BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- S&P 500 Short Interest Changes by Industry Group. The Financial sector saw another large surge in short interest.
- New S&P 500 Short-Selling Targets. Here are the 25 members of the S&P 500 that saw the largest percentage increase in short interest relative to their floats during the first two weeks of June.
- Honda Motor Co.(HMC) said in an email to analysts that US sales in the first 20 days of June were ahead of last year’s pace on demand for its fuel-efficient cars. Total US sales for the Tokyo-based automaker rose 16% in the period, according to the email.
- India’s central bank signaled it will keep raising borrowing costs after unexpectedly lifting interest rates for the second time in two weeks and telling lenders to keep more cash in reserve.
- South Korea’s consumer confidence slumped to the lowest level in more than seven years as spiraling food and energy costs sapped people’s spending power.
- The Bank of Thailand’s delay in raising interest rates to cool the fastest inflation in almost a decade risks adding to the baht’s losses and import costs amid a surge in crude oil prices, according to JPMorgan Chase(JPM).
- Jabil Circuit Inc.(JBL), the maker of mobile phones for Nokia Oyj, rose 9.6% in last NY trading after projecting fourth-quarter profit that topped analysts’ predictions.

Wall Street Journal:
- Hedge funds are embracing an aggressive type of exchange-traded fund – and that makes some of these hedge fund riskier than they may appear. With lenders becoming ever-more tightfisted, hedge funds are buying up so-called leveraged ETFs, investments that promise two times the rise or fall of an index. Although ETFs generally are viewed as low-cost, conservative vehicles, these ETFs can result in big gains or losses.
- The number of millionaires in Brazil, Russia, India and China jumped 19% in 2007, compared with growth of 3.7% in the U.S., its slowest growth since 2002, according to the World Wealth Report, produced by Merrill Lynch & Co. and Capgemini.
- Oil Surge May Cost Jet Makers Orders. Airbus, Boeing(BA) Face the Deferral or Loss Of Up to a Third of Their Record Bookings.

MarketWatch.com:
- Silicon Valley and NY still top tech rankings. Huntsville, Ala., and Durham, N.C., also rank high in ‘Cybercities’ report.
- Aiming high on Apple(AAPL) iPhone subsidies. AT&T(T) may pay as much as $350 per device for sake of market share: analysts.

CNBC.com:
- Visitors to this summer’s Beijing Olympics will get an immediate lesson in the environmental cost of China's break-neck economic development: the worst air pollution in the world, which kills an estimated 656,000 people every year.

NY Times:
- Hidden sex scenes in the popular videogame Grand Theft Auto draw ho-hum, except from lawyers.

BusinessWeek.com:
- A GM-Ford Combo?
- Technology: It’s Where the Jobs Are. A new survey shows growth across the country, with higher-than-average pay. And with the number of tech grads falling, demand will only rise.
- Moving to the Mobile Web. Apple’s(AAPL) iPhone has raised the bar for mobile Web design by bringing buzz, investors, and new technology to the sector.

IBD:
- Pampered Pets A Big Business For Idexx Labs(IDXX).

Power Engineering:
- The world market for turbines and related products (turbine-based engines, generators and generator sets) is projected to increase 4.9 percent annually to $106 billion in 2012. Growth will be driven by rising demand in the large turbine engine segment, supported by increases in aircraft manufacturing, as well as continued strength in a number of power generation markets. Growth will moderate after a decade-long boom in wind turbine demand moved these products from a niche market.

CNNMoney.com:
- Iraqi oil – Gauging the potential for more. Democratic lawmakers want Bush to stop Iraq from contracting with western oil companies to ramp up production. Experts believe that Iraq has undiscovered fields that could yield up to 6 million barrels a day, but it would take up to 10 years to develop the infrastructure to support the increased production. In theory, the immediate release of an additional 1.25 million barrels a day from modernized Iraqi oil fields could lower gasoline prices by 40 to 50 cents per gallon of gasoline in the United States, according to Doug MacIntyre, senior oil analyst with the EIA.
- Eddie Lampert’s latest bid to lift Sears(SHLD).
- On the path to a housing rebound. The pain that homeowners and homebuilders are feeling now is a sign that things are going to get better.

