BETWEEN THE HEDGES

Wednesday, July 12, 2006

Thursday Watch

Posted by Gary .....at 11:20 PM

Late-Night Headlines
Bloomberg:
- Cowen Group Inc.(COWN), the US investment-banking unit of France’s Societe Generale SA, raised a less-than-expected $179,5 million today in the first IPO for a Wall Street firm since February.
- The yen may gain after the Nihon Keizai Shimbun newspaper said the Bank of Japan will lift interest rates tomorrow for the first time in six years.
- China’s stocks declined, set for the biggest drop in a month, amid concern new share sales will drain capital from the market.
- South Korea’s government won’t introduce measures to “prop up” Asia’s third-largest economy as rising oil prices and interest rates curb growth, Vice Finance Minister Chin Dong Soo said.

Xinhua:
- Israeli warplanes bombed runways at Beirut International Airport on Thursday, security sources said.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.0% to unch. on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.08%.

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Earnings of Note
Company/EPS Estimate
- (CTAS)/.54
- (ESIO)/.17
- (FLE)/.05
- (IFIN)/.56
- (STAR)/.20
- (MAR)/.40
- (MEG)/.82
- (PII)/.53

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to rise to 320K versus 313K the prior week.
- Continuing Claims are estimated to fall to 2430K versus 2456K prior.

2:00 pm EST
- The Monthly Budget surplus for June is estimated to fall to $20.0 billion versus $22.9 billion in May.

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

Stocks Finish Near Session Lows on Economic and Geopolitical Worries

Posted by Gary .....at 6:12 PM

Indices
S&P 500 1,258.60 -1.09%
DJIA 11,013.18 -1.09%
NASDAQ 2,090.24 -1.81%
Russell 2000 701.17 -1.85%
Wilshire 5000 12,648.77 -1.12%
S&P Barra Growth 579.90 -1.14%
S&P Barra Value 677.32 -1.05%
Morgan Stanley Consumer 611.61 -.79%
Morgan Stanley Cyclical 804.30 -1.63%
Morgan Stanley Technology 469.28 -2.01%
Transports 4,788.29 -1.45%
Utilities 418.30 -.77%
Put/Call 1.15 +6.48%
NYSE Arms 1.39 +5.48%
Volatility(VIX) 14.49 +10.27%
ISE Sentiment 105.00 -3.67%
US Dollar 85.89 +.62%
CRB 352.62 +.67%

Futures Spot Prices
Crude Oil 75.08 +.17%
Unleaded Gasoline 225.50 -.04%
Natural Gas 5.79 +.29%
Heating Oil 201.60 -.12%
Gold 653.50 +.35%
Base Metals 236.99 +1.33%
Copper 366.60 +.03%
10-year US Treasury Yield 5.09% -.04%

Leading Sectors
REITs +.19%
Oil Service +.19%
HMOs -.35%

Lagging Sectors
Computer Hardware -2.68%
Semis -2.70%
Disk Drives -2.84%

Evening Review
Detailed Market Summary
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- China and Russia have agreed to support a UN resolution demanding that Iran suspend uranium enrichment or face economic penalties, France’s foreign minister said after a major-power meeting in Paris.
- Boeing(BA) raised its 20-year industry forecast for world jetliner deliveries by 5.8% because of increasing demand in Asia and the need for airlines to upgrade their fleets.
- Shares of Dell(DELL) had their biggest drop in two months on concern the world’s largest personal-computer maker will slash prices to stem a slide in sales growth.

Financial Times:
- Aviva Plc, Britain’s largest insurer, will tomorrow say it is buying AmerUs Group(AMH) of the US for about $3.67 billion including debt.

Times of London:
- Integrated Finance Ltd., the investment bank co-founded by Nobel laureate Robert Merton, has created a hedge fund focused on emerging markets. The 1998 collapse of the Harvard University professor’s Long Term Capital Management fund involved factors that aren’t unique to hedge funds, Merton said.

Aspen Times:
- Saudi Arabian Prince Bandar bin Sultan bin Abdulaziz Al-Saud is seeking $135 million for his 95-acre Starwood Ranch in Aspen, Colorado, the highest-ever real estate price in the US.

BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Internet longs, Computer longs and Retail longs. I added (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was about average. Measures of investor anxiety were higher into the close. Overall, today's market performance was bearish. The fact that yesterday's gains were completely wiped out on such little negative news does not bode well for the near term. However, the final stage of this correction is likely underway as the indiscriminate selling has accelerated and all news is being interpreted in a negative light. On the positive side, volume was only around average today and my intraday measures of investor angst rose markedly into the afternoon. Biotech continues to display relative strength.

Stocks Sharply Lower on Continuing Worries Over Economic Growth and Geopolitics

Posted by Gary .....at 3:24 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Internet longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is falling and volume is about average. The major averages show little ability to stabilize this afternoon as they continue to grind lower. Considering the lack of real negative news today, this action is discouraging for the bulls. Volume, however, is only around average. Sentiment regarding future economic growth has become very negative. A recession is being priced in. I still see little evidence of anything other that a normal modest slowdown after booming economic activity. I suspect the fourth quarter will be a monster for US stocks as pessimistic scenarios fail to pan out once again. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Posted by Gary .....at 2:30 PM

Bloomberg:
- Crude oil rose to $75 a barrel in NY after France said that the Iranian nuclear dispute will be referred back to the UN Security Council and a government report showed that US oil and gas supplies fell last week.
- US regulators said they approved a once-a-day pill from Gilead Sciences(GILD) and Bristol-Myers(BMY) combining three of the most frequently used AIDS drugs, capping a decades-long quest to make treatment simpler for patients with HIV.
- The SEC issued tougher guidelines for the kinds of services money managers can get from brokerages while passing the cots onto their clients.
- China and Russia moved toward acceptance of stronger UN action to stop North Korea’s ballistic missile program, introducing a resolution that the US and Japan said was still too weak to win their support.

Wall Street Journal:
- The SEC will probably propose changes to a rule covering so-called naked short-selling that would reduce the number of open short positions in stocks.
- US executives are stepping up contributions to health causes, adding to a growing movement among wealthy entrepreneurs to donate money to charity.
- US private equity firms are targeting retailers as they seek to extract the best value from their investments.
- Three Wall Street executives are starting a financial advisory boutique today in the latest move by bankers to do business outside the influence of the big banks. The firm, known as Centerview Partners, will initially consist of Stephen Crawford, former co-president at Morgan Stanley, Blair Effron, a former vice chairman at UBS AG, and Robert Pruzan, former CEO at Dresdner Kleinwort Wasserstein North America.
- US states and cities are cracking down on illegal immigration as legislation on the issue remains stuck in Congress.

Chicago Tribune:
- Chicago plans to invest $550 million in tax dollars to upgrade the infrastructure and building in a 49-block area downtown.

Washington Post:
- The US Army Corps of Engineers submitted a plan for protecting Louisiana from hurricanes to Congress that would involve building multiple levees and may cost more than $10 billion.

NY Times:
- Nanjing Automobile Group, which last year purchased the assets of MG Rover, plans to be the first Chinese carmaker to open a factory in the US.
- Biotechnology companies founded in Europe or Australia are moving to the US to draw on the world’s largest investment pool and capitalize on a more lucrative market for their products.

USA Today:
- The number of US schools that tested middle- and high-school students for illegal drugs jumped almost 500% in the past two years as federal funding increased.

AP:
- The four biggest broadcast television networks in the US last week had their lowest viewing figures in recorded history.

al-Hayat:
- Iraq’s Kurdistan parliament approved an investment law, paving the way for direct foreign investment in the northern region.

Trade Deficit Better Than Estimates

Posted by Gary .....at 11:44 AM

- The Trade Deficit for May widened to -$63.8 billion versus estimates of -$64.9 billion and -$63.3 billion in April.

BOTTOM LINE: American companies exported a record amount of goods in May, keeping the trade deficit from widening as much as expected and signaling growing demand from overseas may help the US economy sustain growth, Bloomberg reported. The trade deficit with China rose to $17.7 billion from $17 billion in April. I expect the trade deficit to improve only modestly over the intermediate-term as the US economy continues to outperform those of other industrialized nations.