BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs and Retail longs. I added to my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are lower and volume is above average. The ABX subprime indices are holding onto yesterday's gains today. They are stable. As well, the August Case-Schiller Housing futures continue to inch higher. They now forecast an average home price of $217,400 in August, up from projections of $211,000 6 months ago. The average 30-year mortgage rate is now 6.18%, down 16 basis points in 4 weeks. The AAII percentage of bulls plunged to 36.63% this week from 53.85% the prior week. This reading is now below average levels. The AAII percentage of bears soared to 39.60% this week from 22.31% the prior week. This reading is above average levels. The 10-week moving average of the percentage of bears is currently 31.4%, an above-average level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. Moreover, the 50-week moving average of the percentage of bears is currently 36.8%, a very high level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March-May 2003, both being near major market bottoms. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.
Friday, March 02, 2007
Stocks Lower into Final Hour on Lingering Macro Worries
Today's Headlines
Bloomberg:
- The perceived risk of owning low-rated subprime mortgage bonds is stable today after falling yesterday.
- Gold in NY headed for the biggest weekly decline since July as investors sold the metal to cover losses in emerging markets. Silver also fell more than 5%.
- The US government’s accusations that Morgan Stanley, UBS AG and Bear Stearns employees were central figures in an insider-trading ring illustrates why regulators and lawmakers are suspicious of Wall Street’s relationship with hedge funds.
- Federal Reserve Bank of St. Louis President William Poole said that a US recession isn’t likely.
- Crude oil is falling .53 as speculators cut bets on higher prices as worries over demand intensify.
Wall Street Journal:
- The US Environmental Protection Agency wants nitrogen-oxide emissions from diesel engines powering locomotives and ships to be reduced by more than 75%.
- Illinois Senator Obama, who is holding New York fundraising events on March 9, has support from billionaire investor George Soros; Orin Kramer, a partner at Boston Provident Partners LP; and Jamie Rubin, a partner with private equity firm One Equity and the son of former Treasury Secretary Robert Rubin. The Clinton campaign relies for its Wall Street fundraising on Steve Rattner of Quadrangle Group LLC; Alan Patricof of Apax Partners Inc.; Thomas Lee of Lee Equity Partners LLC; and Thomas Steyer, who oversees investments at Farallon Capital Management LLC.
NY Times:
- Wal-Mart Stores(WMT), whose strategy of selling more upscale products hasn’t yet worked, will start making product decisions around three different types of consumers, citing Chief Merchandising Officer John Fleming and Chief Marketing Officer Stephen Quinn.
- The US FDA is reviewing the safety of over-the-counter children’s cough and cold medicines.
NY Post:
- Clear Channel Communications(CCU) may be closer to its $26 billion takeover after a shareholder advisory firm urged investors to vote in favor of the offer.
USA Today:
- More US universities and colleges, including Indiana Univ. and Ohio’s Youngstown State Univ., are following major cities in banning smoking to reduce the amount of secondhand smoke.
- US and Brazilian officials are negotiating details of an ethanol partnership in advance of a trip by President George W. Bush to Latin America next week. The US, Brazil and other nations today will announce the establishment of the International Biofuels Forum, which will be affiliated with the United Nations.
Variety:
- Time Warner’s(TWX) Warner Bros. is working on a movie on the lives of former Central Intelligence Agency agent Valerie Plame and her husband, former ambassador Joe Wilson.
Financial Times:
- Billionaire Warren Buffett called hedge-fund fees “grotesque,” and said it was “folly” for investors to pay big fees in search of higher returns, citing Buffett’s annual letter to shareholders of his stock.
- This week’s market turmoil may result in more companies launching IPOs in the US in search of its stricter governance standards. While US markets may carry higher costs due to stricter rules, companies who list there may find that their shares are more highly valued.
Die Welt:
- About 80% of Germans are considering driving a more efficient car and using it less and 57% are willing to travel less by plane to cut dependence on mid-east oil and help the environment.
- The perceived risk of owning low-rated subprime mortgage bonds is stable today after falling yesterday.
