BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Telecom longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is above average. Average Hourly Earnings (year over year) rose a very strong 4.1% in February vs. estimates of a 4.0% gain and an upwardly revised 4.1% increase in January. This is almost double the most recent CPI (year over year) reading of 2.1%. Moreover, the 10-month moving average of Average Hourly Earnings (year over year) increases is 4.05%. The only year during the entire 1990s expansion that exceeded this rate was 1998 at 4.2%. Combine this with yesterday's report, which as I predicted was almost completely ignored in the press, that Americans' household net worth hit another all-time high during the fourth quarter, and the consumer is in much better shape than is portrayed in many circles. Oil is falling $1.60/bbl., to session lows right now. I expect a convincing break back into the $50s next week. The energy sector is only coming under mild pressure so far. My intraday gauge of investor angst is at above-average levels once again. The yield on the 10-year is 7 basis points higher, which I view as a big positive as traders see the chances of a recession diminishing. I do not believe that stocks need a rate cut to rise substantially from current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on more economic optimism, short-covering and bargain hunting.
Friday, March 09, 2007
Stocks Mixed info Final Hour, Consolidating This Week's Gains
Today's Headlines
Bloomberg:
- President Bush and Brazilian President Luiz Inacio Lula da Silva agreed to share technology to develop alternative fuels and reduce reliance on oil imports from Venezuela.
- Copper prices in NY fell by the most in a week after inventories jumped 15% in China, the world’s biggest user, signaling slowing demand.
- Crude oil is falling close to $60/bbl., down $1.50/bbl., on forecasts of warmer weather and rising worries about global demand.
- US antitrust regulators delayed Express Scripts’(ESRX) $26.1 billion hostile takeover bid for Caremark Rx(CMX), giving an edge to CVS Corp.’s(CVS) competing offer.
- Treasuries declined the most this year as a stronger-than-expected forecast government jobs report reduced bets the Fed will cut rates by mid-year.
- Google Inc.(GOOG) CEO Eric Schmidt says media companies will someday see the light. To attract viewers, they have no choice but to put their TV shows and movies on video sites such as his company’s YouTube.
Wall Street Journal:
- AT&T(T) and Yahoo!(YHOO) are in talks about scaling back an alliance through which they sold Internet access to millions of US citizens.
- Fashion designer Marc Ecko plans to open 150 retail outlets by the end of 2009 to profit fro growing sales of his brands.
- Caribbean trade accords that exempt local ethanol producers from taxes on exports to the US of the biofuel have boosted investments on the islands into plants for the gasoline substitute.
- The US National Math and Science Initiative, a non-profit project, plans to announce a program to pay students to take Advanced Placement tests that often provide college credits.
- Hedge funds and other private capital pools are concerned that tax rule changes being considered by US Senate advisers might hurt their profits.
NY Times:
- Hedge funds are among the winners from the drop in the subprime lending business. Paulson & Co., an $11 billion hedge fund, created two funds last summer that focused on a drop in the subprime mortgage market. Its Credit Opportunities Funds now have over $1 billion and were up 67% for February.
Chronicle of Higher Education:
- Default rates on guaranteed student loans are expected to drop to 4.9% this year from last year’s 5.1%, citing preliminary data released by the US Education Dept.
- President Bush and Brazilian President Luiz Inacio Lula da Silva agreed to share technology to develop alternative fuels and reduce reliance on oil imports from Venezuela.
- Copper prices in NY fell by the most in a week after inventories jumped 15% in China, the world’s biggest user, signaling slowing demand.
- Crude oil is falling close to $60/bbl., down $1.50/bbl., on forecasts of warmer weather and rising worries about global demand.
- US antitrust regulators delayed Express Scripts’(ESRX) $26.1 billion hostile takeover bid for Caremark Rx(CMX), giving an edge to CVS Corp.’s(CVS) competing offer.
- Treasuries declined the most this year as a stronger-than-expected forecast government jobs report reduced bets the Fed will cut rates by mid-year.
