BETWEEN THE HEDGES

Tuesday, September 11, 2007

Wednesday Watch

Posted by Gary .....at 6:33 PM

Late-Night Headlines
Bloomberg:
- Lehman Brothers Holdings(LEH) CEO Richard Fuld considers the current debt market rout less than half as severe as the turmoil in 1998, according to a report by UBS AG.
- Russia tested the world’s most powerful air-delivered vacuum bomb that generates a shockwave similar to a nuclear blast, the armed forces said, as the country moves to reassert its global military power.
- Australian consumer confidence rose in September after the central bank left interest rates unchanged and the employers hired more workers than expected last month.
- London has overtaken Tokyo as the most expensive city in the world for dining out, with a meal now costing more than twice as much as in NYC, according to Tim Zagat, whose guide to London restaurants is published today.

MarketWatch.com:
- China’s product safety agency has agreed to immediately start work on eliminating lead paint from toys shipped to the US, government officials said Tuesday.
- Don’t overreact. Commentary: Markets learned lessons from the 9/11 terrorist attacks, too.

NY Times:
- Technology investors and entrepreneurs, long obsessed with connecting to teenagers and 20-somethings, are starting a host of new social networking sites aimed at baby boomers and graying computer users.

CNNMoney.com:
- Car companies show off new Euro models and ‘green’ concept cars. Some could be for sale here soon.

ABCNews.com:
- Despite six years of promises, US officials say Saudi Arabia continues to look the other way at wealthy individuals identified as sending millions of dollars to al Qaeda.

Financial Times:
- Goldman Sachs(GS) is seeking to cash in on demand for alternative research by helping investors gain access to companies that provide niche information, such as data gleaned from “deep mining” the internet.

Reuters:
- The Manhattan office market in August was its strongest since before the September 11, 2001 terrorist attacks, despite the upheaval in the credit markets, according to a report by real estate services company Colliers ABR.

Commercial Times:
- AU Optronics’(AUO) profit will exceed $1.2 billion this year on better-than-expected demand for liquid-crystal displays used in televisions.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ISIL), target $40.

CSFB:
- Upgraded (ASML) to Outperform.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 futures -.20%.
NASDAQ 100 futures -.15%.

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Earnings of Note
Company/EPS Estimate
- (AZPN)/.22
- (BRC)/.56
- (GRB)/.08
- (JOSB)/.42

Upcoming Splits
- (FMC) 2-for-1

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -2,700,000 barrels versus a -3,972,000 barrel decline the prior week. Gasoline supplies are expected to fall by -500,000 barrels versus a -1,481,000 barrel decline the prior week. Distillate inventories are estimated to rise by 2,000,000 barrels versus a 2,256,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to fall -.10% versus a 1.82% increase the prior week.

Other Potential Market Movers
- Weekly MBA Mortgage Applications report, (TMA) mid-quarter update, (KMT) analyst meeting, (ILMN) analyst day, (XRAY) analyst meeting, (BDK) analyst meeting, Lehman Brothers Financial Services Conference, BMO E&P/Oil Services Tour and CFSB Technology Summit could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and industrial stocks 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 Near Session Highs on Less Economic Pessimism, Short-Covering, Bargain-Hunting

Posted by Gary .....at 5:21 PM

Indices
S&P 500 1,471.49 +1.36%
DJIA 13,308.39 +1.38%
NASDAQ 2,597.47 +1.50%
Russell 2000 782.27 +1.62%
Wilshire 5000 14,771.15 +1.35%
Russell 1000 Growth 594.60 +1.36%
Russell 1000 Value 821.25 +1.33%
Morgan Stanley Consumer 712.80 +1.14%
Morgan Stanley Cyclical 1,001.74 +.94%
Morgan Stanley Technology 643.38 +1.67%
Transports 4,774.07 +1.70%
Utilities 492.12 +1.14%
MSCI Emerging Markets 134.72 +1.33%

Sentiment/Internals
Total Put/Call 1.02 -12.82%
NYSE Arms .49 -63.25%
Volatility(VIX) 25.27 -7.71%
ISE Sentiment 108.0 +24.14%