- Gold in NY headed for the biggest weekly decline since July as investors sold the metal to cover losses in emerging markets. Silver also fell more than 5%.
- The US government’s accusations that Morgan Stanley, UBS AG and Bear Stearns employees were central figures in an insider-trading ring illustrates why regulators and lawmakers are suspicious of Wall Street’s relationship with hedge funds.
- Federal Reserve Bank of St. Louis President William Poole said that a US recession isn’t likely.
- Crude oil is falling .53 as speculators cut bets on higher prices as worries over demand intensify.
Wall Street Journal:
- The US Environmental Protection Agency wants nitrogen-oxide emissions from diesel engines powering locomotives and ships to be reduced by more than 75%.
- Illinois Senator Obama, who is holding New York fundraising events on March 9, has support from billionaire investor George Soros; Orin Kramer, a partner at Boston Provident Partners LP; and Jamie Rubin, a partner with private equity firm One Equity and the son of former Treasury Secretary Robert Rubin. The Clinton campaign relies for its Wall Street fundraising on Steve Rattner of Quadrangle Group LLC; Alan Patricof of Apax Partners Inc.; Thomas Lee of Lee Equity Partners LLC; and Thomas Steyer, who oversees investments at Farallon Capital Management LLC.
NY Times:
- Wal-Mart Stores(WMT), whose strategy of selling more upscale products hasn’t yet worked, will start making product decisions around three different types of consumers, citing Chief Merchandising Officer John Fleming and Chief Marketing Officer Stephen Quinn.
- The US FDA is reviewing the safety of over-the-counter children’s cough and cold medicines.
NY Post:
- Clear Channel Communications(CCU) may be closer to its $26 billion takeover after a shareholder advisory firm urged investors to vote in favor of the offer.
USA Today:
- More US universities and colleges, including Indiana Univ. and Ohio’s Youngstown State Univ., are following major cities in banning smoking to reduce the amount of secondhand smoke.
- US and Brazilian officials are negotiating details of an ethanol partnership in advance of a trip by President George W. Bush to Latin America next week. The US, Brazil and other nations today will announce the establishment of the International Biofuels Forum, which will be affiliated with the United Nations.
Variety:
- Time Warner’s(TWX) Warner Bros. is working on a movie on the lives of former Central Intelligence Agency agent Valerie Plame and her husband, former ambassador Joe Wilson.
Financial Times:
- Billionaire Warren Buffett called hedge-fund fees “grotesque,” and said it was “folly” for investors to pay big fees in search of higher returns, citing Buffett’s annual letter to shareholders of his stock.
- This week’s market turmoil may result in more companies launching IPOs in the US in search of its stricter governance standards. While US markets may carry higher costs due to stricter rules, companies who list there may find that their shares are more highly valued.
Die Welt:
- About 80% of Germans are considering driving a more efficient car and using it less and 57% are willing to travel less by plane to cut dependence on mid-east oil and help the environment.
Confidence Revised Lower From 2-Year High
- The Final Univ. of Mich. Consumer Confidence reading for February fell to 91.3 versus estimates of 93.5 and a prior estimate of 93.3.
BOTTOM LINE: Confidence among US consumers fell last month from a two-year high, Bloomberg reported. The Current Conditions component, which reflects American’s perceptions of their financial situation and whether it’s a good time to buy big-ticket items like cars, decreased to 106.7 versus 111.3 the prior month. A bounce higher in gas prices was the main reason behind the revision lower to confidence. I continue to expect this measure of confidence will join the Conference Board’s gauge and will hit new cycle highs later this year as housing stabilizes at relatively high levels, stocks rise further, interest rates remain low, gas prices fall further, inflation decelerates more and the job market remains healthy.
Thursday, March 01, 2007
Friday Watch
Late-Night Headlines
Bloomberg:
- Japan’s inflation slowed to zero percent in January as oil prices dropped, making it more difficult for the central bank to justify raising interest rates again soon after last week’s increases.
- Japan’s household spending unexpectedly rose for the first time in moiré than a year, suggesting the nation’s consumers may have recovered an appetite for shopping.
