BETWEEN THE HEDGES

Monday, March 19, 2007

Tuesday Watch

Posted by Gary .....at 9:17 PM

Late-Night Headlines
Bloomberg:
- China’s securities regulator has barred publicly traded companies from using their stock-sale proceeds to invest in initial public offerings or buying other stocks, in a move to curb an overheating market.
- Temperatures will be higher than normal everywhere in the US except along the Pacific Coast from April through June, forecasters at WSI Corp. said.
- Cnooc Ltd., China’s biggest offshore oil producer, made a new discovery in Bohai Bay as it intensifies efforts to explore for oil and gas to meet the nation’s rising energy demand.
- Goldman Sachs Group(GS) said it joined a group of private equity investors who want to invest $3.4 billion in bankrupt auto-parts maker Delphi Corp.
- The yen is falling to a two-week low against he euro on speculation Bank of Japan policy makers last today will signal they are in no hurry to raise interest rates.

AP:
- Dozens of demonstrators and police officers were injured in clashes in Kolkata in eastern India when protesters marched on government offices over the deaths of 14 farmers last week. The farmers died last week in clashes over plans to turn their land into an industrial zone.

Nation:
- Businesses in Thailand expect economic growth to slow this year to less than 4% because of politics and eroding confidence.

Economic Daily:
- AU Optronics(AUO) won orders to supply liquid-crystal displays measuring 46 inches in diameter to Samsung Electronics.
- India’s government may give cement producers tax incentives to rein in the building material’s price and control inflation.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ABK), target $103.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.08%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (ADBE)/.29
- (CHAP)/1.23
- (CTAS)/.51
- (CMC)/.65
- (DRI)/.70
- (FDS)/.49
- (ORCL)/.22
- (SHFL)/.07
- (SONC)/.14

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for February are estimated to rise to 1450K versus 1408K in January.
- Building Permits for February are estimated to fall to 1550K versus 1568K in January.

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.

Stocks Finish Higher on Buyout Activity, Falling Energy Prices

Posted by Gary .....at 6:05 PM

Indices
S&P 500 1,402.06 +1.09%
DJIA 12,226.17 +.96%
NASDAQ 2,394.41 +.92%
Russell 2000 787.05 +1.06%
Wilshire 5000 14,152.57 +1.10%
Russell 1000 Growth 554.12 +1.02%
Russell 1000 Value 807.46 +1.16%
Morgan Stanley Consumer 690.09 +.67%
Morgan Stanley Cyclical 947.57 +1.36%
Morgan Stanley Technology 554.70 +.35%
Transports 4,794.61 +.27%
Utilities 484.40 +1.22%
MSCI Emerging Markets 112.36 +1.35%

Sentiment/Internals
Total Put/Call .81 -33.61%
NYSE Arms .55 -58.05%
Volatility(VIX) 14.59 -13.10%
ISE Sentiment 131.0 +36.46%

Futures Spot Prices
Crude Oil 56.75 -.63%
Reformulated Gasoline 195.95 +2.75%
Natural Gas 7.09 +2.95%
Heating Oil 169.30 +.25%
Gold 654.0 +.02%
Base Metals 251.93 +1.70%
Copper 320.50 +.46%

Economy
10-year US Treasury Yield 4.57% +2 basis points
US Dollar 83.37 +.22%
CRB Index 304.58 +.05%

Leading Sectors
Oil Service +2.78%
Airlines +1.70%
I-Banks +1.65%

Lagging Sectors
Alternative Energy -.46%
Semis -.60%
Oil Tankers -.76%

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
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GuruFocus.com
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In Play

Afternoon Recommendations
Piper Jaffray:
- Rated (MEND), (BSMD), (NXTM), (ELOS) and (BCR) Outperform.
- Rated (SRDX) Underperform.

AG Edwards:
- Rated (C) Buy.

Morgan Stanley:
- Raised (JNPR) to Overweight.

Afternoon/Evening Headlines
Bloomberg:
- Natural gas futures fell to the lowest price in two months as forecast for milder weather signaled reduced consumption of the heating fuel with inventories near record highs as we enter the spring.
- The Chicago Merc(CME) can afford to bid about 15% more than a rival for the Chicago Board of Trade(BOT) to secure its planned merger, according to Bank of America.
- US prices for ethylene, a key ingredient in plastics and synthetic fibers, are poised to fall each year through 2011 as production from new factories outpaces demand growth, Merrill Lynch said.

Absolute Return:
- Amaranth LLC was the largest of at least 83 US hedge funds to shut down last year, according to a survey by HedgeFund Intelligence.

Red Herring:
- Spring Nextel(S) and Clearwire Corp.(CLWR) may combine high-speed wireless networks to give their new technology a chance to succeed, citing analysts.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Internet longs, Retail longs, Biotech 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 positive today as the advance/decline line finished higher, almost every sector rose and volume was about average. Measures of investor anxiety were mixed into the close. Today's overall market action was bullish. Margin debt hit another record in February, however this number is meaningless without knowing how much of this increase was related to short-selling and negative correlation securities. Gasoline crack spreads are now at levels seen during Katrina and last year's euphoric top in oil prices. It will be interesting if members of Congress threaten investigations as they did the last time spreads hit current levels. Given the fact that housing activity very likely worsened last month due to one of the coldest Februarys in U.S. history and subprime fears exploding, I will closely monitor the market's reaction to key housing data this week. The market’s reaction to today’s NAHB Housing Market Index report was muted. Considering the massive hedges on US stocks that have been put in place over the last several weeks, I would expect to see some significant short-covering into any meaningful weakness.

