BETWEEN THE HEDGES

Wednesday, December 27, 2006

Thursday Watch

Posted by Gary .....at 10:24 PM

Late-Night Headlines
Bloomberg:
- New York City attracted a record 44 million tourists who added $24 billion to the economy in 2006.

Wall Street Journal:
- Bank of Japan Governor Toshihiko Fukui said the central bank will confirm that consumer prices are rising before deciding when to raise interest rates.

Financial Times:
- Apple Computer(AAPL) CEO Steve Jobs was given 7.5 million stock options in 2001 without the company’s board of directors authorizing the action as required. The options under review were handed to Jobs in October 2001, however Jobs later surrendered his options before they were exercised, implying that he didn’t gain any direct benefit from them. Apple has previously stated that its internal investigation revealed no misconduct by any current members of Apple’s management team, including Steve Jobs.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.11%.

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
- None of note

Upcoming Splits
- (LFC) 2.66-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 320K versus 315K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2520K prior.

10:00 am EST
- Consumer Confidence for December is estimated to fall to 102.0 versus a reading of 102.9 in November.
- The Chicago Purchasing Manager report for December is estimated to rise to 50.2 versus a reading of 49.9 in November.
- Existing Home Sales for November are estimated to fall to 6.19M versus 6.24M in October.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 2,500,000 barrels versus a 6,323,000 decline the prior week. Gasoline supplies are expected to rise by 750,000 barrels versus a 1,058,000 barrel increase the prior week. Distillate inventories are expected to rise by 500,000 barrels versus a 1,206,000 barrel increase the prior week. Finally, Refinery Utilization is expected to rise .3% versus a 1.6% gain the prior week.

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

Dow Hits Another All-Time High as Energy Prices Fall and New Home Sales Surge

Posted by Gary .....at 5:50 PM

Indices
S&P 500 1,426.84 +.70%
DJIA 12,510.57 +.83%
NASDAQ 2,431.22 +.73%
Russell 2000 797.73 +1.21%
Wilshire 5000 14,306.90 +.74%
S&P Barra Growth 656.01 +.62%
S&P Barra Value 769.36 +.78%
Morgan Stanley Consumer 699.58 +.47%
Morgan Stanley Cyclical 898.08 +1.11%
Morgan Stanley Technology 570.11 +.71%
Transports 4,591.86 +1.13%
Utilities 459.35 +.30%
Put/Call .78 -7.14%
NYSE Arms .49 -43.65%
Volatility(VIX) 10.64 -5.51%
ISE Sentiment 138.0 -8.61%
US Dollar 83.97 -.11%
CRB 306.04 -.13%

Futures Spot Prices
Crude Oil 60.42 -1.11%
Reformulated Gasoline 159.35 +1.39%
Natural Gas 6.12 -3.36%
Heating Oil 161.26 -.66%
Gold 629.90 +.48%
Base Metals 237.11 +.69%
Copper 290.50 +.94%
10-year US Treasury Yield 4.65% +1.12%

Leading Sectors
Steel +2.34%
Homebuilders +1.5%
Networking +1.13%

Lagging Sectors
Biotech +.25%
Hospitals +.23%
HMOs +.05%

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
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US stocks surged, propelling the Dow Jones Industrial Average above 12,500 for the first time, as oil tumbled to a one-month low and home sales exceeded estimates. The DJIA is now 19.5% higher for the year.
- Peter Beutel, president of energy consultant Cameron Hanover, says oil may break below $20/bbl. in 4-8 years.
- Natural gas fell 4% to the lowest level in more than 10 weeks as near record speculation by investment funds continues to subside with inventories near all-time highs.
- Democratic Representative Barney Frank, who will head the committee that oversees the SEC, said Congress should cap executive pay after the SEC changed rules for how companies value stock-options.

Dow Jones:
- Boeing Co.(BA) won a $1.15 billion order form the US Army to build 126 Apache helicopters over the next three years.

Boersen-Zeitung:
- SAP AG(SAP), the world’s largest maker of business-management software, expects double-digit growth in the coming years and may raise its dividend for 2006.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Semi longs, Telecom longs and Medical 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, every sector rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was very bullish. The May housing futures are now predicting only a 1.9% drop in the average home price by May. This is up from a 5.2% loss projection just a couple of months ago. Negative arguments regarding housing data are well known. The median home price is up over 50% the past few years. In my opinion, you can't have a meaningful consumer slowdown without a home price collapse. Without a meaningful consumer slowdown, a recession is highly unlikely. This is why so many market participants in the current negativity bubble constantly try to scare and dissuade home buyers from stepping in. The possibility of a home price collapse looks increasingly remote, while the many bears tell us to ignore all data that don't fit their doomsday thesis. The bond market seems to agree. Oil is finished near session lows and continues to trade very poorly despite numerous potential upside catalysts and near universal love for the commodity by the investment community and media. Russia said last night that it may pump as much as 12 million tons of crude to Europe via a Ukrainian pipeline next year, almost three times the amount pumped this year, as the country "steps up exports to sustain economic growth." I continue to believe non-OPEC oil production will rise much more than expectations over the intermediate-term.

