BETWEEN THE HEDGES

- ISM Manufacturing for February fell to 48.3 versus estimates of 48.0 and 50.7 in January.

- ISM Prices Paid for February fell to 75.5 versus estimates of 73.5 and 76.0 in January.

- Construction Spending for January fell 1.7% versus estimates of a .7% decline and a downwardly revised 1.3% drop in December.

BOTTOM LINE: ISM Manufacturing in February fell slightly less than estimates, Bloomberg reported. The New Orders component of the index fell to 49.1 from 49.5 the prior month. The Inventory component fell to 45.4 from 49.1 the prior month. The Employment component fell to 46 from 47.1 in January. The Export component of the index fell to 56.0 from 58.5 the prior month. While this gauge is indicating modest contraction in manufacturing, it is not around levels normally associated with recession. I expect ISM Manufacturing to bounce back near 50.0 in this month on inventory rebuilding.

Construction spending fell more than economists had predicted in January, Bloomberg reported. Private residential construction fell 3% versus a 2.6% decline the prior month. Construction spending will remain muted over the intermediate-term as commercial construction slows and residential construction remains weak as homebuilders continue to work down inventories.

Weekend Headlines
Bloomberg:
- United Technologies(UTX), maker of Otis elevators and Chubb security systems, said today it offered to buy Diebold Inc.(DBD) for $2.63 billion, taking its bid public after the automated-teller machine maker’s board declined to discuss a combination for two years.
- Municipal bond yields rose for a 13^th day on investor concern that hedge funds may be selling holdings hurt by rising floating rates on notes they issue and declining values on long-term debt, traders said.
- Hillary Clinton and Barack Obama clashed over national security before pivotal contest in Ohio and Texas, releasing dueling ads that questioned who would be best able to respond to a crisis.
- The White House expects to further reduce troop levels in Iraq before the end of George W. Bush’s presidency in January, a senior administration official said.
- President Bush said he will urge allies attending a NATO summit in Bucharest, Romania, next month to send more troops to fight the insurgency in Afghanistan.
- Prince Harry, who yesterday returned from Afghanistan after international media broke a news blackout on his presence, said he wants to return to active service.
- Northrop Grumman Corp.(NOC) stormed back to reclaim its aircraft-manufacturing roots with a surprise win in a $35 billion US Air Force contest over heavily favored Boeing Co.(BA).
- Gay Clinton Backers Defect to Obama, Eroding Her Base.
- Hillary Clinton came under pressure from some leading Democrats to consider bowing out of the presidential race if she doesn’t score decisive victories in the March 4 state contests.
- Wyeth(WYE), maker of the world’s best selling antidepressant Effexor, won US approval to sell Pristiq, a new remedy for the same condition.
- Ambac Financial(ABK) was given more time to raise capital by Moody’s Investors Service, who said that may be enough to justify the company’s AAA rating.

Wall Street Journal:
- Daimler, GM Juice Up Hybrid Plans. Daimler AG said its Mercedes-Benz unit is aiming to introduce a hybrid sedan that uses lithium ion batteries in 2009, signaling that auto makers are confident they will be able to commercialize a technology needed for electric vehicles. Next week General Motors Corp.(GM) is expected to claim an advance of its own at the Geneva auto show when it announces it plans to use lithium ion batteries to upgrade the hybrid powertrains it offers in vehicles such as its Chevrolet Malibu and Saturn Aura models

CNBC.com:
- Fed announces March auctions to banks to combat credit crisis.
- Chevron Corp.(CVX) and Weyerhaeuser(WY) said Friday they have formed a 50-50 joint venture company focused on developing the next generation of renewable transportation fuels from non-food sources.
- OPEC won’t change production, official says.

MarketWatch.com:
- Motorola Inc.(MOT) said on Sunday that it received a $335 million contract to supply a communications network and related services to a Saudi Arabian member of Kuwait’s Zain Group.
- Berkshire Hathaway(BRK/A) Chairman Warren Buffett predicted a big drop in profits for the insurance industry this year as the conglomerate he runs reported an 18% decline in fourth-quarter net income late Friday.
- H-P(HPQ) and Dell(DELL): Room for both to grow.
- The real story of the dollar drop. Sure, economic fundamentals and interest rates are important. But so are commodities markets and obscure derivatives.

NY Times:
- Leonard S. Riggio, the founder and chairman of Barnes & Noble, announced a $20 million donation to help hurricane victims in New Orleans.
- Travelers who don’t trust the water from a mountain stream or a hotel-room faucet have a portable high-tech option for purifying drinking water.
- Selling may be the reflexive response by shareholders who have watched the value of their assets decline, but investment advisers contend that they should consider buying instead.
- Venture capital firms Accel Partners and Venrock Associates are joining with William Morris Agency and AT&T(T) to invest in digital-media startup companies.
- Democratic presidential candidate Barack Obama faces a challenge in wooing Jewish voters, while he has the endorsement of National of Islam leader Louis Farrakhan.

