BETWEEN THE HEDGES

Sunday, November 16, 2008

Monday Watch

Posted by Gary .....at 2:07 PM

Weekend Headlines
Bloomberg:

- Leaders from the biggest developed and emerging nations agreed to further steps to shore up a global economy sliding into recession, and laid out regulatory proposals to prevent a recurrence of the financial crisis. The Group of 20 yesterday urged a ``broader policy response,'' citing the potential for additional interest-rate cuts and fiscal stimulus, in a statement after meeting in Washington. The group set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies.

- New York Representative Charles Rangel said he's revising his tax overhaul proposal to reduce U.S. corporate tax rates to 28 percent, down from the current rate of 35 percent.

- Citigroup Inc.(C) Chief Executive Officer Vikram Pandit sought to reassure employees after the stock tumbled this week, saying in a memo that the bank's revenue is ``strong and stable'' and its capital ``plentiful.'' Pandit, 51, said he'd hold a ``town hall meeting'' at 8 a.m. on Nov. 17 in New York to discuss ``our accomplishments over the last 11 months and why despite the major challenges currently facing our industry and the economy I continue to be optimistic about the future.''

- President-elect Barack Obama said the government needs to provide help to U.S. automakers on condition that management, labor and lenders come up with a plan to make the industry ``sustainable.''

- Hartford Financial Services Group Inc.(HIG), Genworth Financial Inc.(GNW) and Lincoln National Corp.(LNC) plan to buy lenders, a move that may entitle the three insurers to billions of dollars from the Treasury's bank rescue fund.

- Boeing Co.(BA) and union leaders agreed on a contract offer that if approved would give engineers an average 5 percent raise and Boeing the labor peace it needs to get production of the new 787 and 747 jumbo jet back on track.

- House Speaker Nancy Pelosi said U.S. automobile manufacturers need to restructure ``to ensure their long-term economic viability.''

- Iraq's cabinet endorsed a security agreement with the U.S. that would allow an American military presence in the nation until 2011, a government spokesman said. The Status of Forces Agreement was approved today by 27 of the cabinet's 37 ministers and now will be referred to parliament, spokesman Ali al-Dabbagh said in a televised press conference in Baghdad.

- Chinese banks face rising bad loans and narrowing profit margins as the central bank cuts interest rates to boost expansion in the world's fourth-largest economy, the banking regulator said. ``Bad loans are already showing an upward trend, especially in the property market where the mortgage default risk is growing at an accelerating pace,'' Jiang said, without elaborating. ``We can't take this light-heartedly.''

- Contract iron ore prices, at a record after six years of gains, may decline 25% next year amid cuts in steel production and a slump in cash prices, RBC Capital Markets said.

- Japan's economy, the world's second largest, contracted more than economists expected in the third quarter, confirming it entered its first recession since 2001 as companies cut back spending.

Wall Street Journal:

- The Meltdown That Wasn’t. A primer on credit default swaps, the latest Beltway scapegoat.

- Advice to Obama: A Hedge Fund Manager Speaks. So what should President-elect Obama do first to handle the financial crisis? Here is what we heard.

1. A “really good” Treasury secretary who is a man of action, like Hank Paulson, but receptive to ideas.

2. A chairman for the Securities and Exchange Commission who is sympathetic to short-sellers.

3. Fix the Fannie/Freddie restructuring.

- The news for investors continues to be uniformly grim, but among individual stocks, a growing number of long-term opportunities may be beckoning. The sell-off of the past two months has sent scores of stocks to prices below where they changed hands at the end of the last bear market in 2002. About one-third of the stocks in the Standard & Poor's 500-stock index are now valued at less than they were a decade ago.

- Convertible-Bond Arbitrage Losses Its Shirt. Deprived of Leverage, Hedge-Fund Strategy Set For Its Worst Year.

- Oil fell for a second day in New York on signs the global slowdown is limiting demand in China and Japan, the world's second- and third-largest crude users. ``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' may push oil prices as low as $50 this week, he said. The slowdown in demand because of the credit crisis caused stockpiles in the country to increase ``significantly,'' China National Petroleum said in a statement on its Web site. ``As the impact of the financial crisis on China's economy deepens, the company's operations have also been affected adversely,'' the statement said.

Barron’s:

- Our open letter to Barack Obama outlines eight steps he should take to restore order to financial markets and bolster the economy.