DJIA Making Another All-Time on Strong Home Sales and Falling Energy Prices

Posted by Gary .....at 3:16 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Internet longs, Medical longs and Telecom longs. I added to my Apple Computer(AAPL) long today and took profits in a trading long, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is slightly below average. Apple Computer (AAPL), which I added to this morning when the stock was down 5%, is now at session highs, rising .30. Piper Jaffray said in a research note this afternoon that it was more confident than ever that Steve Jobs had no involvement in the alleged falsified documents. As well, Hitwise is reporting that Apple's iTunes' market share of visits soared 413% on Christmas Day from a year ago. Moreover, it reported that the Apple Store's market share of visits jumped 110% on Christmas Day vs. a year-ago and that the Apple Store was the fourth most visited Website in its Retail Index. I expect Apple to rise substantially from current levels next year. Today's morning weakness will likely be viewed as an exquisite buying opportunity. The stock remains my second largest long position. I expect US stocks to trade modestly higher into the close from current levels on more economic optimism, short-covering, portfolio manager performance anxiety and lower energy prices.

Today's Headlines

Posted by Gary .....at 2:43 PM

Bloomberg:
- The DJIA is making another all-time high as investor optimism regarding the prospects that the worst of the housing slowdown may be over rose after this morning’s new home sales report exceeded estimates.
- Gerald R. Ford, who became the 38th US president in 1974 has died at the age of 93.
- US Treasuries yields are rising, pushing rates on benchmark 10-year notes to a six-week high, after a government report showed new home sales and prices surged more-than-expected in November.
- Merrill Lynch(MER), the largest US brokerage firm, will offer bigger bonuses next year to financial advisers who bring in wealthier clients and increase the revenue they generate.
- Shares of InterContinental Hotels Group Plc, the world’s biggest lodging company, rose for a second day on speculation that the hotelier may be a takeover target.
- Crude oil fell to a one-month low as mild weather reduced near record speculation by investment funds. As well, natural gas is falling to the lowest price in more than 10 weeks in New York.
- Dennis Gartman, economist and editor of the Gartman Letter, is slightly bearish on base metals for 2007.
- Chile’s state-owned Codelco, the world’s largest copper producer, plans to spend $580 million to upgrade its Andina mine.
- Russia, the world’s second-largest oil exporter, will pump at least 9 million metric tons of crude to Europe via Ukrainian pipeline in 2007, twice as much as this year, as the country steps up exports to sustain economic growth. “We may even increase the volume of Russia oil up to 12 million tons,” Ihor Kiryushyn, CEO of VAT UkrTrasNafta, operator of Ukraine’s pipeline, said today in an e-mailed statement.

Wall Street Journal:
- The National Association of Manufacturers in the US predicts slower economic growth will prompt the Federal Reserve to lower interest rates by a half-percentage point by the middle of 2007, citing the AP.
- The SEC is increasingly hesitant to approve private investments in public equity, or PIPEs.
- Results from late-stage trials of potential treatments by ImClone Systems(IMCL) and Threshold Pharmaceuticals for pancreatic cancer are expected to be released in the first quarter of 2007.
- The FDA has approved an injectable wrinkle treatment called Radiesse that claims to last longer and cost less than its competitors, citing a CEO. BioForm Medical, which makes the treatment, will announce FDA clearance on Wednesday.
- Elected officials and business leaders in the US Virgin Islands are lobbying Congress to ease a tax crackdown they say has hurt the local economy and government revenue.

USA Today:
- The US Transportation Security Administration modified a new screening machine for airline passengers so that it won’t show intimate body parts once testing begins.

NY Times:
- Iran is funding infrastructure projects in Afghanistan in an effort to develop more influence in the country.

AP:
- Weight loss can help reduce the risk of virulent prostate cancer, citing a study by the American Cancer Society and Duke University Prostate Center.
- Verizon Communications(VZ) has opened stores in malls in Texas and Virginia to market its FiOS service package for the company’s fiber optic television service.

Tex Report:
- Taiwan Power Co. will more than double liquefied natural gas consumption in 2017 after building new thermal power plants.

The Guardian:
- BP Plc(BP), Europe’s second-largest oil company by market value, is to become a sponsor member of BWEA, a campaign group for renewable energy.

Median New Home Price Has Surged $26,200 in 3 Months

Posted by Gary .....at 12:29 PM

- New Home Sales for November rose to 1047K versus estimates of 1018K and an upwardly revised 1013K in October.

BOTTOM LINE: Sales of new homes in the US rose more than forecast last month as lower mortgage rates and more incentives helped builders reduce inventory, Bloomberg reported. The 3.4% gain followed an increase the prior month that was larger than expected. The median price of a new home rose 5.8% in November to $251,700. This was the biggest year-over-year price gain since June. Moreover, the median new home price is back to it second-highest level on record at $251,700. The only other time it has been higher was April of this year at $257,000. The supply of new homes at the current sales rate fell to 6.3 months’ worth in November, the lowest since May, versus 6.7 months’ worth in October. The ratio has fallen from a high of 7.2 months in July. New home sales soared 22.5% in the Northeast, 22.4% in the Mid-west and 19% in the West. Sales fell 9.3% in the South. I continue to believe the housing market is stabilizing at relatively high levels. With prices approaching record highs and inventories falling rapidly, the case for a housing "hard landing" looks increasingly difficult to make. The 10-year yield is rising 4 basis points on the news and the homebuilding index is outperforming, rising 1.2%.