BETWEEN THE HEDGES

Tuesday, March 25, 2008

Wednesday Watch

Posted by Gary .....at 11:39 PM

Late-Night Headlines
Bloomberg:
- Japan’s export growth unexpectedly accelerated in February.
- Cia. Vale do Rio Doce, the world’s biggest iron-ore producer, scrapped a proposal to buy Xstrata Plc for cash and shares through the world’s biggest mining takeover.
- Clear Channel(CCU) Drops as Journal Says Buyout May Fail.
- Orange-juice futures fell for a fourth session on signs consumer demand for the beverage isn’t keeping up with the harvest in Florida, the world’s second largest orange grower.
- Bear Stearns(BSC) Worsens China’s Hot-Money Quandary.
- Bear Stearns(BSC) investors seeking a higher price than JPMorgan Chase’s(JPM) bid of $10 a share asked a Delaware judge to halt a stock transaction that may prevent opponents from blocking the takeover.

Wall Street Journal:
- McCain Talks Economy, Picks up Reagan Nod.
- China Taking Aim at Media Over Tibet. The Chinese government bans CNN in most homes. The talk of China in recent days? The news coverage on CNN.

MarketWatch.com:
- Consumer confidence is a lagging, not leading, indicator. “Low consumer confidence is followed by high stock returns more often than it is followed by low stock returns.”
- Was that the bottom? Contrarians growing more confident that bottom has been seen.
- Big Blue’s shares have outperformed market; Wall Street sees further upside.

CNBC.com:
- Credit Disaster? Maybe It’s Not So Bad After All. Maybe, just maybe, the financial world is not about to implode. Such is the level of disaster mongering surrounding the latest phase of the eight-month-old credit crisis that you could be forgiven for thinking we will all soon be hoarding food and reverting to a barter economy.
- Wall Street’s biggest firms, battered by the breakdown in mortgage and other debt markets say there’s money to be made among the wreckage.
- Buying at the Bottom.
- BlackRock’s Doll: Market Has Turned a Corner.

BusinessWeek.com:
- Joocing the Next Billion Internet Users. Paris startup Jooce has an idea: Instead of one laptop per child, why not many virtual desktops per public computer? It’s catching on.

Forbes.com:
- World’s Most Desirable Luxury Brands.
- Markets Bet On Sweetened Deal for Countrywide(CFC).

macnn:
- Apple(AAPL) granted patents for iPod Click Wheel, iMac Flex Arm, more.

Financial Times:
- JPMorgan Chase(JPM) lures Bear brokers. JPMorgan Chase is offering Bear Stearns’ best brokers annual bonuses of more than $500,000 in an effort to prevent an exodus of talent as a result of its planned takeover of the stricken investment bank.
- The Federal Home Loan Baking system, a government-sponsored network of US banks, is seeking to enter the so-called “monoline” insurance market to help local governments that have been hurt by the credit market storm.

TimesOnline:
- The day Wall Street pulled $10 billion from Bear Stearns(BSC) and forced sale. Bear’s liquidity pool, which stood at $21 billion early this month, fell dramatically from $18.1 billion to $11.5 billion on March 10 “as rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence,” wrote Christopher Cox, chairman of the SEC. Bear’s collapse was “the result of a loss of confidence, not a lack of capital.” “Counter-party withdrawals and credit denials, resulting in loss of liquidity – not inadequate capital – caused Bear’s demise,” Mr. Cox said.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (CMC), raised target to $40.
- Reiterated Buy on (RIMM), target $140.

Morgan Stanley:
- We view Apple’s(AAPL) building momentum in higher education as another key growth lever. In the near term, it sets the company up for a strong September quarter. Longer-term, we see an “aging phenomenon” that will put Apple in a more mainstream market share position as students enter the work force, much like Linux adoption in the 1998-2003 time frame. Apple currently holds 3% global PC market share, compared to 8-20% share for each of the top 3 PC vendors. Even our above-consensus forecast assumes just 4.6% Apple PC market share by 2010 – and every incremental point of market share adds $6 billion to revenue and $1 to EPS. A recent higher education survey shows Apple’s mindshare(roughly 40% of college students plan to buy a Mac) tracks well ahead of current market share(15%) and we compare the potential for related market share gains to Linux adoption that also started at universities. Mac March quarter results are likely to buck the normal PC seasonal unit trend(typically -10% QoQ), supporting our thesis of secular growth.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 futures -.29%.
NASDAQ 100 futures -.19%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (RBN)/.43
- (CKR)/.06
- (RECN)/.20
- (PAYX)/.39
- (ORCL)/.30
- (PBY)/-.08

Upcoming Splits
- (STLD) 2-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for February are estimated to rise .7% versus a -5.3% decline in January.
- Durables Ex Transports for February are estimated to fall -.3% versus a -1.6% decline in January.

10:00 am EST
- New Home Sales for February are estimated to fall to 578K versus 588K in January.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,800,000 barrels versus a 133,000 barrel increase the prior week. Gasoline supplies are expected to fall by -1,150,000 barrels versus a -3,447,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,625,000 barrels versus a -2,910,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by .48% versus a -1.15% decline the prior week.