- Australia’s retail sales rose almost twice as much as expected in January as surging employment bolstered consumer confidence, signaling the Reserve Bank may not be done raising interest rates after three increases last year.
- Gold fell for a second day in Asia as speculators cut record long positions further on worries over demand for emerging markets. Tokyo gold futures dropped the daily limit.
- Petroleos Mexicanos plans to drill 50 to 60 oil wells in deep waters in the Gulf of Mexico over the next 5 years.
Wall Street Journal:
- BHP Billiton Ltd.(BHP) plans to almost triple its iron ore output during the next decade to more than 300 million metric tons a year, citing Ian Ashby, president of BHP’s iron ore unit.
London-based Times:
- Royal Dutch Shell Plc plans to produce a new road fuel from wood chips and straw in a joint venture with Choren Industries, a German biofuel company, citing Ken Fisher, Shell’s vp for strategy.
Late Buy/Sell Recommendations
Business Week:
- SuperGen(SUPG), a drugmaker expanding in new markets through partnerships, remains undervalued at a time when its stock is likely to climb. This year, sales of Dacogen are expected to reach $120 million, citing Elemer Piros of Rodman & Renshaw who rates the stock a buy, with a 12-month target of $24.
- Tyco Intl(TYC), the conglomerate splitting into three companies, has excited some investors, who are snapping up shares in the anticipation that the split will boost the stock. John Maloney, president of M&R Capital Management Inc., says a sum-of-the-parts valuation puts Tyco’s worth at $40 a share, and owning 100% of three companies will be a big bonus for shareholders.
- Altair Technologies’(ALTI) sales may rise on higher demand for its high-power NanoSafe battery packs. Phoenix orders in 2007 alone may tally as much as $42 million, citing John Roy of WR Hambrecht.
Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.26%.
NASDAQ 100 indicated +.14%.
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
- (DRC)/.49
Upcoming Splits
- (ALB) 2-for-1
Economic Releases
10:00 am EST
- Final Univ. of Mich. Consumer Confidence for February is estimated to rise to 93.5 versus 93.3.
Bloomberg:
- Japan’s inflation slowed to zero percent in January as oil prices dropped, making it more difficult for the central bank to justify raising interest rates again soon after last week’s increases.
- Japan’s household spending unexpectedly rose for the first time in moiré than a year, suggesting the nation’s consumers may have recovered an appetite for shopping.
- Australia’s retail sales rose almost twice as much as expected in January as surging employment bolstered consumer confidence, signaling the Reserve Bank may not be done raising interest rates after three increases last year.
- Gold fell for a second day in Asia as speculators cut record long positions further on worries over demand for emerging markets. Tokyo gold futures dropped the daily limit.
- Petroleos Mexicanos plans to drill 50 to 60 oil wells in deep waters in the Gulf of Mexico over the next 5 years.
Wall Street Journal:
- BHP Billiton Ltd.(BHP) plans to almost triple its iron ore output during the next decade to more than 300 million metric tons a year, citing Ian Ashby, president of BHP’s iron ore unit.
London-based Times:
- Royal Dutch Shell Plc plans to produce a new road fuel from wood chips and straw in a joint venture with Choren Industries, a German biofuel company, citing Ken Fisher, Shell’s vp for strategy.
Late Buy/Sell Recommendations
Business Week:
- SuperGen(SUPG), a drugmaker expanding in new markets through partnerships, remains undervalued at a time when its stock is likely to climb. This year, sales of Dacogen are expected to reach $120 million, citing Elemer Piros of Rodman & Renshaw who rates the stock a buy, with a 12-month target of $24.
- Tyco Intl(TYC), the conglomerate splitting into three companies, has excited some investors, who are snapping up shares in the anticipation that the split will boost the stock. John Maloney, president of M&R Capital Management Inc., says a sum-of-the-parts valuation puts Tyco’s worth at $40 a share, and owning 100% of three companies will be a big bonus for shareholders.
