BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Internet longs, Semi longs, Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are higher and volume is above average. The Johnson Redbook same-store sales index rose 3.8% year over year last week vs. a 3.9% rise the prior week. The long-term average is a gain of around 2.8%. There is mounting evidence that the anticipated collapse in consumer spending won't materialize anytime soon, even as investors continue to price this into stocks. As I said last week, mortgage resets and the other negative effects of housing were supposed to send consumer spending plunging already, and they have not. A healthy labor market, falling energy prices, lower long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will continue to more than offset housing over the intermediate-term. The Morgan Stanley Retail Index (MVRX) has surged 11.8% in less than two months. I expect continued outperformance by the sector during the fourth quarter. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain hunting, short covering, lower long-term rates and declining energy prices.
Tuesday, September 12, 2006
Stocks Soaring into Final Hour on Plunging Gas Prices, Lower Interest Rates and Less Irrational Pessimism
Today's Headlines
Bloomberg:
- Crude oil is falling for a seventh straight day, the longest stretch since October 2003, after the International Energy Agency cut its global consumption estimates.
- Best Buy(BBY) said second-quarter profit increased 22%, beating analysts’ estimates, as consumers bought flat-panel televisions and installed home-entertainment systems.
- Goldman Sachs(GS), Wall Street’s most profitable firm, set aside an average of $542,000 in pay per employee so far this year, already beating the total for the whole of 2005.
- AT&T(T), the largest US telephone company, is heating up competition with cable-TV rivals with a new live-television service for broadband Internet users.
- Bristol-Myers Squibb(BMY) CEO Dolan quit after bungling an agreement to keep a generic version of the drugmaker’s top-selling heart pill Plavix off the market.
- US farmers will harvest the second-biggest soybean and corn crops ever as August rains revived plants.
- President Bush, ending a day marking the fifth anniversary of the Sept. 11 attacks, called on Americans to unite behind the war against terrorism and said victory in Iraq was crucial to the nation’s safety.
Wall Street Journal:
- US businesses haven’t cut back on borrowing even though the US Fed has raised interest rates 17 times since June 2004.
- Ticketmaster, which sells the majority of US sports and concert tickets, is using auctions and resale programs as it seeks to thwart competition from rivals and scalpers.
- A US educator group, which in the past recommended the use of calculators in kindergarten, is now prodding schools to focus heavily and early on math basics such as long division.
- IMG Fashion, the producer of the NY Fashion Week, gave 40 so-called bloggers press passes to the city’s September fashion show as designers see them as a new marketing opportunity.
- Vanguard Group is expanding its range of exchange-traded funds to appeal to financial intermediaries such as brokers and advisers.
- US regional banks are buying investment-banking expertise, to give them the capacity to offer clients advice as the pace of mergers and acquisitions continues unabated.
- A new commission of corporate executives and financial experts supported by US Treasury Secretary Henry Paulson plans to recommend changes to the 2002 Sarbanes-Oxley Act and other rules to make US capital markets more competitive.
Reuters:
- Exxon Mobil(XOM) expects Russia to allow it to expand its Sakhalin-1 development in the Pacific Ocean, citing the CEO.
- John Bolton, the US ambassador of the UN, said the US may stop paying its full dues to the UN if reforms aren’t implemented before the end of the year.
AP:
- An Arizona law that requires voters show identification at the polls was upheld by a federal judge.
Washington Post:
- Freddie Mac(FME) said it expects “no further action” on a US Justice Dept. criminal investigation.
San Francisco Chronicle:
- The San Francisco police will begin enforcing a curfew on children 13 and younger to curb violence.
Containerisation International:
- Shipping lines charged lower fees to move cargo by containers in the three months ended June, a fourth straight quarterly decline, as more vessels were put into service.
Interfax:
- The US may agree to Russia’s membership in the World Trade Organization by the end of next month, citing the US Ambassador to Russia.
- Crude oil is falling for a seventh straight day, the longest stretch since October 2003, after the International Energy Agency cut its global consumption estimates.
