death of a loved one, US Senator Jeff Sessions wrote.
- International Paper(IP) agreed to sell its coated and supercalendered papers unit to Apollo Management LP for about $1.4 billion, part of a strategy to trim debt and boost profit.
- American Medical Systems Holdings(AMMD) will acquire Laserscope(LSCP) for $715 million to expand prostate treatments.
- The US Supreme Court will consider whether public school districts can use race as a factor in assigning students to schools, agreeing to hear cases from Louisville, KY, and Seattle that may affect millions of children nationwide.
- Brookfield Properties(BPO) and Blackstone Group agreed to buy Trizec Properties(TRZ) in a transaction valued at $8.9 billion.
- Canada will more closely monitor its residents to make sure they don’t adopt the ideology of foreign terrorists after police arrested 17 people “inspired” by al-Qaeda in a foiled bomb plot this weekend.
- Alan Garcia, after claiming victory as Peru’s next president, vowed to increase trade ties with the US and challenge Venezuelan President Chavez’s efforts to expand his influence in Latin America.
- Fed Chairman Bernanke said recent increases in measures of inflation “are unwelcome” and he will ensure the trend isn’t sustained.
Wall Street Journal:
- Saudi Arabia’s crude-oil output fell to 9.1 million barrels a day in April because of weaker demand, and not because the Middle Eastern nation wants to limit supply, citing oil minister Ali al-Naimi.
- The US’s FAA is close to finalizing rules that will effectively conclude that jetliners with two engines are as safe as those with three or four and should have the same flexibility in flying long-distance routes.
- US hotel companies will probably report record profits this year as travelers dig deep into their pockets.
- PepsiCo(PEP) has installed energy-saving equipment at its Frito-Lay plan in Perry, Georgia, to suck water out of potatoes before they go into the fryer.
- Major US airlines including AMR Corp.’s(AMR) and UAL’s United Airlines are recovering from losses sooner than some analysts expected even with higher fuel costs.
NY Times:
- A growing number of Americans families are hiring private teachers to educate their children at home.
- Former Iraqi dictator Saddam Hussein may have killed as many as 180,000 Shiites during a 1991 rebellion and buried many of them in the country’s deserts. Iraq’s Human Rights Ministry has registered 200 mass graves in the past three years, including one 50 miles south of Baghdad that may contain as many as 15,000 corpses.
USA Today:
- US firefighters plan to use satellites and digital technology to control wildfires more effectively.
Washington Post:
- The death tax should be permanently eliminated because it discourages people form leaving assets to their relatives and burdens families as they deal with the death of a loved one, US Senator Jeff Sessions wrote.
ISM Non-Manufacturing Slows Modestly
BOTTOM LINE: Service industries in the US expanded at a slower pace last month as consumer demand weakened and costs increased, Bloomberg said. The Prices Paid component of the index rose to 77.5, the highest since September, versus 70.5 the prior month. The New Orders component of the index fell to 59.6 from 64.6 the prior month. Finally, the Employment component of the index rose to 58 versus 56.5 in April. I expect this index to decline modestly over the intermediate-term as consumer spending slows to average levels from robust rates. The prices paid component has likely peaked for this cycle and should begin decelerating this month.
Sunday, June 04, 2006
Monday Watch
Weekend Headlines
Bloomberg:
- Canadian police arrested 12 men and five youths, most of them Canadian citizens, saying they were members of a terrorist ring that plotted to build bombs to set off in southern Ontario.
- Toronto Mayor David Miller said Canada’s largest city won’t be “intimidated” by terrorist threats after police arrested 17 people suspected of a plot to make bombs to set off in southern Ontario.
- GlaxoSmithKline’s(GSK) experimental pill Tykerb helped stall advanced breast cancer in a study of women not helped by Genentech’s(DNA) big-selling therapy, Herceptin.
- New drugs from Pfizer(PFE) and Wyeth(WYE), given as an initial treatment for advanced kidney cancer, may help patients live longer, two large international studies show.
- Alan Garcia defeated Ollanta Humala in a presidential run-off vote in Peru, returning to power two decades after he led the Andean country to a debt default and annual inflation of 8,000%, according to an early count of the vote.
- Secretary of State Condoleezza Rice dismissed Iran’s threats to disrupt energy supplies in a confrontation over its nuclear program, saying the Persian Gulf country is too dependent on revenue from oil.
- Investors from Goldman Sachs to Bill Gates are crowding into the ethanol market as oil prices surge, betting that this boom, unlike the last one, won’t be followed by a bust.
- Crude oil is rising to the highest in more than three weeks in NY after Iran said action against its nuclear research program risks disrupting shipments from the Persian Gulf.
