BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Biotech longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Oil tanker rates have fallen 52% from November 2005 highs and 20% in the last six weeks on expectations of OPEC production cuts. Earlier this year, I speculated OPEC would be cutting production before year-end. However, I didn't anticipate the hording of oil in tankers, by certain countries, that occurred earlier in the year that temporarily boosted tanker rates. Significant tanker capacity is set to come online over the next few quarters at a time of declining demand. I suspect tanker rates have much further to go on the downside. I do not believe it is too late to short OMI Corp. (OMM). I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less pessimism and bargain-hunting.
Thursday, October 05, 2006
Stocks Modestly Higher into Close on Short-Covering, Performance Anxiety and Less Pessimism
Today's Headlines
- Commodities may be at the start of a “protracted bear market” because speculation by investors has pushed prices too high, Merrill Lynch said. Record speculation has pushed prices 60% higher than they should be, given supply and demand levels, said Richard Bernstein, Merrill’s chief investment strategist in NY in an Oct. 3 report.
- US and British universities dominate in the 2006 list of the world’s top higher-education establishments compiled by the Times Higher Education Supplement.
- OPEC will hold an emergency meeting Oct. 18 and 19 at its headquarters in Vienna to discuss an oil production cut of 1 million barrels a day.
- Treasuries are declining today, pushing two-year yields up from the lowest since February, after the Fed’s Kohn said he was worried bout inflation and jobless claims were below estimates.
- EnCana Corp.(ECA), the largest holder of properties in Canada’s oil sands, will form a joint venture with ConocoPhillips(COP) that will spend more than $10 billion to expand output from the deposits eightfold.
- Starbucks Corp.(SBUX) said it plans to more than triple its number of stores to 40,000, with half located in the US and half overseas.
- US retailers’ September sales rose 3.4%, more than analysts anticipated as lower gas prices gave shoppers extra money to spend. Excluding Wal-Mart(WMT), retail sales soared 6.0%.
Wall Street Journal:
- NYSE Group’s(NYX) expanded electronic trading will increase the speed of trades and endanger the jobs of floor traders.
- PepsiCo(PEP) has started a program to reduce obesity by encouraging inner-city African-Americans and Latinos in Chicago to eat healthier snacks.
- Microsoft(MSFT) is about to put its remodeled Office 2007 software on the market.
- Morgan Stanley(MS) is accelerating acquisition talks with hedge-fund operator FrontPoint Partners LLC which may lead to the bank paying $300 million or more.
- RealNetworks’(RNWK) Sansa Rhapsody portable music player is inferior to Apple Computer’s(AAPL) iPod Nano because much of it is loaded with music that users might not want, Walter Mossberg wrote.
- The collapse last month of Amaranth Advisors LLC, a US hedge-fund firm, after bad bets on natural gas prices, illustrates global markets’ capacity to survive massive failures.
- Allergan(AGN), which makes the Botox anti-wrinkle treatment, will step up the advertising for its aesthetic medical products, saying the field could grow 25% per year.
NY Times:
- The US Army and Marines may change strategy in Iraq to emphasize protection of civilians and basic services instead of aggressive raids.
- Returns for investments in hedge funds have trailed the stock market this year as volatile bond and energy markets have hurt some of the more successful firms.
- New York City officials are considering a plan to hire private group to help run the city’s schools.
CNBC:
- Pequot Capital Management, a $7 billion hedge fund, won’t face charges from the SEC in an insider-trading probe.
Financial Times:
- Sara Lee Corp.(SLE) may be a good candidate for a private-equity buyout because of its steady cash flow.
- The moves by US and European banks such as UBS AG, Bank of America(BAC) and Royal Bank of Scotland to buy into Chinese banks has paid off so far as an investment.
Focus-Money:
- Nike(NKE) may try to buy Puma AG to better compete with rival Adidas AG.
Moskovsky Komsomolets:
- The number of Russians that sued their government in the European Court of Human Rights surged by a third in the nine months through September compared with a year earlier.
- US and British universities dominate in the 2006 list of the world’s top higher-education establishments compiled by the Times Higher Education Supplement.
- OPEC will hold an emergency meeting Oct. 18 and 19 at its headquarters in Vienna to discuss an oil production cut of 1 million barrels a day.
- Treasuries are declining today, pushing two-year yields up from the lowest since February, after the Fed’s Kohn said he was worried bout inflation and jobless claims were below estimates.
- EnCana Corp.(ECA), the largest holder of properties in Canada’s oil sands, will form a joint venture with ConocoPhillips(COP) that will spend more than $10 billion to expand output from the deposits eightfold.
- Starbucks Corp.(SBUX) said it plans to more than triple its number of stores to 40,000, with half located in the US and half overseas.
