BETWEEN THE HEDGES

Thursday, May 15, 2008

Friday Watch

Posted by Gary .....at 11:42 PM

Late-Night Headlines
Bloomberg:
- A US House panel approved a $24.2 billion tax increase on hedge fund managers’ offshore pay in a measure that renews dozens of tax breaks for companies, producers of renewable energy, Hollywood and residents of states with high sales taxes.
- The cost to protect US and European corporate bonds from default fell, according to traders of credit-default swaps. Contracts on the benchmark Markit CDX North America Investment Grade Index of 125 companies in the US and Canada decreased 4.5 basis points to 90, according to Phoenix Partners.
- Asian currencies may extend their slide to the second half of the year should the region’s policy makers fail to rein in inflation, analysts at Bank Julius Baer and Standard Chartered said.
- World Economic Growth Forecast Lowered to 1.8% from 3.4% by UN.
- The plunge in Chinese stocks over the past seven months and regulators’ attempts to revive them make one wonder whether China’s bourse is a government-directed casino housed within the confines of a communist state. The short answer is yes.
- Yahoo! Inc.(YHOO) defending itself against Carl Icahn’s bid to take control of the board, said it was right to reject Microsoft’s(MSFT) $47.5 billion offer and that its directors are the most qualified to boost Yahoo’s value.
- Billionaire Warren Buffett’s Berkshire Hathaway(BRK/A) added to stakes in Kraft Foods(KFT) and Wells Fargo(WFC) in the first quarter, taking advantage of prices driven down by the credit crisis and slowing US economy.
- Ford Motor’s(F) finance unit plans to sell $5.3 billion of auto-loan bonds, the automaker’s biggest sale in more than six years, as investor demand returns for asset-backed securities.
- IBM (IBM) today announced a research breakthrough in photovoltaics technology that could significantly reduce the cost of harnessing the Sun's power for electricity.
- Rice plunged to a five-week low after the US said it wouldn’t invoke trade agreements to block Japan from reselling imported rice to ease tight global supplies that had pushed the price to a record last month.
- California Supreme Court Legalizes Gay Marriage.
- Blackstone Group LP(BX) CEO Schwarzman said financial markets are showing “signs of recovery,” sending the company’s stock up 5.3%.
- Nordstrom Inc.(JWN) reported first-quarter profit that fell less than analysts estimated as the retailer limited costs amid slowing sales. The stock jumped 4.3% in extending trading.
- BMC Software(BMC) reported that total revenue rose 11% during its fiscal fourth quarter, sending the shares 4.3% higher in after-hours trading.

Wall Street Journal:
- The NY Fed’s latest $25 billion exchange of Treasuries securities for high-quality agency and mortgage-backed debt drew just $7.24 billion of bids from its primary dealer audience. The dwindling bids are a positive signal for the recovery of the financial sector after almost a year of liquidity constraints.
- John McCain said that if elected president, he would win the Iraq war and bring most troops home by the end of his first term, offering his first date for withdrawal and refuting Democratic charges he would keep the US there indefinitely.

MarketWatch.com:
- Currency traders now suspect US and European finance officials used some atypical arm-twisting to support the US dollar at last month’s G7 meeting.
- About 360,000 fewer Americans will travel 50 miles or more this Memorial Day weekend as gasoline spikes near $4 a gallon and airlines’ fares gain altitude on the historic rally in oil prices, the AAA said Thursday.
- Preparing to take genetic testing mainstream. Bill protecting genetic information expected to open doors to wider use.

CNBC.com:
- Rates on 30-year mortgages edged down this week to their lowest point in a month, a spot of welcome news to would-be home buyers.
- Short Sellers Prowling for Emerging Market, Bank, Solar Stocks.

BusinessWeek.com:
- Oil Traders Draw Congress’ Ire. With the stock market in retreat so far this year and the dollar falling, speculators have flooded the commodities markets in hopes of cashing in on rising prices. There are now 634 energy hedge funds, up from just 180 in October 2004. Large financial institutions such as Goldman Sachs(GS) and Morgan Stanley(MS) have also stepped up their participation in the energy markets. The Consumer-First Energy Act would mandate higher cash collateral for energy-futures trading and call for greater oversight of overseas trading. The bill, which contains four other provisions, could come to a vote by Memorial Day. “The bill is aimed at bringing down the price of oil in the near term by having effective regulation of speculation. Some big hedge funds probably won’t like it, but it will help the average consumer,” said Senator Jeff Bingaman.