1. Back a Bold Stimulus Package

2. Support Aid for Ford, GM

3. Help Homeowners

4. Delay Tax Increases

5. Don't Impede Free Trade

6. Improve Financial Regulation

7. Change Fuel-Efficiency Rules

8. Keep Union Ballots Secret

NY Times:

- Obama Transition Group Includes Former Lobbyists.

- Market Bottom? For Some Investors, It’s Close Enough.

IBD:
- Lululemon(LULU): Retailer Of Yoga Clothing Stretches For Profits In Tough Economy.

Business Week:
- Business School Rankings.

- The Retailers Poised to Survive, Then Thrive.

- Fall of the Funds of Funds. Funds of funds were supposed to be the safe choice for wealthy investors and big institutions. But they were leveraged beyond the max.

CNNMoney.com:

- Gas price drop: 60 days straight. National average price for gallon of gasoline falls to $2.105. Peak was $4.114 in July. There are now 16 states where the average price has fallen below $2. Missouri had the cheapest gas in the nation, at $1.816 a gallon.

Time:

- Congress Loves Hedge Funds. So much for the Waxman Witch Trial, as Dealbreaker had billed it. This was more like a love-in. Some members of the House Committee on Oversight and Government Reform did razz the five multi-billionaire hedge fund managers assembled before them about the taxation of carried interest (performance fees that are taxed at capital gains rates). But two of the five--George Soros and Renaissance Technologies' Jim Simons--agreed that carried interest should be taxed as ordinary income. Paulson didn't, Philip Falcone of Harbinger Capital and Ken Griffin of Citadel were opposed with some caveats. But that discussion remained civil.

AP:

- Iran will ask OPEC to cut oil output by 1 million to 1.5 million barrels a day when the group meets later this month in Cairo.

- The head of OPEC says oil output reductions aren't likely this month because the cartel hasn't yet fully enforced previous quotas or collected all current production data. The OPEC head told reporters Sunday that "currently, the market doesn't take us seriously" because some members haven't fully enforced quotas.

Reuters:

- Life and mortgage insurer Genworth Financial Inc (GNW) said on Sunday it applied for capital under a U.S. government program, after reaching a deal to buy a bank, bringing it under federal regulation.

- FACTB OX – Where has the US bailout money gone?

Financial Times:

- "This quarter raises major questions for the industry," says a fund of hedge fund manager. The money flowing out of the industry "will be the highest it has ever seen. We are watching the tidal wave that helped hedge fund managers build their businesses fast over the past 10 years suddenly turn back even faster. The industry could halve in six months." George Soros told US Congress this week the industry could shrink by up to 75 per cent next year. Additional pressure is now coming from funds of hedge funds, which are reckoned to own as much as a third of single-manager hedge funds. Many are expected to put in redemption requests in anticipation of high levels of withdrawals from their own investors in coming months.

- Investors who placed summer bets that oil prices would fall below $100 a barrel are set to make huge profits on Monday, with some speculators reaping a return of more than 2,000 per cent in less than six months.

Dagens Nyheter:

- Senior Swedish lawmakers want to ban the use of gas-powered cars by 2025 to reduce emissions blamed for global warming, citing a letter by four Centre Party ministers. Sweden will in the interim start taxing cars based on fuel consumption and carbon-dioxide emissions.

O Estado de S. Paulo:

- Brazilian manufacturers are reducing output as the global financial crisis lowers product demand. Across the country factory utilization fell to 85% of installed capacity in October, down .7 percentage point from July. Furniture makers are the hardest hit, cutting production to 80% of capacity in October, from 86% in July. Producers of chemicals, textiles and industrial machinery are also idling capacitiy.

Daily Telegraph:

- The pioneering Australian scientist who discovered the cure for cervical cancer is on the verge of creating the world's first vaccine for skin cancer. Professor Ian Frazer, former Australian of the Year, has revealed the vaccine could be ready within the next five to 10 years.

Xinhua News:
- In the eight months, China sold 3.71 million tons of cement to Africa, up 29.3 percent, 3.28 million tons to the European Union, down 56.4 percent, and 1.82 million tons to the United States, down 52.1 percent.