Futures Spot Prices
Crude Oil 78.28 +1.02%
Reformulated Gasoline 198.20 +.17%
Natural Gas 5.94 +.81%
Heating Oil 218.15 +.46%
Gold 721.30 +1.28%
Base Metals 229.57 +1.70%
Copper 338.05 +3.82%

Economy
10-year US Treasury Yield 4.36% +4 basis points
US Dollar 79.68 -.16%
CRB Index 316.97 +.70%

Leading Sectors
Airlines +2.39%
Gaming +2.13%
Retail +2.08%

Lagging Sectors
Oil Service +1.0%
Defense +.83%
Homebuilders +.45%

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Afternoon Recommendations
Oppenheimer:
- Rated (NPSP) Buy, target $12.

CSFB:
- Rated (BBT), (CNB) and (ZION) Outperform.
- Rated (UB) and (WAL) Underperform.

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied the most this month on growing evidence consumers are weathering an economic slowdown and bolstering profit growth.
- GMAC LLC, the auto and home lender formerly wholly owned by GM Corp.(GM), said it will receive as much as $21.4 billion in asset-backed funding facilities from Citigroup Inc.(C).
- Texas Instruments(TXN) lowered the high end of its sales forecast amid fresh competition for orders in the wireless market. The stock fell 2.3% in after-hours trading.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet 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 very positive today as the advance/decline line finished substantially higher, every sector gained and volume was below average. Measures of investor anxiety were above-average into the close. Today's overall market action was bullish. Volume will likely remain relatively light through week's end ahead of many potential market-moving catalysts next week. Every sector I follow rose today, with the biotech, airline, gaming, retail, disk drive, computer hardware, alternative energy and steel sectors all posting 2%+ gains. The yen is at session lows vs. the dollar, and the 10-year yield is rising 4 basis points to session highs, which are positives. Oil is at session highs despite the EIA cutting third-quarter global demand growth by 100,000 barrels per day, MasterCard saying that U.S. filling station receipts were weakening and OPEC's announced production increase. The gasoline crack spread has plunged to $5.01 per barrel from $37.85 per barrel in May, which bodes poorly for the refiners. Johnson Redbook reported today that weekly retail sales rose 2.8% vs. a 2.4% increase the prior week. This is the best showing since a 2.9% gain the week of Aug. 7, right before the credit turmoil reached crisis proportions. This week's 2.8% gain is back near long-term average rates and is up from a 1.4% increase in early July. While 2.8% isn't great, the improvement is significant considering what has been priced into retail stocks and the market. The demise of the consumer has been predicted for years, and the latest credit turmoil, mortgage resets and housing price declines were certain to result in an imminent implosion in consumer spending, according to many. I still see no signs that this is happening. As unthinkable as it appears right now, oil will likely decline meaningfully from current levels over the intermediate term, just as it did last year. This could further help consumer spending to continue to defy the many bears.

Stocks Surging into Final Hour on Less Economic Pessimism

Posted by Gary .....at 3:22 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Biotech longs and Medical longs. I covered some of my (EEM) short and all of my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is substantially higher, every sector is rising and volume is below average. The ISE Sentiment Index plunged to a very depressed 48.0 this morning even as the DJIA soared. It has been below 50 only six other times in history. Moreover, it was very near the record low 36.0 hit on July 3, 2006, right before the market went on a tear. It is also noteworthy that the CBOE total put/call spiked to a very high 1.41 as the notes from Bernanke's speech were released. These readings are highly unusual given today's strength and bode well for future gains. Tech is outperforming again on the heels of a boost to first-quarter sales and earnings guidance by Western Digital (WDC) on rising orders to Europe and increased pricing. The MS Tech Index is tripling the performance of the S&P 500 year-to-date, rising 13.4%. As I said several months ago, I expect substantial outperformance by tech to continue over the intermediate term. The Biotech sector is jumping another 2.0% today on news that phase III data from Imclone's (IMCL) Erbitux showed improved survival in patients with non-small-cell lung cancer. The MS Biotech Index (MVBX) is 12.2% higher in just the last five weeks. Given the macro environment, this sector should also continue to outperform over the intermediate term. Gilead Sciences (GILD) is still one of my favorites and is still providing investors an attractive entry point, in my opinion. Apple (AAPL) is lower today, however, the EE Times is reporting that an announcement regarding a 3G iPhone is imminent. Recent Apple concerns will likely fade over the coming weeks as investors begin to anticipate a monster holiday selling season. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, short-covering and bargain-hunting.

