BETWEEN THE HEDGES

Tuesday, December 05, 2006

Wednesday Watch

Posted by Gary .....at 11:38 PM

Late-Night Headlines
Bloomberg:
- The US dollar will recover against the euro next year as the world’s biggest economy will prove resilient, said Joe Prendergast at CSFB.
- Users of mobile phones, whose antennae send radio waves into the human brain, are no more likely to get cancer than people who don’t use mobile phones, according to a study in the Journal of the National Cancer Institute.
- The five permanent members of the UN Security Council narrowed their differences over imposing sanctions on Iran and will now ask their UN ambassadors to hammer out a resolution, the French Foreign Ministry said.
- Yahoo!(YHOO) CEO Terry Semel will reorganize the company into three groups to stem a slide in the stock price and win back users and advertisers lost to Google(GOOG).
- Australia’s economy grew .3% in the third quarter, its slowest pace in three years, as business spending and farm output dropped.
- China wants to get half of its energy needs from “new and alternative” sources by 2050, a Chinese official said, as the nation seeks to diversify from a reliance on coal and crude.

Wall Street Journal:
- The conditions that have spurred this year’s historic surge in mergers and acquisitions will likely continue into next year, citing Piero Novelli, UBS AG’s co-head of global M&A.

Financial Times:
- OAO Rosneft, Russia’s largest oil company, will invest $20 billion to become one of the world’s largest oil firms by the end of the decade, citing CEO Bogdanchikov.

AFP:
- Traces of radioactive Polonium-210 were found at London soccer team Arsenal’s stadium during a probe into the death of Russian ex-spy Alexander Litvinenko. An unidentified agency spokeswoman was quoted as saying “minute quantities” of the substance that were “barely detectable” were uncovered at Emirates Stadium and that there was no risk to public health.

China Daily:
- Chinese corn prices are surging as production of grain-based fuels including ethanol increases, citing analysts.

Night Trading
Asian Indices are -.75% to +.50% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
- (JW/A)/.47
- (KFY)/.31
- (NCS)/1.34
- (OSI)/.32
- (NX)/1.05
- (VTS)/.47

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 500,000 barrels versus a 360,000 barrel drawdown the prior week. Gasoline supplies are expected to rise 956,000 barrels versus a 589,000 barrel decline the prior week. Distillate supplies are estimated to fall 850,000 barrels versus a 1,002,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise .9% versus a .99% increase the prior week.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Higher on Positive Economic Data

Posted by Gary .....at 5:55 PM

Indices
S&P 500 1,414.76 +.40%
DJIA 12,331.60 +.39%
NASDAQ 2,452.38 +.16%
Russell 2000 797.42 +.20%
Wilshire 5000 14,223.79 +.37%
S&P Barra Growth 655.80 +.33%
S&P Barra Value 756.87 +.47%
Morgan Stanley Consumer 686.67 +.77%
Morgan Stanley Cyclical 892.51 +.51%
Morgan Stanley Technology 577.48 +.25%
Transports 4,791.93 +.97%
Utilities 462.19 +.31%
Put/Call .75 -12.79%
NYSE Arms .90 -15.67%
Volatility(VIX) 11.27 +.36%
ISE Sentiment 154.0 +12.41%
US Dollar 82.51 +.10%
CRB 316.43 +.33%

Futures Spot Prices
Crude Oil 62.54 +.16%
Reformulated Gasoline 164.55 -1.06%
Natural Gas 7.70 -1.33%
Heating Oil 180.03 -.48%
Gold 648.90 -.31%
Base Metals 249.38 +1.42%
Copper 324.60 +2.20%
10-year US Treasury Yield 4.44% +.39%

Leading Sectors
Homebuilders +2.0%
Papers +1.61%
Restaurants +.98%

Lagging Sectors
Oil Tankers -.72%
HMOs -.94%
Gold & Silver -1.25%

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Afternoon Recommendations
Oppenheimer:
- Rated (LQDT) Buy, target $21.
- Rated (SPPI) Buy, target $10.
- Rated (GSIC) Buy, target $21.

