BETWEEN THE HEDGES

Monday, April 09, 2007

Tuesday Watch

Posted by Gary .....at 8:39 PM

Late-Night Headlines
Bloomberg:
- Dragon Captial, Vietnam’s biggest fund manager, is betting government share sales will help slow Asia’s second-most-expensive stock market, which has slumped 11% since its March 12 peak. “Increasing supply is a rational and welcome way of cooling the market that would kill two birds with one stone,” said Bill Stoops, head of research at Ho Chi Minh city-based Dragon, which manages $2 billion in Vietnam. Dragon is selling to raise cash that will go back in stocks once valuations fall, he said.
- The US dollar is declining against the euro and yen on speculation tension between the US and China will escalate after Trade Representative Susan Schwab said the government today will file complaints to the WTO.

China Securities Journal:
- China should accelerate change to lift controls on its interest-rate system.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CTAS).

Night Trading
Asian Indices are -.50% to .50% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated unch.

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Earnings of Note
Company/EPS Estimate
- (AA)/.78
- (BYI)/.04
- (ESIO)/.20
- (TSAI)/.31
- (ESIO)/.20

Upcoming Splits
- (FMCN) 2-for-1
- (GEF) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian indices are mixed as gains in steelmaking stocks are offsetting losses in energy shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Oil Prices Fall Most in 3 Months

Posted by Gary .....at 5:17 PM

Indices
S&P 500 1,444.61 +.06%
DJIA 12,569.14 +.07%
NASDAQ 2,469.18 -.09%
Russell 2000 811.64 -.21%
Wilshire 5000 14,593.18 +.06%
Russell 1000 Growth 570.09 +.05%
Russell 1000 Value 834.26 +.12%
Morgan Stanley Consumer 712.71 +.19%
Morgan Stanley Cyclical 974.94 +.60%
Morgan Stanley Technology 571.05 -.30%
Transports 5,010.10 +1.89%
Utilities 513.60 +.64%
MSCI Emerging Markets 120.35 +.49%

Sentiment/Internals
Total Put/Call .76 +1.33%
NYSE Arms .74 -9.01%
Volatility(VIX) 13.14 -.68%
ISE Sentiment 109.0 -13.49%

Futures Spot Prices
Crude Oil 61.71 -4.0%
Reformulated Gasoline 210.0 -1.35%
Natural Gas 7.56 -.57%
Heating Oil 182.50 -1.93%
Gold 675.90 -.52%
Base Metals 265.88 unch.
Copper 350.50 +3.79%

Economy
10-year US Treasury Yield 4.74% -1 basis point
US Dollar 83.10 +.13%
CRB Index 314.54 -.96%

Leading Sectors
Road&Rail +3.7%
Coal +2.91%
Steel +1.20%

Lagging Sectors
Banks -.36%
Computer Services -.37%
Tobacco -.60%

Evening Review
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Afternoon Recommendations
CIBC:
- Rated (ESRX) Sector Outperformer.

Afternoon/Evening Headlines
Bloomberg:
- Crude oil plunged $2.77 a barrel in NY, the biggest decline in three months on speculation US crude oil inventories jumped again last week.
- The Dow Chemical Co.(DOW) board of directors said it has held no discussions about a leveraged buyout of the company and reiterated support for CEO Andrew Liveris’s strategy for the company.
- President Vladimir Putin has already brought Russian newspapers and television to heel. Now he’s turning his attention to the Internet.
- Citigroup(C) is in talks to buy NY hedge-fund manage Old Lane LP in an effort to land Vikram Pandit as head of so-called alternative investments such as private equity and real estate.
- Tribune Co.(TRB) received commitments for $12.2 billion in debt financing to fund billionaire investor Sam Zell’s plan to take the company private, according to a regulatory filing.
- Take-Two Interactive(TTWO) said CFO Karl Winters resigned, less than two weeks after shareholders took control of the video-game maker and ousted its CEO.
- DivX Inc.(DIVX) today announced that, based on preliminary information, it currently expects that revenue and pre-tax earnings for the quarter ended March 31, 2007 will be higher than previous guidance. The shares surged 11.2% after-hours.
- Cotton in NY fell the most in three months on speculation US supplies will rise further as exports lag behind last year.
- Starbucks Corp.(SBUX) will build a new roasting plant in South Carolina to better distribute coffee in the US southeast.
- Orange-juice futures in NY fell to the lowest in almost six months on speculation demand is declining.
- Seagate Technology(STX) said preliminary fiscal third-quarter revenue was $2.8 billion, less than its forecasted range of $2.9-$3.0 billion. The stock fell .14 to $23.32 in after hours trading.

BOTTOM LINE: The Portfolio finished about even today as gains in my Telecom longs and Retail longs offset losses in my Medical longs and Semi longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mixed today as the advance/decline line finished slightly lower, most sectors gained and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was neutral. While buyout speculation and a sharp decline in oil failed to lift stocks meaningfully, a pause after last week's strong gains shouldn't be too concerning for the bulls. Moreover, despite the muted performance in the major averages, a number of stocks rose meaningfully once again. The underlying tone of the broad market remains very constructive. The NYSE cumulative advance/decline line made another all-time high last week. Moody's (MCO) reported today that the global default rate on junk bonds fell to 1.4% in March, the lowest in a decade, according to Bloomberg. Moreover, the firm is forecasting default rates to only rise to 3.5% by 2009 vs. the long-term average of 5.1%. I still expect stocks to rise modestly later this week.