Stocks Higher into Final Hour on Buyout Activity, Falling Energy Prices

Posted by Gary .....at 4:38 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs and Internet longs. I covered my remaining (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rise and volume is average. Energy equity insiders are selling into recent relative strength. In the weekly insider selling/buying report today from the Washington Service, energy insiders were the greatest net sellers. Energy insiders bought $10,102,451 worth of stock last week and sold $363,804,978. The last time energy insiders led sector net sellers was when oil was around $70 per barrel. As well, commercials have been selling into oil price weakness, which is rare, and have been net short for several weeks. The last time commercials were this short oil was in August of last year, again when oil was around $70 per barrel. The line in the sand is likely $50 per barrel. If oil were to convincingly take out this critical level, I believe a negative sea change in investor sentiment would occur with respect to the longer-term direction of the commodity, which would lead to another substantial technical breakdown in energy-related stocks. I expect this to occur later this year, which would have very positive implications for the broad U.S. market. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, falling energy prices and short-covering.

Today's Headlines

Posted by Gary .....at 3:54 PM

Bloomberg:
- The US and Israel must recognize a Palestinian unity government including Hamas, as the first step toward a peace settlement that would help avoid disaster in the Middle East, billionaire hedge fund investors and left-wing activist George Soros said.
- Crude oil is falling another .35 to $56.75/bbl. as speculators trim bets on rising temperatures and worries over China’s recent interest rate hike.
- US homebuilders turned more cautious this month on concern that buyers will find it harder to obtain loans.
- President Bush said securing Baghdad is the most important mission for the US and asked the public for patience to let his latest strategy work.
- Fidelity Investments plans to introduce performance-based fees for 19 stock funds with $50 billion in assets. Fidelity would earn additional fees of 20 basis points if the funds beat their benchmarks over three years. The funds’ annual management fees would be reduced by 20 basis points if they failed to outperform.
- Community Health Systems(CYH) agreed to pay $5.1 billion for Traid Hospitals(TRI), outbidding a private equity group to create the biggest publicly traded US hospital company.
- John Reade, head of metals strategy at UBS AG’s investment-banking unit in London, expects gold to fall on selling by large speculators.
- Take-Two Interactive(TTWO) delayed its shareholder meeting and said it may sell itself after dissident investors announced plans to seize control of the company.
- Corn prices are falling in Chicago on speculation that US farmers will shift a record number of acres to produce more grain for ethanol.
- Nickel is falling in price after Jinchuan Group, China’s biggest producer, said “crazy” prices will spur higher production. The 41% rise in nickel this year is “madness,” and higher prices have led to “irrational investment” in production, Jinchang, Gansu province-based Jinchuan said. The company controls 90% of nickel output in China, the world’s largest consumer of the metal.
- Politics will trump economics, if necessary, to ensure a rational build out of ethanol across the US, according to Morgan Stanley. The current, substantial, bipartisan political support behind renewable fuels will remain solid at least through the 2008 election, the firm said. Morgan Stanley expects that falling corn prices will cool the food vs. fuel debate.

Wall Street Journal:
- German, Canadian and US auto unions pledged to fight a sale of DaimlerChrysler AG’s(DCX) Chrysler operations to a leveraged-buyout company.
- Leveraged-buyout firms such as Berkshire Partners LLC and Hilco Consumer Capital are investing in fashion designers, in a break from the past, when producers of such luxury goods were shunned.
- US fund firms are seeking to add at least 288 more ETFs.

NY Times:
- Viacom Inc.(VIA/B) is trying to attract Web video advertising accounts, the fastest growing segment on the Internet, as it begins a legal battle with YouTube owner Google Inc.(GOOG).
- Lycos Europe NV, the Internet service partly owned by Bertelsmann AG and Telefonica SA, will begin marketing itself in the US this month with the brand name Jubii.

Washington Post:
- Congress may vote to suspend a standardized test given to children in Head Start programs as part of the Bush administration’s No Child Left Behind initiative. Administration officials have said the test helps determine Head Start programs’ progress.

Investor’s Business Daily:
- Apple Inc.(AAPL) begins shipping its Apple TV video-streaming set-top boxes to retailers tomorrow. Apple TV, retailing for $299 in the US, allows consumers to wirelessly stream video and audio content from personal computers to televisions.

Platts:
- Japan’s demand for construction materials made from aluminum and its alloys will drop .4% in the year that begins in April, citing the Japan Sash Manufacturing Assoc.

Financial Times:
- Overseas banks may not make a profit on their credit-card and mortgage operations in China for 10 years, a KPMG report said. More than 70 foreign banks have invested billions of dollars over the past five years in China.

Les Echos:
- A “sharp” increase in the French minimum wage will reduce economic growth and result in job cuts, Bertrand Collomb, chairman of Lafarge SA, the world’s largest cement maker said. France’s industrial production can rebound by gaining competitiveness, following the example of Germany’s reforms over the past two years.

Nikkei English News:
- The Bank of Japan’s March quarterly Tanken survey will show business sentiment at the country’s largest manufacturers largely unchanged.

Economic Releases

Posted by Gary .....at 3:25 PM

- None of note