BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. This morning on CNBC, instead of talking about the great third quarter for U.S. stocks, there was much talk that stocks are at the high end of a trading range that will last another decade. This is symptomatic of the current “negativity bubble.” As I have said many times before, there has never been a time in U.S. history when more market participants believed they benefited from a negative or trading range environment in the major averages. They must keep this belief in tact. The pendulum has swung way too far against U.S. stocks on a long-term basis, in my opinion. The “mother of all short-covering rallies” will begin when the predominant belief that the U.S. is in a secular bear fades. This will likely occur sooner rather than later. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.
Monday, October 02, 2006
Stocks Lower into Final Hour on Political Concerns, Profit-taking and Slower Growth Worries
Today's Headlines
Bloomberg:
- Crude oil is falling again below $62/bbl. on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.
- US researchers Andrew Fire and Craig Mello won the Nobel Prize for medicine for finding a mechanism that regulates the flow of genetic information in plants, animals, and humans.
- President Bush said the UN shouldn’t wait any longer to send peacekeepers into Sudan’s war-torn Darfur region to end the killing and deprivation there.
- Gilead Sciences(GILD), maker of the world’s best-selling AIDS medicine, will buy Myogen(MYOG) for about $2.5 billion to acquire experimental biotechnology drugs for hard-to-treat heart and lung conditions.
- Morgan Stanley(MS) is offering its top-paid traders and bankers millions of dollars of incentives to avoid defections to rival banks and attract new hires.
Wall Street Journal:
- Harrah’s Entertainment(HET) may be purchased by private-equity companies that could include Colony Capital and Texas Pacific Group.
- Though many Americans are unhappy with the perception that the rich are getting richer, they still want to be rich themselves and don’t favor political candidates who attack wealth creation. Moreover, the most recent data from the IRS shows the income share of the top 1% of Americans declined to 19.0% in 2004 from an all-time high of 20.8% in 2000.
- US corporate directors are abandoning their former club-house boardroom style and have become more assertive, after scandals such as the one at Enron Corp.
- Facebook.com and News Corp.’s MySpace.com, both social networking sites, face competition from smaller, second-tier sites including Piczo Inc. and XuQa.com.
- HJ Heinz(HNZ), Sara Lee(SLE) and other US companies are testing a variety of oils to satisfy growing demand from health groups and government regulators for food with less trans fats.
- US insurer-owned banks are becoming more profitable and now make up five of the 20 fastest-growing banks in the US.
- Rising prices for energy, and not faltering wage growth, are what most hurt the paychecks of US workers, economists Allan Hubbard and Edward Lazear wrote. At an annualized rate, nominal wage growth has been about 4% this year, about the same rate as in the late 1990s.
NY Times:
- US Representative John Murtha, a Democrat of Pennsylvania, may be best know outside Washington for his break with President Bush over the Iraq War; in the Capitol he’s best known for turning Congressional members’ pet projects, or earmarks, into power. Murtha, who is the top Democrat on the House military spending subcommittee and who announced this year a bid to become the next House Democratic leader, often tacitly trades Democrat votes with Republican leaders for earmarks for himself and his allies.
NY Post:
- Google(GOOG) will open a new 300,000 square-foot office today at 111 Eighth Avenue in NY.
Sunday Times of London:
- Mohamed Atta, leader of the Sept. 11 hijackers, smiles and jokes with another hijacker in a newly released al-Qaeda video taped in 2000.
Interfax:
- The latest talks between Russia and the US on Russia’s accession to the World Trade Organization are progressing “very constructively.”
Le Figaro:
- A French high school philosophy teacher, facing death threats from extremist groups for a critical article he wrote on Islam in Le Figaro, received support from daily newspaper Le Monde.
Kommersant:
- Declining oil prices may help slow growth of consumer prices in October, citing central bank Deputy Chairman Alexei Ulyukayev.
Asharq al-Awsat:
- MA Kharafi Group of Kuwait plans to build a $1 billion oil refinery in Egypt.
Rzeczpospolita:
- Poland may invest at least $3 billion to set up wind power plants.
- Crude oil is falling again below $62/bbl. on speculation that the decision by Venezuela and Nigeria to cut output will have little impact on supply.
- US researchers Andrew Fire and Craig Mello won the Nobel Prize for medicine for finding a mechanism that regulates the flow of genetic information in plants, animals, and humans.
- President Bush said the UN shouldn’t wait any longer to send peacekeepers into Sudan’s war-torn Darfur region to end the killing and deprivation there.