Bespoke Investment Group:
- A Look At Q1 Hedge Fund Holdings.

USA Today.com:
- Volkswagen’s US plant may make Porsches, Audis.

c/net news.com:
- The pond plant is getting a boost from a joint biofuel effort announced Thursday that involves some marquee names in the aviation industry--Airbus and JetBlue Airways--along with International Aero Engines, Honeywell Aerospace, and a second Honeywell company called UOP. The group plans to study ways to make commercial aviation fuels out of so-called second-generation feedstocks such as algae

Reuters:
- The International Institute for Management Development ranked the US economy first for the 15^th year in a row in its World Competitiveness Yearbook 2008. Both emerging economic giants China and India slipped two places in 2008, to 17^th place and 29^th place respectively on the list of 55 economies.
- Leaders of the US Senate Banking Committee said on Thursday they have agreed to the underpinnings of a housing rescue plan that will create a federal backstop for failing loans.
- United Airlines(UAUA) has begun talks with Continental Airlines(CAL) for a possible alliance even as its merger talks with US Airways continue to advance.
- US game sales jump 47% in April on GTA4.
- Lockheed(LMT) wins potential $3.6 billion US GPS satellite deal.
- The US Senate voted on Thursday to overturn new, looser media ownership restrictions in the 20 biggest US cities, defying a White House threat to veto the measure.

Financial Times:
- Blackstone(BX), which made big profits last year by flipping commercial properties at the height of the market, is considering buying back into some of those assets at distressed prices as part of an effort to cash in on the credit crisis.

TimesOnline:
- Jean-Claude Trichet, the President of the European Central Bank, yesterday led warnings from leading policymakers and officials that the eurozone's powerful first-quarter performance will almost certainly have seen its growth peak, and that it now faces a marked slowdown in the rest of the year.

Daily Telegraph:
- iPhone fever rises as speculation mounts of 3G version in the UK. Telefonica O2, Apple’s(AAPL) UK network partner for the combined iPod and mobile phone, revealed that it would make a joint announcement with Apple in “the coming weeks.”

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (JCP), target $54.
- Reiterated Buy on (BBI), target $8, added to Top Picks Live list.
- Reiterated Buy on (DISH), target $46.

Bear Stearns:
- Consumer Resilience and Credit Market Improvement Support Recovery Outlook.

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 futures -.20%.
NASDAQ 100 futures -.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
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Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (ANF)/.66

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for April are estimated to fall to 939K versus 947K in March.
- Building Permits for April are estimated to fall to 915K versus 928K in March.

10:00 am EST
- The preliminary Univ. of Mich. Confidence reading for May is estimated at 62.0 versus 62.6 in April.

Other Potential Market Movers
- The (PHG) analyst day and (ONNN) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and shipping shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Technology, Commodity, Retail, Homebuilding, Construction Shares

Posted by Gary .....at 4:03 PM

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
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WSJ Data Center
Sector Performance
ETF Performance
Style Performance
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Market Wrap CNBC Video(bottom right)
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In Play

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

Posted by Gary .....at 3:38 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs and Retail longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The 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 slightly below average. Today’s overall market action is bullish. The VIX is falling 5.4%, but remains above average at 16.7. The ISE Sentiment Index is below average at 102.0 and the total put/call is below average at .77. Finally, the NYSE Arms has been running below average most of the day and is currently .69. Given this morning’s mostly disappointing economic data, yesterday’s afternoon swoon and oil is still near record levels, today’s market performance is especially impressive. Market leading stocks are very strong. Tech stocks trade exceptionally well and the Morgan Stanley High-Tech Index is breaking convincingly above its 200-day moving average today. The DJIA is only 1.4% lower for the year now, despite the overwhelming belief by the herd that we are in a bad bear market and recession. I suspect we will see another strong surge higher in the major averages, pushing them into positive territory over the coming weeks, as investment manager performance anxiety comes back into play. The European Financial Sector Credit Default Swap Index is falling another 2.72 basis points to 58.38 basis points. The only real negatives I see today are that breadth isn’t as strong as I would like to see and the 9 basis point decline in the 10-year yield could bring economic weakness worries to the fore again. Nikkei futures indicate a +89 open in Japan and DAX futures indicate a +55 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.