- Best Buy(BBY) said second-quarter profit increased 22%, beating analysts’ estimates, as consumers bought flat-panel televisions and installed home-entertainment systems.
- Goldman Sachs(GS), Wall Street’s most profitable firm, set aside an average of $542,000 in pay per employee so far this year, already beating the total for the whole of 2005.
- AT&T(T), the largest US telephone company, is heating up competition with cable-TV rivals with a new live-television service for broadband Internet users.
- Bristol-Myers Squibb(BMY) CEO Dolan quit after bungling an agreement to keep a generic version of the drugmaker’s top-selling heart pill Plavix off the market.
- US farmers will harvest the second-biggest soybean and corn crops ever as August rains revived plants.
- President Bush, ending a day marking the fifth anniversary of the Sept. 11 attacks, called on Americans to unite behind the war against terrorism and said victory in Iraq was crucial to the nation’s safety.
Wall Street Journal:
- US businesses haven’t cut back on borrowing even though the US Fed has raised interest rates 17 times since June 2004.
- Ticketmaster, which sells the majority of US sports and concert tickets, is using auctions and resale programs as it seeks to thwart competition from rivals and scalpers.
- A US educator group, which in the past recommended the use of calculators in kindergarten, is now prodding schools to focus heavily and early on math basics such as long division.
- IMG Fashion, the producer of the NY Fashion Week, gave 40 so-called bloggers press passes to the city’s September fashion show as designers see them as a new marketing opportunity.
- Vanguard Group is expanding its range of exchange-traded funds to appeal to financial intermediaries such as brokers and advisers.
- US regional banks are buying investment-banking expertise, to give them the capacity to offer clients advice as the pace of mergers and acquisitions continues unabated.
- A new commission of corporate executives and financial experts supported by US Treasury Secretary Henry Paulson plans to recommend changes to the 2002 Sarbanes-Oxley Act and other rules to make US capital markets more competitive.
Reuters:
- Exxon Mobil(XOM) expects Russia to allow it to expand its Sakhalin-1 development in the Pacific Ocean, citing the CEO.
- John Bolton, the US ambassador of the UN, said the US may stop paying its full dues to the UN if reforms aren’t implemented before the end of the year.
AP:
- An Arizona law that requires voters show identification at the polls was upheld by a federal judge.
Washington Post:
- Freddie Mac(FME) said it expects “no further action” on a US Justice Dept. criminal investigation.
San Francisco Chronicle:
- The San Francisco police will begin enforcing a curfew on children 13 and younger to curb violence.
Containerisation International:
- Shipping lines charged lower fees to move cargo by containers in the three months ended June, a fourth straight quarterly decline, as more vessels were put into service.
Interfax:
- The US may agree to Russia’s membership in the World Trade Organization by the end of next month, citing the US Ambassador to Russia.
Trade Deficit Widens on US Economic Strength
- The trade deficit for July widened to -$68.0 billion versus estimates of -$65.5 billion and -$64.8 billion in June.
BOTTOM LINE: The US trade deficit widened more than forecast in July to a record $68 billion as imports reached an all-time high and exports declined for the first time in five months, Bloomberg reported. The trade deficit with China fell to $19.6 billion from $19.7 billion in June. A US economy that is still outpacing those economies of most of its major trading partners may keep the trade deficit elevated even as the price of energy declines. I expect the trade deficit to improve slightly over the coming months as falling commodity prices offset some of the effects of relative US economic strength.
Tuesday Watch
Late-Night Headlines
Bloomberg:
- President Bush, capping a day of ceremonies marking the anniversary of the Sept. 11 terrorist attacks, said the war against terrorists that began that day must be won in Iraq and elsewhere to ensure that future generations will live in freedom.
- Oil may extend its two-month slide after OPEC kept its production at current levels amid waning demand. “If OPEC doesn’t do anything, oil will continue to fall,” said Fadel Gheit, an analyst at Oppenheimer. “If we cross $55 a barrel, OPEC will panic and they will reduce supply. They aren’t afraid of $55 oil per se, but what’s below that.”
