BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- Hedge Fund Groups Urge SEC to End Ban of ‘Naked’ Short Sales. Two hedge fund groups asked US regulators to refrain from expanding beyond next week an emergency rule to curb short sales in the shares of Fannie Mae, Freddie Mac and 17 investment banks. The SEC should avoid extending the rule past its expiration July 29 or including additional companies, the Managed Funds Assoc. and the Coalition of Private Investment Companies wrote to the SEC today. The Managed Funds Assoc. was founded in 1991 and represents hedge funds, which oversee about $2 trillion. Well know short-seller James Chanos is the chairman of the Coalition of Private Investment Companies, which represents more than 20 companies with $120 billion in assets.
- Bill Gross, who manages the world's biggest bond fund, said mortgage-backed bonds issued by government-sponsored enteprises Fannie Mae(FNM) and Freddie Mac(FRE) are ``an excellent buy.'' (video)
- Fritz Meyer, senior market strategist at Invesco Aim Advisors says the US housing market is near bottom. (video)
- Apple Inc.(AAPL) forecast profit that missed analysts' estimates, signaling that back-to-school orders and demand for the iPhone may not maintain the company's growth streak. The shares fell 11 percent in late trading.
- American Express Co.(AXP), the biggest U.S. credit-card company by purchases, withdrew its 2008 earnings forecast after second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares slumped 11 percent in extended trading.
- Texas Instruments Inc.(TXN), the second largest U.S. semiconductor maker, reported earnings and gave a forecast that missed analysts' estimates amid slowing demand for its mobile-phone and analog chips. The stock fell 13 percent.
- UK Lawmakers See ‘Substantial Improvement’ in Iraqi Security.
- Brocade Communications Systems Inc.(BRCD), the world's largest maker of switches for data-storage networks, agreed to buy Foundry Networks Inc.(FDRY) for $3 billion, adding products used by telecommunications and cable service providers.
- Crude oil fell in New York as Tropical Storm Dolly is unlikely to affect oil and natural gas operations in the Gulf of Mexico while heading toward the coast of Texas. Dolly is predicted to come ashore on July 23 at the southern tip of Texas, where the border meets Mexico, and south of the main U.S. production areas, the National Hurricane Center said at 8 p.m. Miami time.
- Merck & Co.(MRK), the third-largest U.S. drugmaker, said net income increased 5 percent on greater use of its diabetes pill Januvia and added revenue outside the U.S. Merck fell $2.33, or 6.6 percent, to $33 at 5:35 p.m. in extended trading after falling 6.2 percent earlier on the New York Stock Exchange.
- India's rupee will fall 7 percent by year-end as overseas investors sell the nation's stocks and a decline in capital inflows widens the current-account deficit, according to Barclays Plc. The currency will weaken to a 20-month low by Dec. 31 as the broadest measure of trade will worsen in the fiscal year ending March 31 due to the decline in investment inflows, said Peter Redward, head of research for emerging Asia at Britain's third-largest bank.

NY Times:
- Has the Press Voted for Obama? Plenty of Republicans think the news media is in the tank for Barack Obama, but a Rasmussen Reports survey found that plenty of other Americans agree: “49% of voters believe most reporters will try to help the Democrat with their coverage, up from 44% a month ago. Just 14% believe most reporters will try to help McCain win, little changed from 13% a month ago. Just one voter in four (24%) believes that most reporters will try to offer unbiased coverage.”
- Ford to Make a Broader Bet on Small Cars. The company, which devoted itself for nearly 20 years to pickup trucks and sport-utility vehicles, is about to drastically alter its focus to building more small cars.

BusinessWeek.com:
- Rising property values lured many Spaniards into the real estate market but the bubble has burst and the crisis is quickly spreading through the country’s economy.

AppleInsider:
- During his quarterly financial results call, Apple's chief financial officer Peter Oppenheimer revealed that the company will make a key "product transition" that cuts back on its profit margins to help shut out rivals. The new, unnamed product will continue to have "technologies and features that others can't match," according to the CFO.

USA Today.com:
- "What are you doing?" That question is the rocket fuel for Twitter — a hot social-network service that lets you tell people what you are up to at any given moment of the day — via cellphone, instant messenger, or the Web. Never heard of it, you say?
- The Bush administration wants to set the stage before leaving office for developing oil shale, rocky deposits in the western U.S. that could eventually yield 800 billion barrels of oil, according to government estimates.

EMedia Wire:
- LocateStock.com, www.locatestock.com, announced today that responding to the growing need for short sale compliance tools, a group led by former Securities and Exchange Commission chairman Harvey Pitt is creating a new electronic surveillance system to help brokers and hedge funds comply with new short selling requirements. The company is RegSHO.com and the new technology-based compliance platform can be found at www.regsho.com. A partial list of the securities currently affected by an SEC emergency order on naked short selling as identified by the SEC is: Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), Bank of America (NYSE: BAC), Merrill Lynch (NYSE: MER), Goldman Sachs (NYSE: GS) and Lehman Brothers (NYSE: LEH).

