BETWEEN THE HEDGES

Monday, December 04, 2006

Tuesday Watch

Posted by Gary .....at 11:23 PM

Late-Night Headlines
Bloomberg:
- Hewlett-Packard(HPQ) said sales of its notebooks during the holiday season are “very strong.”
- NASA plans to build a solar-powered base on the moon beginning in 2020 and use it as a launch point for missions to Mars.
- South Korea’s central bank forecasts economic growth will slow to 4.4% in 2007 from 5% this year.
- Copper futures in Shanghai fell for a second day after another gain in global inventories of the metal, sparking renewed concern that supply growth may outpace demand.

iSuppli Corp.:
- Advanced Micro Devices(AMD) and Hynix Semiconductor will probably enter the top 10 chipmakers in 2006 as their sales outpace rivals’.

AP:
- China consumers six percent of the crude oil traded globally and has been diversifying it sources of oil by looking for new suppliers in Africa and South America, citing China’s Assistant Minister of Foreign Affairs Zhai Jun.

Beijing Antaike Information Development Co.:
- China will overtake Australia to become the top maker of alumina next year, prompting prices of the commodity to slump further. Production in China of the semi-finished material that is used to make aluminum will jump by 45% to 20 million tons in 2007. Prices may average 2,000 yuan a metric ton in 2007 compared with 4,000 yuan this year.

Bangkok Post:
- Japan’s Mitsubishi Oil, a unit of Nippon Oil, found oil and gas reserves in Thailand’s Sukhothai province, citing Energy Minister Piyasvasti Amranand.

Xinhua News:
- Avon Products(AVP) has recruited almost 300,000 door-to-door sales people in China this year, citing Avon China’s president.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (BKC), raised target to $23.

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.01%.

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Earnings of Note
Company/EPS Estimate
- (ATVI)/-.10
- (ACS)/.81
- (AZO)/1.68
- (CPRT)/.30
- (KR)/.28
- (NOVL)/.04
- (PLAB)/.16
- (SAFM)/.26
- (TOL)/1.06
- (WITS)/.18
- (WWE)/.12

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 3Q Non-farm Productivity is estimated to rise .5% versus prior estimates of unch.
- Final 3Q Unit Labor Costs are estimated to rise 3.2% versus prior estimates of a 3.8% gain.

10:00 am EST:
- Factory Orders for October are estimated to fall 4.2% versus a 2.1% increase in September.
- ISM Non-Manufacturing for November is estimated to fall to 55.5 versus a reading of 57.1 in October.

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

Stocks Finish Sharply Higher on Lower Energy Prices, M&A Activity and Investor Performance Anxiety

Posted by Gary .....at 5:35 PM

Indices
S&P 500 1,409.12 +.89%
DJIA 12,283.85 +.74%
NASDAQ 2,448.39 +1.46%
Russell 2000 795.85 +1.88%
Wilshire 5000 14,170.92 +.97%
S&P Barra Growth 653.64 +.69%
S&P Barra Value 753.35 +1.08%
Morgan Stanley Consumer 681.40 +1.41%
Morgan Stanley Cyclical 887.89 +1.19%
Morgan Stanley Technology 576.03 +1.51%
Transports 4,745.77 +.82%
Utilities 460.77 +.68%
Put/Call .86 -3.37%
NYSE Arms 1.07 -18.44%
Volatility(VIX) 11.23 -3.69%
ISE Sentiment 137.0 +13.22%
US Dollar 82.49 +.01%
CRB 315.38 -1.82%

Futures Spot Prices
Crude Oil 62.43 -1.58%
Reformulated Gasoline 166.45 -2.21%
Natural Gas 7.75 -7.87%
Heating Oil 180.89 -2.1%
Gold 651.0 +.02%
Base Metals 245.89 +.73%
Copper 318.0 +.13%
10-year US Treasury Yield 4.42% -.18%

Leading Sectors
Gaming +5.45%
Steel +4.11%
I-Banks +2.59%

Lagging Sectors
Oil Service -.60%
Oil Tankers -.65%
Drugs -1.19%

Evening Review
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Afternoon Recommendations
Deutsche Bank:
- Rated (EGLT) Buy, target $20.

