BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Semi longs, Biotech longs and Commodity shorts offset losses in my Internet longs and Telecom longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, most sectors are rising and volume is slightly above average. The latest commitment of traders report showed net commercial US dollar index longs surged to the highest since late 2004. Moreover, net large speculative traders have the largest net short position in the US dollar index since late 2004. The US dollar index made a significant bottom in late 2004 and rose 15.2% over the next 11 months. As well, a recent survey by Bloomberg of traders, investors and strategists showed only 9.1% US dollar bulls versus the euro. US dollar bulls were 7.4% around the significant bottom in 2004. I suspect a similar outcome is likely this time as global investor sentiment towards the US dollar is once again excessively pessimistic. This has negative implications for the prices of many commodities. I expect US stocks to trade mixed into the close from current levels as commodity stock weakness offsets gains elsewhere.
Wednesday, December 20, 2006
Stocks Slightly Higher into Final Hour on Small-cap Strength
Today's Headlines
Bloomberg:
- Shareholders of NYSE Group(NYX) approved the $14.6 billion purchase of Euronext NV, paving the way for the creation of the first trans-Atlantic securities market.
- Sugarhouse Casino, a $550 million project headed by Chicago investor Neil Bluhm, and Foxwoods Casino Philadelphia, a $410 million project proposed by Connecticut’s Mashantucket Pequot tribe, were awarded slot licenses for Philadelphia, making it the largest US city with casino gambling.
- A US plan to screen everyone who visits a doctor for HIV may get derailed by laws in at least eight states that require strict confidentiality and consent.
- Chilean stocks, riding a global copper mania, have become more expensive than equities in neighboring Argentina and Brazil. A decline in the metal’s price may undermine the market in 2007.
- CarMax(KMX), the largest used-car dealer in the US, said third-quarter profit almost doubled and raised its full-year forecast for the second time in three months as customers bought more luxury cars and light trucks.
- Iraqi Vice President Tariq al-Hashemi strongly endorsed a temporary boost in US troop strength in Baghdad to control sectarian violence, one of several ideas being weighed by the Bush administration.
- FedEx(FDX) said second-quarter profit rose 8.5%, but failed to lift forward guidance, thus disappointing investors.
- Prime Minister Tony Blair, ending a six-day visit to the Middle East, said the world faces a “monumental struggle” against extremist groups seeking to undermine Western governments. He singled out Iran as the region’s biggest threat.
- Mahmoud Ahmadinejad’s opponents were poised to secure a majority on Tehran’s City Council, in the first political setback suffered by Iran’s president since he won the office in June 2005.
- Natural gas is falling to a two-month low in NY as mild weather decreased demand and near record speculation by investment funds.
- Copper tumbled to a six-month low in NY as rising inventories and slower global growth fueled concern that demand may lag behind mine output.
- Gold prices are falling in NY on speculation the value of the dollar will hold steady against the euro, eroding the precious metal’s appeal as an alternative investment.
Wall Street Journal:
- IAC/InterActiveCorp’s Ticketmaster plans to acquire a 25% stake in ILike.com in a bid by the two companies to use the Internet to promote interest in music and concerts.
- Equity Office Properties Trust received approaches from at least four different parties before the real estate company agreed to sell itself to a unit of private-equity firm Blackstone Group LP for $20 billion.
NY Times:
- Leon Black, founder of Apollo Group and a former lieutenant of Michael Milken, has catapulted into the higher echelons of private equity with $37 billion worth of deals this week.
- Paramus, New Jersey, which has more parking spots than people, generates $5 billion a year in retail sales, about as much as the gross domestic product of Cambodia, Nicaragua or the sultanate of Brunei.
NY Post:
- Illegal video downloads were carried out at six million US households in the third quarter compared with 1.2 million that obtained permission to download videos legally, citing a study by NPD Group Inc.
International Herald Tribune:
- French security forces have broken up three Islamic terrorist plots in the past 18 months, including planned attacks on the Paris metro and Orly airport, citing an interview with anti-terrorist judge Jean-Louis Bruguiere.
Interfax:
- Azerbaijan, the third-largest oil producer in the former Soviet Union, raised crude-oil production 46% in the first 11 months of the year.
