BETWEEN THE HEDGES

Wednesday, April 23, 2008

Thursday Watch

Posted by Gary .....at 11:46 PM

Late-Night Headlines
Bloomberg:
- Apple Inc.(AAPL) reported a 36% jump in profit, topping estimates, on sales of Macintosh computers. The profit margin in the quarter and the forecast for the current period missed projections, sending the shares $.50 lower to $162.31 in after-hours trading.
- Amazon.com(AMZN) said earnings rose on electronics sales and forecast profit margins less than its projection in January, sending the shares lower in late Nasdaq trading.
- Starbucks(SBUX) forecast its first annual profit decline in eight years as sales at US stores slowed, causing the shares to drop 11% in late Nasdaq trading.
- Soaring global food prices may prompt investors to buy default protection on Malaysia, Indonesia and the Philippines on the risk governments will raise subsidies to stave off political unrest, according to ING Bank NV.

Wall Street Journal:
- Steve Ballmer says Microsoft(MSFT) is willing to go it alone rather than buy Yahoo Inc.(YHOO). And he has a reason besides opposition from the Internet company: skepticism among his own employees.
- Indiana Poses Challenges for Each of the Democrats.
- The Federal Reserve is likely to cut short-term rates by a quarter of a percentage point next week – but then may be ready for a breather.

MarketWatch.com:
- Economists say euro-zone may be losing decoupling fight.

CNBC.com:
- Private Equity’s Mountain of Dry Powder.

BusinessWeek.com:
- Speculators Worsening World Food Crisis? Biofuels and droughts can’t fully explain the recent shortages – hedge funds, index funds, pension funds and investment banks bear part of the blame. Financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called “soft red winter wheat.” “The enormous influx of capital has resulted in the futures markets no longer reflecting supply and demand,” says Todd Kemp of the US National Grain and Feed Assoc. The whole thing demands an “ethical discussion.” From the srtandpoint of these investors, poor harvests that drive up prices are only good for their portfolios. Many investors either don’t care or are simply oblivious to the fact that by investing in the global casino, they could be gambling away the daily food supply of the world’s poorest people. (very good article)

FINalternatives:
- 20-Year-Old Preps Global Macro/Stat. Arb Hedge Fund.

CNNMoney.com:
- A strong case for market optimism. Believe it or not – you have several good reasons to believe the sky isn’t falling. In fact, it may be clearing up.

USA Today.com:
- Foreign buyers snap up US real estate. Real estate agents are increasingly courting foreigners to buy homes in the USA – hiring agents fluent in other languages, marketing to foreign buyers and in some cases, offering to pay the airfare and hotel bills of foreign shoppers who buy a home.

Reuters:
- Russell Read is resigning as chief investment officer of Calpers, the biggest US pension fund, a fund spokesman said on Wednesday.

Financial Times:
- CIC raises global spending power. China’s $200bn sovereign wealth fund now has as much as $90bn to spend on assets abroad, an increase of more than 30% on its original allocation, its president and chief investment officer told western bankers in Beijing on Wednesday.
- Deutsche Bank is preparing another multibillion-dollar sale of leveraged loans on its books, adding to the evidence of a rally in corporate credit markets.
- Investor fears over failures by big banks have receded sharply in recent weeks, pricing trends in the credit derivatives markets have revealed. Over the past five weeks the cost of protecting the senior debt of the 25 European banks in the iTraxx Financials index has fallen from 160 basis points to 61.5bp, according to Markit Group.

South China Morning Post:
- China’s Central bank Governor Zhou Xiaochuan has called for further monetary tightening, citing a speech to an internal meeting of central bankers.

The Economic Times:
- A US biotech company is teaming up with Brazilian ethanol producers to turn sugarcane into diesel fuel in a joint venture that could churn out 3.8 billion liters a year by 2015, executives announced.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TER), target $17.
- Reiterated Buy on (SPNC), target $17.
- Upgraded (RE) to Buy, target $113.
- Reiterated Buy on (FFIV), target $30.
- Reiterated Buy on (ATI), target $97.
- Reiterated Buy on (EQIX), target $120.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures -.22%.
NASDAQ 100 futures -.56%.

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Earnings of Note
Company/EPS Estimate
- (SWK)/.88
- (TRV)/1.53
- (DO)/2.15
- (IMCL)/1.32
- (RCL)/.28
- (HSY)/.39
- (SWY)/.32
- (HOT)/.25
- (LH)/1.14
- (OXY)/1.96
- (MMM)/1.35
- (LLL)/1.51
- (NEM)/.54
- (FO)/.77
- (NOC)/.63
- (BMY)/.41
- (BDK)/1.14
- (AET)/.92
- (WHR)/1.70
- (DOW)/.95
- (KLIC)/.01
- (F)/-.15
- (RTN)/.84
- (MOT)/-.06
- (ZMH)/1.04
- (PEP)/.70
- (EDS)/.05
- (COP)/2.42
- (MO)/.36
- (CAKE)/.21
- (KLAC)/.65
- (WFR)/.88
- (JNPR)/.25
- (IM)/.39
- (CB)/1.55
- (MFE)/.45
- (GNW)/.63
- (SAF)/1.44
- (AMGN)/1.05
- (WDC)/1.09
- (MSFT)/.44
- (BIDU)/4.18
- (AXP)/.80
- (CF)/2.14
- (DECK)/.76
- (AVID)/.11
- (AN)/.34
- (TRA)/.83
- (SY)/.34

Upcoming Splits
- (RBA) 3-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for March are estimated to rise .1% versus a -1.1% decline in February.
- Durables Ex Transports for March are estimated to rise .5% versus a -2.4% decline in February.
- Initial Jobless Claims for this week are estimated to rise to 375K versus 372K the prior week.
- Continuing Claims are estimated to rise to 2990K versus 2984K prior.