Stocks Mixed into Final Hour as Falling Oil Prices Offset Profit-taking

Posted by Gary .....at 3:17 PM

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Retail longs and Telecom longs are offsetting losses in my Semi longs and Medical longs. I added to my (LVLT) long and added to an existing energy-related short today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mostly positive and volume is below average. Transports are breaking 2.0% higher today after news that Warren Buffett has acquired a large stake in Burlington Northern Santa Fe (BNI). Besides BNI, Alexander & Baldwin (ALEX), Con-Way (CNW), CSX Corp. (CSX), Norfolk Southern (NSC), Union Pacific (UNP) and YRC Worldwide (YRCW) are powering the Transportation Index higher. While there is no way to know the exact rationale behind Buffett's actions, I seriously doubt he would make such a move if he thought that there was a high probability of an imminent U.S. recession. Over the last hour, oil's decline has accelerated, with the commodity now down $2.71 per barrel, to $61.57 per barrel. Many energy-related stocks that had been up over 1% this morning are now at session lows, falling 0.1%-0.3%. This seems to be pressuring the broad market a bit. The decline in oil is coming despite more optimism over U.S. economic growth, more noise from Iran over its nuclear program, another big jump in crude oil large speculative longs last week, a 4% gain in copper and another huge surge in crack spreads. The underlying tone of trading in oil has completely changed since the end of the Iranian/U.K. hostage tensions, and the commodity is now back below its 200-day moving-average. Any weakness in the broad market related to a decline in oil is likely just temporary. I expect US stocks to trade mixed-to-higher into the close on short-covering, buyout speculation, falling energy prices and bargain-hunting.

Today's Headlines

Posted by Gary .....at 12:56 PM

Bloomberg:
- Crude oil is falling $1.80/bbl. to $62.48/bbl. today despite rising speculation in the commodity by investment funds, unconstructive comments from Iran regarding their nuclear program and more optimism for US economic growth.
- The US dollar traded near a six-week high against the yen after a government report on Friday showed the US economy created more jobs than expected, suggesting the Fed is less likely to cut interest rates over the coming months.
- Mirant Corp.(MIR), a US electricity producer that emerged from bankruptcy last year, said it is exploring strategic alternatives including a possible sale of the company.
- Farallon Capital Management(FAN), the fifth largest US hedge-fund manager, is negotiating to buy the manufactured home community business of Affordable Residential Communities(ARC), for approximately $1.8 billion.
- Iran’s president said Iran has begun enriching uranium on an industrial scale, stepping up the Islamic Republic’s defiance of the UN and risking an escalation of tensions over its nuclear program.
- Advanced Micro Devices(AMD) said revenue declined 8% in the first quarter amid a pricing battle with larger rival Intel Corp.(INTC). AMD is surging 5.1% on the report.
- Shares of Burlington Northern(BNI) and other US railroads rose after Warren Buffett’s Berkshire Hathaway(BRK/A) invested in three North American carriers even as the stocks hovered near all-time highs and many worried over the possibility of a US recession.
- Kohlberg Kravis Roberts received commitments for $5.6 billion in debt financing for its purchase of discount retailer Dollar General(DG), according to a regulatory filing.
- Copper prices in NY rose to a five-month high on expectations that demand in the US, the world’s second-biggest user of the metal behind China, will strengthen.

Wall Street Journal:
- Yahoo! Inc.(YHOO) has introduced a digital music player intended to rival Apple Inc.’s(AAPL) best-selling iPod.
- Private-equity financiers are increasingly looking to acquire companies that have lost the confidence of public shareholders and are being sold at a discount.
- The Pentagon has partnered with private investors, Intelsat Ltd. and Cisco Systems(CSCO) to provide high-speed Internet for moving military units.

NY Times:
- Hewlett-Packard’s(HPQ) printing division, which generated 30% of the company’s revenue last year, is trying to make it easier for people to print material from the Internet.
- Jimmy Wales, the creator of online encyclopedia Wikipedia, is working with Tim O’Reilly, a publisher credited with starting the term Web 2.0, to create guidelines for debate on the Internet. Wales and O’Reilly envisage bloggers agreeing to a code of conduct that would have accompanying seals of approval with specific logos carried on their Web sites.

Washington Post:
- President Bush is expected to announce a proposal today that would make more green cards available to skilled workers.

CNBC:
- Berkshire Hathaway Inc.(BRK/A) has bought “major” stakes in two North American railroad companies other than Burlington Northern(BNI), citing CEO Buffett.

Shanghai Securities:
- Electronic Arts(ERTS) may buy a stake in The9 Ltd. to expand in China’s online game market.

Economic Times:
- Genpact, an Indian computer services company part owned by General Electric(GE), and Sutherland Global Services plan to sell shares in the US this year.

Xinhua News Agency:
- China will boost imports of equipment with more advanced technology to help ease the country’s expanding trade surplus, citing Vice Commerce Minister Wei Jianguo. The government will simplify import procedures and issue policies to support imports of machinery and technology that makes integrated circuits, advanced chemical fibers and digitally controlled machine tools, said Wang Qinhua, a director from the commerce ministry.

Gulf News:
- Qatar plans to invest more than $75 billion in the country’s oil and gas sector in the next five years.

Gulf Times:
- Indonesia may sign production agreements in the next two months with Royal Dutch Shell Plc and other international companies to extract gas from coal seams that could double the nation’s output of gas, citing Energy Minister Purnomo Yusgiantoro.

Economic Releases

Posted by Gary .....at 11:25 AM

- None of note