Other Potential Market Movers
- The (WNC) analyst meeting, (WIND) analyst day, (SRP) analyst meeting, weekly MBA Mortgage Applications report, CSFB Global Leveraged Finance Conference, Sidoti Emerging Growth Conference, JPMorgan Gaming/Lodging/Restaurants Conference and Banc of America SMid Cap Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial 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 Higher, Boosted by Oil Service, Steel, Wireless, Construction, Rail and Airline Shares

Posted by Gary .....at 4:10 PM

Evening Review
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GuruFocus.com
PM Market Call
After-hours Commentary
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After-hours Stock Chart
In Play

Stocks Higher into Final Hour on Short-Covering, Diminishing Credit Market Angst

Posted by Gary .....at 3:47 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Biotech longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is very bullish considering recent gains, today’s economic data and the rise in oil. The VIX is falling 1.2%, but remains high at 25.4. The ISE Sentiment Index is a below average 137.0 and the total put/call is an above-average 1.03. Finally, the NYSE Arms has been above average most of the day and is currently 1.08. The iTraxx European Financial Sector Credit Default Swap Index is falling another 25 basis points to 92 basis points. It has plunged 68 basis points in less than one week. The TED spread is falling another 16 basis points to 138 basis points and has plunged 66 basis points in two days, which is one of the largest 2-day drops on record. The 3-month T-bill yield is rising another 21 basis points today to 1.27%, which is 71 basis points higher in two days. It is also a positive that the 10-year TIPS spread, a good gauge of inflation expectations, is falling another 6 basis points to 2.25%. This spread has declined 43 basis points in about a week. My favorite biotech long, Gilead Sciences(GILD), is making a new all-time high today. The stock is up 11% this year in a poor market environment. I still see substantial upside to the shares from current levels. Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and diminishing credit market angst.

Today's Headlines

Posted by Gary .....at 2:12 PM

Bloomberg:
- Petroleo Brasileiro SA(PBR) rose the most in almost two months in Sao Paulo trading on speculation the state-controlled oil company found oil off the coast of Maranhao state in Brazil’s northeast. Traders are speculating Petrobras discovered a field in Maranhao that is bigger than its Tupi field offshore Rio de Janeiro.
- Republican presidential candidate John McCain said a government bailout of banks should be based “solely on preventing systemic risk” and not on helping financial and property speculators.
- CME Group(CME), the world’s largest futures market, said it will buy Credit Market Analysis to give its customers pricing information on derivatives such as credit-default swaps.
- Emerging-Market Bond Spreads Widen on Credit Loss Concerns.
- Countrywide Financial(CFC) and UK lender Lloyds TSB Group Plc led a decline in the cost of protecting bonds from default to the lowest in a month. Credit-default swaps on Countrywide tumbled 82 basis points to 374 and Lloyds TSB dropped a record 49 basis points to 76, according to CMA Datavision.
- The risk of corporate debt defaults in Asia has increased because of the global credit turmoil, weakening US dollar and slowdown of the US economy, S&P said. Companies from Southeast Asian countries such as Indonesia, Thailand and Vietnam that have borrowed heavily in the past are likely to struggle as their economies rely on exports to the US, S&P said.
- James B. Bullard, the deputy director of research and monetary analysis at the Federal Reserve Bank of St. Louis, was named president of the bank, the St. Louis Fed said. Bullard, 47, will take over April 1 for William Poole, who is retiring.
- Democratic presidential candidate Barack Obama and his wife Michelle gave $10,772 of the $1.2 million they earned from 2000 through 2004 to charities, or less than one percent, according to tax returns for those years released today by his campaign. The couple earned more than $2.6 million in 2005 and 2006 after the Illinois senator published a bestselling book in 2005. They donated $137,622 over those two years and made their church, Trinity United Church of Christ, one of the biggest beneficiaries of their philanthropy, donating $27,500. Obama is under scrutiny for his ties to the church because of comments made by its senior pastor.
- Google(GOOG) said rival Yahoo!(YHOO) will support its OpenSocial software, allowing developers to put their programs on a broader range of social-networking sites.

Wall Street Journal:
- Starwood(HOT) Plans $4 Billion Renovation to Boost Brand.
- Vornado Realty(VNO) May Offer Bargain for REIT Investors.
- Securitization Market Will Recover, Penner Says.

NY Times:
- Clinton’s Mortgage Solution: Bring in Greenspan? Post-Fed Mr. Greenspan has secured multiple advisory positions, including one at Paulson & Company, the hedge fund that has been one of the greatest beneficiaries of the destruction in the housing market.

Albany Journal:
- AMD(AMD) to Unveil $3.2 Billion NY Chip Plant.

Frankfurter Allgemeine Zeitung:
- Sony BMG, the music joint venture of Sony Corp.(SNE) and Bertelsmann AG, may charge a fixed monthly fee to let users download unlimited music from the Web and is discussing distribution accords with Apple Inc.(AAPL) and Nokia Oyj(NOK).

Daily Telegraph:
- Hedge funds are the likely culprits behind the rumors that hit HBOS, Britain’s largest mortgage lender, says Ian Cowie.

Kauppalehti:
- Microsoft Corp.(MSFT) said most of Europe’s biggest companies will be using its Vista operating system by the end of this year. About 80% of “large” corporations in Europe plan to install Vista by the end of 2008, citing an interview with Pierre Liautaud, head of Microsoft’s western European unit. Sales of Vista to corporate clients have been stalled by concerns about compatibility with existing systems. Liautaud said credit-market turmoil in the US has not so far affected information technology sales in Europe.

Bear Radar

Posted by Gary .....at 1:56 PM

Style Underperformer:

Large-cap Value -.09%

Sector Underperformers:

Retail (-.68%), HMOs (-.35%) and Telecom (-.12%)

Stocks Falling on Unusual Volume:

BTI, IDCC, VTIV, COMV, MTG, LXP and SMA