- Royal Dutch Shell Plc. and other companies independent of Petroleo Brasileiro SA, Brazil’s state-controlled oil company, plan to spend $8 billion hunting for oil in Brazil by 2011, Shell Brasil’s exploration chief said.
- Asian-American women have the top life expectancy in the US of 86.7 years.
- NYSE Group(NYX) said its share of trading in the stocks it lists had the biggest monthly drop since 2004 after the exchange raised some transaction fees.
- China, whose record trade surplus has fueled tension with trading partners including the US, may cut tax rebates for exporters to rein in overseas sales, Commerce Minister Bo Xilai said.
- China reported the slowest growth in government and corporate spending this year, the strongest indication so far that a government clampdown on investment is starting to bite.
Wall Street Journal:
- Most Americans want electronic health-care services, such as scheduling doctor visits online, which a majority say aren’t available to them.
Australian Broadcasting Corp.:
- A former commander in the Southeast Asian terrorist group Jemaah Islamiyah warned that one of the alleged masterminds of the 2005 Bali suicide bombings is planning more attacks this year. Noordin Mohammad Top has ordered supporters to carry out attacks every year since the 2002 bombings on Bali, which killed more than 200 people, 88 of them Australians.
Dong-a Ilbo:
- The US suggested holding multi-nation talks on North Korea’s nuclear weapons program at a UN meeting in New York as soon as this month.
Xinhua:
- China’s money supply slowed “significantly” last month after the central bank took measures to reduce liquidity, citing Deputy Central Bank Governor Su Ning.
Wall Street Journal Asia:
- Zhang Guobao, vice chairman of the National Development & Reform Commission, said China and the US should jointly develop oil fields to minimize risks of supply disruptions and rising costs of production.
Late Buy/Sell Recommendations
Citigroup:
- The Softline retail sector is due for a rally given our belief that sales trends continue to strengthen against a backdrop of negative investor sentiment and peak short interest. We recommend broad ownership of the stocks. Buy ARO, CHS, PLCE, GPS, HOTT, JCG, LTD, ROST, TJX and URBN.
- Reiterated Buy on (MNST), target $48.
CSFB:
- Reiterated Buy on (TXN), target $42.
Morgan Stanley:
- Reiterated Overweight on (AAPL), target $90. Top pick into year-end.
Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.03%.
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/EPS Estimate
- (BBY)/.44
- (CBRL)/.78
- (ENER)/-.15
- (GS)/2.97
- (JW/A)/.36
- (KR)/.29
- (PLL)/.46
Upcoming Splits
- (CXW) 3-for-2
Economic Releases
8:30 am EST
- The Trade Deficit for July is estimated to widen to -$65.5 billion versus -$64.8 billion in June.
Bloomberg:
- President Bush, capping a day of ceremonies marking the anniversary of the Sept. 11 terrorist attacks, said the war against terrorists that began that day must be won in Iraq and elsewhere to ensure that future generations will live in freedom.
- Oil may extend its two-month slide after OPEC kept its production at current levels amid waning demand. “If OPEC doesn’t do anything, oil will continue to fall,” said Fadel Gheit, an analyst at Oppenheimer. “If we cross $55 a barrel, OPEC will panic and they will reduce supply. They aren’t afraid of $55 oil per se, but what’s below that.”
- Royal Dutch Shell Plc. and other companies independent of Petroleo Brasileiro SA, Brazil’s state-controlled oil company, plan to spend $8 billion hunting for oil in Brazil by 2011, Shell Brasil’s exploration chief said.
- Asian-American women have the top life expectancy in the US of 86.7 years.
- NYSE Group(NYX) said its share of trading in the stocks it lists had the biggest monthly drop since 2004 after the exchange raised some transaction fees.
- China, whose record trade surplus has fueled tension with trading partners including the US, may cut tax rebates for exporters to rein in overseas sales, Commerce Minister Bo Xilai said.