- Google Inc.(GOOG) CEO Eric Schmidt says media companies will someday see the light. To attract viewers, they have no choice but to put their TV shows and movies on video sites such as his company’s YouTube.
Wall Street Journal:
- AT&T(T) and Yahoo!(YHOO) are in talks about scaling back an alliance through which they sold Internet access to millions of US citizens.
- Fashion designer Marc Ecko plans to open 150 retail outlets by the end of 2009 to profit fro growing sales of his brands.
- Caribbean trade accords that exempt local ethanol producers from taxes on exports to the US of the biofuel have boosted investments on the islands into plants for the gasoline substitute.
- The US National Math and Science Initiative, a non-profit project, plans to announce a program to pay students to take Advanced Placement tests that often provide college credits.
- Hedge funds and other private capital pools are concerned that tax rule changes being considered by US Senate advisers might hurt their profits.
NY Times:
- Hedge funds are among the winners from the drop in the subprime lending business. Paulson & Co., an $11 billion hedge fund, created two funds last summer that focused on a drop in the subprime mortgage market. Its Credit Opportunities Funds now have over $1 billion and were up 67% for February.
Chronicle of Higher Education:
- Default rates on guaranteed student loans are expected to drop to 4.9% this year from last year’s 5.1%, citing preliminary data released by the US Education Dept.
Trade Deficit Shrinks, Payrolls Rise, Unemployment Falls, Inventories Rise
- The Trade Deficit for January shrank to -$59.1 billion versus estimates of -$59.8 billion and -$61.5 billion.
- The Change in Non-farm Payrolls for February was 97K versus estimates of 95K and an upwardly revised 146K in January.
- The Unemployment Rate for February fell to 4.5% versus estimates of 4.6% and 4.6% in January.
- Average Hourly Earnings for February rose 4.1% versus estimates of a 3.9% gain and an upwardly revised 4.1% increase in January.
- Wholesale Inventories for January rose .7% versus estimates of a .1% gain and a -.5% decline in February.
- The Change in Non-farm Payrolls for February was 97K versus estimates of 95K and an upwardly revised 146K in January.
- The Unemployment Rate for February fell to 4.5% versus estimates of 4.6% and 4.6% in January.
- Average Hourly Earnings for February rose 4.1% versus estimates of a 3.9% gain and an upwardly revised 4.1% increase in January.
- Wholesale Inventories for January rose .7% versus estimates of a .1% gain and a -.5% decline in February.
BOTTOM LINE: The US trade deficit shrank in January as imports declined and demand for US products rose, Bloomberg reported. US exports rose 1.1% to a record. A smaller deficit this year would result in trade contributing to US growth for the first time in more than 10 years. I expect the trade deficit to only improve slightly this year.
The US unemployment rate unexpectedly fell last month and employers added 97,000 jobs, easing concern economic slowdown concerns, Bloomberg reported. The unemployment rate fell slightly and remains at historically low levels. Upward revisions for the prior two months showed employers added 55,000 more jobs than previously estimated. Builders cut 62,000 jobs after adding 28,000 the prior month, mainly due to bad weather. I continue to believe the labor market will remain healthy over the intermediate-term as the financial, technology and healthcare sectors add jobs, more than offsetting construction-related weakness.
Inventories at US wholesalers rose more than forecast in January, Bloomberg reported. Sales fell .9% after rising 1.6% the prior month. At the current sales pace, the amount of goods on hand is still a low 1.19 months worth. Petroleum sales fell 11.1% versus a 5.9% increase the prior month. I continue to believe inventory rebuilding will begin adding to overall economic growth next quarter.
Thursday, March 08, 2007
Friday Watch
Late-Night Headlines
Bloomberg:
- American Airlines parent AMR Corp.(AMR) will consider Boeing Co.(BA) 737-800s to replace its fleet of 300 MD-80 jets and expects an announcement “in the near future,” citing CFO Tom Horton.
