BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- Home sales in Greenwich, Connecticut fell 29% in the first two months of the year as North America’s hedge-fund capital feels the effects of the US housing slump, property broker Prudential Connecticut Realty said.
- Saddam Hussein’s Iraqi intelligence agency secretly funded a trip to Iraq by three US congressmen in 2002, after the Sept. 11 attacks and before the liberation of Iraq, the US said in charges filed in Michigan. The indictment accuses a Michigan man, a naturalized US citizen born in Iraq, of organizing the trip. Muthanna al-Hanooti is charged with conspiring to act as an Iraqi agent without notifying the US. He was to receive 2 million barrels of oil in payment, the indictment said. The indictment didn’t identify the three members of Congress it said traveled to Iraq with al-Hanooti. The AP reported that the timing coincide with a trip taken by Democrats Jim McDermott of Washington, David Bonior of Michigan and Mike Thompson of California.
- Goldman Sachs’ top communications technology analyst, Brantley Thompson, is moving to Capital Group Cos., the second-largest mutual-fund company in the US. Goldman’s chip analyst, Simona Jankowski, is taking over for Thompson.
- Oracle Corp.(ORCL), the world’s third-largest software maker, reported third-quarter sales that missed analysts’ estimates after an acquisition spree failed to spur orders of business applications. The shares fell 8.6% in after-hours trading.
- Google Inc.(GOOG), the most popular Internet search engine, saw slowing growth in the number of clicks on text advertisements, raising concern that a sputtering economy is hurting sales.
- A NY woman whose lawyer said worked at hedge funds was charged with operating a $2-million-a-year prostitution ring, Manhattan prosecutors alleged.
- Google(GOOG) Creeps Onto Cell Phones in Threat to Symbian, Microsoft(MSFT).
- Japan’s government bonds rose on speculation the Bank of Japan will consider cutting interest rates this year to boost economic growth.

MarketWatch.com:
- Mortgage refinancing applications surge. Here’s what you should know before jumping in.
- Chicago Fed chief makes case for Fed to do less.
- Lawmakers on Capitol Hill Wednesday took the first steps to shine a light on the finer points of JPMorgan’s(JPM) Federal Reserve-authorized buyout of Bear Stearns(BSC), seeking explicit details of the controversial deal.

NY Times:
- Clinton Donors Ask Pelosi to Back Off.
- Clear Channel(CCU), Buyers Sue Banks to Force Buyout’s Completion.

The Oklahoman:
- Banker, grain dealers blame hedge funds for risking wheat industry. “What is the true price of wheat?” asked Tippens, president and CEO of Canadian State Bank. Certainly, it’s not $10.68. Or it wouldn’t be at that level without billions of dollars from hedge funds that have artificially caused the price to soar since the first of the year, he said. “It is estimated that $8 billion has flowed into ag futures since the start of the year,” said Joe Neal Hampton, president of the Oklahoma Grain & Feed Assoc. and Oklahoma Agribusiness Retailers Assoc. This ongoing large investment has served to drive general commodity prices to ever higher prices, often in disrespect to prevailing fundamentals. The solution to wild price swings and prices far above what industry fundamentals would dictate would be to limit the number of bushels that hedge funds can control, both Tippens and Hampton said. “We need to get the index funds out,” Hampton said. “They need to be considered what they are, and they are speculators.” “If the CFTC would come back in and put those limits back on I think you would see the market probably adjust back to what the real price of wheat is,” Tippens said.
- China’s top 10 renewable energy developments in 2007. China is displaying surprising progress in renewables, more than many outsiders might expect.
- Tech M&A: It’ll Be a Good Year. As company valuations tumble, big players like eBay(EBAY) and Oracle(ORCL) see lots of potential bargains, while targets see fewer buyout alternatives.

Forbes.com:
- Getting Over International Investing. For years, US investors have been told to “go global” in search of stronger growth and higher returns. And Americans obliged by pouring billions of dollars into international stocks, mutual funds and exchange-traded funds. Nine out of $10 from US fund investors went into international equities in 2006. But now the case for overseas investing seems to be unraveling. Since global markets topped out late in 2007, the much-maligned US has dramatically outperformed some of last year’s hottest markets. “The international outperformance was a great story, but it’s over,” says Alec Young, S&P’s international equity strategist. Despite all the moaning and groaning on Wall Street and in the financial media, the DJIA and S&P 500 have still not crossed the 20% decline that technically signals a bear market. And yet some of last year’s biggest winners – Germany, India and especially China – are deep in bear market territory. The bloom is off the rose in China. The Shanghai Composite has fallen below 4,000 after topping 6,000 last October, when we recommended selling Chinese stocks. Inflation is rising, threatening to puncture China’s growth bubble amid food and fuel shortages and an energy squeeze. And as the Beijing Olympics approaches, a rebellion has broken out in Tibet and in neighboring provinces as Tibetans looks for some autonomy and religious freedom. China’s answer: Crush the dissenters and blame the Dalai Lama for everything. These events may help crack the finely wrought veneer the government has crafted in its effort to make China shine in the eyes of the world. Ultimately it may remind investors that this is very much a dictatorship whose economy is still firmly controlled by the Communist Party. Nothing last forever- not tech stocks in the 90s, housing in the early part of this decade or commodities now. International stocks, especially emerging markets, had a great run, but now may be their time to revert to the mean and lag ours for awhile. Over the last couple of years, I’ve observed a certain schadenfreude – a joy in other people’s trouble – in the downright glee with which some commentators have viewed the recent fall of the US dollar and underperformance of US stocks. But now investors may realize that the US economy is much more resilient than others in times of crisis like this.

