BETWEEN THE HEDGES

Wednesday, September 12, 2007

Thursday Watch

Posted by Gary .....at 8:36 PM

Late-Night Headlines
Bloomberg:
- General Motors(GM) rose in extended trading after Citi Investment Research said the stock may almost double should the biggest US automaker win concessions from the United Auto Workers union.
- PetroChina Co., the nation’s largest oil producer, fell in Hong Kong trading after Warren Buffett’s Berkshire Hathaway(BRK/A) reduced its stake.
- China’s industrial-output growth slowed for a second month after cuts to export incentives.

Wall Street Journal:
- Ron Gettelfinger, president of the United Auto Workers, may agree to a union-managed health-care fund to let US-based automakers shed costs. General Motors(GM), Ford(F) and Chrysler LLC could potentially save $95 billion in costs if such a deal were arranged.
- Bill Gross’s PIMCO plans to start a $2 billion distressed debt fund. The PIMCO Distressed Mortgage Fund will invest in mortgage-backed securities, asset-backed securities and collateralized-debt obligations.

MarketWatch.com:
- Cisco Systems Inc.(CSCO) CEO Chambers offered his services as a pitchman for virtualization Wednesday, touting the red-hot technology as a means to foster a second Internet boom to echo the heady days of the 1990s.

NY Times:
- European Carmakers Bet That the US Is Ready for Diesel.

CNNMoney.com:
- Lamborghini unveils $1.4 million supercar.
- Refi rescue. And potentially some tax help, too. Here are breaks that borrowers in a pickle may receive in the next few months.
- Here are 47 smart ways to get on track to a rich life.

Financial Times:
- China, India and Russia top the list of the world’s most polluted places, a study of global pollution found on Wednesday.

China Daily:
- China’s birth-defect rate is triple that of developed nations, citing Li Zhu, director of the National Center for Maternity and Infant Health.

Late Buy/Sell Recommendations
Citigroup:
- We believe that Back-to-School sales are off to a strong start, driven primarily by growth in consumer electronics and solid apparel sales. The NRF expects Back-to-School spending to increase 6.9% this year to $563.49 for the average household with school-age children(K-12). For families with college-bound students, the NRF predicts average household spending will increase 8.7% to $956.93 per household. Consumer electronics should demonstrate the largest sales increase this year, with households spending 13% more on electronics than last year, according to the NRF. Electronics, such as cell phones and MP3 players, have become fashion accessories that are just as important as the rest of the ensemble.
- Reiterated Buy on (MCD), target $56.
- Reiterated Buy on (EBAY), target $41.
- Reiterated Buy on (NKE), target $65.

Pacific Growth:
- Rated (EMC) Buy.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 futures -.19%.
NASDAQ 100 futures -.09%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (DBD)/.33
- (PLL)/.40
- (RVI)/-.14

Upcoming Splits
- (LABL) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated at 325K versus 318K the prior week.
- Continuing Claims are estimated at 2580K versus 2598K prior.

2:00 pm EST
- The Monthly Budget Deficit for August is estimated to widen to -$85.0 billion versus -$64.7 billion in July.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and commodity 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 Slightly Lower on Rising Apprehension Ahead of Fed

Posted by Gary .....at 5:29 PM

Indices
S&P 500 1,471.56 unch.
DJIA 13,291.65 -.13%
NASDAQ 2,592.07 -.21%
Russell 2000 777.90 -.56%
Wilshire 5000 14,765.77 -.04%
Russell 1000 Growth 594.09 -.09%
Russell 1000 Value 822.07 +.10%
Morgan Stanley Consumer 713.42 +.09%
Morgan Stanley Cyclical 996.76 -.50%
Morgan Stanley Technology 642.46 -.14%
Transports 4,737.86 -.76%
Utilities 493.24 +.23%
MSCI Emerging Markets 135.03 +.24%

Sentiment/Internals
Total Put/Call .85 -16.67%
NYSE Arms .82 +68.29%
Volatility(VIX) 24.96 -1.23%
ISE Sentiment 133.0 +23.15%

Futures Spot Prices
Crude Oil 79.71 +1.89%
Reformulated Gasoline 201.25 +1.58%
Natural Gas 6.43 +8.32%
Heating Oil 221.48 +1.47%
Gold 720.80 -.04%
Base Metals 230.14 +.25%
Copper 336.0 -.81%

Economy
10-year US Treasury Yield 4.40% +4 basis points
US Dollar 79.37 -.42%
CRB Index 321.19 +1.33%

Leading Sectors
Gaming +1.57%
HMOs +1.32%
Engineering & Construction +1.11%

Lagging Sectors
Alternative Energy -1.41%
Semis -2.32%
Airlines -2.75%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
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In Play

Afternoon Recommendations
Bank of America:
- Rated (ATHR) and (BRCM) Buy.