- Copper is headed for a record plunge, perhaps as much as 25% in a day, said John Tumazos, the Prudential Equity Group LLP analyst who made Institutional Investor magazine’s quarterly All-America Research Team 40 times. Copper doubled in the past year on betting by speculators, the 50-year-old Tumazos said. The volatility of copper the past 10 weeks is the highest in history, according to Bloomberg.
NY Times:
- An Indiana town of 533 residents is trying to power itself entirely with renewable energy sources such as corn and pig manure.
Washington Post:
- More than 102,000 Massachusetts children will hear advertisements on an audio program during their morning rides to school later this year as part of a package offered by BusRadio.
San Francisco Chronicle:
- Sun Microsystems’(SUNW) recent elimination of its so-called “poison pill” could indicate the maker of computer servers is preparing for a sale.
Frankfurter Allgemeine Sonntagszeitung:
- DaimlerChrysler AG will sell Smart mini-cars in the US next year.
WirtschaftsWoche:
- The value of goods traded on EBay’s European auction sites will surpass US sales in the “not too distant future,” Meg Whitman, the company’s CEO, told the magazine.
Kompas:
- Indonesia’s government wants taxis operating in the capital of Jakarta to use compressed natural gas in their vehicles by the end of this year.
Kyodo News:
- Yoshiaki Murakami, who leads a $3 billion investment fund in Japan, is expected to be arrested as early as tomorrow over possible insider trading of shares in Nippon Broadcasting System.
Arab News:
- Saudi Arabia and five other Arab nations urged Iran to cooperate with the United Nations’ nuclear watchdog and called for a diplomatic solution to the standoff over the Islamic Republic’s nuclear program.
- At least 10 million people have been affected by the declines this year in Persian Gulf stock markets including Saudi Arabia. Saudi Arabia’s Tadawul All Share Index has plunged more than 40% since reaching a record on Feb. 25.
Middle East Economic Digest:
- Saudi Aramco plans to build a 25.5 mile causeway in the Persian Gulf to help boost oil output from its Manifa field by 900,000 barrels a day.
- Chevron Corp.(CVX), Angola’s largest oil producer, expects to spend $2.2 billion increasing Angolan oil production by 40% over the next two years.
Weekend Recommendations
Barron's:
- Had positive comments on (MU), (WMT), (MGA) and (NOC).
Night Trading
Asian indices are -.50% to unch. on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated -.15%.
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/Estimate
- (BOBE)/.37
Upcoming Splits
- (BRY) 2-for-1
- (MFC) 2-for-1
- (SCSC) 2-for-1
Economic Releases
10:00 am EST
- ISM Non-Manufacturing for May is estimated to fall to 60.0 versus a reading of 63.0 in April.
Bloomberg:
- Canadian police arrested 12 men and five youths, most of them Canadian citizens, saying they were members of a terrorist ring that plotted to build bombs to set off in southern Ontario.
- Toronto Mayor David Miller said Canada’s largest city won’t be “intimidated” by terrorist threats after police arrested 17 people suspected of a plot to make bombs to set off in southern Ontario.
- GlaxoSmithKline’s(GSK) experimental pill Tykerb helped stall advanced breast cancer in a study of women not helped by Genentech’s(DNA) big-selling therapy, Herceptin.
- New drugs from Pfizer(PFE) and Wyeth(WYE), given as an initial treatment for advanced kidney cancer, may help patients live longer, two large international studies show.
- Alan Garcia defeated Ollanta Humala in a presidential run-off vote in Peru, returning to power two decades after he led the Andean country to a debt default and annual inflation of 8,000%, according to an early count of the vote.
- Secretary of State Condoleezza Rice dismissed Iran’s threats to disrupt energy supplies in a confrontation over its nuclear program, saying the Persian Gulf country is too dependent on revenue from oil.
- Investors from Goldman Sachs to Bill Gates are crowding into the ethanol market as oil prices surge, betting that this boom, unlike the last one, won’t be followed by a bust.
- Crude oil is rising to the highest in more than three weeks in NY after Iran said action against its nuclear research program risks disrupting shipments from the Persian Gulf.
- Copper is headed for a record plunge, perhaps as much as 25% in a day, said John Tumazos, the Prudential Equity Group LLP analyst who made Institutional Investor magazine’s quarterly All-America Research Team 40 times. Copper doubled in the past year on betting by speculators, the 50-year-old Tumazos said. The volatility of copper the past 10 weeks is the highest in history, according to Bloomberg.
NY Times:
- An Indiana town of 533 residents is trying to power itself entirely with renewable energy sources such as corn and pig manure.
Washington Post:
- More than 102,000 Massachusetts children will hear advertisements on an audio program during their morning rides to school later this year as part of a package offered by BusRadio.
San Francisco Chronicle:
- Sun Microsystems’(SUNW) recent elimination of its so-called “poison pill” could indicate the maker of computer servers is preparing for a sale.