- Gilead Sciences(GILD), maker of the world’s best-selling AIDS medicine, will buy Myogen(MYOG) for about $2.5 billion to acquire experimental biotechnology drugs for hard-to-treat heart and lung conditions.
- Morgan Stanley(MS) is offering its top-paid traders and bankers millions of dollars of incentives to avoid defections to rival banks and attract new hires.
Wall Street Journal:
- Harrah’s Entertainment(HET) may be purchased by private-equity companies that could include Colony Capital and Texas Pacific Group.
- Though many Americans are unhappy with the perception that the rich are getting richer, they still want to be rich themselves and don’t favor political candidates who attack wealth creation. Moreover, the most recent data from the IRS shows the income share of the top 1% of Americans declined to 19.0% in 2004 from an all-time high of 20.8% in 2000.
- US corporate directors are abandoning their former club-house boardroom style and have become more assertive, after scandals such as the one at Enron Corp.
- Facebook.com and News Corp.’s MySpace.com, both social networking sites, face competition from smaller, second-tier sites including Piczo Inc. and XuQa.com.
- HJ Heinz(HNZ), Sara Lee(SLE) and other US companies are testing a variety of oils to satisfy growing demand from health groups and government regulators for food with less trans fats.
- US insurer-owned banks are becoming more profitable and now make up five of the 20 fastest-growing banks in the US.
- Rising prices for energy, and not faltering wage growth, are what most hurt the paychecks of US workers, economists Allan Hubbard and Edward Lazear wrote. At an annualized rate, nominal wage growth has been about 4% this year, about the same rate as in the late 1990s.
NY Times:
- US Representative John Murtha, a Democrat of Pennsylvania, may be best know outside Washington for his break with President Bush over the Iraq War; in the Capitol he’s best known for turning Congressional members’ pet projects, or earmarks, into power. Murtha, who is the top Democrat on the House military spending subcommittee and who announced this year a bid to become the next House Democratic leader, often tacitly trades Democrat votes with Republican leaders for earmarks for himself and his allies.
NY Post:
- Google(GOOG) will open a new 300,000 square-foot office today at 111 Eighth Avenue in NY.
Sunday Times of London:
- Mohamed Atta, leader of the Sept. 11 hijackers, smiles and jokes with another hijacker in a newly released al-Qaeda video taped in 2000.
Interfax:
- The latest talks between Russia and the US on Russia’s accession to the World Trade Organization are progressing “very constructively.”
Le Figaro:
- A French high school philosophy teacher, facing death threats from extremist groups for a critical article he wrote on Islam in Le Figaro, received support from daily newspaper Le Monde.
Kommersant:
- Declining oil prices may help slow growth of consumer prices in October, citing central bank Deputy Chairman Alexei Ulyukayev.
Asharq al-Awsat:
- MA Kharafi Group of Kuwait plans to build a $1 billion oil refinery in Egypt.
Rzeczpospolita:
- Poland may invest at least $3 billion to set up wind power plants.
Construction Spending Rises on Commerical Boom, ISM Manufacturing Slows Slightly, Prices Paid Falls Again, Pending Home Sales Rebound
- Construction Spending for August rose .3% versus estimates of a .3% decline and a 1.0% decline in July.
- ISM Manufacturing for September fell to 52.9 versus estimates of 53.5 and a reading of 54.5 in August.
- ISM Prices Paid for September fell to 61.0 versus estimates of 67.5 and a reading of 73.0 in August.
- Pending Home Sales for August rose 4.3% versus estimates of unch. and a 7.0% decline in July.
- ISM Manufacturing for September fell to 52.9 versus estimates of 53.5 and a reading of 54.5 in August.
- ISM Prices Paid for September fell to 61.0 versus estimates of 67.5 and a reading of 73.0 in August.
- Pending Home Sales for August rose 4.3% versus estimates of unch. and a 7.0% decline in July.
BOTTOM LINE: Construction spending in the US unexpectedly rose in August as companies increased investment in office buildings, factories and hospitals, Bloomberg said. Booming corporate investment in new facilities is helping to offset slower residential construction. Private non-residential construction rose 3.4% and has soared 24% from year-ago levels. Private residential construction spending fell 1.5% versus a 2.1% decline the prior month. I expect construction spending to continue to slow, but remain relatively healthy over the intermediate-term.
