Wednesday Watch

Late-Night Headlines
Bloomberg:
- Japan’s two biggest brokerages said the US dollar will rebound against the euro and yen by year-end as economic conditions in Europe and Japan deteriorate and US interest-rate cuts near an end. The European Central Bank will be forced to lower borrowing costs in the second half as growth in the region slows, according to Daiwa Securities SMBC Co. Yen buying isn’t “sustainable” because the Japanese economy will cool and interest rates abroad are more attractive, said Nomura Securities. The dollar will gain 8% to 110 yen this year and 9% to $1.45 per euro, said Takahide Nagasaki, senior currency stategist at the unit of Daiwa Securities Group.
- Intel Corp.(INTC) posted first-quarter profit that met analysts’ estimates and forecast sales that may top projections as demand holds up in the face of an economic slowdown in the US, sending the shares up 8%.
- Stacy Smith, CFO of Intel Corp.(INTC), sees core business strengthening in 2008. (video)
- Credit-default swaps worldwide expanded to cover $62.2 trillion debt in 2007 as investors rushed to protect against losses triggered by the collapse of the US subprime mortgage market.
- The cost to protect US corporate bonds from default fell to the lowest in a week amid optimism that banks and securities firms may have seen the worst of the global credit crisis. Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada The cost to protect Australian corporate bonds from default decreased credit default swaps show. The Markit iTraxx Australia Series 9 Index fell 9 basis points to 131.5 basis points. dropped 0.5 basis points to 121.5 basis points.

Wall Street Journal:
- Last year, hedge-fund manager John Paulson pocketed billions by betting the housing market would collapse, but in the Hamptons he’s just listed his three-acre retreat for $19.5 million, more than 50% above what he paid for it two years ago. The founder of Paulson & Co., managing roughly $32 billion, recently bought a 10.4-acre lakefront compound less than a mile away for $41.3 million. Last year, Mr. Paulson made as much as $3 billion to $4 billion for himself – thought to be a record one-year payday on Wall Street. This year the former Bear Stearns(BSC) investment banker bet against the financial sector and profited from weakening among banks, including Bear.
- Some of the Middle East’s biggest and flushest investors see today’s financial turmoil as a buying opportunity.

CNBC.com:
- Republican presidential hopeful John McCain on Tuesday called for a summer gas tax holiday for Americans wincing at high pump prices as part of a wide-ranging plan to help the ailing US economy.

BusinessWeek.com:
- China’s three sovereign wealth funds – China Investment Corp., National Social Security Fund and China-Africa Development Fund – are likely to outsource a combined $320 billion to foreign asset managers over the course of the next three years, according to a report by Z-Ben Advisors.

Forbes.com:
- The World’s Billionaire Women.

Portfolio.com:
- The 73 Biggest Brains in Business.

USA Today.com:
- Survey: Online banking satisfaction up.
- Ford(F) to build 30% more of its Focus small cars this year.
- Save it? Spend it? Pay debts? Our plans for tax rebate vary.
- Men arm themselves with anti-aging weapons.

Reuters:
- Deutsche Bank AG, Germany’s biggest lender, sold about $5 billion of loans financing leveraged buyouts to two private equity firms. The bank is likely to sell a similar amount in Europe. Deutsche Bank sold the loans at about 90 cents on the dollar.
- Critics blasted a Treasury Department call for the $1.8 trillion hedge fund industry to better police itself, saying voluntary guidelines did little to protect investors and regulate the pools of capital.
- Real estate agents are beginning to see signs of life among people looking for homes to buy around the United States. It’s too early to talk of a trend, but lower house prices and mortgage rates are bringing buyers out of hibernation.
- Britain’s prime minister Gordon Brown on Tuesday called on OPEC to boost production to counter rapidly rising prices. Demand in the US may be losing steam. US crude oil imports fell in February to the lowest level in a year. They declined by 486,000 barrels per day, or 4.9%, from the month before to 9.514 million bpd, the EIA said.

Financial Times:
- General Electric(GE) plans to invest up to $2 billion in acquisitions and other deals in China over the next three years as part of a strategy to double its revenues in the country.
- Merrill Lynch(MER) is in “preliminary” talks with Singapore’s Temasek that could result in the US bank becoming the latest Wall Street titan to receive a major cash injection from a sovereign wealth fund.

