BETWEEN THE HEDGES

Tuesday, April 17, 2007

DJIA Hits Another All-Time High on Positive Economic Data, Earnings Reports and Falling Energy Prices

Posted by Gary .....at 3:18 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer and Telecom longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is about average. The DJIA hit another new all-time high today, and its chart continues to resemble 1983 rather than 1937. It appears as though the peak in subprime fears, which occurred the day the market bottomed on March 14, was in fact another excellent buying opportunity. I believe that most high net worth and institutional investors, much like the public at large, believe the U.S. is in a secular bear, or trading range, environment. I do not believe for a second that the parabolic move of assets into negative/low correlation U.S. stock strategies, especially market-neutral and commodity funds, will persist when psychology shifts away from this "irrational pessimism." I believe a major positive psychological shift will begin to occur, back toward the belief that the U.S. is in a secular bull, around the time when the S&P 500 convincingly takes out its all-time high of 1,552. We are 5.2% away from this level right now. I still expect this to occur later this year. I expect US stocks to trade mixed into the close as rising earnings optimism, lower long-term rates and lower energy prices offsets profit-taking.

Today's Headlines

Posted by Gary .....at 2:59 PM

Bloomberg:
- The Dow Jones Industrial Average surged to a record after earnings beat analysts’ estimates, inflation rose less than forecast and housing starts gained.
- US Treasuries are rising the most in more than a month after a government report showed the pace of inflation excluding food & energy rose less than economists forecast in March.
- Catalina Marketing(POS), a research company that tracks consumer shopping habits, agreed to be acquired by buyout firm Hellman & Friedman LLC for about $1.7 billion after abandoning a deal it reached last month.
- Carl Icahn, the billionaire investor who is fighting for a seat on Motorola’s(MOT) board, said CEO Zander needs to be held responsible for his efforts to revive the mobile-phone company.
- Fortress Investment Group(FIG), a publicly traded manager of private equity and hedge funds, said net income more than doubled in 2006, driven by increases in investment profits and asset-management fees.
- Cho Seung-Hui, a South Korean citizen studying at Virginia Tech University, carried out the shooting rampage yesterday that claimed 32 victims, police said.
- US business bankruptcies plunged by 50% last year to their lowest level since at least 2000, according to federal court stats. Personal bankruptcies plunged 71%, the court administrator said.
- Citidel Investment Group is on track to acquire subprime lender ResMae Mortgage Corp.
- The US would save enough electricity to power 4.8 million homes for a year and would cut gasoline use by 50%, according to sponsors of legislation introduced today in the Senate.
- Gasoline futures fell to a two-week low on speculation inventories will soon begin to rise as annual refinery slowdowns come to an end.
- China, the world’s biggest steel producer, may reduce tax breaks further, impose export tariffs and cap steelmakers’ exports, to rein in overseas sales.

Wall Street Journal:
- Time Warner(TWX) executives are considering reducing the NYC-based company’s stake in cable television
- Large-cap “growth” stocks, which have lagged “value” stocks so far this decade, have come into their own this year.
- Fannie Mae(FNM) and Freddie Mac(FRE), the biggest sources of money for US home loans, plan to assist homeowners who can’t make payments on their mortgages, citing congressional testimony.
- YouTVpc.com, Peekvid.com and other guerrilla video Web sites that provide access to copyrighted material from servers outside the US represent a new threat to big media companies.
- Coca-Cola’s(KO) Coke Zero is the Atlanta-based company’s best new-product introduction in 20 years, and could be a precursor of a larger turnaround.

NY Times:
- New York state’s Medicaid spending has been raised to $300 million a year, the highest in the country, because of drug addicts and alcoholics who repeatedly check-in to hospital detoxification centers.
- Hedge fund managers are able to defer paying some taxes for 10 years or more by taking money they earn oversees and reinvesting it in their funds where it appreciates tax-free. The hedge fund managers are able to avoid paying the taxes by setting up overseas funds that also are attractive to investors such as pension funds, endowments, and foreign investors. The practice, which is legal, is being evaluated by the US Congress, which is considering legislation that would limit the deferrals to $1 million or the five-year average of a person’s income.
- Home Depot(HD) will begin putting labels on its products that indicate their environmental-friendliness.

Detroit News:
- DaimlerChrysler AG(DCX) plans to build a $700 million axle plan in Marysville, Michigan, to replace an older plant in Detroit.

Vatan:
- Cukurova Holding AS, which controls Turkey’s biggest cell-phone company, is building a $130 million oil refinery in northern Iraq with Gulf Petroleum Investment SA, a Kuwait-based oil and gas company.

Caijing Magazine:- News Corp.(NWS/A) plans to open a Chinese version of its MySpace.com social-networking Web site in May.

Core Inflation Decelerates, Housing Starts Rise, Industrial Production Fall, Capacity Utilization Declines

Posted by Gary .....at 1:00 PM

- The Consumer Price Index for March rose .6% versus estimates of a .6% gain and a .4% rise in February.
- The CPI Ex Food & Energy for March rose .1% versus estimates of a .2% gain and a .2% rise in February.
- Housing Starts for March rose to 1518K versus estimates of 1495K and a downwardly revised 1506K in February.
- Building Permits for March rose to 1544K versus estimates of 1510K and 1532K in February.
- Industrial Production for March fell -.2% versus estimates of unch. and a downwardly revised .8% increase in February.
- Capacity Utilization for March fell to 81.4% versus estimates of 81.9% and a downwardly revised 81.6% in February.

