Wednesday, October 25, 2006

Today's Headlines

Bloomberg:
- Merrill Lynch(MER) and BNP Paribas, two of the 22 primary dealers that trade government bonds directly with the Federal Reserve, pushed back their forecasts for when the central bank will cut interest rates.
- Crude oil futures rose after the US government reported that supplies had their biggest one-week decline since July.
- President Bush said Iraq’s stability remains crucial to US security and vowed to adjust tactics to achieve this goal.
- Shares of Mills Corp.(MLS) climbed as much as 20% after Gazit-Globe Ltd., a Tel Aviv-based real-estate developer, bought a 9% stake in the company for $110 million.
- President Vladimir Putin said he’ll be able to step down when his term ends in 2008, after taking Russia’s economy to new heights that will secure the country’s future.
- Billionaire investor Carl Icahn won his two-month campaign to take control of ImClone Systems(IMCL), ousting the biotech’s interim CEO and engineering his own election as chairman.
- Blackstone Group LP bought a stake in United Biscuits to gain brands including McVitie’s cookies and Jacob’s crackers.

Wall Street Journal:
- Loral Space & Communications(LORL) may put its Skynet satellite-services unit up for sale by the end of 2007.
- The UK-based pharmaceutical company, GlaxoSmithKline Plc(GSK), pushed its Requip drug to about $500 million in sales in a little more than a year by marketing a formerly obscure malady called restless-leg syndrome to doctors and directly to consumers.
- Three quarters of carmakers are failing to achieve European Union objectives for cutting carbon dioxide emissions, citing a study by the European Federation for Transport and Environment.
- US shoplifters are using technology that is helping them steal more goods more easily and making the crime harder to detect.
- Interpublic Group(IPG) won Wal-Mart Store’s(WMT) $580 million advertising account.

NY Times:
- Home Depot(HD) is selling products that have little to do with home improvement as the US housing market slows.
- Some US hospitals are offering primary medical care to chronically ill patients without insurance because preventative treatment costs less than emergency visits.

AFP:
- North Korea has sent “signals” that it is ready to return to six-nation talks on ending its nuclear weapons program, citing Russian President Putin.

Vedomosti:
- International Paper(IP) agreed to acquire at least 25% of Ilim Pulp, Russia’s biggest paper producer.

Boersen:
- AP Moeller-Maersk A/S’s oil reserves may be boosted 12% after exploration off the coast of Colombia indicated the region may hold as much as 700 million barrels of oil, citing Petrobras Energia SA.

Globe and Mail:
- Power Financial, which controls Canada’s biggest mutual fund company and third-largest insurer, is considering a bid for Putnam Investments.

Interfax:
- BP Plc(BP) raised by 20% its estimate of proven oil reserves in three offshore fields in the Azeri sector of the Caspian Sea, which the UK company is developing with partners.

Existing Home Sales Slightly Lower, Inventories Fall Again

- Existing Home Sales for September fell to 6.18M versus estimates of 6.23M and 6.3M in August.
BOTTOM LINE: Sales of previously owned homes in the US fell last month, Bloomberg reported. The median sales price of an existing home fell 2.2% from a year earlier to $220,000. The number of homes for sale fell 2.4% from the prior month and inventories are at 7.3 months’ supply. Purchases fell 3.7% in the Northeast, 3.1% in the West and 2.8% in the Midwest. Sales rose .4% in the South. The average rate on a 30-year fixed mortgage was 6.41% in September, compared with 6.55% a month earlier, according to Freddie Mac. The fact that inventories fell for a second month is a big positive. I continue to believe that housing is in the process of stabilizing at relatively high levels. The median existing US home price is still 61% higher since 2000.

Links of Interest

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Tuesday, October 24, 2006

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Microsoft(MSFT) said it will offer coupons for copies of Windows Vista and Office 2007, costing the company about $1.5 billion in sales in the current quarter.
- The vaccine that helps protect people from influenza is safe for infants and toddlers from 6 months to 2 years old, a study of 45,000 children found.
- Phillip Goldstein, the investment manager who successfully blocked the SEC from requiring hedge funds to register, asked the agency to exempt him from stock disclosure rules.
- Major League Baseball and its players union agreed on a new labor contract, avoiding a work stoppage for only the second time in 34 years amid a business boom for the sport.
- Asian stocks, trading at a five-month high, may have run ahead of expectations for earnings and economic growth, according to Richard Patterson, Citigroup’s head of Asian sales trading.
- The majority of players treated on the field during this year’s World Cup weren’t injured, underlining a growing problem in soccer, the tournament organizer’s top medic said.

Financial Times:
- Ford Motor(F) will not pursue alliances with other carmakers and will keep the Jaguar brand, citing an interview with CEO Mulally.
- China’s economic growth may fall below 10% in 2007 as government curbs on investment and liquidity take effect, the National Development and Reform Commission’s Academy of Macroeconomic Research said.
- Japan, the world’s largest oil consumer after the US and China, imported 8.1% less crude oil in September than a year earlier, the fifth straight monthly decline.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (LXK), target $72.
- Reiterated Buy on (ROP), target $54.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.04%.