Citigroup:
- Rated (LEA) Buy, target $39.
- Rated (GM) Buy, target $41.
- Rated (TEN) Sell, target $27.

Afternoon/Evening Headlines
Bloomberg:
- The US and European asset-backed commercial paper market is showing signs of improving following a month-long slide, according to traders and issuers who met today.
- Total assets of US money market mutual funds rose to another all-time high of $2.78 trillion this week.
- Steven Freiberg, head of Citigroup’s(C) North America consumer business, said the company’s sub-prime loan loss rate declined in the second quarter because it underwrites and collects its own loans.
- AmeriCredit Corp.(ACF), which lends to car buyers with poor credit histories, rose almost 10% on the NYSE after it priced $1 billion in asset-backed securities, including sub-prime car loans.
- Overnight yields on US asset-backed commercial paper market fell by the most in almost three years today as Moody’s Investors Service said bank issuers will be able to “ride out” the disruption in credit markets.
- Sugar fell after Brazil said output will rise more than expected this year, widening a global surplus, and as investors speculated demand for cane-based ethanol is declining.
- Copper fell after workers called off a strike in Peru, easing concern that labor unrest would cut mine production.
- Crude oil rose to a record $80.18 a barrel in NY after supplies fell from multi-year highs and refiners unexpectedly cut production.
- McDonald’s, the world’s largest restaurant company, boosted its annual dividend by 50% after coming under pressure from activist investor William Ackman to increase returns for shareholders.

CNNMoney.com:
- Google sites topped the July comScore Video Metrix rankings, with 27% online video market share.

CNBC:
- Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. said he eventually sees the federal funds rate “somewhere in the 3% categoary.”

Daily Mail:
- Cadbury Trebor Basset and Mars Inc. said they will remove artificial additives from sweets, including Skittles and M&Ms, after research found harmful effects in children.

Nikkei English News:
- Japan’s government will cut is view of the general economy for the first time in 10 months, while maintaining its assessment that a broader recovery is expected to continue.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Retail 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 slightly negative today as the advance/decline line finished mildly lower, sector performance was mostly positive and volume was below average. Measures of investor anxiety were slightly above-average into the close. Today's overall market action was slightly bearish. There was some late-day selling in semis that appeared to help pressure the broad market. The 10-year yield bounced 3 basis points, however, the U.S. dollar finished another 0.42% lower, and cyclicals and small-caps underperformed, which are signs that investors are still worrying about growth slowing too much, notwithstanding Fed rate cuts. Oil is near $80 per barrel, however, it is interesting to note that the much-loved oil service sector barely rose today. I suspect another low-volume consolidation day is likely again tomorrow ahead of Friday’s economic data, next week’s earnings reports and the Fed meeting.

Stocks Slightly Lower into Final Hour on Rising Apprehension Ahead of Fed

Posted by Gary .....at 3:43 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly negative today as the advance/decline line is lower, most sectors are rising and volume is below average. The Bear Stearns High Yield Index and JPMorgan Emerging Market Bond Index both continue to rebound, rising 0.4% and 0.5% respectively the last five days. In this morning's mortgage applications report, the 30-year average fixed-rate mortgage rate came in at 6.25%, down from 6.42% the prior week. This is down 49 basis points from mid-June and down 32 basis points from the peak of the credit market turmoil in mid-August. As well, the average fixed-rate jumbo mortgage rate is falling 15 basis points today to 7.18%. This is the largest single-day drop since Feb. 7 and the lowest this rate has been since Aug. 14. This is a large positive, especially considering how many said last month that most mortgage rates would just keep climbing. So far this year, “growth” stocks continue to substantially outpace “value” stocks. Here is a summary year-to-date performance summary:

Russell 1000 Growth Index, +8.3%;
Russell 1000 Value Index, +2.4%;
Russell Midcap Growth Index, +8.9%;
Russell Midcap Value Index, +1.3%;
Russell 2000 Growth Index, +5.2%;
Russell 2000 Value Index, -5.3%.