- Shareholders of NYSE Group(NYX) approved the $14.6 billion purchase of Euronext NV, paving the way for the creation of the first trans-Atlantic securities market.
- Sugarhouse Casino, a $550 million project headed by Chicago investor Neil Bluhm, and Foxwoods Casino Philadelphia, a $410 million project proposed by Connecticut’s Mashantucket Pequot tribe, were awarded slot licenses for Philadelphia, making it the largest US city with casino gambling.
- A US plan to screen everyone who visits a doctor for HIV may get derailed by laws in at least eight states that require strict confidentiality and consent.
- Chilean stocks, riding a global copper mania, have become more expensive than equities in neighboring Argentina and Brazil. A decline in the metal’s price may undermine the market in 2007.
- CarMax(KMX), the largest used-car dealer in the US, said third-quarter profit almost doubled and raised its full-year forecast for the second time in three months as customers bought more luxury cars and light trucks.
- Iraqi Vice President Tariq al-Hashemi strongly endorsed a temporary boost in US troop strength in Baghdad to control sectarian violence, one of several ideas being weighed by the Bush administration.
- FedEx(FDX) said second-quarter profit rose 8.5%, but failed to lift forward guidance, thus disappointing investors.
- Prime Minister Tony Blair, ending a six-day visit to the Middle East, said the world faces a “monumental struggle” against extremist groups seeking to undermine Western governments. He singled out Iran as the region’s biggest threat.
- Mahmoud Ahmadinejad’s opponents were poised to secure a majority on Tehran’s City Council, in the first political setback suffered by Iran’s president since he won the office in June 2005.
- Natural gas is falling to a two-month low in NY as mild weather decreased demand and near record speculation by investment funds.
- Copper tumbled to a six-month low in NY as rising inventories and slower global growth fueled concern that demand may lag behind mine output.
- Gold prices are falling in NY on speculation the value of the dollar will hold steady against the euro, eroding the precious metal’s appeal as an alternative investment.
Wall Street Journal:
- IAC/InterActiveCorp’s Ticketmaster plans to acquire a 25% stake in ILike.com in a bid by the two companies to use the Internet to promote interest in music and concerts.
- Equity Office Properties Trust received approaches from at least four different parties before the real estate company agreed to sell itself to a unit of private-equity firm Blackstone Group LP for $20 billion.
NY Times:
- Leon Black, founder of Apollo Group and a former lieutenant of Michael Milken, has catapulted into the higher echelons of private equity with $37 billion worth of deals this week.
- Paramus, New Jersey, which has more parking spots than people, generates $5 billion a year in retail sales, about as much as the gross domestic product of Cambodia, Nicaragua or the sultanate of Brunei.
NY Post:
- Illegal video downloads were carried out at six million US households in the third quarter compared with 1.2 million that obtained permission to download videos legally, citing a study by NPD Group Inc.
International Herald Tribune:
- French security forces have broken up three Islamic terrorist plots in the past 18 months, including planned attacks on the Paris metro and Orly airport, citing an interview with anti-terrorist judge Jean-Louis Bruguiere.
Interfax:
- Azerbaijan, the third-largest oil producer in the former Soviet Union, raised crude-oil production 46% in the first 11 months of the year.
Tuesday, December 19, 2006
Wednesday Watch
Late-Night Headlines
Bloomberg:
- Wang Jian, executive vice secretary of the China Society of World Economy, said the country’s economic growth may slow to 8% next year, as the government’s moves to slow investments lead to excess supply. Wang was speaking today at a steel industry conference in Beijing.
- Codelco, the world’s biggest copper producer, reached wage agreements with two of its unions, averting a strike in Chile that threatened to halt output at its largest mine, a labor leader said.
- Goldman Sachs Group(GS), through its GS Power Holdings LLC unit, bought a stake in biodiesel producer Green Earth Fuels, whose majority investors include US buyout firm Carlyle Group.
- The November US semiconductor book-to-bill ratio rose to .97 from .94 in October.
- The use of cholesterol-lowering drugs called statins is associated with a reduced risk of advanced prostate cancer, according to a study to be published tomorrow.