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Earnings of Note
Company/EPS Estimate
- (AMG)/1.34
- (APD)/.92
- (ATI)/1.36
- (MO)/1.41
- (BUD)/.81
- (ABI)/.25
- (AVB)/.58
- (BEBE)/.21
- (BA)/.63
- (BOB)/.18
- (CBG)/.36
- (CL)/.72
- (COP)/2.40
- (CVG)/.29
- (CCI)/-.10
- (EL)/.19
- (FFIV)/.51
- (FORM)/.33
- (GM)/.49
- (HET)/.99
- (IMCL)/.45
- (JCI)/1.85
- (JNY)/.66
- (KOMG)/1.09
- (MCHP)/.36
- (MNST)/.31
- (MCO)/.52
- (NSC)/.81
- (PFCB)/.21
- (PX)/.73
- (PHM)/.76
- (RSH)/.17
- (RAI)/1.02
- (SEE)/.78
- (SGR)/.18
- (SRCL)/.59
- (SWFT)/.51
- (SYMC)/.26
- (TROW)/.49
- (TEX)/.94
- (TDW)/1.32
- (TSCO)/.47
- (TRID)/.25
- (WY)/.87
- (ZMH)/.75

Upcoming Splits
- (HLSH) 1-for-5

Economic Releases
10:00 am EST
- Existing Home Sales for September are estimated to fall to 6.23M versus 6.3M in August.

2:00 pm EST
- The FOMC is expected to leave the benchmark Fed Funds Rate at 5.25%.

BOTTOM LINE: Asian indices are higher, boosted by automaker 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.

Dow Jones Industrial Average Makes Another All-Time High, Boosted by Commodity and Homebuilding Shares

Indices
S&P 500 1,377.38 +.03%
DJIA 12,127.88 +.09%
NASDAQ 2,344.84 -.46%
Russell 2000 762.43 -.14%
Wilshire 5000 13,766.07 +.04%
S&P Barra Growth 638.56 -.11%
S&P Barra Value 736.76 +.16%
Morgan Stanley Consumer 667.81 -.11%
Morgan Stanley Cyclical 861.09 +.85%
Morgan Stanley Technology 544.30 -.44%
Transports 4,731.64 +1.06%
Utilities 448.67 -.11%
Put/Call 3.22 +329.3%
NYSE Arms .91 +29.79%
Volatility(VIX) 10.79 -2.62%
ISE Sentiment 157.0 +12.1%
US Dollar 86.67 -.05%
CRB 307.54 +.47%

Futures Spot Prices
Crude Oil 59.33 +.88%
Unleaded Gasoline 153.0 +3.98%
Natural Gas 7.1 +3.26%
Heating Oil 169.55 +1.59%
Gold 587.50 -.02%
Base Metals 242.43 -1.18%
Copper 341.85 +.01%
10-year US Treasury Yield 4.81% -.21%

Leading Sectors
Steel +4.11%
Oil Tankers +4.08%
Oil Service +3.34%

Lagging Sectors
Software -.99%
Semis -1.13%
Computer Hardware -1.59%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US stocks rose, sending the Dow Jones Industrial Average to its eighth record in two weeks.
- The US government sued the estate of Enron’s deceased founder Ken Lay, seeking to strip it of $12.7 million in ill-gotten gains from an accounting fraud that cost investors an estimated $30 billion.
- Amazon.com said third quarter net income fell on higher technology spending and costs to run its own toy store. The stock surged 12% after-hours as it bested estimates.

CNBC:
- The Mays family that runs Clear Channel Communications(CCU) has been talking with private equity firms about the possibility of a leveraged buyout.

Frankfurter Allgemeine Zeitung:
- General Electric(GE) plans to double its profit by 2012, citing CEO Immelt.

BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Telecom 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 modestly negative today as the advance/decline line finished slightly lower, most sectors declined and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Today's overall market action slightly bearish. However, losses were muted and a number of market-leading stocks posted modest gains. Cyclicals, specifically commodity stocks, outperformed today on strong profit reports. I do not believe this outperformance will last much longer. Homebuilders also outperformed today. While "the worst may well be over for housing," as Greenspan said, I suspect the equities will trade range-bound over the intermediate-term. I also suspect tomorrow's FOMC policy statement may be less hawkish than most expect, however they could use higher stock prices as an excuse to continue to talk hawkish. I still believe there is very little chance the Fed will raise rates again with the 10-year yield anywhere near current levels. A rate cut is still more likely during the first half of next year.

Stocks Slightly Lower into Final Hour on Healthy Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semiconductor longs, Telecom longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are declining and volume is modestly above average. The Johnson Redbook same-store sales index rose 3.4% year-over-year this week vs. a 3.5% rise the prior week. The long-term average is a gain of about 2.9%. There is still no evidence, in my opinion, that a meaningful slowdown in consumer spending is underway, even as many investors continue to worry about such a decline. Housing sales and net home equity extractions have been falling substantially for a year. The Case-Shiller housing futures are still projecting about a 5% decline in the average home price over the next seven months. Considering the average house has appreciated over 50% during the last few years with record high U.S. home ownership, this would be considered a "soft landing." I continue to believe the overall negative effects of housing on the U.S. economy are currently being exaggerated by the bears. I still expect holiday shopping sales to exceed estimates. I believe a healthy labor market, falling energy prices, relatively low long-term interest rates, decelerating inflation, a rising stock market and less irrational pessimism will continue to more than offset slowing housing over the intermediate term. The Morgan Stanley Retail Index (MVRX) has soared 22.8% in about 13 weeks vs. a 11.2% gain in the S&P 500 over the same timeframe. I still expect continued outperformance by the sector through year-end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, strong profit reports and investment manager performance anxiety.