- China reported the slowest growth in government and corporate spending this year, the strongest indication so far that a government clampdown on investment is starting to bite.
Wall Street Journal:
- Most Americans want electronic health-care services, such as scheduling doctor visits online, which a majority say aren’t available to them.
Australian Broadcasting Corp.:
- A former commander in the Southeast Asian terrorist group Jemaah Islamiyah warned that one of the alleged masterminds of the 2005 Bali suicide bombings is planning more attacks this year. Noordin Mohammad Top has ordered supporters to carry out attacks every year since the 2002 bombings on Bali, which killed more than 200 people, 88 of them Australians.
Dong-a Ilbo:
- The US suggested holding multi-nation talks on North Korea’s nuclear weapons program at a UN meeting in New York as soon as this month.
Xinhua:
- China’s money supply slowed “significantly” last month after the central bank took measures to reduce liquidity, citing Deputy Central Bank Governor Su Ning.
Wall Street Journal Asia:
- Zhang Guobao, vice chairman of the National Development & Reform Commission, said China and the US should jointly develop oil fields to minimize risks of supply disruptions and rising costs of production.
Late Buy/Sell Recommendations
Citigroup:
- The Softline retail sector is due for a rally given our belief that sales trends continue to strengthen against a backdrop of negative investor sentiment and peak short interest. We recommend broad ownership of the stocks. Buy ARO, CHS, PLCE, GPS, HOTT, JCG, LTD, ROST, TJX and URBN.
- Reiterated Buy on (MNST), target $48.
CSFB:
- Reiterated Buy on (TXN), target $42.
Morgan Stanley:
- Reiterated Overweight on (AAPL), target $90. Top pick into year-end.
Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.03%.
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/EPS Estimate
- (BBY)/.44
- (CBRL)/.78
- (ENER)/-.15
- (GS)/2.97
- (JW/A)/.36
- (KR)/.29
- (PLL)/.46
Upcoming Splits
- (CXW) 3-for-2
Economic Releases
8:30 am EST
- The Trade Deficit for July is estimated to widen to -$65.5 billion versus -$64.8 billion in June.
BOTTOM LINE: Asian indices are mixed as losses in commodity stocks are offsetting gains in technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
Monday, September 11, 2006
Stocks Finish Slightly Higher as Commodity Prices Continue to Plunge
Indices
S&P 1,299.54 +.05%
DJIA 11,396.84 +.04%
NASDAQ 2,173.25 +.34%
Russell 2000 707.57 -.14%
Wilshire 5000 12,973.19 -.03%
S&P Barra Growth 604.40 +.24%
S&P Barra Value 692.96 -.14%
Morgan Stanley Consumer 647.43 +.57%
Morgan Stanley Cyclical 798.58 -1.06%
Morgan Stanley Technology 507.10 +.88%
Transports 4,229.16 +.81%
Utilities 431.73 -.55%
Put/Call 1.01 unch.
NYSE Arms 1.01 -10.60%
Volatility(VIX) 12.98 -1.37%
ISE Sentiment 95.0 -24.0%
US Dollar 85.91 -.06%
CRB 313.73 -2.08%
Futures Spot Prices
Crude Oil 65.47 -1.18%
Unleaded Gasoline 159.80 -.69%
Natural Gas 5.68 +.09%
Heating Oil 180.50 -2.07%
Gold 596.50 -.13%
Base Metals 229.17 -3.44%
Copper 340.50 -.38%
10-year US Treasury Yield 4.79% +.50%
Leading Sectors
Semis +2.36%
Retail +1.83%
HMOs +1.48%
Lagging Sectors
Oil Service -4.18%
Steel -4.30%
Gold & Silver -7.04%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
CSFB:
- Rated (ROC) and (NRF) Outperform.
Afternoon/Evening Headlines
Bloomberg:
- US gasoline at the pump fell for a fifth week, dropping 10.9 cents to a nationwide average $2.62/gallon, a government report showed.