Today's Headlines

Posted by Gary .....at 2:37 PM

Bloomberg:
- US stocks rose for the first time in three days on speculation consumers will weather an economic slowdown and spur profit growth.
- LoJack Corp.(LOJN), a maker of electronic devices to track stolen cars, will introduce its services in China because of rising vehicle thefts in the world’s second-largest auto market.
- Y2K Finance Inc., the flagship hedge fund of Wharton Asset Management, will halt redemptions until at least December because of credit market turmoil.
- Thornburg Mortgage(TMA) has a low risk of bankruptcy and the jumbo home-loan specialist is likely to survive the liquidity squeeze in the mortgage markets, UBS said.
- Aluminum production in the US increased 19% in August because of higher demand and the restart of Ormet’s smelter in Ohio.
- OPEC agreed to increase oil production for the first time in more than a year, concerned that near-record prices would damage a world economy already suffering from weakness in the US housing industry.
- ArcelorMittal(MT), the world’s largest steelmaker, plans to increase shipments more than 20% by 2012 to meet surging demand as economies in Asia expand.
- Demand for gasoline in the US fell .8% last week after the summer driving season ended, according to a report today from MasterCard Inc.(MA) based on credit card charges at filling stations.
- McDonald’s Corp.(MCD) said August sales advanced 8.1% as customers bought chicken snack wraps and iced coffee in the US and McFlurry desserts in Europe.
- Comverse Technology(CMVT) rose the most in more than four years in over-the-counter trading after bookings unexpectedly rose.
- ImClone Systems(IMCL), the maker of the cancer treatment Erbitux, surged the most in 3 ½ years on the Nasdaq after a study showed its product helped patients with advanced lung tumors live longer.

Wall Street Journal:
- In Shift, Auto Workers Flee to Health-Care Jobs.
- General Motors(GM) Vice Chairman Bob Lutz said the US automaker is “100% confident” that its electrical-car batteries won’t have the overheating problems that competitor Toyota Motor(TM) has experienced.

NY Times:
- American Electric Power(AEP), anticipating possible renewable-energy quotas, will today announce the installation of battery banks to store power from wind turbines.

EIA:
- Global oil demand growth was revised lower by 100,000 barrels per day for the third quarter.

NY Post:
- Countrywide Financial(CFC) is trying to find additional investors to increase its capital after a rise in problem mortgages and difficulties obtaining credit.
- The NYC City Council yesterday voted 46-2 to override Mayor Bloomberg’s veto of a bill to allow cell phones in public schools.

Chronicle of Higher Education:
- The US Dept. of Education said the default rat on federally guaranteed student loans dropped to 4.6% in fiscal 2005.

Trade Deficit Shrinks Again as Exports Soar to Record

Posted by Gary .....at 12:22 PM

- The Trade Deficit for July shrank to -$59.2 billion versus estimates of -$59.0 billion and -$59.4 billion in June.

BOTTOM LINE: The US trade deficit narrowed in July as exports jumped by the most in three years, Bloomberg reported. The inflation-adjusted trade deficit, used to calculate growth, shrank to a three-year low. Exports rose 2.7%, the most since March 2004, propelled by sales of aircraft, automobiles and telecom equipment. Imports rose 1.8%, reflecting higher prices for oil. An improving trade deficit, lower inflation and inventory rebuilding should help boost US GDP growth to around 2-2.5% on average though year-end, despite all the imminent recession calls.