Reuters:
- The emergency U.S. rules to clamp down on short selling has driven up the cost of borrowing financial stocks, short sellers said on Monday, prompting some bearish investors to look for alternative trading strategies. "Clearly borrowing the shares in Fannie and Freddie has gotten more difficult and dealers seem to be clearly hoarding borrowed shares," said Brad Golding, managing director at private money management firm Christofferson, Robb and Co in New York, who shorts financial stocks. The new rule has increased the cost of borrowing "considerably," said a second short seller, who spoke on condition of anonymity.

Financial Times:
- Fed seems focuses on inflation over growth.
- Paragon, the struggling buy-to-let mortgage lender, is in talks with Blackstone(BX) about a potential takeover, which shows the US private equity group may be ready to call the bottom of the credit crisis.

The Guardian:
- The world's first commercially available "smart" homes, which will be virtually self-sufficient in energy terms by using cutting-edge efficiency and microgeneration technologies, will be available by the end of 2009 for rent in Barcelona and Paris, developers told a conference in Spain yesterday.

Krungthep Turakij:
- Thai corporate closures more than tripled in June because of slowing economic growth, citing Phanit Lortragool, deputy director general of the Business Development Dept. The number of companies that halted operations last month surged 215% to 3,504. Most closures were in the construction and property industries. In the first half, the number of company closures doubled to 16,114.

National Defense:
- Hydrogen Fuel Cells to Power Homes, Vehicles in Japan.

South China Morning Post:
- Private housing transactions in Beijing dropped 41% in the first six months compared with a year earlier.

Viet Nam News:
- Vietnam’s government raised gasoline prices by 31% and kerosene prices by 44%, according to a joint-statement from the Ministry of Finance and Ministry of Industry and Trade.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ALB), target $47.
- Reiterated Buy on (CE), target $55.

Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 futures -.92%.
NASDAQ 100 futures -1.67%.

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Pre-market Commentary
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Top 25 Stories
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Today in IBD
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Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BIIB)/.84
- (BHI)/1.24
- (BJS)/.40
- (CSL)/.80
- (UNH).64
- (CPO)/.83
- (FRX)/.80
- (FCX)/2.45
- (HAL)/.68
- (IEX)/.55
- (LMT)/1.88
- (JEC)/.82
- (XTO)/1.05
- (OMC)/.96
- (SWK)/1.04
- (STI)/.66
- (UAUA)/-2.05
- (PCP)/1.93
- (RF)/.43
- (WAT)/.71
- (CME)/3.85
- (PNR)/.66
- (LXK)/.78
- (DGX)/.77
- (DD)/1.07
- (WB)/-.69
- (CAT)/1.54
- (KEY)/-2.01
- (JEF)/-.13
- (AKS)/1.14
- (UPS)/.85
- (WM)/-1.02
- (BRCM)/.35
- (ISRG)/1.17
- (PNRA)/.49
- (YHOO)/.16
- (LLTC)/.45
- (CERN)/.50
- (CEC)/.30
- (BXP)/.59
- (VMW)/.23
- (ILMN)/.29
- (NSC)/1.05
- (DPZ)/.24
- (LCC)/-1.29

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- The House Price Index for May is estimated to fall .8% versus a .8% decline in April.

Other Potential Market Movers
- The Fed’s Plosser speaking, weekly retail sales reports and Richmond Fed Manufacturing Index could also impact trading today.

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

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is slightly higher, sector performance is mostly negative and volume is about average. Investor anxiety is above-average. Today’s overall market action is neutral given recent gains. The VIX is falling .79% and is still above-average at 23.85. The ISE Sentiment Index is depressed at 87.0 and the total put/call is around average at .89. Finally, the NYSE Arms has been running high most of the day and is currently 1.42. The Euro Financial Sector Credit Default Swap Index is falling another 2.55% today to 82.78 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -2.5% today at 133.88 basis points. The TED spread is rising 2.95% to 1.37. The 10-year TIPS spread, a good gauge of inflation expectations, has dropped 23 basis points in 10 days to 2.41%. Financials continue to trade pretty well given recent historic gains. The (XLF) is .48% higher on the day. Oil is $2.79 higher on the day, but given recent weakness and the hurricane approaching TX this rise is rather muted. Moreover, the S&P Goldman Ag Spot Price Index is falling another 2.1% today right to its 200-day moving-average. The last time this index broke down through this technical level in a convincing way was June 2004. Corporate insider stock activity remains at very bullish levels. If the crowded stock market bear camp is unable to gain any downside traction soon, I expect to see another short-covering induced surge higher fairly soon. Nikkei futures indicate a +337 open in Japan and DAX futures indicate an +17 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit market angst and less financial sector pessimism.

BETWEEN THE HEDGES

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Tuesday, July 22, 2008

Home Prices Fall Less Than Expected

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Links of Interest

Monday, July 21, 2008

Tuesday Watch

Stocks Finish Mostly Higher, Boosted by Commodity, Biotech, Gaming and Construction Shares

Stocks Mostly Higher into Final Hour on Diminishing Credit Market Angst, Less Financial Sector Pessimism