Jobless Claims Stable, NY Manufacturing Decelerates, International Demand for US Assets Strong, Philly Fed Improves, Industrial Production Drops

Posted by Gary .....at 2:09 PM

- Initial Jobless Claims for this week rose to 371K versus estimates of 370K and 365K the prior week.

- Continuing Claims rose to 3060K versus estimates of 3035K and 3032K prior.

- Empire Manufacturing for May fell to -3.2 versus estimates of 0.0 and a reading of .6 in April.

- Net Long-term TIC Flows for March rose to $80.4 billion versus estimates of $62.5 billion and $64.9 billion in February.

- Industrial Production for April fell .7% versus estimates of a .3% decline and a .2% increase in March.

- Capacity Utilization for April fell to 79.7% versus estimates of 80.1% and 80.4% in March.

- Philly Fed for May rose to -15.6 versus estimates of -19.0 and a reading of -24.9 in April.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment insurance rose slightly last week, Bloomberg reported. The four-week moving average of jobless claims fell to 365,750 from 366,750 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. Jobless claims remain at levels more indicative of sluggish economic activity rather than outright contraction. I expect the job market to firm modestly through year-end.

Manufacturing in NY shrank slightly in May, Bloomberg reported. The New Orders component fell to -.5 from .1 the prior month. The Inventories component fell to -6.5 from -4.2 prior. The Prices Paid component rose to 69.6 from 57.3 in April. The Employment component rose to 1.1 from 0.0 in April. The Future Outlook component jumped to 23.9 from 19.6 in April. Manufacturing should improve modestly through year-end as companies rebuild inventories, domestic demand improves, exports remain strong and the America Axle strike ends.

Foreign buying of US financial assets rose more than forecast in March, posting the biggest gain in five months, Bloomberg reported. International investor demand for US Treasuries increased by $55 billion in March versus a gain of $20.6 billion in February. International buying of US stocks rose by a net $11.5 billion versus net buying of $1.1 billion in February. US investors sold a net $300 million of overseas assets in March versus sales of $12.9 billion the month before. The difference between the trade gap and securities purchased by foreigners is an indication of how easily the US can finance its external obligations. I expect foreign demand for US assets to remain strong over the intermediate-term.

Industrial production fell more than expected in April, Bloomberg reported. Motor vehicle production fell 8.2% after a 4.3% decline the prior month. Autos were assembled at an 8.3 million annual pace last month, the lowest amount since a strike-depressed 8.2 million in July 1998. Output of computers and peripheral equipment increased .5%. Part of the slump in industrial production last month was due to the protracted strike at American Axle, GM’s biggest axle supplier. The United Auto Workers walkout at American Axle, which began Feb. 26, idles all or part of as many as 33 GM factories, and reduced GM’s production by 230,000 vehicles through April. Industrial Production and capacity utilization should trend higher through year-end.

Manufacturing in the Philly region shrank less-than-expected in May, Bloomberg reported. The New Orders component rose to -3.7 from -18.8 the prior month. The Prices Paid component rose to 53.8 from 51.6 the prior month. The Future Outlook gauge surged to 28.2 from 13.7 in April. I expect the Philly Fed to continue to show improvement next month.

Bear Radar

Posted by Gary .....at 1:25 PM

Style Underperformer:

Large-cap Value +.28%

Sector Underperformers:

Utilitiesirlind (-.31%), Energy (-.18%) and Hospitals (-.09%)

Stocks Falling on Unusual Volume:

YTEC, ASYS, CTRP, MPEL, OESX, FEED and ASTI

Stocks With Unusual Put Option Activity:

1) WIRE 2) WY 3) CMCSA 4) MDT 5) CTRP