- Altair Technologies’(ALTI) sales may rise on higher demand for its high-power NanoSafe battery packs. Phoenix orders in 2007 alone may tally as much as $42 million, citing John Roy of WR Hambrecht.
Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.26%.
NASDAQ 100 indicated +.14%.
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
- (DRC)/.49
Upcoming Splits
- (ALB) 2-for-1
Economic Releases
10:00 am EST
- Final Univ. of Mich. Consumer Confidence for February is estimated to rise to 93.5 versus 93.3.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
Stocks Finish Only Modestly Lower on Heavy Volume
Indices
S&P 500 1,403.17 -.26%
DJIA 12,223.34 -.28%
NASDAQ 2,404.21 -.49%
Russell 2000 791.03 -.29%
Wilshire 5000 14,177.23 -.26%
Russell 1000 Growth 554.25 -.34%
Russell 1000 Value 810.15 -.18%
Morgan Stanley Consumer 691.99 -.22%
Morgan Stanley Cyclical 933.57 -.27%
Morgan Stanley Technology 562.10 -.42%
Transports 4,855.47 -.17%
Utilities 480.69 +.31%
MSCI Emerging Markets 110.04 -1.35%
Sentiment/Internals
Total Put/Call 1.39 +26.36%
NYSE Arms 1.17 +22.79%
Volatility(VIX) 15.82 +2.59%
ISE Sentiment 107.0 -6.14%
Futures Spot Prices
Crude Oil 61.81 +.03%
Reformulated Gasoline 190.34 +1.58%
Natural Gas 7.33 +.48%
Heating Oil 177.62 -.11%
Gold 666.40 -.91%
Base Metals 244.60 +1.79%
Copper 275.20 unch.
Economy
10-year US Treasury Yield 4.55% -2 basis points
US Dollar 83.75 +.22%
CRB Index 312.24 -.05%
Leading Sectors
HMOs +1.11%
Oil Service +.65%
Gaming +.39%
Lagging Sectors
Networking -1.72%
Biotech -1.96%
Gold & Silver -2.15%
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:
- American Intl. Group(AIG), the world’s largest insurer, said fourth-quarter profit rose almost eightfold a year after the company paid $1.64 billion to settle probes of accounting and sales practices. The stock fell .30 after-hours.
- Berkshire Hathaway(BRK/A), run by billionaire Warren Buffett, said fourth-quarter profit fell 30% on lower investment gains.
- Senate Democrats “overwhelmingly” rejected a proposal to cut the Bush Administration’s war spending request for next year by $20 billion, according to Budget Committee Chairman Kent Conrad.
- Dell Inc.(DELL) posted fourth-quarter profit and sales that trailed analysts’ reduced estimates after the company lost customers to rivals over the holidays. The stock fell .40 after-hours.
- Kohl’s Corp.(KSS), the fourth-largest US dept.-store company, said fourth-quarter profit rose 29%, helped by sales of home goods. Earnings and sales beat estimates. The stock is rising $1.50 in after-hours trading.
- Dennis Gartman, economist, trader and editor of the Gartman Letter, sees gold falling to $630/oz. within a few weeks.
Reuters:
- TXU Corp.(TXU), the Texas power producer that agreed to a $45 billion buyout by KKR and Texas Pacific, will contract up to 60 companies to gauge their interest in submitting a rival offer, citing CEO John Wilder.
Canadian Broadcasting Corp.:
- Canadian Prime Minister Stephen Harper’s Conservative Party has widened its lead over the main opposition Liberal Party to 9 percentage points, citing a Decima Research survey.
S&P 500 1,403.17 -.26%
DJIA 12,223.34 -.28%
NASDAQ 2,404.21 -.49%
Russell 2000 791.03 -.29%
Wilshire 5000 14,177.23 -.26%
Russell 1000 Growth 554.25 -.34%
Russell 1000 Value 810.15 -.18%
Morgan Stanley Consumer 691.99 -.22%
Morgan Stanley Cyclical 933.57 -.27%
Morgan Stanley Technology 562.10 -.42%
Transports 4,855.47 -.17%
Utilities 480.69 +.31%
MSCI Emerging Markets 110.04 -1.35%
Sentiment/Internals
Total Put/Call 1.39 +26.36%
NYSE Arms 1.17 +22.79%
Volatility(VIX) 15.82 +2.59%
ISE Sentiment 107.0 -6.14%
Futures Spot Prices
Crude Oil 61.81 +.03%
Reformulated Gasoline 190.34 +1.58%
Natural Gas 7.33 +.48%
Heating Oil 177.62 -.11%
Gold 666.40 -.91%
Base Metals 244.60 +1.79%
Copper 275.20 unch.