- US Treasury Secretary Henry Paulson declined to brand China a currency manipulator, concluding that the nation is taking steps to make the yuan more flexible.
- Ericsson, the world’s biggest provider of telecom equipment, agreed to buy Redback Networks(RBAK) for $2.1 billion or $25/share.
- Australian Treasurer Costello has slashed the government’s forecast for economic growth in the 12 months to June 30 from 3.25% to 2.5%.
- The yen dropped to a record low against the euro on speculation the Bank of Japan will raise interest rates at a slower pace than the European Central Bank.
- Somalia’s Islamist militia said it is preparing for “full scale war” against the interim government. The militia seized control of the capital, Mogadishu, in June and has advanced across the Horn of Africa nation, imposing Islamic laws in areas it controls. The US government says the militia is run by al-Qaeda.
- The Thai baht led Asian currencies higher after the government scrapped penalties on overseas investors buying stocks, a day after imposing them.
Wall Street Journal:
- US hedge funds say they expect competition in attracting and keeping workers on board in 2007, citing an informal survey. Payouts to manager in 2007 will rise to 8% to 20% of profits, with average payouts rising 15%, up from 3% in 2006.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GILD) and (UNH).
Morgan Stanley:
- Channel checks point to a strong pick-up in mall traffic and apparel sales. Following a relatively slow start to the holiday season, mall traffic levels have shown meaningful signs of improvement based on a number of recent channel checks. Moreover, online holiday sales are forecasted to be up 24% year-over-year. However, growth in online sales has been accelerating in recent days with sales up 33% on Dec. 14th and 38% on Dec. 15th. The National Retail Federation forecasts a 34% rise in gift cards, but based on anecdotal evidence we believe gift card sales could surpass this estimate. We continue to forecast total holiday sales growth of 4-5%.
Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated +.10%.
NASDAQ 100 indicated +.17%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (COMS)/.00
- (ACN/.42
- (ATU)/.81
- (BBBY)/.52
- (KMX)/.25
- (FDO)/.36
- (FDX)/1.76
- (FINL)/-.08
- (MLHR)/.56
- (NKE)/1.12
- (PAYX)/.34
Upcoming Splits
- None of note
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -2,000,000 barrels versus a -4,295,000 barrel decline the prior week. Gasoline supplies are expected to remain unch. versus a -174,000 barrel decline the prior week. Distillate inventories are estimated to fall by -600,000 barrels versus a -445,000 barrel decline the prior week. Refinery Utilization is expected to rise .5% versus a -1.36% decline the prior week.
Bloomberg:
- Wang Jian, executive vice secretary of the China Society of World Economy, said the country’s economic growth may slow to 8% next year, as the government’s moves to slow investments lead to excess supply. Wang was speaking today at a steel industry conference in Beijing.
- Codelco, the world’s biggest copper producer, reached wage agreements with two of its unions, averting a strike in Chile that threatened to halt output at its largest mine, a labor leader said.
- Goldman Sachs Group(GS), through its GS Power Holdings LLC unit, bought a stake in biodiesel producer Green Earth Fuels, whose majority investors include US buyout firm Carlyle Group.
- The November US semiconductor book-to-bill ratio rose to .97 from .94 in October.
- The use of cholesterol-lowering drugs called statins is associated with a reduced risk of advanced prostate cancer, according to a study to be published tomorrow.
- US Treasury Secretary Henry Paulson declined to brand China a currency manipulator, concluding that the nation is taking steps to make the yuan more flexible.
- Ericsson, the world’s biggest provider of telecom equipment, agreed to buy Redback Networks(RBAK) for $2.1 billion or $25/share.
- Australian Treasurer Costello has slashed the government’s forecast for economic growth in the 12 months to June 30 from 3.25% to 2.5%.
- The yen dropped to a record low against the euro on speculation the Bank of Japan will raise interest rates at a slower pace than the European Central Bank.
- Somalia’s Islamist militia said it is preparing for “full scale war” against the interim government. The militia seized control of the capital, Mogadishu, in June and has advanced across the Horn of Africa nation, imposing Islamic laws in areas it controls. The US government says the militia is run by al-Qaeda.