ShanghaiDaily.com:

- Prices for car registration plates in Shanghai have declined sharply, hitting an eight-month low. Analysts said consumer enthusiasm for buying cars was fading as the global financial crisis prompted more caution on big ticket item spending like vehicles. Vehicle sales in China posted year-on-year declines in August and September for the first time in three years.

China Times:

- Chunghwa Telecom Co. will order around 100,000 iPhone handsets from Apple Inc.(AAPL). Chunghwa, Taiwan’s largest phone operator, will begin selling the third-generation version of the iPhone by the end of this year, vice president Shih Mu-piao said.

The Peninsula:

- Goldman Sachs(GS) bets against California. Goldman Sachs & Co urged some of its big clients to place investment bets against California bonds in 2008, despite having collected millions of dollars in fees to help the state sell some of those same bonds. The giant investment company did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from the state’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

Weekend Recommendations
Barron's:
- Made positive comments on (GOOG), (RIMM), (AXP), (SCHW), (CL) and (TTWO).

Citigroup:

- Rated (AZO) Buy, target $146.

- Rated (AAP) Buy, target $35.

- We are lowering estimates on (GS), (MS), (TROW), (SCHW) and (BLK) to reflect the current market environment.

Night Trading
Asian indices are -1.75% to -.25% on avg.
S&P 500 futures -.45%.
NASDAQ 100 futures -.54%.

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
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/Estimate
- (COV)/.68

- (TGT)/.48

- (LOW)/.28

Upcoming Splits

- None of note

Economic Releases

8:30 am EST

- Empire Manufacturing for November is estimated to fall to -26.0 versus -24.6 in October.

9:15 am EST

- Industrial Production for October is estimated to rise .2% versus a -2.8% decline in September.

- Capacity Utilization for October is estimated to rise to 76.5% versus 76.4% in September.

Other Potential Market Movers
- The (STEC) Analyst Day, (RAI) Analyst Meeting, (IART) Analyst Forum, (ADBE) Meeting, (BBX) Investor Luncheon and Deutsche Bank/Goldman Sachs Gaming Forum could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Posted by Gary .....at 11:48 AM

Click here for a weekly market preview by MarketWatch.

Click here for stocks in focus for Monday by MarketWatch.

There are some economic reports of note and several significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Empire Manufacturing, Industrial Production, Capacity Utilization

Tues. – Producer Price Index, Net Long-term TIC Flows, NAHB Housing Market Index, weekly retail sales

Wed. – Weekly EIA energy inventory data, weekly MBA mortgage applications report, Consumer Price Index, Housing Starts, Building Permits, Minutes of Oct. 28-29 FOMC Meeting

Thur. – Initial Jobless Claims, Philly Fed., Leading Indicators

Fri. – None of note

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Covidien Ltd.(COV), Target Corp.(TGT), Lowe’s Cos.(LOW)

Tues. – Medtronic(MDT), Pacific Sunwear(PSUN), Jack in the Box(JBX), Home Depot(HD), Saks Inc.(SKS)

Wed. – BJ’s Wholesale(BJ), Ross Stores(ROST), Dress Barn(DBRN), Intuit Inc.(INTU), PetSmart Inc.(PETM), Gymboree Corp.(GYMB), Ltd Brands(LTD)

Thur. – Barnes & Noble(BKS), Dick’s Sporting Goods(DKS), Gap Inc.(GPS), Salesforce.com Inc.(CRM), Autodesk(ADSK), Dell Inc.(DELL), Eaton Vance(EV), The Buckle(BKE), Dillard’s(DDS), Gamestop(GME), Children’s Plcace(PLCE), Foot Locker(FL)

Fri. – Ann Taylor(ANN), HJ Heinz(HNZ), JM Smucker(SJM)

Other events that have market-moving potential this week include:

Mon. – (STEC) Analyst Day, (RAI) Analyst Meeting, (IART) Analyst Forum, (ADBE) Meeting, (BBX) Investor Luncheon, Deutsche Bank/Goldman Sachs Gaming Forum

Tue. – (ALGT) Institutional Investor Day, (FLEX) Investor Meeting, (XIDE) Investor Day, (CF) Investor Day, (HNT) Annual Investor Conference, (SXCI) Analyst Event, (SXL) Analyst Meeting, (PDE) Analyst Day, (OCR) Analyst Day, (ESS) Analyst Day, (BBX) Investor Luncheon, (NFG) Analyst Presentation, (VARI) Investor Luncheon, Bank of America Health Care Conference, Citigroup Transportation Conference, CanaccordAdams Energy Conference, Raymond James IT Supply Chain Conference, Morgan Stanley Retail Conference, CSFB Insurance Conference, Oppenheimer Small-cap Conference