TimesOnline:
- Britain’s first hydrogen fuel station will open tomorrow in the first stage of a technology revolution offering drivers the prospect of pollution-free motoring.

International Herald Tribune:
- Hedge fund professionals saw their pay climb 50% in 2007 despite the pain from the credit crunch and the increase in market volatility, a report from Alpha Magazine showed on Monday. The survey of more than 800 people at nearly 600 firms found the chief executives of single-manager fund firms took home average compensation of $3.8 million last year. “Some managers have profited enormously from the collapse of the US subprime mortgage market,” the magazine said.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (INTC), target $26. Reported revenues above consensus, EPS inline. Guided revenue above, EPS above. 2Q08 gross margin guidance well above consensus. 2008 gross margin maintained at 57% versus consensus of 56%. Inventories -2.9%(normal seasonal inventory increase is 6%-8%). We find “little to shake a stick at” in Intel’s earnings. Most surprising is Intel’s gross margin guidance. We are impressed by Intel’s inventory management. Intel’s revenue guidance, at the low-end of seasonality but above consensus is “Goldilocks” like, assuaging concerns about the end-environment dramatically worsening.
- Reiterated Buy on (POZN), target raised to $19.

Piper Jaffray:
- Rated (ACTL) Buy, target $20.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 futures +.54%.
NASDAQ 100 futures +1.22%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (KO)/.63
- (ABT)/.62
- (PJC)/.16
- (WWW)/.43
- (BLK)/2.00
- (JPM)/.68
- (ITW)/.76
- (STJ)/.51
- (WFC)/.57
- (GILD)/.50
- (ALTR)/.26
- (IBM)/1.45
- (SLM)/.40
- (ISIL)/.30
- (LEG)/.24
- (AMR)/-1.27
- (TMK)/1.43
- (KMP)/.52
- (JCI)/.47
- (EBAY)/.39
- (VMI)/1.00

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Consumer Price Index for March is estimated to rise .3% versus unch. in February.
- The CPI Ex Food & Energy for March is estimated to rise .2% versus unch. in February.
- Housing Starts for March are estimated to fall to 1010K versus 1065K in February.
- Building Permits for March are estimated to fall to 970K versus 984K in February.

9:15 am EST
- Industrial Production for March is estimated to fall .1% versus a .5% decline in February.
- Capacity Utilization for March is estimated to fall to 80.3% versus 80.4% in February.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,800,000 barrels versus a -3,148,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,800,000 barrels versus a -3,442,000 barrel decline the prior week. Distillate supplies are expected to fall by -1,650,000 barrels versus a -3,693,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by .73% versus a .67% rise the prior week.

2:00 pm EST
- Fed’s Beige Book

Other Potential Market Movers
- The Fed’s Yellen speaking, Fed’s Plosser speaking, Fed’s Mishkin speaking, weekly MBA Mortgage Applications report and SunTrust Robinson Humphrey Institutional Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Higher, Boosted by HMO, Financial, Steel, REIT, Retail and Alternative Energy Shares

Evening Review
Market Summary
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In Play

Stocks Higher into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs, Alternative Energy longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly bullish as the advance/decline line is slightly higher, sector performance is mostly positive and volume is below average. Investor anxiety is above-average. Today’s overall market action is mildly bullish. The VIX is falling 2.9% and remains above average at 23.1. The ISE Sentiment Index is a low 115.0 and the total put/call is an above-average 1.04. Finally, the NYSE Arms has been running about average most of the day and is currently .89. The US dollar continues to trade as if, at the very least, an intermediate-term bottom is in place. A move higher in the US dollar would be a large broad market positive as it would likely take some air out of the current commodity bubble. The TED spread is falling 5 basis points to 158 basis points today. The European Financial Sector Credit Default Swap Index is dropping 7 basis points to 84.50. I continue to believe recent market action indicates to me that the bears are running low on firepower. Nikkei futures indicate an +40 open in Japan and DAX futures indicate an +72 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close on short-covering, less economic pessimism and bargain hunting.