Economy
10-year US Treasury Yield 4.55% -2 basis points
US Dollar 83.75 +.22%
CRB Index 312.24 -.05%
Leading Sectors
HMOs +1.11%
Oil Service +.65%
Gaming +.39%
Lagging Sectors
Networking -1.72%
Biotech -1.96%
Gold & Silver -2.15%
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:
- American Intl. Group(AIG), the world’s largest insurer, said fourth-quarter profit rose almost eightfold a year after the company paid $1.64 billion to settle probes of accounting and sales practices. The stock fell .30 after-hours.
- Berkshire Hathaway(BRK/A), run by billionaire Warren Buffett, said fourth-quarter profit fell 30% on lower investment gains.
- Senate Democrats “overwhelmingly” rejected a proposal to cut the Bush Administration’s war spending request for next year by $20 billion, according to Budget Committee Chairman Kent Conrad.
- Dell Inc.(DELL) posted fourth-quarter profit and sales that trailed analysts’ reduced estimates after the company lost customers to rivals over the holidays. The stock fell .40 after-hours.
- Kohl’s Corp.(KSS), the fourth-largest US dept.-store company, said fourth-quarter profit rose 29%, helped by sales of home goods. Earnings and sales beat estimates. The stock is rising $1.50 in after-hours trading.
- Dennis Gartman, economist, trader and editor of the Gartman Letter, sees gold falling to $630/oz. within a few weeks.
Reuters:
- TXU Corp.(TXU), the Texas power producer that agreed to a $45 billion buyout by KKR and Texas Pacific, will contract up to 60 companies to gauge their interest in submitting a rival offer, citing CEO John Wilder.
Canadian Broadcasting Corp.:
- Canadian Prime Minister Stephen Harper’s Conservative Party has widened its lead over the main opposition Liberal Party to 9 percentage points, citing a Decima Research survey.
BOTTOM LINE: The Portfolio finished about even today as gains in my Retail longs and Computer longs offset losses in my Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative as the advance/decline line finished lower, sector performance was mixed and volume was heavy. Measures of investor anxiety were higher into the close. Today's overall market action was just mildly bearish as the major averages recouped much of this morning's substantial losses. My intraday gauge of investor angst finished the day again at an elevated level. I have heard many say they wish they had seen more panic the last few days, however my gauge registered very elevated levels of investor angst. The “whoosh” bottom that everyone looked for last year never materialized before the major averages ripped higher. I suspect the same will be the case this time as everyone looks for the exact same thing and the bearish camp is extraordinarily crowded given just slight losses in the major averages. A lot will depend on tonight's trading in Asia, but I have a feeling that U.S. stocks will build on today's sharp upside reversal tomorrow. While manufacturing data have been on the weak side of late, recent consumer-related data has been improving. The Conference Board's Consumer Confidence Index hit a cycle high last month, despite higher energy prices and the media's obsession with housing. Personal Income growth for January has only been exceeded 13 times over the last 20 years. Weekly retail sales have been trending higher the last few weeks. Personal spending, as evidenced in today's report, has also been trending higher. As well, all three US automakers reported better-than-expected sales for February, with GM reporting a 3.4% gain versus estimates of a 7% decline. Finally, can the consumer be weakening meaningfully when Mac sales soared 100% in January? Housing only matters to the extent that it significantly impacts the consumer, in my opinion. Manufacturing alone can't bring down the U.S. economy. Moreover, manufacturing should improve meaningfully over the course of the year as inventory rebuilding occurs and the auto sector improves markedly.
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