BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke said the economic outlook has improved from a month ago, and central bankers will “strongly resist” any waning of public confidence in stable prices.
- Regulators and 17 banks that handle about 90% of the trading in credit-default swaps agreed to changes aimed at easing the risk of a collapse of the $62 trillion market, the Federal Reserve Bank of NY said. Morgan Stanley(MS), Deutsche Bank AG(DB) and Goldman Sachs Group Inc.(GS) are among the banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market- makers, the New York Fed said today in a statement following a meeting with the firms.
- Seeing Recession When There’s None to Be Found. The idea that the US is in a terrible recession that may turn into a depression has spread like a malicious computer virus. If you visited Google's news site and searched on the word ``recession'' on Friday, then you found about 44,000 items. Many of those, like the Time magazine story titled ``Recession May Be Driving Off Illegals,'' began with the presumption that the gloom has already arrived. The shallowest recession on record, in 2001, saw growth of 0.4 percent over the first two quarters. The worst recession in the modern era was that of 1980, when the annualized growth rate was negative 3.4 percent. Over the past two quarters, the annualized growth rate was about 0.7 percent, almost double the growth rate of the shallowest recession on record. There is a futures contract at Intrade that pays off if the U.S. goes into recession in 2008. It currently suggests that the probability of recession is a tad more than 30 percent. (very good article)
- China’s stocks fell the most in two months after the central bank told lenders to set aside a record amount of money in reserve to curtail inflation. “The tightening measure and record oil prices have both reinforced the belief that corporate earnings will slow down further,” said Zhang Ling, who manages $1.1 billion at ICBC Credit Suisse Asset Mgmt. in Beijing. The CSI 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, declined 6%. The index has plunged 39% just this year.
- The US dollar traded near a three-month high against the yen after Treasury Secretary Henry Paulson said in an interview with CNBC that he would “never” rule out currency intervention.
- Canada’s dollar fell for a seventh day, its longest losing streak in three years, as economists forecast the central bank will cut borrowing costs tomorrow to avoid a recession in the world’s eighth-largest economy.
- Texas Instruments(TXN) predicted second-quarter revenue that met analysts’ estimates as slowing sales of chips for cheaper mobile-phones limited growth.

Wall Street Journal:
- With Three global energy companies looking to make massive bets on Australia’s latest fossil fuel and commodity darling, coal seam gas, the outlook for the industry has never been brighter.
- India’s central bank is expected to adopt further measures to slow accelerating inflation in the wake of fuel-price rises, a move that cold crimp growth in the world’s second-fastest growing major economy.

Boston Herald.com:
- Billionaire Warren Buffett has wagered roughly $320,000 of his own money that the S&P 500 will outperform a collection of hedge funds.

BusinessWeek.com:
- The iPhone 3G Unveiled. Apple’s(AAPL) new mobile device features improvements galore, not the least of which is a more attractive price tag that will likely ignite demand.

NY Times:
- In a big shift for the phone industry, women have emerged as eager buyers of so-called smartphones, finding use for them beyond the business world.

Portfolio.com:
- One government official has hedge funds very worried. It is a federal judge in Manhattan who is presiding over a lawsuit by CSX against two hedge funds that are waging a proxy battle against the railroad giant.

TimesOnline:
- UK house sales slumped to a 30-year low last month, raising fears that the downturn in the housing market could turn into a crash.

Guardian:
- The Commodity Futures Trading Commission said its new energy market advisory committee will meet on Tuesday to discuss the role of index trading in energy markets and energy trading on foreign boards of trade. A group of US senators on Monday called on the CFTC to use its emergency powers to prevent institutional investors from increasing their positions in energy futures contracts. The lawmakers said in a letter to the CFTC’s Lukken that the agency should limit exceptions from position limits only to traders who are bona fide hedgers that are trying to limit their risks to price swings of the underlying commodity, and not provide relief from positions limits to speculators who are trying to make a profit on better prices. "At a time when American people cannot escape the direct impact that rising gas and oil prices have on their day-to-day lives, it is incumbent that we ensure that our energy futures markets are transparent and demonstrate supply and demand -- not manipulation by large institutional investors," said Republican Sen. Olympia Snowe, one of the lawmakers who wrote to the CFTC.

Agencia Estado:
- Brazil plans to ask Petroleo Brasileiro SA and Cia. Vale Do Rio Doce to increase their production of minerals used to make fertilizers to help cut the nation’s dependency on imports. Brazil imports 75% of the fertilizer it consumer. The country aims to produce 80% of the fertilizer it needs in the long-term, citing the Minister of Institutional Affairs.

AsianInvestor:
- Asian hedge fund assets drop 10%.

Philippine Daily Inquirer:
- Development Bank of Singapore is projecting the Philippine peso’s exchange rate at 47 to the dollar this year, given the rising costs of imports, especially fuel and other commodities. It noted that the peso has a history of losing as much as 44% of the amount it gained over the preceding three years amid a challenging economic climate.

The News:
- Pakistan to Impeach President Musharraf Soon.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (HOLX), target $35.
- Upgraded (SMTS) to Buy, target $21.
- Reiterated Buy on (TXN), target $39.

Night Trading
Asian Indices are -3.50% to -.50% on average.
S&P 500 futures -.54%.
NASDAQ 100 futures -.58%.

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Earnings of Note
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- (PBY)/-.03
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Upcoming Splits
- (SF) 3-for-2

Economic Releases
8:30 am EST
- The Trade Deficit for April is estimated to widen to -$60.0 billion versus -$58.2 billion in March.

Other Potential Market Movers
- The weekly retail sales reports, IBD/TIPP Economic Optimism Index, (FOE) analyst day, (UTSI) analyst meeting, (ZRAN) analyst meeting, Goldman Sachs Healthcare Conference and Piper Jaffray Consumer Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Internet longs, Computer longs and Software longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 50% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is slightly below average. Today’s overall market action is bearish. The VIX is rising 2.4% and remains above average at 24.1. The ISE Sentiment Index is below average at 106.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running about average most of the day and is currently .94. It appears to me, based on recent action in global markets, that worries over slowing global growth are intensifying rapidly as a result of the commodities bubble. A number of market-leading stocks are under pressure today. As well, the action in the (XLF) is a large broad market negative. The Bank Index(BKX) is making another new 52-week low today, falling 4.2%. The Euro Financial Sector Credit Default Swap Index is rising another 1.7% today to 79.12 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. On the positive side, the US dollar trades well, oil was unable to build on Friday’s sharp advance despite unconstructive commentary from OPEC and the TED spread is falling 6.4% to .81 basis points today. One of my longs, (AAPL) is under pressure today on profit-taking after its WWDC announcements. The stock will likely remain under mild pressure near-term before making another strong advance. I doubt it will pay for longer-term investors to sell (AAPL) shares at current levels. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a -15 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising global growth worries, financial sector concerns and more shorting.

BETWEEN THE HEDGES

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Tuesday, June 10, 2008

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Monday, June 09, 2008

Stocks Finish Mostly Lower, Weighed Down by Financial, Telecom, Alternative Energy, REIT and Airline Shares

Stocks Lower into Final Hour on Rising Global Growth Concerns, Financial Sector Worries

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