BOTTOM LINE: A measure of prices paid by US consumers rose less than forecast last month, supporting the Fed’s call that inflation will subside, Bloomberg reported. The .1% rise in core prices was the smallest gain this year. The CPI year-over-year for March rose 2.8% versus the 20-year average of 3.1%. Energy prices rose 5.9%, the largest increase since the months during the hurricanes in 2005. However, the cost of hotel stays fell 2.3%, the biggest drop since September 2005. As well, clothing prices fell 1%, the most since April 2001. I continue to believe inflation is not and will not become a problem. I also still expect a modest bout of deflation from Asia during the next meaningful global economic slowdown. This is why I believe long-term rates remain stubbornly low and gold falls on any signs of emerging market weakness.

Housing starts in the US unexpectedly rose for a second month in March, bolstering expectations the housing slump may be easing, Bloomberg reported. Historically warm temperatures in March prompted builders to increase starts, along with signs that demand is firming as prices stabilize. Starts soared 45% in the Midwest. Starts fell 7.7% in the West, 6.1% in the Northeast and 2.7% in the South. I continue to believe housing construction will not add to overall US economic growth this year as builders continue to reduce inventories.
Industrial Production in the US declined last month as warm weather reduced electricity demand, Bloomberg reported. Manufacturing production increased on higher demand for business equipment such as computers, while warm weather cut heating demand. Factory production, which comprises about four-fifths of the report, gained .7%, the highest this year. Utility production fell 7% after rising 7.6% in February. The decline in capacity utilization and downward revision for the prior month is a big positive on the inflation front. I suspect industrial production will surge next month on inventory rebuilding and increased utility production.

Links of Interest

Posted by Gary .....at 9:26 AM

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option DragonIntraday Chart/Quote

Monday, April 16, 2007

Tuesday Watch

Posted by Gary .....at 8:28 PM

Late-Night Headlines

Bloomberg:

- The world’s largest shopping center looks almost deserted on a recent afternoon. While schoolchildren ride the sidewinder and roller coaster, there are few shoppers and fewer tenants at South China Mall in central Dongguan, a city of 6 million north of Hong Kong. “They did this mall all wrong,” says Stephen Liu, a Hong Kong businessman visiting clients in Dongguan who came by to see the place for himself. “They never found out if there were enough people to fill it. All the Chinese in this town are factory workers, they can’t afford to shop here.”

- Australian investment funds, flush with record inflows of cash, are increasing their overseas stock holdings as local shares become costlier.

- Senator Jeff Bingaman, chairman of the Senate Energy and Natural Resources Committee, said the collapse of hedge fund Amaranth Advisors LLC suggests the need for more Congressional oversight of natural-gas markets regulation.

- The rising number of foreclosures among subprime mortgage borrowers would be slowed if banks postpone increases in interest rates written into adjustable-rate loans or offer fixed-rate loans, FDIC Chairman Sheila Bair said today.

- Obese teens who undergo stomach surgery to promote weight loss will be the focus of a government-funded study to determine whether the procedure is appropriate.

- Valero Energy(VLO), the largest US refiner, said it is gearing up to resume production at its “fire-damaged” refinery near Sunray, Texas. A crude unit and reformer are running again and the refinery is processing crude, Bill Day, a spokesman for the San Antonio-based company, said today. “We are still in the process of re-commissioning the refinery, and this process may take several days, but we still expect to achieve 85,000 barrels per day of throughput by the end of this month,” Day said. Unusually low refinery output across the country has been the main reason for the recent surge in gas prices.

- Crude oil was little changed in NY after stalling yesterday on signs increased refinery production will slow a decline in US fuel stockpiles.

Wall Street Journal:

- Intelsat Ltd., the world’s largest commercial satellite operator, may be sold by its private equity owners. Apollo Management, MDP Global Investors Ltd., Apax Partners and Permira Advisers may seek an equity value of up to $6 billion for the company they bought in August 2004 for $3 billion.

Financial Times:

- The number of foreign students applying to US graduate schools has increased for a second consecutive year, rising 8%, citing a survey by the Council of Graduate Schools. The current increase is mostly driven by a rise in applicants from India and China.

Calgary Herald:

- A $353.2 million biodiesel plant backed by buyout firms the Carlyle Group and Riverstone Holdings LLC will be built near Innisfail, Alberta.

Late Buy/Sell Recommendations

Citigroup:

- Reiterated Buy on (UNM), raised target to $30.

- Google(GOOG) continued to gain query share in March. Share increased 20 basis points month-over-month to a record high 48.3% of the US market. This market share gain continues a very consistent trend for Google(GOOG) and highlights a potential gating factor to Yahoo!’s(YHOO) attempts to gain search revenue share.

- Reiterated Buy on (MCO), raised target to $80.