Reuters:
- Lehman Brothers(LEH) brings back former executives.
- From the lush paddy fields of northern Iran to the dusty grain bazaars of Tehran, the pain and paradoxes of the global crisis spawned by rising food and fuel prices are starkly on show. Iran is at once a beneficiary of the oil boom, that has seen prices rise to nearly $140 a barrel, and a victim -- high oil prices are one factor behind rising inflation that is punishing the country's poor. Economists blame profligate spending of windfall oil revenues by President Mahmoud Ahmadinejad's government for stoking inflation, which rose to 25.3 percent year-on-year in May. Some people are already blaming Ahmadinejad, who came to power in 2005 promising to spread Iran's oil wealth to the people. He faces re-election in 2009.
- Short interest on the Nasdaq surged another 5.9% during the first two weeks of June to a new record 10,450,000,000 shares.

Financial Times:
- China’s ruling Communist party has ordered a strengthening of its news media propaganda system, dashing hopes of a more liberal approach to censorship in the wake of relatively vigorous domestic reporting of the Sichuan earthquake.
- Obama under fire over Iraq troop pledge. US presidents have a history of abandoning campaign promises by pointing out that "the world looks different from here" when they reach the Oval Office. A growing number of Democratic foreign policy wonks are hoping that Barack Obama will do just that with his Iraq election promises if he wins the race for the White House in November. Having stuck to the line that he would withdraw one to two brigades a month and remove all US combat forces from Iraq within 16 months of taking office, Mr Obama's promise is looking increasingly vulnerable to John McCain’s taunts of "surrender" as conditions in Iraq continue to improve. "It would be reckless to withdraw all our combat troops from Iraq before the next Iraqi national election in late 2009," says Ken Pollack, a former official in the administration of Bill Clinton, now at the Brookings Institution. "There can be little doubt that political progress is now taking place on the ground in Iraq. Pulling out too soon would risk those gains and compromise US interests."

TimesOnline:
- More than two thirds of Britain's motorists have cut the number of journeys they make by car because of the spiraling cost of petrol. An exclusive survey for The Times reveals that the dramatic rise in pump prices over the past year has forced households to alter their lifestyle fundamentally.

Central News Agency:
- Taiwan will reinstate a floating price mechanism on fuel next month, citing economics minister Yiin Chii-ming. Maintaining a freeze on gas prices would be irresponsible and “whether a government is stupid or smart, it has to be responsible,” Yiing said. People will need to adjust their lifestyles, Yiing said.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (APL) to Buy, target $52.
- Reiterated Buy on (TXN), target $39.

Night Trading
Asian Indices are -.75% to +.50% on average.
S&P 500 futures +.07%.
NASDAQ 100 futures +.10%.

Morning Preview
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Today in IBD
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Earnings of Note
Company/EPS Estimate
- (MON)/1.35
- (AM)/.61
- (GIS)/.71
- (NKE)/.97
- (MLHR)/.57
- (CKR)/.27
- (BBBY)/.27
- (RHT)/.18
- (ORCL)/.44

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for May are estimated unch. versus a .6% decline in April.
- Durables Ex Transports for May are estimated to fall 1.0% versus a 2.4% gain in April.

10:00 am EST
- New Home Sales for May are estimated to fall to 512K versus 526K in April.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -1,100,000 barrels versus a -1,242,000 barrel decline the prior week. Gasoline supplies are estimated unch. versus a -1,178,000 barrel decline the prior week. Distillate inventories are expected to rise by 2,000,000 barrels versus a 2,617,000 barrel build the prior week. Finally, Refinery Utilization is estimated to rise by .25% versus a .69% the prior week.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, (PRXL) investor meeting, (WMB) analyst day, (MORN) investment conference, Jeffries Healthcare Conference and UBS Global Financial Markets & Technology Conference could also impact trading today.

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

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Semi longs. I covered my (IWM/QQQQ) hedges and them added them back today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is falling 2.1% and remains above average at 22.80. The ISE Sentiment Index is below average at 115.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running low most of the day and is currently .44. The Euro Financial Sector Credit Default Swap Index is rising 5.0% today to 90.50 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. The North American Investment Grade Credit Default Swap Index is rising .04% today at 124.19. It appears as though there is quite a bit of short-covering going on today rather than bargain hunting. Energy-related stocks are notably weak considering oil is flat on the day. The gains in semi stocks are also noteworthy considering broad market weakness. The 10-year T-note will likely continue to rally until a meaningful reversal lower in oil is at hand. Nikkei futures indicate a -34 open in Japan and DAX futures indicate an +74 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising credit market angst, short-selling and global growth concerns.

BETWEEN THE HEDGES

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Wednesday, June 25, 2008

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Tuesday, June 24, 2008

Stocks Finish Lower, Weighed Down by Energy, Construction and Road/Rail Shares

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