- US retailers’ September sales rose 3.4%, more than analysts anticipated as lower gas prices gave shoppers extra money to spend. Excluding Wal-Mart(WMT), retail sales soared 6.0%.
Wall Street Journal:
- NYSE Group’s(NYX) expanded electronic trading will increase the speed of trades and endanger the jobs of floor traders.
- PepsiCo(PEP) has started a program to reduce obesity by encouraging inner-city African-Americans and Latinos in Chicago to eat healthier snacks.
- Microsoft(MSFT) is about to put its remodeled Office 2007 software on the market.
- Morgan Stanley(MS) is accelerating acquisition talks with hedge-fund operator FrontPoint Partners LLC which may lead to the bank paying $300 million or more.
- RealNetworks’(RNWK) Sansa Rhapsody portable music player is inferior to Apple Computer’s(AAPL) iPod Nano because much of it is loaded with music that users might not want, Walter Mossberg wrote.
- The collapse last month of Amaranth Advisors LLC, a US hedge-fund firm, after bad bets on natural gas prices, illustrates global markets’ capacity to survive massive failures.
- Allergan(AGN), which makes the Botox anti-wrinkle treatment, will step up the advertising for its aesthetic medical products, saying the field could grow 25% per year.
NY Times:
- The US Army and Marines may change strategy in Iraq to emphasize protection of civilians and basic services instead of aggressive raids.
- Returns for investments in hedge funds have trailed the stock market this year as volatile bond and energy markets have hurt some of the more successful firms.
- New York City officials are considering a plan to hire private group to help run the city’s schools.
CNBC:
- Pequot Capital Management, a $7 billion hedge fund, won’t face charges from the SEC in an insider-trading probe.
Financial Times:
- Sara Lee Corp.(SLE) may be a good candidate for a private-equity buyout because of its steady cash flow.
- The moves by US and European banks such as UBS AG, Bank of America(BAC) and Royal Bank of Scotland to buy into Chinese banks has paid off so far as an investment.
Focus-Money:
- Nike(NKE) may try to buy Puma AG to better compete with rival Adidas AG.
Moskovsky Komsomolets:
- The number of Russians that sued their government in the European Court of Human Rights surged by a third in the nine months through September compared with a year earlier.
Jobless Claims Move Lower
- Initial Jobless Claims for last week fell to 302K versus 315K the prior week.
- Continuing Claims fell to 2448K versus 2450K prior.
- Continuing Claims fell to 2448K versus 2450K prior.
BOTTOM LINE: First-time claims for jobless benefits fell more than expected last week to the lowest in more than two month, pointing to a resilient US job market, Bloomberg reported. The four-week moving average of claims fell to 313,500 versus 316,250 the prior week. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, held steady at 1.9%. According to Michael Moskow, the economy needs to create 100,000 jobs a month to keep the unemployment rate steady. Tomorrow’s jobs monthly jobs report is expected to show 120,000 new jobs created. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor costs increases.
Wednesday, October 04, 2006
Thursday Watch
Late-Night Headlines
Bloomberg:
- Stocks with above-average sales and profit increases rose more last quarter than those with low prices relative to earnings. “There is a shift to growth stocks, and it’s likely to last several years,” said Daniel Boone, who helps oversee $8 billion as managing partner at Atlanta Capital Management LLC in Atlanta.
- Airbus SAS may take more than a decade to catch-up with Boeing’s(BA) product development, citing an interview with CEO Christian Streiff.
- Genentech’s(DNA) Lucentis was seven times more effective in a study than Novartis AG’s Visudyne at improving sight in patients with age-related macular degeneration, the main cause of blindness in the elderly.
- Harvard University’s faculty will meet on Nov. 14 to consider whether the undergraduate curriculum should be changed to emphasize science, religion and history.
- Federal Reserve Vice Chairman Kohn said he’s more concerned about persistent inflation than slowing growth in an economy that’s likely to avoid a recession.
- Apple Computer(AAPL) CEO Jobs knew the company backdated stock-option grants to executives in a few cases, though he didn’t personally benefit or know of the accounting implications of the practice.
- Crude oil rose from a seven-month low after a report that OPEC may cut output to halt a decline in prices.
- Saudi Aramco, the world’s largest state-owned oil company by output, made the deepest price cut in a year for three types of crude it will export to Asia in November because of lower demand from refineries.
Financial Times:
- OPEC may cut production by 1 million barrels a day, or 4%, citing an unidentified OPEC official. Nigeria and Venezuela last week said they will cut production by a combined 170,000 barrels a day, while Saudi Arabia has cut its production by 200,000 barrels a day over the past 2 months.
Guardian:
- Online advertising spending in the UK rose over 40% in the first half of 2006 to just under $1.89 billion, citing the Internet Ad Bureau.
