Tuesday, March 11, 2008

Today's Headlines

Bloomberg:
- The Federal Reserve, struggling to contain a crisis of confidence in credit markets, will for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities.
- The International Energy Agency cut its forecast for 2008 global oil demand for a second month as prices above $100/bbl. slow consumption in some parts of the world economy.

- One in four teenage girls in the US had at least one common sexually transmitted disease, according to the first national study to assess combined rates of the most common STDs among young women.
- MasterCard said US gasoline demand is down 3.7% from year-ago levels.
- Hovnanian Enterprises(HOV), New Jersey’s biggest homebuilder, rose as much as 19% after reaching an agreement with banks on new lending terms.
- A person close to investor Joesph Lewis, who purchased a 9.6% stake in Bear Stearns(BSC) in December, said he may increase his stake in the company.
- Spreads on credit-default swaps tied to 25 of the safest commercial mortgage securities on the Markit CMBX index fell 28 basis points to 255 basis points after the Fed said it would lend up to $200 billion in exchange for mortgage-backed securities.
- Yields on agency mortgage-backed securities relative to US Treasuries narrowed after the Fed move.
- Crude oil rose to another record, climbing above $109/bbl. despite a rise in the US dollar, as historic investment fund speculation for the commodity continues unabated.
- Washington Mutual(WM) rose the most in almost eight years on speculation that Warren Buffett and Goldman Sachs(GS) may invest in the company.

- Al Gore’s Generation Investment Management Ltd. plans to close its main Global Equity Fund to new money as assets are close to a $5 billion target.
- Google(GOOG) Closes DoubleClick Purchase After EU Approval.

Wall Street Journal:
- Exxon Mobil(XOM) wants a piece of the hybrid-car market.
- Amid Water Shortage, Australia Looks to the Sea. Opened in late 2006, Perth’s $360 million desalination plant sucks in roughly 50,000 gallons of the Indian Ocean every minute. It then runs the water through special filters that separate out the salt, yielding some 25,000 gallons of drinkable water – enough to meet nearly a fifth of Perth’s current demand.
- Europe should set up procedures to prepare for the failure of a bank with a business that crosses national borders, according to a group of European business professors.
- Eads Pushes Ahead With US Business Expansion Plan.

- New York Democrat Governor Eliot Spitzer may resign as soon as today following reports linking him to a prostitution ring, citing a person close to the governor.

NY Times:
- General Electric’s(GE) NBC Universal and News Corp.’s(NWS/A) Fox network are to start a joint venture which will allow users to view television shows and films free of charge.

- Columbia University to Offer Financial Aid to More Students.
- Democratic presidential candidate Barack Obama is named in an e-mail disclosed in the fraud trial of Antoin Rezko.
- Spitzer’s ‘Private Matter’ Was a Betrayal of Public.

LA Times:
- UCLA experts say US recession unlikely.

Reuters:
- The stainless steel industry is trying to cut nickel usage in its production process.

- NetApp Inc., a data storage equipment maker, on Tuesday forecast that fiscal year 2009 revenue will climb 15-20% from the prior fiscal period.

Bear Radar

Style Underperformer:

Mid-cap Value +1.03%

Sector Underperformers:

HMOs (-16.2%), Hospitals (-1.06%) and Airlines (-.87%)

Stocks Falling on Unusual Volume:

WLP, HUM, CVH, SWSI, GIGM and EHTH

Trade Deficit Lower Than Estimates as US Exports Hit Another Record

- The Trade Deficit for January came in at -$58.2 billion versus estimates of -$59.5 billion and a downwardly revised -$57.9 billion in December.

BOTTOM LINE: The US trade deficit was smaller than forecast in January as a weaker dollar propelled gains in exports that will prevent a deeper economic slowdown, Bloomberg said. Overseas demand for US goods rose 1.6% to another new record. Imports rose 1.3% on the record price for imported crude oil. Excluding petroleum, the trade deficit was the smallest since October 2002. Goldman Sachs now forecasts that trade will contribute a full percentage point to growth this quarter. I expect the trade deficit to continue to improve over the intermediate-term.

Bull Radar

Style Outperformer:

Small-cap Value (+2.85%)

Sector Outperformers:

Banks (+5.30%), I-Banks (+4.76%) and Steel (+4.03%)

Stocks Rising on Unusual Volume:

IPCS, CPF, HDB, RCNI, LFC, WB, CS, WFC, PTR, HRS, CRAI, DSCP, SYKE, IPAR, IPCS, RSCR, LULU, AUXL, FLIR, MBHI, CETV, FMCN, COIN, MDTH, ABCO, BLOG, TECUA, LECO, FPIC, RCNI, RSC, KNM, EPL, ATE and PHI

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Monday, March 10, 2008

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Bear Stearns(BSC) CEO Alan Schwartz denied that the firm lacked sufficient capital after speculation about a liquidity crisis pushed the stock down.
- Obama Rejects Clinton Suggestion of Vice Presidency. Barack Obama touted his front-runner status in the race of the Democratic presidential nomination today and rejected rival Hillary Clinton’s recent suggestion he might be her running mate.
- WellPoint Inc.(WLP), the second-largest US health insurer, said it cut its 2008 forecast because of unexpected medical costs, causing the company’s shares to fall 17% and ignite an industry-wide sell-off in after-hours trading.
- Texas Instruments(TXN) cut its first-quarter revenue and profit forecasts and the shares fell as much as 6.9% in extended trading.
- Asian currencies fell, led by the Indonesian rupiah and the South Korean won, on speculation credit-market losses will deepen, spurring foreign investors to reduce holdings of emerging market assets.
- China’s inflation accelerated to the fastest pace in 11 years in February as food and energy prices jumped, increasing the likelihood the central bank will raise interest rates.

