BETWEEN THE HEDGES

Thursday, December 14, 2006

Friday Watch

Posted by Gary .....at 10:47 PM

Late-Night Headlines
Bloomberg:
- Royal Dutch Shell Plc, BP Plc, ConocoPhillips(COP) and Marathon Oil(MRO) reached agreement with the US Minerals Management Service to pay oil and gas royalties under botched Gulf of Mexico leases from 1998 and 1999.
- Samsung Electronics of South Korea and liquid-crystal display makers in Taiwan and Japan my face the largest antitrust penalty ever after a probe of possible price-fixing in the $69 billion industry.
- Confidence among Japan’s largest manufacturers rose to a two-year high in December and companies said they plan to increase spending at the fastest pace in 15 years.
- Cosan SA Industria e Comercio, the world’s largest sugarcane processor, reported a record profit as ethanol and sugar sales rose, driven by higher demand in Brazil and the US.
- The Dept. of Homeland Security will propose requiring chemical makers such as DuPont(DD) and railroads such as CSX Corp.(CSX) to better secure shipments of dangerous chemicals, a department official said.
- OPEC shouldn’t target high oil prices by restricting output, Japan’s Trade Minister Akira Amari said. “Oil consuming nations should work on energy conservation and efficiency to reduce demand for oil,” Amari told reporters. The reduction in demand may equal the 500,000 barrel-a-day output cut decided by OPEC yesterday.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (ET), target $30.

Business Week:
- Fortune Brands’(FO) shares may rise 12% in the next year, citing Gregory Gieber of AG Edwards.
- Shanda Interactive(SNDA), China’s second-biggest provider of online games, will benefit from growth in Internet and broadband usage.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/EPS Estimate
- (OHI)/.17

Upcoming Splits
- (AFG) 3-for-2
- (SPAR) 3-for-2
- (AEOS) 3-for-2

Economic Releases
8:30 am EST
- The Consumer Price Index for November is estimated to rise .2% versus a -.5% decline in October.
- The CPI Ex Food & Energy for November is estimated to rise .2% versus a .1% increase in October.

9:00 am EST
- Net Long-term TIC Flows for October are estimated to rise to $70.0 billion versus $65.1 billion in September.

9:15 pm EST
- Industrial Production for November is estimated to remain unch. versus a .2% gain in October.
- Capacity Utilization for November is estimated to rise to 82.1% versus a reading of 82.0% in October.

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

DJIA Makes Another All-Time High on Economic Optimism, a Stronger US Dollar, Positive Earnings Reports and Short-Covering

Posted by Gary .....at 5:07 PM

Indices
S&P 500 1,425.49 +.87%
DJIA 12,416.76 +.81%
NASDAQ 2,453.85 +.88%
Russell 2000 794.21 +.69%
Wilshire 5000 14,303.77 +.81%
S&P Barra Growth 659.14 +.93%
S&P Barra Value 764.47 +.81%
Morgan Stanley Consumer 691.91 +.46%
Morgan Stanley Cyclical 894.00 +1.11%
Morgan Stanley Technology 575.75 +1.03%
Transports 4,729.68 +1.54%
Utilities 461.63 +.21%
Put/Call .65 -26.97%
NYSE Arms .52 -40.02%
Volatility(VIX) 9.97 -2.06%
ISE Sentiment 139.0 +5.30%
US Dollar 83.68 +.44%
CRB 314.40 +.91%

Futures Spot Prices
Crude Oil 62.52 +1.87%
Reformulated Gasoline 167.0 +2.95%
Natural Gas 7.51 -2.01%
Heating Oil 177.60 +2.54%
Gold 629.80 -.41%
Base Metals 245.60 +1.67%
Copper 306.20 +.96%
10-year US Treasury Yield 4.59% +.30%

Leading Sectors
Networking +1.94%
Semis +1.86%
Retail +1.72%

Lagging Sectors
Hospitals -.12%
Coal -.20%
Airlines -.93%

Evening Review
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Afternoon Recommendations
Oppenheimer:
- Rated (COH) Buy, target $50.