Afternoon/Evening Headlines
Bloomberg:
- William Polk Carey, chairman of the WP Carey real estate investment banking firm, donated $50 million to Johns Hopkins University to establish a separate business school at the university founded by on of his distant ancestors.
- House Democratic leader Nancy Pelosi rejected a call by some lawmakers in her party to withhold funds for military operations in Iraq in order to end the war.
- Venezuelan President Hugo Chavez said he will push for a constitutional amendment next year that would allow him to hold office indefinitely as a first step toward making Venezuela a socialist nation.
- OPEC oil output fell 1.9% in November or half of the cartel’s pledged cuts at an October meeting.

Australian Financial Review:
- BHP Billiton(BHP) is close to agreeing on a 10.5% cut in annual contract prices for hard coking coal used in steelmaking, citing McCloskey’s Coal Report.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Semi longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished slightly higher, sector performance was mostly positive and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was mildly bullish. Homebuilders were standout performers today, rising another 2%. The Housing Index (HGX) is now 25% above July lows. With the many US stock market bears expecting a major decline and even the bulls anticipating a January pullback, large funds are likely paring long exposure further right now.
I suspect more healthy upwardly biased consolidating action like today is likely in the near term before another push higher into year-end.

Stocks Modestly Higher into Final Hour on Positive Economic Data

Posted by Gary .....at 2:58 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs and Internet 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 above average. The Bloomberg Crude Oil percentage of Bulls came in at 72.5% in the most recent survey. Crude Bears were 17.5%. This survey comprises 40 analysts, traders and brokers and is done weekly by Bloomberg. Bullish sentiment toward oil has only been higher one other time, October 2004, right before oil plunged from 27% from $55 per barrel to $40 per barrel. Right now, oil bulls are in a state of denial as record inflows into commodity funds keep the speculative mania alive. Almost every day, I read of new demand destroying alternative energy projects coming online and new finds around the world. Demand for oil has barely risen globally over the last three years during a global economic boom. I continue to believe oil will head substantially lower from current levels over the intermediate term as the mania subsides and the fundamentals reassert themselves. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, positive economic data and portfolio manager performance anxiety.

Today's Headlines

Posted by Gary .....at 2:09 PM

Bloomberg:
- The SEC plans to have a database in place by next year that will help it crack down on hedge fund insider trading, a senior official said.
- Toll Brothers(TOL), the largest US builder of luxury homes, said the housing market may have reached bottom.
- New York City’s Board of Healthy today approved the first US ban by a major city on trans fat in cooking oils, requiring the city’s 24,000 food establishments to eliminate the substance.
- MySpace.com is creating technology to help block convicted sex offenders from using the site.
- Sales at US retailers rose 3.1% this past week, the largest increase since October, as consumer shopped for holiday gifts, a weekly survey by the ICSC said.
- A new weekly report by the CFTC will show aggregate futures and options positions in 12 agricultural commodities beginning in January.
- Microsoft(MSFT) may exceed its forecast to sell 10 million Xbox video-game consoles by the end of the year.
- Natural gas fell to a three-week low in NY as forecasters predicted mild weather and speculators pared their bets amid record inventories.

Wall Street Journal:
- Walt Disney(DIS) agreed yesterday to buy NASN Ltd., a London-based cable company that broadcasts sports including NFL, MLB and NHL games in Europe.
- Royal Philips Electronics NV, the world’s biggest maker of lighting, is trying to convince people to buy its energy-efficient bulbs, with television ads in Europe and China and pitches aimed at building designers.
- People in the US are buying more advanced digital cameras, creating a bonanza for Nikon Corp., Eastman Kodak(EK), Sony Corp.(SNE), Olympus Corp. and other manufacturers.
- APL Ltd. has started using cleaner-burning, low-sulfur diesel fuel for its ships in California ports and plans to test engine technologies to cut pollution further.
- Amway Corp. and Mary Kay Inc. have been licensed to sell their products directly to Chinese customers.
- The US government is providing older Americans with a new tool to help them figure out when they will reach a gap in their federally subsidized prescription-drug coverage.