Wall Street Journal:
- Spitzer Engulfed in Sex Scandal. New York Governor, Known as Crusader, Sees the Tables Turn.

MarketWatch.com:
- Google(GOOG) executives address ‘paid click’ decrease data. Google’s president of North America advertising and commerce, said that the recent slowing in paid clicks “was intentional on our part” and will result in “a long-term benefit for our business.” That’s because recent quality initiatives at the company have resulted in fewer unintentional clicks and a higher number of “conversions,” or revenue generated by intentional clicks. “Conversions actually go up for advertisers, which is a positive, but there are less clicks overall,” he said. David Eun, vice president of content partnerships, said that while Google has “purposely not taken the easy money” by loading YouTube users down with advertisements, he commented that “over the course of the next year, we’re going to turn up the dial a bit” in terms of serving video advertisements on YouTube. Google also sees Microsoft’s(MSFT) ongoing effort to acquire mutual rival Yahoo Inc.(YHOO) as a potential positive.
- Speculators triple there net long positions in crude oil last week. “The disconnect between slowing US growth and a soaring commodity, energy complex has truly been quite remarkable,” said Edward Meir, energy analyst at MF Global. “The two driving forces behind the current commodity price surge” are “the weaker dollar and the massive fund flows going into the sector, largely as a response to the lack of viable investment alternatives.” Government data showed speculators and managers of large investment funds, those who don’t need physical oil, dominated bets on rising oil prices, while refiners and other oil users were betting oil prices would move lower. Latest data from the US CFTC showed long positions from speculators, in which investors expect oil prices to move higher, outnumbered short positions, or bets on lower prices, by nearly 100,000 contracts last week. Net long positions more than tripled in one month. Analysts are worried the recent run-up in crude prices could reverse suddenly. “Absent strong US growth, these two variables(the dollar and fund flows) alone will have difficulty in sustaining the price advances we are seeing,” Meir added in a note to clients.

CNBC.com:
- Merrill Lynch CEO Says Worst is Over.

NY Times:
- Citigroup(C) to Inject $1 Billion in Six Hedge Funds.
- Blackstone Group’s(BX) Schwarzman Donates $100 Million to New York Library.

BusinessWeek.com:
- Blackstone(BX): Biding Its Time. The private-equity player has taken its lumps, but says it has lots of cash on hand to start investing in distressed assets.

Forbes.com:
- Top 10 Up-And-Coming Tech Cities.

CNNMoney.com:
- EC approval of Google-DoubleClick deal near.

Portfolio.com:
- So why was Governor Eliot Spitzer of New York in Washington when he was caught on a wiretap arranging to meet with a high-priced prostitute at a Washington hotel on the night before Valentine’s Day?

USA Today.com:
- BMW says it will spend $750 million to expand its manufacturing plant in South Caroline, creating 500 jobs.

Financial Times:
- Jean-Claude Trichet, European Central Bank president, has sounded the alarm over the relentless rise of the euro – signaling policymakers’ heightened concern about the economic damage threatened by the currency’s recent surge.
- Money sent home by Latin American migrant workers in the US grew last year at their slowest rate in a decade, a result of the US economic slowdown and the crackdown against illegal migration, combined with the strength of the Brazilian economy.

Daily Telegraph:
- Hedge fund industry hit by worst crisis in a decade.

Late Buy/Sell Recommendations
Citigroup:

- Maintained Buy on (DOX), target $46.
- Maintained Buy on (BRCD), target $10.

Night Trading
Asian Indices are -1.75% to +.25% on average.
S&P 500 futures +.38%.
NASDAQ 100 futures +.16%.

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Earnings of Note
Company/EPS Estimate
- (DKS)/.60
- (KR)/.47
- (DUF)/.23
- (SSI)/.76
- (JCG)/.39
- (TTWO)/-.61
- (GSF)/2.33

Upcoming Splits
- None of note

Economic Releases
8:30 am EST

- The Trade Deficit for January is estimated to widen to -$59.5 billion versus -$58.8 billion in December.

Other Potential Market Movers
- The Fed’s Kroszner speaking, IDB/TIPP Economic Optimism Index, weekly retail sales reports, (NTAP) analyst day, (CVX) analyst day, (BMC) analyst day, (EQT) analyst day, (CAT) analyst day, Bear Stearns Media Conference, Banc of America Consumer Conference, Piper Jaffray & ChinaVenture Conference and CSFB Communications Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by mining and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.