Manufacturing in the US last month expanded at a slower pace than economists’ expected last month, Bloomberg reported. The new orders component of the index held at 54.2, while the employment component of the index fell to 49.4 from 54 the prior month. The prices paid component of the index fell to 61 and is now 31% below April 2004 highs. Business investment will grow 7.8% this year, up from 6.8% growth in 2005, according to a survey of economists by Blue Chip Economic Indicators. I expect manufacturing to continue to slow to more average levels over the intermediate-term as auto production cutbacks offset inventory rebuilding.
Contracts to buy previously owned homes in the US unexpectedly rose in August, suggesting the downturn in housing is losing steam, Bloomberg reported. Pending re-sales rose 9.2% in the West, 4% in the South, 3.6% in the Northeast and were unchanged in the Midwest. The average 30-year mortgage rate was 6.31% last week, down 49 basis points from July highs. As well, low unemployment, a rising stock market and income growth are helping to cushion the slowdown in housing. I continue to believe that housing will stabilize at relatively high levels over the coming months after modest price declines.
Sunday, October 01, 2006
Monday Watch
Weekend Headlines
Bloomberg:
- The Dow Jones Industrial Average posted its best third quarter performance since 1995, led by telecom and technology shares.
- US Treasuries had their biggest quarterly gain in four years as the Fed paused.
- The US dollar rose the most against the yen this quarter since the final three months of 2005 as sustained US economic growth diminished speculation the Fed will cut borrowing costs before year-end.
- Congress passed legislation that tightens security at US ports, requiring radiation monitors at the 22 largest ports by the end of next year.
- Wal-Mart Stores(WMT) said September same-store-sales in the US rose about 1.8% versus estimates of a 1-3% increase.
- Amaranth Advisors LLC suspended redemptions in order to sell off its remaining assets after losses at its two main hedge funds continued in the past two weeks.
- The NYSE was up and running Saturday even though no shares changed hands as tests were conducted on a new electronic trading system designed to make the world’s biggest equity market more competitive.
- Brazilian President Luiz Inacio Lula da Silva led challenger Geraldo Alckmin in an early count of ballots from today’s election and was about 1 percentage point short of avoiding a run-off.
- Confidence among Japan’s largest manufacturers unexpectedly rose in September and companies said they plan to increase spending.
- Shares of Sony Corp.(SNE) fell on concern costs for a widening recall of its batteries used in notebook computers may be more than the company initially estimated.
- Natural gas may fall in NY for a sixth week, the longest slide in more than five years, as mild weather cuts demand and allows inventories to climb even higher, according to a survey by Bloomberg.
- Iran considers international oil prices too low and said it will support “any” OPEC” measure that helps raise them.
- Latin American bonds are posting their biggest gains in more than a year as inflation in Mexico and Brazil, which topped 6,800% in April 1990, falls below US levels.
Wall Street Journal:
- David Tepper, who overseas $4.5 billion hedge fund Appaloosa Management LP, is close to an agreement to invest billions in Delphi Corp. and may control a third of the bankrupt auto-parts maker.
Barron’s:
- US airlines may report a 9% increase in revenue per available seat per mile this year on lower cost structures, restrained capacity growth and a robust economy.
NY Times:
- YouTube Inc., the video-sharing Web site, plans to replicate its deal to share advertising revenue with Warner Music Group to appease copyright challenges from studios and recording companies.
- Medicare drug insurers will offer US beneficiaries more options next year for the elderly and disabled, both in terms of the plans and the number of medicines covered.
LA Times:
- California Republican Arnold Schwarzenegger holds a commanding 50% to 33% lead over Democrat Phil Angelides in the race for governor of the most-populous US state.
NY Post:
- Billionaire Investor Eddie Lampert, chairman of Sears Holdings(SHLD), is ready to continue the retailer’s winning stock performance-by turning the retail chair into a Berkshire Hathaway-type investment vehicle.
Economist:
- While Google(GOOG) and small internet firms race ahead, Yahoo!(YHOO) seems to be standing still.
Financial Times:
- Morgan Stanley is expected to announce today it’s obtained a Chinese commercial banking license, trumping its US bank rivals, citing the bank’s CEO Mack.
Times of London:
- Man Group Plc clients have lost about $280 million from the implosion of US hedge fund manager Amaranth Advisors LLC.
- Microsoft’s(MSFT) next operating system may be in danger of delay as the company conducts its largest ever public testing program.
Liberation:
- The Lebanese army won’t seek to disarm Hezbollah militia as Israel completes its withdrawal from southern Lebanon, President Emile Lahoud said. “You would be a traitor if you wanted to take arms from the resistance” of Hezbollah, Lahoud said.
Finanz und Wirtschaft:
- BASF AG board member John Feldmann expects the price of oil to fall to $35/bbl. by 2009 as more production capacity comes on stream.