Afternoon/Evening Headlines
Bloomberg:
- International Speedway Corp.(ISCA), the largest US automobile racetrack operator, said it had ended plans to build a Nascar track on NYC’s Staten Island because of a lack of political support and unacceptable approval requirements.
- Delta Air Lines reached an agreement with the Pension Benefit Guaranty Corp.
- Puget Energy’s(PSD) Washington utility, the state’s biggest, is seeking proposals for construction of a 500-kilowatt solar-powered generating facility.
- Ecopetrol, Colombia’s state oil company, said it plans to increase production from its Tibu oil field by more than 800% with help from partner Petroleo Brasileiro SA.
- Natural gas plunged almost 8%, the most in more than two months, as forecasters predicted above-average temperatures across most of the US starting this weekend and speculation by investment funds subsided.
- US Democratic Representative Barney Frank, expected to lead the House panel that overseas Wall Street, said he may hold hearings on hedge funds.
- The SEC is unified in wanted to limit the pool of individuals that can invest in hedge funds and proposing new rules aimed at curtailing hedge-fund fraud, SEC Chairman Cox said.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Semi longs, Medical longs and Telecom 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, almost every sector rose and volume was above average. Measures of investor anxiety were lower into the close. Today's overall market action was very bullish as the major averages and breadth finished near session highs. As well, many market-leading stocks traded substantially higher throughout the day. Natural gas plunged almost 8% today as record speculation by investment funds subsides. I sense many US equity shorts and underexposed longs are entering "hope and pray" mode again with respect to their expectations of a significant market pullback before year-end. Bloomberg reported Microsoft's (MSFT) Zune dropped to fifth place in its second week on the market as it lost share. It now has 2.1% of the U.S. digital media player market. Apple (AAPL) and Sandisk (SNDK) led sales in the week ended Nov. 25. I believe investors are still focusing too much on the iPod market and not enough on the PC market, but this is still good news for Apple and it remains my second largest long position, behind Google (GOOG). Apple should break above $100 over the coming weeks.

Stocks Sharply Higher into Final Hour on M&A Activity, Falling Energy Prices and a Firming US Dollar

Posted by Gary .....at 3:17 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Telecom longs, Medical longs and Biotech longs. 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, almost every sector is rising and volume is above average. Last week, Banc of America put out a report, which stated that U.S. investors have poured $106.1 billion this year into mutual funds that invest in international equities. This is 40% more than last year at this time. On the other hand, investors have pulled $1.4 billion from U.S. mutual funds so far this year vs. inflows of $18.7 billion this time last year. I have heard many pundits and analysts say recently that U.S. stocks are still expensive relative to international equities. I couldn't disagree more. Many international markets, especially emerging markets, are heavily weighted toward very cyclical or commodity companies. These types of companies always look the cheapest before significant declines. This is just more evidence that the public remains very skeptical of U.S. stocks despite recent gains. I suspect a chain reaction of events has begun that will eventually lead to a bad ending to the mania for emerging market stocks and a dramatic increase in demand for U.S. stocks. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, merger & acquisition speculation, portfolio manager performance anxiety and bargain-hunting.