Wed. – (ALGT) Investor Day, (SMOD) Analyst Meeting, (CKP) Investor Day, (HAL) Analyst Meeting, (TKLC) Investor Day, (BBX) Investor Meeting, (GWW) Analyst Meeting, (ROK) Investor Meeting, Cowen Healthcare Conference, Bank of America Credit Conference, CSFB Aerospace & Defense Conference, Lazard Healthcare Conference, Morgan Stanley Retail Conference

Thur. – (AFFY) Analyst Day, (INWK) Investor Day, (AKAM) Analyst Meeting, CSFB Aerospace & Defense Conference, Needham Infectious Disease Conference, UBS Technology & Services Conference

Fri. – (DUK) Analyst Meeting, (MHS) Analyst Day, (NSTC) Analyst Day, (ALGN) Analyst Meeting, Bank of America Credit Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on seasonal strength, bargain-hunting, technical buying, diminishing financial sector pessimism, less forced selling and short-covering. My trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Friday, November 14, 2008

Market Week in Review

Posted by Gary .....at 6:05 PM

S&P 500 873.29 -6.20%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Posted by Gary .....at 5:45 PM

Indices
S&P 500 873.29 -6.20%
DJIA 8,497.31 -4.99%
NASDAQ 1,516.85 -7.93%
Russell 2000 456.52 -9.74%
Wilshire 5000 8,698.92 -6.75%
Russell 1000 Growth 356.56 -6.59%
Russell 1000 Value 468.84 -6.30%
Morgan Stanley Consumer 533.48 -3.61%
Morgan Stanley Cyclical 457.37 -9.62%
Morgan Stanley Technology 325.31 -8.40%
Transports 3,494.42 -4.68%
Utilities 366.35 -2.51%
MSCI Emerging Markets 22.64 -7.13%

Sentiment/Internals
NYSE Cumulative A/D Line 18,182 -21.91%
Bloomberg New Highs-Lows Index -2090 -580.78%
Bloomberg Crude Oil % Bulls 35.0 -23.91%
CFTC Oil Large Speculative Longs 192,267 +.44%
Total Put/Call .96 -25.0%
OEX Put/Call 1.32 +22.22%
ISE Sentiment 137.0 +57.47%
NYSE Arms 2.11 -48.90%
Volatility(VIX) 66.31 +18.20%
G7 Currency Volatility (VXY) 21.48 +6.81%
Smart Money Flow Index 6,714.14 +.27%
AAII % Bulls 38.33 -14.50%
AAII % Bears 42.50 +27.51%

Futures Spot Prices
Crude Oil 56.4 -8.14%
Reformulated Gasoline 122.71 -9.26%
Natural Gas 6.34 -6.57%
Heating Oil 182.19 -8.22%
Gold 741.60 +.52%
Base Metals 130.36 -1.88%
Copper 170.30 -.41%
Agriculture 291.68 +3.42%

Economy
10-year US Treasury Yield 3.73% -7 basis points
10-year TIPS Spread .81% -15 basis points
TED Spread 2.10 +10 basis points
N. Amer. Investment Grade Credit Default Swap Index 199.39 +4.81%
Emerging Markets Credit Default Swap Index 767.91 +17.62%
Citi US Economic Surprise Index -120.0 -37.61%
Fed Fund Futures imply 86.0% chance of 50 basis point cut, 14.0% chance of 25 basis point cut on 12/16
Iraqi 2028 Govt Bonds 48.50 -7.81%
4-Wk MA of Jobless Claims 491,000 +2.8%
Average 30-year Mortgage Rate 6.14% -6 basis points
Weekly Mortgage Applications 425,000 +11.87%
Weekly Retail Sales -1.0%
Nationwide Gas $2.15/gallon -.16/gallon
US Heating Demand Next 7 Days 5.0% above normal
ECRI Weekly Leading Economic Index 111.30 +.45%
US Dollar Index 86.37 +.53%
Baltic Dry Index 838 +-.12%
CRB Index 247.58 -3.61%