Economic Times:
- The NYSE(NYX) is in talks to buy a 26% stake in the Bombay Stock Exchange.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EL), target $42.
Night Trading
Asian Indices are +1.0% to +1.5% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.24%.
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
- (AYI)/.85
- (STZ)/.43
- (MU)/.14
- (SLR)/.05
- (SMSC)/.35
Upcoming Splits
- (DRQ) 2-for-1
Economic Releases
8:30 am EST:
- Initial Jobless Claims for last week are estimated to fall to 315K versus 316K the prior week.
- Continuing Claims are estimated to rise to 2450K versus 2444K prior.
Bloomberg:
- Stocks with above-average sales and profit increases rose more last quarter than those with low prices relative to earnings. “There is a shift to growth stocks, and it’s likely to last several years,” said Daniel Boone, who helps oversee $8 billion as managing partner at Atlanta Capital Management LLC in Atlanta.
- Airbus SAS may take more than a decade to catch-up with Boeing’s(BA) product development, citing an interview with CEO Christian Streiff.
- Genentech’s(DNA) Lucentis was seven times more effective in a study than Novartis AG’s Visudyne at improving sight in patients with age-related macular degeneration, the main cause of blindness in the elderly.
- Harvard University’s faculty will meet on Nov. 14 to consider whether the undergraduate curriculum should be changed to emphasize science, religion and history.
- Federal Reserve Vice Chairman Kohn said he’s more concerned about persistent inflation than slowing growth in an economy that’s likely to avoid a recession.
- Apple Computer(AAPL) CEO Jobs knew the company backdated stock-option grants to executives in a few cases, though he didn’t personally benefit or know of the accounting implications of the practice.
- Crude oil rose from a seven-month low after a report that OPEC may cut output to halt a decline in prices.
- Saudi Aramco, the world’s largest state-owned oil company by output, made the deepest price cut in a year for three types of crude it will export to Asia in November because of lower demand from refineries.
Financial Times:
- OPEC may cut production by 1 million barrels a day, or 4%, citing an unidentified OPEC official. Nigeria and Venezuela last week said they will cut production by a combined 170,000 barrels a day, while Saudi Arabia has cut its production by 200,000 barrels a day over the past 2 months.
Guardian:
- Online advertising spending in the UK rose over 40% in the first half of 2006 to just under $1.89 billion, citing the Internet Ad Bureau.
Economic Times:
- The NYSE(NYX) is in talks to buy a 26% stake in the Bombay Stock Exchange.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EL), target $42.
Night Trading
Asian Indices are +1.0% to +1.5% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.24%.
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
- (AYI)/.85
- (STZ)/.43
- (MU)/.14
- (SLR)/.05
- (SMSC)/.35
Upcoming Splits
- (DRQ) 2-for-1
Economic Releases
8:30 am EST:
- Initial Jobless Claims for last week are estimated to fall to 315K versus 316K the prior week.
- Continuing Claims are estimated to rise to 2450K versus 2444K prior.
BOTTOM LINE: Asian indices are higher, boosted by automaker and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
Dow Jones Industrial Average Surges to Another All-Time High as Interest Rates Drop and Optimism Rises
Indices
S&P 500 1,350.22 +1.21%
DJIA 11,850.61 +1.05%
NASDAQ 2,290.95 +2.11%
Russell 2000 733.47 +2.10%
Wilshire 5000 13,450.92 +1.27%
S&P Barra Growth 626.42 +1.40%
S&P Barra Value 721.72 +1.01%
Morgan Stanley Consumer 658.07 +.68%
Morgan Stanley Cyclical 827.19 +1.06%
Morgan Stanley Technology 539.67 +2.11%
Transports 4,569.78 +2.24%
Utilities 432.95 +.38%
Put/Call .88 -24.79%
NYSE Arms .72 -37.0%
Volatility(VIX) 11.86 -3.10%
ISE Sentiment 113.0 -8.87%
US Dollar 85.81 +.12%
CRB 297.11 +.67%
Futures Spot Prices
Crude Oil 59.54 +1.47%
Unleaded Gasoline 149.80 +2.84%
Natural Gas 6.02 +4.64%
Heating Oil 167.70 +1.40%
Gold 571.30 +.79%
Base Metals 230.66 +.66%
Copper 322.95 +.75%
10-year US Treasury Yield 4.55% -1.32%
Leading Sectors
Restaurants +2.89%
Internet +2.46%
Biotech +2.40%
Lagging Sectors
Coal +.31%
Drugs +.19%
Papers +.14%
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
Prudential:
- Upgraded (PSUN) to Overweight.
- Downgraded (AEOS) to Underweight.
Afternoon/Evening Headlines
Bloomberg:
- The DJIA posted another new all-time high today, led by growth stocks, as interest rates fell further on comments by Fed Chairman Bernanke.