- Microsoft Corp.(MSFT) Chairman Bill Gates’ net worth swelled to $56 billion, making him the world’s richest person, followed by Warren Buffett, at No. 2, according to Forbes magazine’s annual survey of billionaires.
- New Century Financial(NEW) halted new loans and lined up almost $1 billion in new funding to help it stay in business.
- Afghanistan’s economic growth will accelerate over the next two years, according to the International Monetary Fund, with increased production of wheat and fruit.
- PT Bumi Resources, Indonesia’s biggest coal exporter, plans to boost production of the fuel by 50% in the next three years.
- European Union governments plan to set binding targets for the use of renewable energies such as solar and wind power, overcoming an East-West rift, Swedish Prime Minister Fredrik Reinfeldt said.
- Corn prices fell in Chicago and soybeans rose on speculation that US farmers will shift a record number of acres to produce more grain for ethanol.
- China, the world’s biggest energy consumer after the US, may offer tax breaks to companies that support energy conservation, Finance Minister Jin Renqing said.
- National Semiconductor(NSM) said that profit fell less than analysts expected in the fiscal third quarter after the company recovered from an inventory glut. The stock surged 5% in after-hours trading.
- Cooper Companies, the maker of contact lenses, said it earned 60 cents a share in its first quarter versus estimates of .54. The stock jumped 8.44% in after-hours trading.
- Gmarket(GMKT), the South Korean online auctioneer, reported profit of .13/share in the fourth quarter, below analysts’ estimates of .15. The shares plunged 18% in after-hours trading.
bankstocks.com:
- The bulls on subprime mortgage lending learn what fun it can be to be a contrarian investor.
China Business News:
- China Development Bank, which funds the country’s biggest public works projects, may write off $2 billion in bad loans, citing the bank’s board of supervisors.
Nikkei:
- Sony’s(SNE) Sony Computer Entertainment, which loses money on each PlayStation 3 it sells, plans to use cheaper chips to make the games profitable.
JoongAng Ilbo:
- The US and North Korea agreed to remove the communist country from the list of countries that support terrorism, citing North Korean Vice Foreign Minister Kim Kye Gwan.
Late Buy/Sell Recommendations
RBC:
- Rated (CIEN) Outperform, target $33.
- Rated (FFIV) Outperform, target $90.
Citigroup:
- Upgraded (HST) to Buy, target $29.
- Reiterated Buy on (MCD), target $49.
Business Week:
- Hythiam Inc.(HYTM), maker of the Prometa outpatient system to treat drug and alcohol addiction, may have its stock rise as more centers use the treatment. The treatment, which Hythiam licenses to treatment centers, managed-care providers and government agencies, remains controversial and the early results have been “overwhelmingly successful,” citing Ryan Daniels, an analyst at William Blair.
- Mosaic Co.9MOS) shares may rise 55% in a year because rising demand for corn will lead to higher sales of products from the fertilizer producer. “Huge” demand for corn will continue for years, forcing farmers to buy fertilizer to try to increase their yield, citing William Harnisch, president of Peconic Partners.
- Home Depot(HD) is undervalued and may have its shares rise 19% in the next year, citing Douglas Davenport, President of Atlanta Investment Counsel.
Night Trading
Asian Indices are unch. to +25% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated +.01%.
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
- (BIG)/.68
Upcoming Splits
- (GES) 2-for-1
Economic Releases
8:30 am EST
- The Trade Deficit for January is estimated to shrink to -$59.8 billion versus -$61.2 billion in December.
- The Change in Non-farm Payrolls for February is estimated at 95K versus 111K in January.
- The Unemployment Rate for February is estimated at 4.6% versus a reading of 4.6% in January.
- Average Hourly Earnings for February are estimated to rise .3% versus a .2% gain in January.
10:00 am EST
- Wholesale Inventories for January are estimated to rise .1% versus a -.5% decline in December.
Bloomberg:
- American Airlines parent AMR Corp.(AMR) will consider Boeing Co.(BA) 737-800s to replace its fleet of 300 MD-80 jets and expects an announcement “in the near future,” citing CFO Tom Horton.