NY Times:
- The Israeli Army, accused of war crimes in Lebanon, has declassified photographs and videos to support its assertion that Hezbollah fired from, and took cover in, civilian neighborhoods.
- Democrats including Senator Edward Kennedy and groups such as the National Partnership for Women and Families are pushing a bill that would give American workers paid sick days. Republicans worry the bill would increase business costs, thus increasing unemployment.
- The economic benefits of the US auto industry are shifting from north to south as Ford Motor(F) and General Motors(GM) close factories near Detroit and Toyota Motor(TM) invests in Kentucky. The number of automotive-related manufacturing jobs in Kentucky have soared 152% over the last 20 years.

Washington Post:
- A “virtual” fence along the US-Mexico border will be completed by 2011 at a cost of $7.6 billion, citing a report by the Dept. of Homeland Security.

Angola Press Agency:
- Angola will increase oil production to 2.6 million barrels a day by 2011, 62% higher than current levels, following discoveries of new fields in deep and ultra-deep waters, citing a World Bank report.

Unit Labor Costs Decelerate, Factory Orders Fall, ISM Non-Manufacturing Very Healthy

Posted by Gary .....at 12:08 PM

- Final 3Q Non-farm Productivity rose .2% versus estimates of a .5% gain and prior estimates of unch.
- Final 3Q Unit Labor Costs rose 2.3% versus estimates of a 3.2% gain and prior estimates of a 3.8% increase.
- Factory Orders for October fell 4.7% versus estimates of a 4.2% decline and a downwardly revised 1.7% increase in September.
- ISM Non-Manufacturing for November rose to 58.9 versus estimates of 55.5 and a reading of 57.1 in October.

BOTTOM LINE: Worker productivity grew at the slowest pace of the year last quarter while labor costs were revised down more than expected, easing concern that surging incomes will stoke inflation, Bloomberg said. The smaller increases in unit labor costs are a result of recent income revisions. Wages and salaries rose 4.5% for the third quarter versus prior estimates of a 4.8% gain. Wages and salaries are still rising more than three times the Consumer Price Index’s recent rise of 1.3%(yoy). Challenger, Gray & Christmas announced this morning that job cuts by US employers plunged 23% in November from the same time last year. I continue to believe the labor market will remain healthy without generating substantial unit labor cost increases over the intermediate-term.

Orders placed with US factories fell in October, Bloomberg reported. Construction machinery bookings slumped 12% for the month. Orders for electrical equipment and appliances rose 4.7%. Orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, fell 4.9% versus a 3.1% gain in September. The inventory-to-shipments ratio held steady at 1.23 months. I still expect manufacturing to begin heading back to around average levels as auto production cutbacks subside, consumer spending remains healthy and housing stabilizes at relatively high levels.

Growth at US service industries unexpectedly accelerated for a second month in November as lower energy prices and a strong job market spurred consumer spending, Bloomberg said. Consumers, buoyed by the decline in gas prices and the lowest unemployment rate in five years, are boosting the US economy even as housing and auto production slow. The new orders component of the index rose to 57.1 from 56.5 the prior month. The prices paid component increased to 55.6 from 51.9 prior. The employment component of the index rose to 51.6 from 51 in October. The inventories component of the index fell to 51.5 from 53. Finally, the backlogs component rose to 54.5 from 51.5. Retail sales are vigorous so far this holiday shopping season, according to the Intl. Council of Shopping Centers, which said today that sales at stores open at least a year rose 3.1% during the week ended Dec. 2. The service sector accounts for the vast majority of growth in the US economy, while manufacturing accounts for only 12%. This report should quell any talk of an imminent recession. I continue to expect holiday retail sales to exceed estimates and the service sector to remain very healthy over the intermediate-term.