Afternoon/Evening Headlines
Bloomberg:
- US stocks resumed their fourth-quarter rally, pushing the DJIA to a record, after companies reported profits that beat analysts’ estimates and the number of claims for jobless benefits fell.
- Ford Motor(F) announced an executive reorganization that includes centralizing product development as new CEO Mulally reshapes the second-largest US automaker.
- The New Jersey Assembly passed a Democratic proposal to allow same-sex civil unions, a measure gay people have said fails to grant them rights equal to married heterosexual couples.
- Adobe Systems(ADBE) said fourth-quarter profit rose 16% on higher sales of its Acrobat PDF software and products from its acquisitions of Macromedia.
- The US dollar surged to a three-week high against the yen after a government report showed a drop in US workers filing first-time jobless claims in the past week.
- Manufacturing growth in NY state fell less than forecast this month as orders picked up, the Federal Bank of NY said in an early release of the figures.
- The NYMEX(NMX) will expand its floor-trading hours beginning in February, the exchange said.
- Agco Corp.(AG), the second-largest US maker of farm equipment, plans to eliminate two-thirds of its brands to shore up profit and will sell more fuel-efficient tractors.

AP:
- Breast cancer rates in the US dropped 7.2% in 2003 after many women stopped taking hormone pills, citing a new analysis of federal stats.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Retail longs, Semi 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 positive today as the advance/decline line finished higher, almost every sector rose and volume was slightly above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was bullish. Cyclicals were especially strong as the "recession is imminent" cries are rapidly fading. The U.S. dollar strengthened throughout the day, which could begin taking its toll on commodities. "High-school drop-out" copper looks especially vulnerable near-term as Comex inventories continue to surge. The 10-year yield remained stable throughout the day. I suspect today's action is leading to another serious bout of performance anxiety by the near-record shorts and underinvested bulls. I expect stocks to build on today's gains into year-end.

DJIA Making Another New All-Time High into Final Hour on More Economic Optimism

Posted by Gary .....at 3:11 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Semi longs, Retail longs and Telecom longs. I covered my (QQQQ), (IWM), (EEM) hedges this morning, took profits in a few longs and added to my (BRCM), (ISRG) longs 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. Global Internet information provider comScore just issued a press release, stating that Apple Computer's (AAPL) iTunes revenue soared 84% during the first three quarters of 2006 vs. the same period last year. Moreover, it reported that the number of iTunes buying transactions have surged 67% on a 10% increase in the dollars spent per transaction.I continue to believe that too much emphasis is being placed on the iPod and not enough on Macs or new products, however, this completely refutes the recent Forrester report. Apple remains my second-largest long position behind Google (GOOG), and I expect substantial gains in the stock next year from current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, more economic optimism, buyout speculation and portfolio manager performance anxiety.

Today's Headlines

Posted by Gary .....at 2:51 PM

Bloomberg:
- Iraq will offer contracts to load crude oil in 2 million barrel consignments starting in January, after it re-opens its Kirkuk pipeline, the country’s oil minister said. Resuming Kirkuk oil sales should increase Iraq’s exports by 300,000 barrels a day, or 19%. Iraq currently pumps 2.3 million barrels of oil a day.
- Crude oil is $1/bbl. higher after OPEC agreed to another 500,000 bpd output cut to bolster prices.
- Rofer Corrado, vice chairman of the New York Board of Trade, said record hedge fund speculation is driving orange juice prices higher.
- Commissioner Paul Atkins said the SEC conducted research that showed just 1.3% of US households would meet the proposed criteria for hedge fund investing. The SEC made a proposal Wednesday that raised the minimum net worth needed to be a hedge fund investor from $1 million to $2.5 million.
- Advanced Micro Devices(AMD), Intel’s largest rival in personal-computer processors, forecast shipments will rise about 20% in 2007, twice the rate the company expects for the market.
- US commercial real estate investment is likely to set a record this year, driven by rising rents and occupancies in office and industrial buildings, the National Assoc. of Realtors said.
- 7-Eleven Inc., the biggest US convenience-store company, said it plans to add 30% more North American outlets and will start selling hot meals to fend off rival chains and supermarkets encroaching on its territory.
- EnCana Corp., Canada’s largest natural-gas producer, said it plans to spend $5.8 billion on oil and natural gas projects in 2007.
- US corn planting next year will cover the largest area in almost 60 years as farmers seek to benefit from surging prices and record demand for grain-based ethanol, Informa Economics said in a report to clients.
- Iraq, holder of the world’s third-largest oil reserves, will offer contracts to develop 60 oil fields, in several batches, starting next year, said Iraqi Oil Minister Sharistani.
- US duties on imports of two types of steel from 14 countries will be lifted after an independent US trade panel ruled that ending them wouldn’t harm American producers.