- Microsoft Corp.(MSFT) Chairman Bill Gates’ net worth swelled to $56 billion, making him the world’s richest person, followed by Warren Buffett, at No. 2, according to Forbes magazine’s annual survey of billionaires.
- New Century Financial(NEW) halted new loans and lined up almost $1 billion in new funding to help it stay in business.
- Afghanistan’s economic growth will accelerate over the next two years, according to the International Monetary Fund, with increased production of wheat and fruit.
- PT Bumi Resources, Indonesia’s biggest coal exporter, plans to boost production of the fuel by 50% in the next three years.
- European Union governments plan to set binding targets for the use of renewable energies such as solar and wind power, overcoming an East-West rift, Swedish Prime Minister Fredrik Reinfeldt said.
- Corn prices fell in Chicago and soybeans rose on speculation that US farmers will shift a record number of acres to produce more grain for ethanol.
- China, the world’s biggest energy consumer after the US, may offer tax breaks to companies that support energy conservation, Finance Minister Jin Renqing said.
- National Semiconductor(NSM) said that profit fell less than analysts expected in the fiscal third quarter after the company recovered from an inventory glut. The stock surged 5% in after-hours trading.
- Cooper Companies, the maker of contact lenses, said it earned 60 cents a share in its first quarter versus estimates of .54. The stock jumped 8.44% in after-hours trading.
- Gmarket(GMKT), the South Korean online auctioneer, reported profit of .13/share in the fourth quarter, below analysts’ estimates of .15. The shares plunged 18% in after-hours trading.
bankstocks.com:
- The bulls on subprime mortgage lending learn what fun it can be to be a contrarian investor.
China Business News:
- China Development Bank, which funds the country’s biggest public works projects, may write off $2 billion in bad loans, citing the bank’s board of supervisors.
Nikkei:
- Sony’s(SNE) Sony Computer Entertainment, which loses money on each PlayStation 3 it sells, plans to use cheaper chips to make the games profitable.
JoongAng Ilbo:
- The US and North Korea agreed to remove the communist country from the list of countries that support terrorism, citing North Korean Vice Foreign Minister Kim Kye Gwan.
Late Buy/Sell Recommendations
RBC:
- Rated (CIEN) Outperform, target $33.
- Rated (FFIV) Outperform, target $90.
Citigroup:
- Upgraded (HST) to Buy, target $29.
- Reiterated Buy on (MCD), target $49.
Business Week:
- Hythiam Inc.(HYTM), maker of the Prometa outpatient system to treat drug and alcohol addiction, may have its stock rise as more centers use the treatment. The treatment, which Hythiam licenses to treatment centers, managed-care providers and government agencies, remains controversial and the early results have been “overwhelmingly successful,” citing Ryan Daniels, an analyst at William Blair.
- Mosaic Co.9MOS) shares may rise 55% in a year because rising demand for corn will lead to higher sales of products from the fertilizer producer. “Huge” demand for corn will continue for years, forcing farmers to buy fertilizer to try to increase their yield, citing William Harnisch, president of Peconic Partners.
- Home Depot(HD) is undervalued and may have its shares rise 19% in the next year, citing Douglas Davenport, President of Atlanta Investment Counsel.
Night Trading
Asian Indices are unch. to +25% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated +.01%.
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
- (BIG)/.68
Upcoming Splits
- (GES) 2-for-1
Economic Releases
8:30 am EST
- The Trade Deficit for January is estimated to shrink to -$59.8 billion versus -$61.2 billion in December.
- The Change in Non-farm Payrolls for February is estimated at 95K versus 111K in January.
- The Unemployment Rate for February is estimated at 4.6% versus a reading of 4.6% in January.
- Average Hourly Earnings for February are estimated to rise .3% versus a .2% gain in January.
10:00 am EST
- Wholesale Inventories for January are estimated to rise .1% versus a -.5% decline in December.
BOTTOM LINE: Asian indices are slightly higher, boosted by automaker and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
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