BETWEEN THE HEDGES

Monday, December 11, 2006

Tuesday Watch

Posted by Gary .....at 11:52 PM

Late-Night Headlines
Bloomberg:
- Nike Inc.(NKE) signed top-ranked golfer Tiger Woods to a new endorsement contract, both his agent and Nike(NKE) said.
- Gains in Japan’s producer prices slowed for a second month in November as oil costs fell, adding to evidence inflationary pressure is easing in the world’s second-largest economy.
- Shares of LG.Philips LCD Co., the world’s second-largest liquid-crystal display maker, dropped 7.6% after the company said it was raided by officials in South Korea, the US and Japan in an antitrust probe of screen makers.
- Pakistan’s agreements reached with groups in the tribal region bordering Afghanistan have boosted Taliban fighters sheltering in the area, the International Crisis Group said.
- BHP Billiton(BHP) said growth in production capacity of alumina refineries will outpace demand next year. China, the world’s top user and producer of aluminum, is cutting back on imports, BHP said.
- OPEC shouldn’t decide to cut crude oil output for a second time in two months, US Energy Secretary Bodman said in Tokyo.

Wall Street Journal:
- Toyota Motor(TM) may have rushed vehicle production without enough quality checks and relied too much on computer simulations, citing President Katsuaki Watanabe.

Mysteel.com:
- China boosted crude steel output by 24% in November from a year earlier. For the first eleven months of the year, the nation produced 381.5 million tons of steel, up 18% from a year earlier. The November production of hot-rolled sheets, used to make cold-rolled products, rose almost 300% from a year earlier. Iron ore production surged 44% in November to 59.3 million metric tons.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SONS), raised target to $9.
- Reiterated Buy on (CCK), raised target to $25.

Morgan Stanley:
- Raised (JPM) to Overweight, target $53.
- Reiterated Overweight on (HIG), target $108.

Night Trading
Asian Indices are -1.0% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.06%.

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
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In Play
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Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/EPS Estimate
- (ADCT)/.18
- (BBY)/.35
- (CKR)/.16
- (COO)/.79
- (DG)/.15
- (GS)/6.04
- (MATK)/.10

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for October is estimated to shrink to -$63.0 billion versus -$64.3 billion in September.

2:00 pm EST
- The monthly budget deficit for November is estimated to shrink to -$73.0 billion versus -$83.1 billion in October.

2:15 pm EST
- The FOMC is expected to leave the benchmark Fed Funds rate at 5.25%.

BOTTOM LINE: Asian indices are mostly higher, boosted by exporting 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 Ahead of Tomorrow's FOMC Meeting

Posted by Gary .....at 4:51 PM

Indices
S&P 500 1,413.04 +.23%
DJIA 12,328.48 +.17%
NASDAQ 2,442.86 +.23%
Russell 2000 793.07 +.06%
Wilshire 5000 14,199.42 +.19%
S&P Barra Growth 652.97 +.11%
S&P Barra Value 758.26 +.34%
Morgan Stanley Consumer 686.32 -.01%
Morgan Stanley Cyclical 892.80 -.05%
Morgan Stanley Technology 571.62 +.17%
Transports 4,740.93 +.44%
Utilities 457.38 +.32%
Put/Call .74 -5.13%
NYSE Arms 1.21 +43.56%
Volatility(VIX) 10.71 -11.27%
ISE Sentiment 162.0 +9.46%
US Dollar 83.18 -.13%
CRB 312.08 -.10%

Futures Spot Prices
Crude Oil 61.29 -1.19%
Reformulated Gasoline 160.10 -1.0%
Natural Gas 7.45 -1.44%
Heating Oil 172.95 -1.58%
Gold 634.60 +.57%
Base Metals 243.12 -.14%
Copper 313.70 +.80%
10-year US Treasury Yield 4.51% -.69%

Leading Sectors
Airlines +1.86%
Telecom +.76%
Banks +.70%

Lagging Sectors
Papers -.60%
Steel -.61%
Coal -.95%

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
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Exercise may lower the risk of developing breast cancer after menopause, while also helping maintain bone density, according to two separate studies published in the Archives of Internal Medicine today.
- New Jersey Transit’s new double-decker trains cars, which carry more passengers and eliminate the three-person seat that is the bane of many riders, started running today on the system’s busiest commuter route.
- Texas Instruments(TXN) cut its forecast for fourth-quarter sales and profit because of lower chip revenues. Analysts had expected the shortfall. The shares are trading down .19 in after-hours trading.
- Adam Geiger, Chief Investment Officer of Ivy Asset Management, is leaving the $16.4 billion fund of hedge funds, according to a letter sent to investors today.
- Robert Kraft, the owner of the New England Patriots and Paul Tudor Jones, a billionaire hedge fund manager, are joining other investors to back cable-tv programming for resort communities.
- The SEC meeting on raising the requirements for hedge fund investors has been rescheduled for this Wed.
- US gasoline at the pump fell during the past week to $2.29/gallon.
- Anadarko Petroleum expects capital spending of as much as $4.3 billion next year. 5-year annual production growth is predicted to be 5-9%.
- Devon Energy(DVN) today announced an oil discovery with the Mission Deep well on Green Canyon block 955.
- Crude oil fell almost $1/bbl. today as forecasts of milder weather reduced speculation by investment funds.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Telecom longs, Medical 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 about even, most sectors gained and volume was above average. Measures of investor anxiety were mixed into the close. I would classify today's overall market action as another healthy consolidation of recent gains. While analysts, managers and pundits continue to overwhelmingly love all energy-related stocks, the underlying commodity trades poorly in the face of potential upside catalysts. As well, the despised 10-year T-note finished near session highs and continues to trade well.

