BETWEEN THE HEDGES

Thursday, October 05, 2006

Friday Watch

Posted by Gary .....at 11:18 PM

Late-Night Headlines
Bloomberg:
- John Kilduff, vice president of risk management at Fimat USA, see OPEC cutting output further as crude reaches $48/bbl.
- The yen weakened after Kyodo News reported US and Japanese officials were concerned N. Korea will test a nuclear bomb this weekend.
- A California appeals court said state laws banning same-sex marriage don’t violate the state’s constitution, handing a defeat to San Francisco officials who allowed 4,000 gay couples to marry in 2004.
- Tribune Co.(TRB) ousted the publisher of its biggest newspaper, the LA Times, after he resisted making newsroom changes ordered by his bosses.
- Google(GOOG) will give cash bonuses of up to $3 million to executives that are linked to annual sales and profit goals.
- John Olson, a co-manager of Houston Energy Partners who was skeptical of Enron before the scandal there, says rogue energy trading may have been going on at the collapsed Amaranth hedge fund.
- Crude oil is falling on speculation Saudi Arabia, the world’s largest producer, hasn’t agreed to participate in any output cut by OPEC. “Saudi Arabia seems not to agree on any cutback plan until oil falls below $55,” said Makoto Takeda, an energy analyst at Bansei Securities.
- Gold fell in Asia as oil prices struggled to hold above $60 a barrel and some investors deemed yesterday’s rally in the precious metal overdone.

Business Week:
- Citigroup(C) Chairman and CEO Prince is moving the company toward new purchases.

Kyodo News:
- The US and Japan are concerned North Korea may test a nuclear bomb as early as this weekend, citing Japanese Vice Foreign Minister Shotaro Yachi. North Korea announced on Oct. 3 it will conduct a nuclear test, prompting calls by the US, South Korea, China and Japan to abandon the plan and return to six-nation talks on dismantling its atomic weapons program.

Late Buy/Sell Recommendations
Citigroup:
- Downgraded (NFG) to Sell, target $33.

CSFB:
- Reiterated Outperform on (ROST), target $33.
- Reiterated Outperform on (TJX), target $32.
- Reiterated Outperform on (CRM), target $50.

Business Week:
- Shares of Intercontinental Hotels Group(IHG), which operates the most hotel rooms worldwide, may rise on demand for its rooms in China from the 2008 Beijing Olympics.
- Viasys Healthcare(VAS), a maker of ventilators for people with breathing problems that was spun off from Thermo Electron in 2001, could gain on emergency gear sales.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated unch.

Morning Preview
US AM Market Call
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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
- None of note

Upcoming Splits
- None of note

Economic Releases
8:30 am EST:
- The Change in Non-farm Payrolls for September is estimated at 120K versus 128K the prior month.
- The Change in Manufacturing Payrolls for September is estimated at -5K versus -11K the prior month.
- The Unemployment Rate for September is estimated at 4.7% versus 4.7% the prior month.
- Average Hourly Earnings for September are estimated to rise .3% versus a .1% gain in August.

3:00 pm EST:
- Consumer Credit for August is estimated to fall to $5.0B versus $5.5B the prior month.

BOTTOM LINE: Asian indices are mixed as gains in metal shares are offsetting losses in financial equities 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 Makes Another All-Time High

Posted by Gary .....at 6:14 PM

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

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Semi 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 positive today as the advance/decline line finished higher, 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. I would classify today's action as healthy given the underlying strength. Small-caps, cyclicals and growth outperformed throughout the day. I have heard some say the public has embraced the recent rally, yet I see little evidence of this. TrimTabs just reported $900 million in U.S. fund outflows once again this week, despite the recent rally. I continue to believe there is massive bull firepower available to propel US stocks substantially higher from current levels. Tomorrow's jobs report will likely come in slightly below expectations of 120,000. However, I expect stocks to build on recent gains again tomorrow as investors continue to anticipate better data over the next few months.

Stocks Modestly Higher into Close on Short-Covering, Performance Anxiety and Less Pessimism

Posted by Gary .....at 3:11 PM

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.

Today's Headlines

Posted by Gary .....at 2:21 PM

- 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.

Jobless Claims Move Lower

Posted by Gary .....at 10:46 AM

- Initial Jobless Claims for last week fell to 302K versus 315K the prior week.
- 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.