- Crude oil continued its biggest decline in 10 months and longest losing streak in 3 years on signs the world economy is slowing, and gold, copper, aluminum and silver tumbled.
- France is a target of Islamic terrorism even if the country opposed the US liberation of Iraq, said Defense Minister Michele Alliot-Marie on the fifth anniversary of the Sept. 11 attacks in the US.
- Texas Instruments(TXN) narrowed its third-quarter sales and profit forecasts as handset demand remains steady.
- Pride among Lebanese in surviving the war with Israel has given way to questioning why it all happened, with measures of blame heaped on Hezbollah, the Shiite Muslim militia that triggered the conflict.
- Federal Reserve Bank of St. Louis President Poole said the US economy is “robust” as commercial construction picks up slack from a slowing housing market that may otherwise threaten the expansion.
- Latin American shares fell for a fifth day, led by Brazilian oil company Petroleo Brasileiro SA, on concern that the end of a five-year global mania in commodities will curtail exports and profits.
S&P 1,299.54 +.05%
DJIA 11,396.84 +.04%
NASDAQ 2,173.25 +.34%
Russell 2000 707.57 -.14%
Wilshire 5000 12,973.19 -.03%
S&P Barra Growth 604.40 +.24%
S&P Barra Value 692.96 -.14%
Morgan Stanley Consumer 647.43 +.57%
Morgan Stanley Cyclical 798.58 -1.06%
Morgan Stanley Technology 507.10 +.88%
Transports 4,229.16 +.81%
Utilities 431.73 -.55%
Put/Call 1.01 unch.
NYSE Arms 1.01 -10.60%
Volatility(VIX) 12.98 -1.37%
ISE Sentiment 95.0 -24.0%
US Dollar 85.91 -.06%
CRB 313.73 -2.08%
Futures Spot Prices
Crude Oil 65.47 -1.18%
Unleaded Gasoline 159.80 -.69%
Natural Gas 5.68 +.09%
Heating Oil 180.50 -2.07%
Gold 596.50 -.13%
Base Metals 229.17 -3.44%
Copper 340.50 -.38%
10-year US Treasury Yield 4.79% +.50%
Leading Sectors
Semis +2.36%
Retail +1.83%
HMOs +1.48%
Lagging Sectors
Oil Service -4.18%
Steel -4.30%
Gold & Silver -7.04%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
CSFB:
- Rated (ROC) and (NRF) Outperform.
Afternoon/Evening Headlines
Bloomberg:
- US gasoline at the pump fell for a fifth week, dropping 10.9 cents to a nationwide average $2.62/gallon, a government report showed.
- Crude oil continued its biggest decline in 10 months and longest losing streak in 3 years on signs the world economy is slowing, and gold, copper, aluminum and silver tumbled.
- France is a target of Islamic terrorism even if the country opposed the US liberation of Iraq, said Defense Minister Michele Alliot-Marie on the fifth anniversary of the Sept. 11 attacks in the US.
- Texas Instruments(TXN) narrowed its third-quarter sales and profit forecasts as handset demand remains steady.
- Pride among Lebanese in surviving the war with Israel has given way to questioning why it all happened, with measures of blame heaped on Hezbollah, the Shiite Muslim militia that triggered the conflict.
- Federal Reserve Bank of St. Louis President Poole said the US economy is “robust” as commercial construction picks up slack from a slowing housing market that may otherwise threaten the expansion.
- Latin American shares fell for a fifth day, led by Brazilian oil company Petroleo Brasileiro SA, on concern that the end of a five-year global mania in commodities will curtail exports and profits.
BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Retail longs, Internet longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished slightly lower, most sectors rose and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bullish. While the major averages finished only slightly higher, the underlying action was quite positive. International stocks fell meaningfully and closed near session lows, yet U.S. shares hung firm in the face of significant declines in most commodity stocks. My intraday gauges of investor angst registered above-average readings throughout the day. A significantly positive change in the U.S. investment landscape is currently underway, in my opinion. However, I suspect it will take a few weeks before the changes become obvious.
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