BETWEEN THE HEDGES

Monday, July 10, 2006

Tuesday Watch

Posted by Gary .....at 11:18 PM

Late-Night Headlines
Bloomberg:
- President Bush today approved an additional $80 million over the next two years to foster democracy in Cuba.
- China asked member governments of the UN Security Council to adopt a non-binding statement critical of North Korea’s ballistic missile program, a proposal the US and Japan rejected as too weak.
- Posco, the world’s fourth-largest steelmaker, may say profit declined for a third straight quarter as competition from China forced the company to lower prices and raw material costs rose.

Wall Street Journal:
- SEC Chairman Christopher Cox said Russia’s economic success depends on whether the government allows for the free flow of information. Russia’s restrictions on the media “deeply concern” capital markets, Cox wrote.

Financial Times:
- The European Commission will raise the ceiling for potential future fines on Microsoft(MSFT) to $3.8 million a day.

Age:
- US farmers are seeking hundreds of millions of dollars in compensation from AWB Ltd. as part of a class action filed in Washington against the Australian wheat exporter.

Chosun Ilbo:
- South Korea likely dropped its request to include goods made in the North Korean industrial park of Gaeseong from free-trade talks with the US.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.75% to -.25% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/EPS Estimate
- (AMB)/.44
- (FLS)/.22
- (DNA)/.47
- (RI)/.51

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity stocks in the region. I expect US equities to open modestly lower and to trim losses into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish Mixed on Weakness in Tech Shares

Posted by Gary .....at 4:45 PM

Indices
S&P 500 1,267.34 +.15%
DJIA 11,103.55 +.12%
NASDAQ 2,116.93 -.62%
Russell 2000 709.08 -.03%
Wilshire 5000 12,739.66 +.08%
S&P Barra Growth 584.58 +.12%
S&P Barra Value 681.28 +.18%
Morgan Stanley Consumer 614.39 +.72%
Morgan Stanley Cyclical 816.27 +.43%
Morgan Stanley Technology 475.65 -1.31%
Transports 4,861.30 +.37%
Utilities 418.86 +.53%
Put/Call .93 +4.49%
NYSE Arms 1.27 -16.35%
Volatility(VIX) 14.02 +.36%
ISE Sentiment 159.00 +28.23%
US Dollar 85.48 +.55%
CRB 346.67 -.40%

Futures Spot Prices
Crude Oil 73.44 -.23%
Unleaded Gasoline 217.05 -.19%
Natural Gas 5.61 +.04%
Heating Oil 196.15 -.15%
Gold 625.50 -.10%
Base Metals 228.81 +.61%
Copper 355.75 -.70%
10-year US Treasury Yield 5.12% unch.

Leading Sectors
Airlines +1.69%
HMOs +1.11%
REITs +1.09%

Lagging Sectors
Semis -2.20%
Networking -2.41%
Disk Drives -2.60%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- The US, Japan and other backers of a UN resolution aimed at cracking down on North Korea’s ballistic missile program delayed a vote on the draft measure to give China a chance to reach a diplomatic solution.
- Alcoa Inc.(AA) said second-quarter profit surged 62% to a record $744 million on higher prices and increased demand from makers of aircraft, building materials and drink cans.

AP:
- One billion people could die from tobacco use by the end of the century, 10 times the mortality rate of the last century, citing public health officials.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Semi longs, Networking longs and Medical longs. I covered some of my (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mixed and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bearish. Meaningful losses were mainly confined to the tech sector. On the positive side, volume was below average, oil fell slightly, bears were unable to gain significant traction and bonds maintained recent gains. I am looking for more choppiness in the near term for the major averages.

Stocks Mixed into Final Hour on Weakness in Tech Shares

Posted by Gary .....at 3:40 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs, Networking longs and Medical longs. I added to my (EEM), (IWM) and (QQQQ) shorts and exited a Semi long today, thus leaving the Portfolio 25% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is below average. It appears worries over economic growth are increasing. I continue to believe U.S. growth is just slowing and worst case fears of an imminent recession are way overdone. At current stock market valuations, in my opinion, consumer spending would have to plunge for the bears to be proven correct. I find this prospect highly unlikely. I expect US stocks to trade mixed into the close from current levels as lower energy prices and stable long-term rates offset worries over slowing economic growth.

Today's Headlines

Posted by Gary .....at 2:27 PM

Bloomberg:
- Kimco Realty(KIM), the largest US owner of community shopping centers, agreed to buy Pan Pacific Retail Properties for $2.9 billion to expand on the US West Coast.
- Henry Paulson, former CEO of Goldman Sachs(GS) who was sworn in today as the nation’s 74th Treasury secretary, said he will work to keep the US economy strong and expand trade.
- Boeing(BA), for the first time in 6 years, is set to come out ahead of Airbus SAS in the race for new plane orders.
- Crude oil fell for a third day on speculation that the record price reached last week when North Korea test-fired at least seven missiles was unjustified.
- Marathon Oil(MRO) announced the first ethanol investment by a major US oil company in 26 years, saying it plans to build plants with grains marketer Andersons(ANDE) to meet rising demand.

Wall Street Journal:
- Saudi Arabia and Chevron(CVX) are testing a process for extracting heavy oil that was previously considered inaccessible.
- The FDA is preparing regulatory guidelines for “adaptive trial” testing of medicines that allows studies to change as they progress.
- Wealthy South Koreans are investing in US real estate, betting that its value will outpace Korean property, and they will get an extra boost from a strengthening of the US dollar.

Boston Globe:
- IBM(IBM) plans to start selling the first version of its Lotus Notes software for Linux operating system users as an alternative to Microsoft(MSFT) programs.

NY Magazine:
- Former NYSE Chairman Richard Grasso is helping Joe Grano, former chairman of UBS PaineWebber, start a private-equity firm.

NY Times:
- Time Warner’s(TWX) AOL unit is considering slashing marketing for its Internet access service, reducing fees and cutting thousands of jobs in order to concentrate on building free services.
- Men are less likely than women to get bachelor’s degrees, and they are also getting worse grades than women in college classes, citing US Education Dept. stats.

Women’s Wear Daily:
- Kohlberg Kravis & Roberts is leading the bidding for US athletic-shoe retailer Foot Locker(FL).

Gulf News:
- Cisco Systems(CSCO) is in talks with United Arab Emirates telecom companies Emirates Telecom and Du to start a Voice over Internet Protocol network in the region.

Wholesale Inventories Rise as Sales Increase

Posted by Gary .....at 12:06 PM

- Wholesale Inventories for May rose .8% versus estimates of a .5% increase and an upwardly revised 1.3% gain in April.

BOTTOM LINE: Inventories at US wholesalers rose more than expected in May, led by gains in business equipment and machinery and a jump in petroleum stockpiles, Bloomberg said. Sales rose 1.6% versus a 1.5% gain in April. The inventory-to-sales ratio dropped to a record low of 1.15 months. Sales of durable goods rose 2.6% versus a .2% increase in April. Inventories of metals rose 2.9% versus a 4.5% jump in April. I expect inventory rebuilding to add to economic growth over the intermediate-term as corporations gain confidence in the durability of the current expansion.