- The Thai baht led Asian currencies higher after the government scrapped penalties on overseas investors buying stocks, a day after imposing them.
Wall Street Journal:
- US hedge funds say they expect competition in attracting and keeping workers on board in 2007, citing an informal survey. Payouts to manager in 2007 will rise to 8% to 20% of profits, with average payouts rising 15%, up from 3% in 2006.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GILD) and (UNH).
Morgan Stanley:
- Channel checks point to a strong pick-up in mall traffic and apparel sales. Following a relatively slow start to the holiday season, mall traffic levels have shown meaningful signs of improvement based on a number of recent channel checks. Moreover, online holiday sales are forecasted to be up 24% year-over-year. However, growth in online sales has been accelerating in recent days with sales up 33% on Dec. 14th and 38% on Dec. 15th. The National Retail Federation forecasts a 34% rise in gift cards, but based on anecdotal evidence we believe gift card sales could surpass this estimate. We continue to forecast total holiday sales growth of 4-5%.
Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated +.10%.
NASDAQ 100 indicated +.17%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (COMS)/.00
- (ACN/.42
- (ATU)/.81
- (BBBY)/.52
- (KMX)/.25
- (FDO)/.36
- (FDX)/1.76
- (FINL)/-.08
- (MLHR)/.56
- (NKE)/1.12
- (PAYX)/.34
Upcoming Splits
- None of note
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -2,000,000 barrels versus a -4,295,000 barrel decline the prior week. Gasoline supplies are expected to remain unch. versus a -174,000 barrel decline the prior week. Distillate inventories are estimated to fall by -600,000 barrels versus a -445,000 barrel decline the prior week. Refinery Utilization is expected to rise .5% versus a -1.36% decline the prior week.
BOTTOM LINE: Asian indices are higher, boosted by automaker and technology shares in the region. I expect US equities to open mixed and to rise into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
DJIA Hits Another Record High on Positive Fed Comments
Indices
S&P 500 1,425.55 +.22%
DJIA 12,471.32 +.24%
NASDAQ 2,429.55 -.25%
Russell 2000 782.10 +.01%
Wilshire 5000 14,272.34 +.18%
S&P Barra Growth 658.18 +.32%
S&P Barra Value 765.61 +.11%
Morgan Stanley Consumer 694.30 +.25%
Morgan Stanley Cyclical 891.32 +.24%
Morgan Stanley Technology 571.64 -.28%
Transports 4,637.97 -.46%
Utilities 459.79 +.66%
Put/Call .95 -15.18%
NYSE Arms .86 -4.54%
Volatility(VIX) 10.30 -2.83%
ISE Sentiment 152.0 -17.39%
US Dollar 83.46 -.64%
CRB 312.46 +.67%
Futures Spot Prices
Crude Oil 63.30 +.81%
Reformulated Gasoline 170.0 +1.50%
Natural Gas 7.13 +.78%
Heating Oil 171.25 -.48%
Gold 625.80 +1.28%
Base Metals 240.11 -.27%
Copper 302.0 -.31%
10-year US Treasury Yield 4.59% +.26%
Leading Sectors
Gold & Silver +2.49%
Energy +1.47%
HMOs +1.17%
Lagging Sectors
Alternative Energy -.83%
REITs -.91%
Semis -1.41%
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
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
Banc of America:
- Upgraded (SPG), (MAC), (NXL), (VTR), (HCP), (BXP), (EXR) to Buy.
- Downgraded (DRE), (PKY), (CLI), (GCT) to Sell.
Deutsche Bank:
- Rated (GFIG) Buy, target $75.
- Rated (ITG) Buy, target $60.
- Rated (NITE) Buy, target $25.
Afternoon/Evening Headlines
Bloomberg:
- US stocks rose, pushing the Dow to another record high, as comments from the Fed’s Fisher quelled economic concerns.
- Emerging market stocks headed for the biggest drop in three months after Thailand imposed then rescinded currency controls on international investors, highlighting the risks of investing in developing economies.
- Copper fell in NY after a report showed US building permits dropped to a nine-year low in November.
CNBC:
- Harrah’s Entertainment(HET) has accepted a $16.7 billion buyout offer from Apollo Management LP and Texas Pacific Group.