I continue to believe that the growth stock outperformance trend is just in its early stages. While I don't believe that the U.S. economy is heading for recession, modestly below-trend growth is likely over the intermediate term, notwithstanding Fed rate cuts. Low interest rates, combined with below-trend growth, are conducive to growth stock investing. While the major averages are flat today, many leading growth stocks are again posting substantial gains. As I said last month, that is what makes timing the market so tricky. Most growth stock investors I know are at their highs for the year in performance, while the major averages are well off highs. I expect US stocks to trade mixed-to-lower into the close from current levels on rising apprehension ahead of many market-moving events over the coming days.

Today's Headlines

Posted by Gary .....at 3:00 PM

Bloomberg:
- The US economy may avoid recession as it slows following the decline in US sub-prime mortgages, said Simon Johnson, chief economist of the IMF.
- Treasury Secretary Henry Paulson told more than a dozen mortgage lenders that the Bush administration wants them to give sub-prime borrowers a chance to keep their homes.
- Old Lane LP, the hedge-fund firm acquired two months ago by Citigroup Inc.(C), lost 5.9% in August, quadruple the industry’s average decline, as bond and emerging markets fell.
- The US Senate adopted a measure that would grant non-profit housing organizations $100 million to curb foreclosures linked to sub-prime lending.
- Fannie Mae(FNM), the largest source of money for US home loans, helped sub-prime borrowers avoid default on $6 billion in mortgages since April by backing refinancings, CEO Daniel Mudd said.
- Crude oil rose to a record $80/bbl. in New York after refiners slashed production more than analysts had estimated and oil inventories fell from decade highs.
- Sun Micro(JAVA) will start selling server computers with Microsoft’s(MSFT) Windows, the world’s most popular operating system, after holding out for more than a decade.
- Rambus Inc.(RMBS) shares surged to a seven-week high and option trading jumped on speculation Sun Micro(JAVA), the world’s third-largest maker of server computers, may purchase the company.
- General Cable(BGC), the biggest US maker of cable for energy and communications companies, agreed to buy Freeport-McMoRan Copper & Gold’s wire unit for $735 million to gain clients in Latin American and Asia.
- Apple Inc.(AAPL) rose to the highest in a week in Nasdaq Stock Market trading after UBS Investment Bank boosted earnings estimates for the maker of the iPhone, saying last week’s price cut will drive sales.
- Amgen Inc.(AMGN) rose to the highest in six weeks on the Nasdaq after two analysts recommended buying shares of the world’s largest biotech company because of a favorable decision on dosing guidelines for its anemia drugs.
- Life expectancy for children born in the US rose to a record in 2005, the latest year for which data are available, while the death rate fell to a new low, according to a report from the National Center for Health Statistics.
- The US dollar is falling versus the euro as investors increase bets the Fed will reduce its target interest rate, narrowing the gap between the US and Europe.
- Mortgage applications in the US rose 5.5% last week, reflecting gains in both purchases and refinancing.
- The IEA, an adviser to 26 industrialized nations, cut its forecast for global oil demand growth next year on concern rising credit costs may crimp economic growth.

Wall Street Journal:
- Enhanced Index Funds Come Up Short. Returns Were Supposed To Exceed Benchmarks With Relatively Little Risk.
- Amazon.com(AMZN) is hoping to gain attention among entrepreneurs for its Web services by offering a contest that includes an investment offers as part of the prize.
- In a novel move to lure bank deposits, Capital One Financial(COF) is introducing a money-market account this week that offers rewards points based on customers’ average monthly balances.
- General Motors(GM) hopes for family of electric vehicles.
- Lenders Push Mortgages With Discounts and Credits For Energy-Efficient Upgrades.

NY Times:
- Katie Couric’s “Evening News” on CBS Corp. reached a new record low in ratings last week, a year after the anchor made her on-air debut, citing Nielsen Media Research figures.

Forbes.com:
- Internet ad spending soared 17.7% during first half of this year, while overall ad spending fell .3%.

NY Post:
- NYC residents own their homes at about half the rate for households in the rest of the US, citing a US Census Bureau report.

Financial Times:
- The SEC set up four “working groups” to tighten its enforcement process and to expedite prosecution of fraud cases, citing Linda Chatman Thomsen, the SEC’s enforcement director, and other officials. One group, created in January, concentrates on pursuing potential wrongdoing associated with the crisis in the subprime mortgage market. The other three groups focus on hedge funds and insider trading, stock options backdating, and municipal bond sales.

Efe:
- Telefonica SA is in talks with Apple Inc.(AAPL) to sell the iPhone in Spain, citing Telefonica Chairman Cesar Alierta.

AFP:
- Iraq expects the number of

troops deployed in the country to fall below 90,000 by 2009, citing an official.

Economic Releases

Posted by Gary .....at 11:52 AM

- None of note