Frankfurter Allgemeine Sonntagszeitung:
- DaimlerChrysler AG will sell Smart mini-cars in the US next year.
WirtschaftsWoche:
- The value of goods traded on EBay’s European auction sites will surpass US sales in the “not too distant future,” Meg Whitman, the company’s CEO, told the magazine.
Kompas:
- Indonesia’s government wants taxis operating in the capital of Jakarta to use compressed natural gas in their vehicles by the end of this year.
Kyodo News:
- Yoshiaki Murakami, who leads a $3 billion investment fund in Japan, is expected to be arrested as early as tomorrow over possible insider trading of shares in Nippon Broadcasting System.
Arab News:
- Saudi Arabia and five other Arab nations urged Iran to cooperate with the United Nations’ nuclear watchdog and called for a diplomatic solution to the standoff over the Islamic Republic’s nuclear program.
- At least 10 million people have been affected by the declines this year in Persian Gulf stock markets including Saudi Arabia. Saudi Arabia’s Tadawul All Share Index has plunged more than 40% since reaching a record on Feb. 25.
Middle East Economic Digest:
- Saudi Aramco plans to build a 25.5 mile causeway in the Persian Gulf to help boost oil output from its Manifa field by 900,000 barrels a day.
- Chevron Corp.(CVX), Angola’s largest oil producer, expects to spend $2.2 billion increasing Angolan oil production by 40% over the next two years.
Weekend Recommendations
Barron's:
- Had positive comments on (MU), (WMT), (MGA) and (NOC).
Night Trading
Asian indices are -.50% to unch. on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated -.15%.
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/Estimate
- (BOBE)/.37
Upcoming Splits
- (BRY) 2-for-1
- (MFC) 2-for-1
- (SCSC) 2-for-1
Economic Releases
10:00 am EST
- ISM Non-Manufacturing for May is estimated to fall to 60.0 versus a reading of 63.0 in April.
BOTTOM LINE: Asian Indices are mostly lower, weighed down by exporting shares in the region. I expect US stocks to open modestly lower and to rise into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.
Weekly Outlook
Click here for The Week Ahead by Reuters
There are a few economic reports of note and some significant corporate earnings reports scheduled for release this week.
Economic reports for the week include:
Mon. - ISM Non-Manufacturing
Tues. - None of note
Wed. - Consumer Credit
Thur. - Initial Jobless Claims, Continuing Claims, Wholesale Inventories
Fri. - Trade Balance, Import Price Index
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - Bob Evans Farms(BOBE)
Tues. - Cooper Cos.(COO), Korn/Ferry(KFY),
Wed. - BMC Software(BMC)
Thur. - H&R Block(HRB), JOS A Bank(JOS), National Semi(NSM), Quiksilver Inc.(ZQK), Smithfield Foods(SFD)
Fri. - Bausch & Lomb(BOL), UTi Worldwide(UTIW)
Other events that have market-moving potential this week include:
Mon. - Goldman Sachs Lodging/Gaming/Restaurant/Leisure Conference, JPMorgan Basics & Industrials Conference
Tue. - Piper Jaffray Consumer Conference, JPMorgan Basics & Industrials Conference, Goldman Sachs Lodging/Gaming/Restaurant/Leisure Confernce
Wed. - None of note
Thur. - None of note
Fri. - None of note
There are a few economic reports of note and some significant corporate earnings reports scheduled for release this week.
Economic reports for the week include:
Mon. - ISM Non-Manufacturing
Tues. - None of note
Wed. - Consumer Credit
Thur. - Initial Jobless Claims, Continuing Claims, Wholesale Inventories
Fri. - Trade Balance, Import Price Index
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - Bob Evans Farms(BOBE)
Tues. - Cooper Cos.(COO), Korn/Ferry(KFY),
Wed. - BMC Software(BMC)
Thur. - H&R Block(HRB), JOS A Bank(JOS), National Semi(NSM), Quiksilver Inc.(ZQK), Smithfield Foods(SFD)
Fri. - Bausch & Lomb(BOL), UTi Worldwide(UTIW)
Other events that have market-moving potential this week include:
Mon. - Goldman Sachs Lodging/Gaming/Restaurant/Leisure Conference, JPMorgan Basics & Industrials Conference
Tue. - Piper Jaffray Consumer Conference, JPMorgan Basics & Industrials Conference, Goldman Sachs Lodging/Gaming/Restaurant/Leisure Confernce
Wed. - None of note
Thur. - None of note
Fri. - None of note
BOTTOM LINE: I expect US stocks to finish the week mixed as continuing worries over slower economic growth and high energy prices offset short-covering, bargain hunting and declining long-term rates. My trading indicators are still giving mostly bearish signals and the Portfolio is 75% net long heading into the week.
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