10:00 am EST
- New Home Sales for March are estimated to fall to 580K versus 590K in February.

Other Potential Market Movers
- The JPMorgan China Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Higher, Boosted by Tech, Healthcare Shares

Posted by Gary .....at 4:03 PM

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In Play

Stocks Higher into Final Hour on Less Earnings Pessimism, US Dollar Strength, Short-Covering

Posted by Gary .....at 3:44 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Computer longs and Software longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly bullish as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling 3.6% and remains above average at 20.1. The ISE Sentiment Index is about average at 151.0 and the total put/call is about average at .93. Finally, the NYSE Arms has been running above average most of the day and is currently 1.29. Considering the declines in (ABK) and (MBI), the mild .6% decline in the (XLF) is a huge positive. While I think it is very likely that most financials have seen their lows, I suspect the group will be mired in a trading range over the intermediate-term. Growth stocks are substantially outperforming value shares again, with tech and healthcare equities especially strong. One of my longs, Illumina(ILMN), hit a new high today, rising 11%, after reporting stellar 1Q results. The stock is a bit extended short-term, but should move substantially higher over the intermediate to long-term. While the much loved and hyped fertilizer stocks may have further to go in the short-run, this bubble is growing unwieldy and will likely pop over the next few months. Nikkei futures indicate an +106 open in Japan and DAX futures indicate an +42 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, US dollar strength, less earnings pessimism and bargain-hunting.

Today's Headlines

Posted by Gary .....at 2:42 PM

Bloomberg:
- Fortis, Belgium’s biggest financial-service company, led a drop in the cost of protecting bank debt from default as investors speculated lenders will follow Royal Bank of Scotland Group Plc in raising new capital. Credit-default swaps on Brussels-based Fortis fell 9.5 basis points to 62, down from 173.5 basis points last month. The benchmark Markit iTraxx European Financial Sector Index of 25 banks and insurers dropped 2 basis points to 62, the lowest since Jan. 16, JPMorgan Chase said.
- Gold fell to the lowest in almost three weeks after energy costs declined and the euro eased against the US dollar.
- Copper fell by the most in two weeks on concern demand may ease in China, the world’s largest metals buyer.
- Intrepid Potash’s(IPI) IPO may market the start of a bubble among fertilizer stocks. After surging 58% in its first day of trading, Intrepid – the largest US producer of potash – is valued at 201 times last year’s pro-forma earnings of 25 cents a share. This makes the Denver-based company’s shares more costly than those of Cisco Systems(CSCO) when the Internet bubble reached its high point in March of 2000.
- Bill Miller of Legg Mason said the collapse of Bear Stearns in March may have marked the end of a panic sparked by losses on subprime mortgages.

Wall Street Journal:
- Bond-fund giant PIMCO plans to launch a new fund that may invest in a broad range of fixed-income instruments. PIMCO plans to launch a fund which can invest in derivative vehicles such as options, futures contracts or swap agreements, or in mortgage-backed or asset-backed securities.
- What’s at Stake in Colombia by James A. Baker III. I’ve worked in politics long enough to know that when politicians spend too much time locked in partisan conflict, they can forget what they were fighting about in the first place. Unfortunately, this may be happening with the Colombian Free Trade Agreement.

NY Times:
- Europe Turns to Coal Again, Raising Alarms on Climate. Europe to Start Up 50 Coal-Fired Energy Plants.
- CBS News Recorded Worst Ratings Last Week.

Forbes.com:
- Apple(AAPL) has agreed to buy a boutique microprocessor design company called PA Semi. The company, which is known for its design of sophisticated, low-power chips, could spell a new future for Apple’s flagship iPhone, and possibly iPod products as well.

USA Today:
- In China, a battle over Web censorship. As Beijing restricts what Internet users can see, ‘hacktivists’ try to crack ‘Great Firewall’.

Daily Telegraph:
- The UK Housing Bubble is Bursting and It’s Serious.

Xinhua:
- China’s electronic and information sector grew at a slower pace in the first quarter, with growth in fixed-asset investment ebbing further and input by overseas-funded businesses declining, a source of the ministry of industry and information said.

al-Jazirah:
- Inflation in Saudi Arabia may reach 10% should the current pace of price increases continue, citing the governor of the Saudi Arabian Monetary Authority.

Eurozone Manufacturing Purchasing Manager Index Graph

Posted by Gary .....at 2:02 PM

(click on image to enlarge)

BOTTOM LINE: The Eurozone Manufacturing Purchasing Manager Index(PMI), released today, fell to 50.8 in April versus 52.0 in March. This index is at its lowest level since August 2005. Moreover, the Citigroup Eurozone Economic Surprise Index(weighted historical standard deviations of economic data surprises versus the Bloomberg median estimate) has declined from 78.5 on March 26th to a current reading of 19.2. The recent surge in the euro, parabolic rise in commodity prices and the US slowdown are beginning to take their toll on manufacturers in the region. I continue to believe the European Central Bank is falling behind the curve by focusing too much on inflation. I still expect them to change their stance over the coming months, which should boost the US dollar.