TheStreet.com:
- Confessions from an Apple TV(AAPL) Convert. Watching movies in HD has never been so easy or good. (video)

IBD:
- Big Tech Companies Eyeing Acquisitions As Valuations Drop.

NY Daily News:
- USS New York, built from wreckage of World Trade Center, christened.

San Diego Union-Tribune:
- The hunt for genetic gold. Illumina(ILMN) technology can lead researchers to new drug therapies, links to disease.

Business Week:
- The Best Undergrad B-Schools.

USA Today:
- Victoria’s Secret: I’m too sexy for my…own good.

Forbes:
- Robots: The Next Tech Bubble?
- The LED Illumination Revolution.

CNNMoney.com:
- What has tech pioneer Marc Andreessen been doing since Netscape? Investing in social networks and waiting for the New York Times(NYT) to die.

Reuters:
- Warren Buffet’s Berkshire Hathway(BRK/A) ended 2007 with $40 billion of exposure to derivative contracts designed to make money if junk bonds stay out of default and stock indexes rise.
- Oil prices won’t fall below $60 to $70 a barrel as this is the minimum level at which alternative fuels are economically viable, Saudi Oil Minister Ali al-Naimi said.
- Dollar recovery in 2008 to slow gold’s surge, says HSBC.
- Intel Corp.(INTC) picks “Atom” as name for new chip family.

AP:
- Pakistan Taliban leader Baitullah Mehsud and four others were charged today with planning the assassination of Benazir Bhutto, citing chief police investigator Chaudhry Abdul Majeed.

Financial Times:
- Hedge fund to sue SEC over advertising ban. Phil Goldstein, the hedge fund manager who derailed the SEC’s bid to require hedge fund registration, will sue the regulator to lift its ban in hedge fund marketing and advertising.
- Investors flock to commodities. Fears over rising inflation have led investors to pour record amounts of money into commodities. Some analysts worry that the flows are inflating raw materials prices, thereby contributing to the inflationary pressures investors were seeking to hedge against. Tobias Levkovich, Citigroup’s chief US strategist, warned that commodities were looking like a “bubble prospect” as “easy money and speculative juices combine to drive prices unsustainably higher.”
- Chavez sends tanks to Colombia border.
- Less clicks = more quality for Google(GOOG), says ComScore.

TimesOnline:
- Peloton Partners LLP’s investors face losses totaling $2 billion following the sale of assets owned by ABS Fund, which the money manager is liquidating. GLG Partners LP and Citadel Investment Group LLC were among buyers of the assets, which include top-rated securities backed by safer loans. The purchasers will probably hold onto them until the credit markets reverse their slide.

O Estado de S. Paulo:
- Petroleo Brasileiro SA, Ultrapar Patrticipacoes and distributor AleSat have teamed up to buy Exxon Mobil(XOM) assets in South America.

The Times, South Africa:
- Metal bubble could pop. This is not necessarily a good time for gold, or any other commodity, Randgold Resources CEO Mark Bristow suggested. Addressing delegates at the Mining Indaba, Bristow cautioned that the metals boom may be heading the same way as the dot.coms did in the late 1990s.

Weekend Recommendations
Barron's:
- Made positive comments on (ENR), (BONT), (FCH), (GTN), (IAR), (SAFM) and (CKE).

Citigroup:
- Downgraded (F) to Sell, target $5.50.
- Net stocks are trading at the lower end of their forward valuation ranges with few exceptions. Those stocks trading at trough EBITDA multiples include: (AMZN), (EBAY), (EXPE), (GOOG), (IACI), (MNST), (NILE), (RATE) & (VCLK). While the US economic slowdown presents a legitimate fundamentals/valuation headwind, we continue to believe that outlook fundamentals at (EXPE), (GOOG), (AMZN) and (VCLK) are stronger than current valuations suggest.

Night Trading
Asian indices are -3.0% to -1.25% on avg.
S&P 500 futures -.61%.
NASDAQ 100 futures -.51%.

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Earnings of Note
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- None of note

Economic Data
10:00 am EST
- ISM Manufacturing for February is estimated to fall to 48.0 versus 50.7 in January.
- Construction Spending for January is estimated to fall .7% versus a 1.1% decline in January.

Afternoon:
- Total Vehicle Sales for February are estimated to rise to 15.5M versus 15.2M in January.

Other Potential Market Movers
- The (KEG) analyst meeting, Morgan Stanley Tech Conference, Merriman Curhan Ford IP Video Conference, Citi Global Property Conference, Raymond James Institutional Conference and CSFB Under Followed Opportunities Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by automaker and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

BETWEEN THE HEDGES

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Monday, March 03, 2008

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