S&P 500 1,425.55 +.22%
DJIA 12,471.32 +.24%
NASDAQ 2,429.55 -.25%
Russell 2000 782.10 +.01%
Wilshire 5000 14,272.34 +.18%
S&P Barra Growth 658.18 +.32%
S&P Barra Value 765.61 +.11%
Morgan Stanley Consumer 694.30 +.25%
Morgan Stanley Cyclical 891.32 +.24%
Morgan Stanley Technology 571.64 -.28%
Transports 4,637.97 -.46%
Utilities 459.79 +.66%
Put/Call .95 -15.18%
NYSE Arms .86 -4.54%
Volatility(VIX) 10.30 -2.83%
ISE Sentiment 152.0 -17.39%
US Dollar 83.46 -.64%
CRB 312.46 +.67%
Futures Spot Prices
Crude Oil 63.30 +.81%
Reformulated Gasoline 170.0 +1.50%
Natural Gas 7.13 +.78%
Heating Oil 171.25 -.48%
Gold 625.80 +1.28%
Base Metals 240.11 -.27%
Copper 302.0 -.31%
10-year US Treasury Yield 4.59% +.26%
Leading Sectors
Gold & Silver +2.49%
Energy +1.47%
HMOs +1.17%
Lagging Sectors
Alternative Energy -.83%
REITs -.91%
Semis -1.41%
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
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
Banc of America:
- Upgraded (SPG), (MAC), (NXL), (VTR), (HCP), (BXP), (EXR) to Buy.
- Downgraded (DRE), (PKY), (CLI), (GCT) to Sell.
Deutsche Bank:
- Rated (GFIG) Buy, target $75.
- Rated (ITG) Buy, target $60.
- Rated (NITE) Buy, target $25.
Afternoon/Evening Headlines
Bloomberg:
- US stocks rose, pushing the Dow to another record high, as comments from the Fed’s Fisher quelled economic concerns.
- Emerging market stocks headed for the biggest drop in three months after Thailand imposed then rescinded currency controls on international investors, highlighting the risks of investing in developing economies.
- Copper fell in NY after a report showed US building permits dropped to a nine-year low in November.
CNBC:
- Harrah’s Entertainment(HET) has accepted a $16.7 billion buyout offer from Apollo Management LP and Texas Pacific Group.
BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Computer longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mixed and volume was slightly above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was neutral. The Johnson Redbook same-store sales index rose 2.6% year-over-year this week vs. a 2.5% rise the prior week. The long-term average is a gain of about 3%. There is still no evidence, in my opinion, that a meaningful slowdown in consumer spending is underway, even as this remains a focal point for the many bears. Retail sales have decelerated recently on unseasonably warm weather and procrastination by shoppers in hopes of greater discounts. However, online sales will likely be even greater than raised expectations this holiday shopping season. I continue to 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 boost consumer spending back to above-average levels over the intermediate term as housing stabilizes at relatively high levels and auto production cutbacks subside. The Morgan Stanley Retail Index (MVRX) has soared 22.5% in less than five months vs. a 15.9% gain in the S&P 500 over the same time frame. I suspect the recent weakness in select retail is another buying opportunity.
Stocks Mixed into Final Hour, Recouping Morning Losses
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Biotech longs. I covered some of my IWM, QQQQ and EEM hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is modestly lower, most sectors are declining and volume is above average. The 15% decline in the Bangkok SET Index last night only resulted in around 2% declines in other emerging markets. Emerging market fund inflows are currently dwarfing all prior peaks. I continue to believe this mania will end very badly as commodities decline further. The major US averages and breadth are near session highs after the Fed's Fisher said that economic growth is above 2% now and will accelerate next year. I sense that the bears are losing control again as more potential catalysts failed to send stocks meaningfully lower. This should result in further short-covering into the close as the near-record shorts try to protect gains of the last couple of days. Fisher is now answering questions and saying that the Fed senses inflation expectations are contained and that he has no doubt the Fed’s anti-inflation effort. He also repeated that he is comfortable with the current Fed policy stance. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, stable long-term rates and bargain-hunting.
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