CNNMoney.com:
- 100 best places to live and launch a business.
- Former finance workers are switching careers to answer the huge demand for new nurses.

USA Today.com:
- Automakers roll out technologically-advanced green cars.

Financial Times:
- Goldman Sachs(GS) has reclaimed 90% of the $2 billion it used to bail out one of its troubled hedge funds last summer as the investment bank moved to shrink the fund and avoid consolidating it on its balance sheet.
- The Bank of England is poised to take revolutionary action to fin a “resolution” to the problems faced by British banks unable to sell or refinance portfolios of mortgage-backed debt, Mervyn King, the governor, signaled on Wednesday.

Le Figaro:
- European Aeronautic Defense & Space Co. CEO Louis Gallois said the euro’s rise against the dollar is hurting exporters across Europe. “The euro at its current level is suffocating a large part of European industry by crushing export margins,” Gallois said. “If it continues, exporters are going to flee Europe,” he said. The dollar’s weakness is “a major issue” for EADS’s plane-making unit Airbus SAS, Gallois said.

Canadian Business Online:
- Venezuela’s National Assembly opened an investigation Wednesday into accusations that two of President Hugo Chavez’s brothers acquired 17 ranches in recent years – if true, a potential stain on the image of Chavez’s socialist movement.

Australian:
- Stockbrokers will find themselves facing fines as high as $1 million for serious market manipulation under new Australian Securities Exchange regulation in force from Monday. The ASX has found itself in the firing line because of recent trading practices in the market downturn such as short selling and stock lending, which have led to calls for more disclosure of which sales are “short” and which stocks are borrowed.

Late Buy/Sell Recommendations
Citigroup:
- We Are Assuming Approximately 20% Y/Y Paid Clicks Growth for Google(GOOG) In Q1. So IF the comScore data is accurate AND holds for Q1, AND if it is representative of Google’s GLOBAL trends – not just US – then it could imply risk to Q1 estimates. The disconnect is that this type of step-function deceleration should show up as a material fall-off in leads to Search Engine Marketers and channel checks remain generally positive.
- Refinery Utilization dropped 1.6% this week and now stands at 82.2%, the lowest level seen since Hurricane Rita. Implied gasoline demand rose .5% this week but remains 1% below 2007 on a 4-week average basis.
- Reiterated Buy on (PAYX), target $41.

Night Trading
Asian Indices are -1.75% to -.75% on average.
S&P 500 futures -.07%.
NASDAQ 100 futures -.21%.

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Earnings of Note
Company/EPS Estimate
- (LEN)/1.18
- (WSM)/1.12
- (UTIW)/.19
- (FRED)/.14
- (SCHL)/-.21
- (DSW)/.05
- (CAG)/.41
- (APOL)/.52
- (GPN)/.42
- (TXI)/.38
- (MKC)/.38
- (ACN)/.56
- (RHN)/.19

Upcoming Splits
- (STLD) 2-for-1

Economic Releases
8:30 am EST
- Final 4Q GDP is estimated to rise .6% versus prior estimates of a .6% gain.
- Final 4Q Personal Consumption is estimated to rise 1.9% versus prior estimates of a 1.9% increase.
- Final 4Q GDP Price Index is estimated to rise 2.7% versus prior estimates of a 2.7% gain.
- Final 4Q Core PCE is estimated to rise 2.7% versus prior estimates of a 2.7% gain.
- Initial Jobless Claims for this week are estimated to fall to 370K versus 378K the prior week.
- Continuing Claims are estimated to rise to 2885K versus 2865K prior.

Other Potential Market Movers
- The (MRO) analyst meeting, (EXR) analyst event, (SRE) analyst conference, (OMRI) analyst meeting, (OSG) investor day, weekly EIA natural gas inventory report, JPMorgan Insurance Conference, Banc of America SMid-cap Conference, CSFB Global Leveraged Finance Conference and JPMorgan Gaming/Lodging/Restaurants Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and automaker stocks in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the day.

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Alternative Energy longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bearish as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is above-average again. Today’s overall market action is mildly bearish. The VIX is rising .5% and remains high at 25.9. The ISE Sentiment Index hit a very low 78.0 and the total put/call hit a high 1.27. Finally, the NYSE Arms has been high most of the day and is currently 1.43. Considering the news today and recent gains, today’s low volume pullback isn’t too bad. Many market leading stocks are actually rising. As well, wireless, commodity, construction, biotech and utility shares are all higher. The announcement by Senator Dodd that he plans an April 3 hearing into the Bear Stearns(BSC) deal seems to have killed a budding rebound in financial stocks, which have been the main source of market weakness today. The Shanghai Composite(-41% from high) continues to display an inability to rally, notwithstanding recent strength in other emerging and developed markets. This is being mostly ignored in the financial press so far. Nikkei futures indicate a -86 open in Japan and DAX futures indicate an +80 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

BETWEEN THE HEDGES

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Thursday, March 27, 2008

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Wednesday, March 26, 2008

Thursday Watch

Stocks Finish Lower, Weighed Down by Airline, Financial and Homebuilding Shares

Stocks Lower into Final Hour on Profit-taking, Jump in Oil, Financial Sector Weakness