Today's Headlines

Posted by Gary .....at 1:53 PM

Bloomberg:
- Crude oil is falling .80 as warmer temperatures are expected to further lower demand and speculators trim bets.
- Bank of New York(BK) agreed to buy Mellon Financial(MEL) for about $16.5 billion, creating the biggest custodian of assets for institutional investors.
- Pilgrim’s Pride(PPC), the second-largest US poultry processor, said Gold Kist(GKIS) agreed to a sweetened $1.1 billion takeover offer, ending a hostile bid and creating the world’s biggest chicken company.
- Station Casinos(STN) said its management offered to take the company private for $4.7 billion, the industry’s second biggest takeover this year.
- Billionaire investor Carl Icahn made a $4.3 billion cash and stock offer for Reckson Assoc. Realty(RA), replacing an all-cash bid for the real estate investment trust after his two partners withdrew over the weekend.
- Cerberus Capital is in talks with Delphi Corp. and Delphi’s largest union that may lead to the investment company’s purchase of 12 of the bankrupt auto-parts maker’s US plants.
- Morgan Stanley(MS) acquired Brookville Capital, a four-year-old company that overseas about $221 million in debt, in the firm’s fourth investment in a hedge fund in the past two months.
- LSI Logic(LSI) agreed to buy Agere Systems(AGR) for about $4 billion in stock to move into a faster growing business for mobile-phone chips and gain customers such as Samsung Electronics.
- The number of people suffering from diabetes has soared to 246 million and kills more people than AIDS globally, the head of the International Diabetes Federation said.
- James Lennon, executive director of commodities research at Macquarie Bank Ltd sees commodity demand “easing” in China.

Wall Street Journal:
- US advertising spending growth will slow and older media such as newspapers and television will lose ground to online outlets next year, citing surveys by Merrill Lynch, Publicis Groupe SA and WPP Group Plc.
- Wall Street firms are putting money into casino investments as the number of US states permitting such gambling increases.

NY Times:
- Wal-Mart(WMT) has developed a program to show appreciation for its 1.3 million workers in the US.

NY Post:
- Dow Jones(DJ) will unveil today the Wall Street Journal’s revised format that will trim three inches form the newspaper’s width and cut $18 million a year from expenses.

Financial Times:
- Reuters Group Plc and Yahoo!(YHOO) agreed to work together on a venture to gather and distribute news photos and video sent by the public, citing the president of Reuters Media, Chris Ahearn.
- Improved energy productivity could cut annual growth in global demand for energy to less than 1% from 2.2% between 2003 and 2020, citing McKinsey & Co. data. Subsidies by governments to citizens and corporations are harmful because they encourage waste and less innovation.

Financial Times Deutschland:
- The European Central Bank expects inflation to fall below its 2% limit in 2008, according to projections that are due to be published on Dec. 7.

Tageblatt:
- The economy of the dozen nations sharing the euro will continue to expand next year if at a “slightly weaker pace,” ECB council member Erkki Liikanen said.

Argus Leader:
- Livestock processors and meatpackers such as Tyson Foods(TSN) and Smithfield Food(SFD) are investing in facilities to produce biofuels from manure, animal fats and vegetable oils, citing Jeff Webster, a vice president for Tyson.

Sparkspread:
- Goldman Sachs(GS) expects its Horizon Wind Energy unit for renewable energy will be the third largest owner of wind farm assets in the US by the end of next year.

Interfax:
- OAO Lukoil will invest $5.7 billion this year in oil and gas production and refining in Russia and abroad.

Pending Home Sales Fall Slightly

Posted by Gary .....at 11:27 AM

- Pending Home Sales for October fell 1.7% versus estimates of a .5% decline and a 1.1% decline in September.

BOTTOM LINE: Contracts to buy previously owned homes in the US fell more than expected in October, Bloomberg reported. Pending re-sales fell 2.7% in the West, .6% in the Mid-west, 1.7% in the South and 2.1% in the Northeast. Fed Chairman Bernanke said in a speech last week that there is little evidence that the weakness in housing markets is spilling over more broadly to consumer spending or aggregate employment. The Fed’s Moskow reiterated those thoughts this morning. The Case-Schiller Housing futures are only projecting a 3.4% decline in the average home price over the next six months, up from projections of a 5.2% decrease a couple of months ago. I continue to believe the housing market is well into the process of stabilizing at relatively high levels.