Nihon Keizai:
- Mizuho Trust & Banking, Sumitomo Trust & Banking and Resona Holdings group are among banks that may be affected by the loss of more than $6 billion at US hedge fund Amaranth Advisors LLC.
NHK Television:
- The European Union has started studying possible sanctions against North Korea for the refusal to return to six-government talks on its nuclear program.
Weekend Recommendations
Barron's:
- Made positive comments on (AAPL) and (PETM).
Citigroup:
- Reiterated Buy on (GILD), target $77.
- August SIA data for microprocessors is supportive of our recent estimate increases for Intel(INTC) and (AMD) and indicates further upside potential exists; SIA data has an 89% correlation to Intel and AMD revenues.
Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 indicated +.12%
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/Estimate
- None of note
Upcoming Splits
- (PCU) 2-for-1
- (LIHR) 2-for-1
Economic Releases
10:00 am EST
- Construction Spending for August is estimated to fall .4% versus a 1.2% decline in July.
- ISM Manufacturing for September is estimated to fall to 53.7 versus a reading of 54.5 in August.
- ISM Prices Paid for September is estimated to fall to 68.0 versus a reading of 73.0 in August.
- Pending Home Sales for August are estimated to rise .2% versus a 7.0% decline in July.
Bloomberg:
- The Dow Jones Industrial Average posted its best third quarter performance since 1995, led by telecom and technology shares.
- US Treasuries had their biggest quarterly gain in four years as the Fed paused.
- The US dollar rose the most against the yen this quarter since the final three months of 2005 as sustained US economic growth diminished speculation the Fed will cut borrowing costs before year-end.
- Congress passed legislation that tightens security at US ports, requiring radiation monitors at the 22 largest ports by the end of next year.
- Wal-Mart Stores(WMT) said September same-store-sales in the US rose about 1.8% versus estimates of a 1-3% increase.
- Amaranth Advisors LLC suspended redemptions in order to sell off its remaining assets after losses at its two main hedge funds continued in the past two weeks.
- The NYSE was up and running Saturday even though no shares changed hands as tests were conducted on a new electronic trading system designed to make the world’s biggest equity market more competitive.
- Brazilian President Luiz Inacio Lula da Silva led challenger Geraldo Alckmin in an early count of ballots from today’s election and was about 1 percentage point short of avoiding a run-off.
- Confidence among Japan’s largest manufacturers unexpectedly rose in September and companies said they plan to increase spending.
- Shares of Sony Corp.(SNE) fell on concern costs for a widening recall of its batteries used in notebook computers may be more than the company initially estimated.
- Natural gas may fall in NY for a sixth week, the longest slide in more than five years, as mild weather cuts demand and allows inventories to climb even higher, according to a survey by Bloomberg.
- Iran considers international oil prices too low and said it will support “any” OPEC” measure that helps raise them.
- Latin American bonds are posting their biggest gains in more than a year as inflation in Mexico and Brazil, which topped 6,800% in April 1990, falls below US levels.
Wall Street Journal:
- David Tepper, who overseas $4.5 billion hedge fund Appaloosa Management LP, is close to an agreement to invest billions in Delphi Corp. and may control a third of the bankrupt auto-parts maker.
Barron’s:
- US airlines may report a 9% increase in revenue per available seat per mile this year on lower cost structures, restrained capacity growth and a robust economy.
NY Times:
- YouTube Inc., the video-sharing Web site, plans to replicate its deal to share advertising revenue with Warner Music Group to appease copyright challenges from studios and recording companies.
- Medicare drug insurers will offer US beneficiaries more options next year for the elderly and disabled, both in terms of the plans and the number of medicines covered.
LA Times:
- California Republican Arnold Schwarzenegger holds a commanding 50% to 33% lead over Democrat Phil Angelides in the race for governor of the most-populous US state.
NY Post:
- Billionaire Investor Eddie Lampert, chairman of Sears Holdings(SHLD), is ready to continue the retailer’s winning stock performance-by turning the retail chair into a Berkshire Hathaway-type investment vehicle.
Economist:
- While Google(GOOG) and small internet firms race ahead, Yahoo!(YHOO) seems to be standing still.
Financial Times:
- Morgan Stanley is expected to announce today it’s obtained a Chinese commercial banking license, trumping its US bank rivals, citing the bank’s CEO Mack.
Times of London:
- Man Group Plc clients have lost about $280 million from the implosion of US hedge fund manager Amaranth Advisors LLC.