- Conservative activist Paul Weyrich, president of the Free Congress Foundation, reversed his call for House Speaker Dennis Hastert to resign over the Mark Foley sex scandal after getting a personal call from him today. Weyrich said Hastert insisted that he didn’t receive clear warnings from other leaders or aides about Foley’s inappropriate e-mails.
- Starbucks(SBUX) said September same-store sales rose 6% on demand for pumpkin-spice lattes, and lunch and breakfast sandwiches. The shares surged 5% more in after-hours trading.
- Gold futures fell to the lowest since June on speculation a 16-month low in commodity prices will reduce the metal’s appeal as a hedge against inflation.
NY Times:
- Bono, the lead singer of the rock band U2, and Bobby Shriver have enlisted Gap(GPS), Armani Exchange, Motorola(MOT), Converse and American Express(AXP) to fight AIDS in Africa with a new line of products.
Crain’s NY Business:
- Office vacancies in Manhattan fell almost 30% in the third quarter and are at their lowest in five years.
S&P 500 1,350.22 +1.21%
DJIA 11,850.61 +1.05%
NASDAQ 2,290.95 +2.11%
Russell 2000 733.47 +2.10%
Wilshire 5000 13,450.92 +1.27%
S&P Barra Growth 626.42 +1.40%
S&P Barra Value 721.72 +1.01%
Morgan Stanley Consumer 658.07 +.68%
Morgan Stanley Cyclical 827.19 +1.06%
Morgan Stanley Technology 539.67 +2.11%
Transports 4,569.78 +2.24%
Utilities 432.95 +.38%
Put/Call .88 -24.79%
NYSE Arms .72 -37.0%
Volatility(VIX) 11.86 -3.10%
ISE Sentiment 113.0 -8.87%
US Dollar 85.81 +.12%
CRB 297.11 +.67%
Futures Spot Prices
Crude Oil 59.54 +1.47%
Unleaded Gasoline 149.80 +2.84%
Natural Gas 6.02 +4.64%
Heating Oil 167.70 +1.40%
Gold 571.30 +.79%
Base Metals 230.66 +.66%
Copper 322.95 +.75%
10-year US Treasury Yield 4.55% -1.32%
Leading Sectors
Restaurants +2.89%
Internet +2.46%
Biotech +2.40%
Lagging Sectors
Coal +.31%
Drugs +.19%
Papers +.14%
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
Prudential:
- Upgraded (PSUN) to Overweight.
- Downgraded (AEOS) to Underweight.
Afternoon/Evening Headlines
Bloomberg:
- The DJIA posted another new all-time high today, led by growth stocks, as interest rates fell further on comments by Fed Chairman Bernanke.
- Conservative activist Paul Weyrich, president of the Free Congress Foundation, reversed his call for House Speaker Dennis Hastert to resign over the Mark Foley sex scandal after getting a personal call from him today. Weyrich said Hastert insisted that he didn’t receive clear warnings from other leaders or aides about Foley’s inappropriate e-mails.
- Starbucks(SBUX) said September same-store sales rose 6% on demand for pumpkin-spice lattes, and lunch and breakfast sandwiches. The shares surged 5% more in after-hours trading.
- Gold futures fell to the lowest since June on speculation a 16-month low in commodity prices will reduce the metal’s appeal as a hedge against inflation.
NY Times:
- Bono, the lead singer of the rock band U2, and Bobby Shriver have enlisted Gap(GPS), Armani Exchange, Motorola(MOT), Converse and American Express(AXP) to fight AIDS in Africa with a new line of products.
Crain’s NY Business:
- Office vacancies in Manhattan fell almost 30% in the third quarter and are at their lowest in five years.
BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Computer longs, Retail longs, Internet longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was very bullish. Over the past few years, P/E multiples on the major averages, and more specifically growth stocks, have contracted relentlessly. Growth stocks are the cheapest vs. value stocks in at least 30 years, according to several recent studies. In my opinion, the main reasons for this valuation contraction during a time of record corporate profits and a booming economy were lack of confidence in the future and inflation fears. This is why many of the record number of bears that inhabit the current negativity bubble spend so much time trying to undermine everything that is remotely positive for the country, economy or stock market and aim to keep investors scared out of their collective minds. Whatever happened to the bird flu? This is also why there is so much time spent in the bearish camp harping about inflation and trying to boost inflation expectations, which are a large component of inflation. Most stock market bears are commodity bulls for this very reason, in my opinion. As I have said before, P/E multiple expansion is a bear's worst nightmare. Confidence is returning to U.S. stocks, and inflation fears are plunging with the collapse in commodities and moderating global growth. I sense U.S. stock multiple expansion is finally beginning in earnest.
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