Wall Street Journal:
- Incoming Democratic US House Speaker Nancy Pelosi plans to set up a House panel that will have the authority to monitor funding for US intelligence agencies.
- The news that UAL Corp. and Continental Airlines are in merger talks lent wings to all carriers’ shares yesterday, and they might fly high for some time.
- Google(GOOG) the biggest seller of advertising on the Internet, is looking to extend its growth beyond search-engine ads by convincing clients to try new products including newspaper, radio and video ads.
- Pfizer(PFE), Sanofi-Aventis and other drugmakers may be making progress in developing new treatments for depression that combat mood problems in new ways.

NY Times:
- The US Mint banned the melting or export of coins after their monetary worth was exceeded by the value of the metals they contain, citing Mint director Edmund C. Moy. The value of the copper and zinc used in a penny is more than 1 cent, and the copper and nickel found in a 5-cent coin are worth as much as 7 cents.
- NYC has almost 4,200 surveillance cameras in Manhattan below 14th Street, a more than fivefold increase since 1998.

AP:
- Democratic Senator Tim Johnson of South Dakota was in critical condition early today after recovering from surgery. If Johnson’s seat were to become vacant, a Republican may take his place, which would shift the partisan balance to 50-50 and give Republicans control through the tie-breaking vote of VP Cheney.

Le Figaro:
- France Telecom SA, together with Apple Computer(AAPL), will offer monthly laptop rentals as part of a bid to attract young customers.

Vilaggazdasag:
- Apple Computer(AAPL) will open three retail shops in Hungary next year to take advantage of demand for its computers and music players.

Import Prices Rise Only Slightly After Record Declines, Job Market Still Healthy

Posted by Gary .....at 12:46 PM

- The Import Price Index for November rose .2% versus estimates of a .1% gain and a downwardly revised -2.3% decline in October.
- Initial Jobless Claims for last week fell to 304K versus estimates of 320K and 324K prior.

BOTTOM LINE: Prices of goods imported into the US rose for the first time in three months because of a jump in the cost of natural gas, Bloomberg reported. Outside of natural gas, price gains were minimal. Import prices fell 2.3% in October and 2.2% in September, the largest declines since record-keeping began in 1989. Imports account for roughly 17% of all goods and services. Import prices rose 1.2% from year-ago levels. I continue to believe inflation fears have peaked for this cycle and long-term rates will remain low over the intermediate-term.

Fewer US workers filed first-time applications for state unemployment benefits for a second consecutive week, a sign that demand for labor is holding up, Bloomberg said. The four-week moving-average of jobless claims fell to 327,250 versus 328,750 the prior week. Claims have been distorted the last three weeks by seasonal adjustments even as unemployment remains near a five-year low. The unemployment rate among those eligible for jobless benefits, which tracks the US unemployment rate, held steady at 1.9% last week. Job growth has averaged about 149,000/month so far this year, well above the rate necessary to keep unemployment from rising, notwithstanding housing and auto-related job cuts. Moreover, hourly wage growth is rising at the fastest pace in five years and almost 4 times the rate of inflation. I continue to expect the job market to remain healthy without generating substantial unit labor cost increases over the intermediate-term