Stocks Modestly Higher into Final Hour on Falling Energy Prices and Buyout Speculation

Posted by Gary .....at 2:58 PM

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Retail longs and Telecom longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is modestly higher, most sectors are rising and volume is above average. A recent Piper Jaffray survey of 20 Apple (AAPL) specialist retailers shows about 25% of Mac purchasers are new to the Apple platform. Piper thinks the number will continue to grow due to the "halo effect" from iPods and the Boot Camp software. I continue to believe that Apple's full-year 2007 consensus earnings estimates are way too low as the Mac gains much more market share than most expect and new products gain significant traction. I suspect the stock will have another banner year next year as the multiple expands, demand for high-quality U.S. growth stocks increases globally and earnings meaningfully exceed estimates. Apple remains my second-largest long position, after Google (GOOG), due to substantial gains since adding to my long earlier in the year. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, buyout speculation, lower energy prices, declining long rates and portfolio manager performance anxiety.

Today's Headlines

Posted by Gary .....at 1:28 PM

Bloomberg:
- Iran today gave the floor to deniers of the Holocaust, criticizing the West for not giving them the opportunity to perform “independent research” into accounts of the killing of 6 million Jews during World War II.
- The worst of the US housing slump is over, according to the National Assoc. of Realtors.
- SAC Capital Advisers LLC, the $10 billion hedge-fund firm run by Steven Cohen, more than doubled its stake in copper miner Phelps Dodge(PD) and will oppose its takeover by Freeport-McMoRan Copper & Gold.
- Orange juice prices in NY fell the most in sixteen months after the government unexpectedly boosted its estimate for the orange crop in Florida.
- US consumers’ Internet spending for the holidays rose 25% from a year earlier as more people turned to the Web and stepped up spending with the approach of the busiest selling days of the year.
- London house prices rose in the past month at the fastest annual pace in at least four years, fueled by demand from bankers as the bonus season approaches, according to Rightmove Plc, the UK’s biggest property Web site.
- French industrial production unexpectedly fell in October for a second month as manufacturers struggled with a stronger euro and rising borrowing costs.
- Natural gas fell to the lowest in six weeks in NY as forecasters predicted above-normal temperatures form the Rocky Mountains to the East Coast the next two weeks.
- BioFuel Energy, a Denver-based company that’s building two ethanol distilleries, plans an IPO some time next year to raise $300 million to fund construction of three additional plants and to reduce debt.
- Crude steel production in the Middle East is set to soar almost 100% to 26 million tpy by 2010.
- US cotton exports will be 1.2% less than forecast last month because of weaker demand from China, the world’s biggest consumer of the fiber.

Wall Street Journal:
- Researchers from IBM(IBM), Qimonda AG and Macronix Intl. will present research today on memory chips that may become competitive with hard drives.
- The board of Harrah’s Entertainment(HET) plans to meet Wednesday to review all buyout offers for the company.
- The US electric power grid can supply enough energy to power as many as 180 million electric cars, citing an Energy Department study.
- Five US economic myths that constitute conventional wisdom don’t necessarily hold up under scrutiny. The five myths include the theory that monetary policy causes booms and busts, gross domestic product growth was extraordinary in the 90s, Americans don’t save, US government debt is big, and government debt will be a burden on our grandchildren, says the senior monetary adviser at the Federal Reserve Bank of Minneapolis and professor of economics at the WP Carey School of Business at Arizona State University.
- The SEC is considering a regulation that would accelerate approval of new ETFs.

NY Times:
- Three teams of private equity bidders are seeking to buy Sabre Holdings(TSG) and the company is in advanced talks to be sold for more than $4 billion.
- The FDA may increase its oversight of produce after recent E. coli outbreaks.

Svenska Dagbladet:
- Nokia Oyj(NOK) will begin designing mobile phones directly aimed at the US in a push to overtake Motorola(MOT) as the market leader there.

Handelsblatt:
- The Group of Eight leading industrialized nations are moving closer to endorsing stricter control of hedge funds as the US and UK governments support a German initiative to that end.

AFP:
- Iran pledged about $250 million to the Palestinian Authority’s Hamas-led government, citing Palestinian Authority Prime Minister Ismael Hania.

Wholesale Inventories Rise

Posted by Gary .....at 11:12 AM

- Wholesale Inventories for October rose .8% versus estimates of a .6% gain and a downwardly revised .7% increase in September.

BOTTOM LINE: Inventories at US wholesalers rose at a faster pace in October as sales fell modestly, Bloomberg reported. The inventory-to-sales-ratio increased to 1.2 months in October versus 1.18 months the prior month. Lower oil prices limited the increases in sales as the average price of crude fell to $59.41/bbl. from $63.90/bbl. the prior month. I expect inventories to begin falling again over the intermediate-term as housing stabilizes at relatively high levels, auto production cutbacks subside and consumer spending remains healthy.