Night Trading

Asian Indices are -.25% to +.25% on average.

S&P 500 indicated -.08%.

NASDAQ 100 indicated -.05%.

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

Stocks Finish Sharply Higher, Led by Financials, on Strong Earnings and Buyout Activity

Posted by Gary .....at 5:27 PM

Indices
S&P 500 1,468.47 +1.08%
DJIA 12,720.46 +.86%
NASDAQ 2,518.33 +1.06%
Russell 2000 831.44 +1.47%
Wilshire 5000 14,838.65 +1.06%
Russell 1000 Growth 579.05 +1.39%
Russell 1000 Value 847.46 +1.09%
Morgan Stanley Consumer 723.50 +.78%
Morgan Stanley Cyclical 987.88 +1.06%
Morgan Stanley Technology 582.59 +1.07%
Transports 5,104.10 +1.37%
Utilities 512.63 +.47%
MSCI Emerging Markets 123.51 +1.10%

Sentiment/Internals
Total Put/Call .82 -13.68%
NYSE Arms .64 -20.28%
Volatility(VIX) 11.98 -1.80%
ISE Sentiment 103.0 -15.57%

Futures Spot Prices
Crude Oil 63.62 -.02%
Reformulated Gasoline 212.71 -2.41%
Natural Gas 7.47 -4.24%
Heating Oil 185.95 -2.18%
Gold 694.50 +.67%
Base Metals 271.35 +1.10%
Copper 355.50 +.54%

Economy
10-year US Treasury Yield 4.73% -3 basis points
US Dollar 82.11 -.01%
CRB Index 314.76 -1.0%

Leading Sectors
I-Banks +3.30%
Banks +1.96%
Alternative Energy +1.70%

Lagging Sectors
REITs +.24%
Hospitals +.16%
Gaming -.08%

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
CIBC:
- Rated (GRMN) Sector Outperformer.
- Rated (ITRN) Sector Outperformer.

Afternoon/Evening Headlines
Bloomberg:
- A gunman carried out the deadliest shooting rampage in US history today, killed at least 32 students and faculty at Virginia Tech University before turning the gun on himself. Another 28 people were hospitalized with gunshot wounds and other injuries. Neither the gunman’s identity or motive have been determined.
- The S&P 500 surged to its highest in more than six years, catapulted by higher-than-expected bank and drug company earnings and the $25 billion takeover of student-loan provider SLM Corp.(SLM).
- The yen may extend its decline against the euro and the dollar before a government report that economists forecast will show Japanese consumer confidence fell last month.
- Bear Stearns’(BSC) private equity unit agreed to buy Universal Hospital Services for $712 million. The company helps hospitals manage medical equipment and improve productivity of nurses.
- Pat Vredevoogd Combs, president of the National Association of Realtors, says the “worst is over” for the US housing market.
- The US may ease ethanol import duties by the end of next year, helping Brazilian producers gain access to markets in the world’s largest consumer of the fuel, Brazil’s top ethanol official said today.
- Natural gas fell 3.5%, the most in two months, as forecasters said a trend of below-average temperatures would ease later this week, while supplies remain almost 30% above the five-year average for this time of the year.
- Great Plains Energy’s(GXP) Kansas City utility is seeking bids for up to 400 megawatts of electricity generated from by wind by 2012 to increase supplies from renewable energy sources.
- Exxon Mobil’s(XOM) refinery in Torrance, California, is restarting units after completing two months of “maintenance.”
- Former Florida Governor Jeb Bush called on the US to end a tariff on Brazilian ethanol to help boost distribution of the crop-based fuel and foster a world market for it.
- Black & Decker(BDK), the biggest US maker of power tools, said first quarter profit exceeded its forecast on an increase in orders. The stock surged 7% after-hours.

Women’s Wear Daily:
- Neiman Marcus Group(NM/G) is considering an IPO of shares as early as the summer.

Reuters:
- Nigeria plans to resume oil production from the Forcados oil fields in the western Niger delta by the end of this month. Nigeria has scheduled 5 million barrels of oil for export in June.

Frankfurter Allgemeine Zeitung:
- Magna International, Canada’s largest autoparts maker, may be in advanced talks with DaimlerChrysler AG(DCX) about the potential acquisition of its Chrysler unit.

BOTTOM LINE: The Portfolio finished higher today on gains in my Telecom longs, Medical longs, Biotech longs and Retail longs. I didn’t 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, almost every sector rose and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was very bullish. The S&P 500 is now near a seven-year high. I-banks were today's outstanding performers, with the Broker/Dealer Index(XBD) rising 3.3%. Despite the market's strong showing, the airwaves were once again filled with gloom and doom about housing today. Meanwhile, the August housing price futures rose again to $214,800. Gasoline futures fell almost 3% today and the crack spread, while still extraordinarily elevated, fell 10%. I continue to believe gasoline has been propping up the whole energy complex. While today's headline gains were impressive, the sharp gains in heavily shorted stocks are especially noteworthy. I suspect stocks will open modestly lower on a knee-jerk reaction to tomorrow morning's economic data; however, losses will likely proved short-lived as record shorts and underinvested bulls will likely use any near-term weakness to cover and buy.

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