Today's Headlines

Bloomberg:
- Richard Fuld, chief executive officer of Lehman Brothers(LEH), told shareholders “the worst is behind us” in the credit-market contraction. The comments echo those of Lloyd Blankfein, CEO of Goldman Sachs(GS), who told shareholders at the firm’s annual meeting last week that “we’re closer to the end than the beginning” of the crisis.
- Price declines for debt such as top-rated collateralized loan obligations may slow this year because of declining asset sales by structured investment vehicles, Barclays Capital analysts said. SIVs, the funds shut out of short-term debt markets last year, will likely sell about $32 billion of assets the rest of this year, down from $100 billion over the past 10 months, to repay about $60 billion of senior debt that’s due by November, analysts led by Jeff Meli and Madhur Duggar in NY wrote.
- Kevin Gould, head of data products and analytics at Markit Group Ltd. in NY, told Bloomberg that banks shouldn’t rely on its subprime ABX or commercial real estate CMBX indices to value assets. “We don’t think it’s particularly relevant to use the index to value assets. It’s a very useful tool for understanding the direction the market is moving in, but it is not necessarily a tool that one should use to value the cash asset itself,” he said.
- Emerging-market bonds gained, sending yields over US Treasuries to the lowest since February, after a measure of manufacturing in NY state unexpectedly showed growth in April.
- The risk of US companies defaulting fell, according to traders of credit-default swaps. Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada dropped 2.5 basis points to 128.5.
- Crude oil and gasoline rose to records as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.
- Boeing(BA) may benefit from the merger between Delta(DAL) and Northwest Air(NWA) as the carriers band together for new cash from growth overseas to replace their aging fleets.
- John McCain prescribed cutting taxes and reduced government spending to boost the US economy and ensure future growth.
- Confidence among US homebuilders was unchanged in April. A measure of single-family sales prospects for the next six months improved to 30, the highest since August.
- Merrill Options Trading Shows Record Bearish Wagers.

Wall Street Journal:
- The US healthcare industry may help replace the declining business of manufacturing as a main source of employment.

NY Times:
- US States Intensify Effort to Control Gun Sales.

Bergen Record:
- Foreclosures in New Jersey fell 6% in March compared with the same period a year ago.

USA Today:
- More US states are turning to high-tech means to curb the number of repeat drunken-driving offenders through the use of alcohol-sensing ignition locks, citing government officials.

Financial Week:
- Subprime players may get big break. A provision in the second housing stimulus plan currently being debated in Congress would allow companies to use losses from this year and next to net higher tax refunds.

Reuters:
- Regional banks top views despite credit losses.

The Hindu Business Line:
- India-focused hedge funds lose over 25% in 2008 so far.

Haaretz.com:
- Former US President Jimmy Carter on Tuesday warmly embraced a leading Hamas figure in the West Bank and laid a wreath at the grave of Yasser Arafat, further antagonizing Israel as he pushed forward with his latest Mideast peace mission.

Bear Radar

Style Underperformer:

Large-cap Growth -.06%

Sector Underperformers:

Airlines (-4.5%), Gaming (-3.09%) and Defense (-1.12%)

Stocks Falling on Unusual Volume:

LNG, TIE, REP, AFFX, FRX, NOC, IFLO, LVS, AVT, STT, KCI, MTW, REP, ABI, CMN, JAH, ELX, ARW, CROX, RADS, SIGM, DDUP, CPHD and IVGN

Stocks With Unusual Put Option Activity:

1) OVTI 2) DDUP 3) AZN 4) JOSB 5) STT

Weekly Retail Sales 5-Year Graph

(click on image to enlarge)

BOTTOM LINE: Johnson Redbook weekly retail sales rose 2.0% this week versus a 1.0% gain the prior week and up from a .5% gain the week ending March 4th. This is the largest weekly improvement, notwithstanding unseasonably cold/wet weather, since the week ending July 17th of last year and is the largest weekly rise since the week ending Dec. 4th during the holiday shopping season. While this is only one week and sales still remain modestly below the long-term average of 3.0%, it is a noteworthy improvement. The significant drop in weekly retail sales growth during December was one of the first indications that overall economic growth was slowing substantially.