- Microsoft’s(MSFT) next operating system may be in danger of delay as the company conducts its largest ever public testing program.
Liberation:
- The Lebanese army won’t seek to disarm Hezbollah militia as Israel completes its withdrawal from southern Lebanon, President Emile Lahoud said. “You would be a traitor if you wanted to take arms from the resistance” of Hezbollah, Lahoud said.
Finanz und Wirtschaft:
- BASF AG board member John Feldmann expects the price of oil to fall to $35/bbl. by 2009 as more production capacity comes on stream.
Nihon Keizai:
- Mizuho Trust & Banking, Sumitomo Trust & Banking and Resona Holdings group are among banks that may be affected by the loss of more than $6 billion at US hedge fund Amaranth Advisors LLC.
NHK Television:
- The European Union has started studying possible sanctions against North Korea for the refusal to return to six-government talks on its nuclear program.
Weekend Recommendations
Barron's:
- Made positive comments on (AAPL) and (PETM).
Citigroup:
- Reiterated Buy on (GILD), target $77.
- August SIA data for microprocessors is supportive of our recent estimate increases for Intel(INTC) and (AMD) and indicates further upside potential exists; SIA data has an 89% correlation to Intel and AMD revenues.
Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 indicated +.12%
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/Estimate
- None of note
Upcoming Splits
- (PCU) 2-for-1
- (LIHR) 2-for-1
Economic Releases
10:00 am EST
- Construction Spending for August is estimated to fall .4% versus a 1.2% decline in July.
- ISM Manufacturing for September is estimated to fall to 53.7 versus a reading of 54.5 in August.
- ISM Prices Paid for September is estimated to fall to 68.0 versus a reading of 73.0 in August.
- Pending Home Sales for August are estimated to rise .2% versus a 7.0% decline in July.
BOTTOM LINE: Asian Indices are higher, boosted by financial and automaking shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.
Weekly Outlook
Click here for The Week Ahead by Reuters
There are some economic reports of note and several significant corporate earnings reports scheduled for release this week.
Economic reports for the week include:
Mon. - Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales
Tues. - Total Vehicle Sales
Wed. - ADP Employment Change, ISM Non-manufacturing, Factory Orders
Thur. - Initial Jobless Claims, Continuing Claims
Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Consumer Credit
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - None of note
Tues. - None of note
Wed. - Arrow Intl.(ARRO), Copart Inc.(CPRT), Stage Stores(SSI), Veritas DGC(VTS)
Thur. - Acuity Brands(AYI), Constellation Brands(STZ), Solectron(SLR)
Fri. - Power Integration(POWI), Schnitzer Steel(SCHN)
Other events that have market-moving potential this week include:
Mon. - None of note
Tue. - Citigroup Ethanol Conference, Fed’s Hoenig speaks
Wed. - Deutsche Bank High Yield Conference, Fed’s Bernanke speaks, Fed’s Geithner speaks, Fed’s Bies speaks, Fed’s Kohn speaks
Thur. - Retail Monthly Same-store-sales, Fed’s Moskow speaks, Fed’s Plosser speaks, Fed’s Pinalto speaks
Fri. - Fed’s Fisher speaks
There are some economic reports of note and several significant corporate earnings reports scheduled for release this week.
Economic reports for the week include:
Mon. - Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales
Tues. - Total Vehicle Sales
Wed. - ADP Employment Change, ISM Non-manufacturing, Factory Orders
Thur. - Initial Jobless Claims, Continuing Claims
Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Consumer Credit
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - None of note
Tues. - None of note
Wed. - Arrow Intl.(ARRO), Copart Inc.(CPRT), Stage Stores(SSI), Veritas DGC(VTS)
Thur. - Acuity Brands(AYI), Constellation Brands(STZ), Solectron(SLR)
Fri. - Power Integration(POWI), Schnitzer Steel(SCHN)
Other events that have market-moving potential this week include:
Mon. - None of note
Tue. - Citigroup Ethanol Conference, Fed’s Hoenig speaks
Wed. - Deutsche Bank High Yield Conference, Fed’s Bernanke speaks, Fed’s Geithner speaks, Fed’s Bies speaks, Fed’s Kohn speaks
Thur. - Retail Monthly Same-store-sales, Fed’s Moskow speaks, Fed’s Plosser speaks, Fed’s Pinalto speaks
Fri. - Fed’s Fisher speaks
BOTTOM LINE: I expect US stocks to finish the week modestly higher on lower energy prices, short-covering, bargain hunting, mostly positive economic reports and less pessimism. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.
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