BETWEEN THE HEDGES

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Biotech longs, Semi longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very bullish as the advance/decline line is substantially higher, every sector is gaining and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 13.2% and is very elevated at 63.04. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .45. The Euro Financial Sector Credit Default Swap Index is falling 2.78% today to 113.17 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is down 8.7% to 254.86 basis points. The TED spread is rising .5% to 215 basis points. The TED spread is now down 249 basis points in under six weeks. The 2-year swap spread is up 3.73% to 113.38 basis points. The Libor-OIS spread is falling .9% to 168 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 22 basis points to .23%, which is down 239 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is still yielding .01%. Many market-leading stocks are substantially outperforming the major indices today. As well, the 16.2% spike in the (XLF) in response to the (C) news is a huge positive. I am getting a technical sell signal on the VIX Index for the first time in almost five months today, which is also a positive. I haven’t added back to my (GOOG) long yet, but longer-term investors selling around current levels are making a big mistake, in my opinion. The stock has become absurdly cheap given future growth opportunities. I expect Asian equities to play catch-up to US/European stocks tonight, which could provide another boost here in the morning. While we are getting extended very short-term, I still see substantial upside to stocks from current levels by year-end. Nikkei futures indicate an +610 open in Japan and DAX futures indicate a +30 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, diminished forced selling, short-covering, bargain-hunting, technical buying and seasonal strength.

Bloomberg:
- Citigroup Inc.(C) received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week. The second-biggest U.S. bank by assets surged more than 70 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan in a joint statement. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

- Citigroup Inc.(C) led a decline in the cost of protecting bonds sold by Wall Street banks from default after the U.S. government guaranteed $306 billion of the lender’s troubled mortgages and toxic assets. Credit-default swaps on Citigroup fell 250 basis points to 250, according to Phoenix Partners Group prices as of 10:30 a.m. in New York. Contracts on Goldman Sachs dropped 73 basis points to 311 and Morgan Stanley fell 55 to 463, CMA Datavision prices show. JPMorgan declined 18 to 172, Merrill Lynch slid 18 to 270 and Bank of America Corp. decreased 16 to 178. Credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada dropped 14 basis points to 252, according to Phoenix prices.

- The cost of protecting European corporate bonds from default fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 33 basis points to 880, according to JPMorgan Chase & Co. prices at 7:16 a.m. in London.
- The risk of default on top-rated commercial-mortgage bonds fell after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets. The cost to protect AAA securities backed by commercial mortgages from default on Markit Group’s CMBX credit-default swap index fell 153 basis points to 490 basis points at 12:14 pm in NY, according to a Bank of America Corp. note to clients.

- The ruble may weaken as much as 30% against the central bank’s dollar-euro basket in coming months as the currency undergoes an “inevitable” depreciation, said Eveny Gavrilenkov, Troika Dialog’s chief economist. Moscow-based Troika Dialog is Russia’s oldest investment bank.

- Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd., says oil may fall below $40 in early 2009. (video)

- Crude oil, copper and corn rose as a U.S. rescue of Citigroup Inc. shored up investor confidence and a weaker dollar enhanced the appeal of commodities.

- Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering asking for the money. Paulson may ask Congress for the remaining $350 billion from the Troubled Asset Relief Program as he puts together plans to boost consumer credit. Treasury and Federal Reserve officials are working on an effort to buttress the market for securities backed by auto, student and credit-card loans, Paulson said last week. He’s also assembling an office to address mortgage foreclosures.

- Apple Inc.(AAPL) gained the most this month after JPMorgan Chase & Co. lifted its 2009 and 2010 profit estimates for the maker of Macintosh computers and iPhones, saying sales growth for notebook computers is accelerating. Apple’s opportunity to increase its market share in portable computers “warrants increasing attention,” Mark Moskowitz, a San Francisco-based analyst at JPMorgan, wrote in a report distributed to clients today.

- Barack Obama today unveiled an economic team steeped in fighting crises and likely to push for an unprecedented government role in reviving growth and stabilizing the financial system.

- Germany’s DAX gained 426.92, or 10 percent, to 4,554.33, the steepest one-day advance since Oct. 28. DAX futures expiring next month rose 11 percent as of 5:45 p.m. in Frankfurt. The broader HDAX Index climbed 9.9 percent.

Wall Street Journal:

- Two days after Lehman Brothers Holdings Inc. sought bankruptcy protection, an explosive rumor spread that another big Wall Street firm, Morgan Stanley, was on the brink of failure. The chatter on trading desks that Sept. 17 was that Deutsche Bank AG had yanked a $25 billion credit line to the firm. That wasn't true, but it helped trigger a cascade of bearish bets against Morgan Stanley. Chief Executive Officer John Mack complained bitterly that profit-hungry traders were sowing panic.

- With sports fans still getting used to their high-definition television sets, the National Football League is already thinking ahead to the next potential upgrade: 3-D. Next week, a game between the San Diego Chargers and the Oakland Raiders will be broadcast live in 3-D to theaters in Los Angeles, New York and Boston. It is a preliminary step on what is likely a long road to any regular 3-D broadcasts of football games.

- Are you ready for some dot-com? The gridiron match-up for Super Bowl XLIII may still be up in the air, but the ad battle between the country's two leading online job sites is already joined. After sitting it out for the past four years, Monster Worldwide is returning to the Super Bowl. Its Monster.com will be going up against rival CareerBuilder.com, which will air two ads on game day, Feb. 1.

MarketWatch.com:

- Counterparty credit risk in the derivatives market fell sharply Monday after the U.S. government bailed out Citigroup Inc.

NY Times:
- States Flirting With Higher Gas Taxes.

DigiTimes:

- HTC Raises Shipment Forecast for Google Phone. High Tech Computer (HTC) expects cumulative shipments of the T-Mobile G1 to reach one million units by the end of 2008, according to company CEO Peter Chou on November 21. The company also expects to ship three million Touch Diamond models by year's end. Both forecast are higher than the company's original projections.

SmartMoney:

- Finally, Berkshire(BRK/A) Looks Undervalued.

Portfolio.com:

- In the next few months, thousands of hedge funds will go out of business. What the world will look like for the survivors.

TechCrunch:

- Google(GOOG) Relies On Akamai(AKAM) To Stream YouTube Live.

USA Today:

- Agents along the Canada and Mexico borders are using a controversial new machine that can "read" the personal information contained in some government-issued ID cards — such as passports and driver's licenses — as travelers approach a checkpoint.

Reuters:
- Global hedge funds hard hit by the credit crisis are becoming more open to offering lower fees to institutional investors amid diminishing returns and assets under management, investment consultant Watson Wyatt said on Monday.

Financial Times:
- Hedge funds slashed their borrowings at the start of this year amid credit crunch worries but remained geared ahead of the rout of the sector in the autumn, according to figures from the UK’s Financial Services Authority. The half of the hedge fund industry covered by the FSA’s biannual survey of hedge funds serviced by prime brokers in London cut borrowings from $754bn in October last year, when they were 1.92 times geared, to $375bn, or 1.45 times, by April, the data show. Since then the industry has cut its leverage to virtually nothing as wild market swings left funds nursing the biggest losses on record, prime brokers say. However, it could be good news for stock markets - battered by hedge funds deleveraging, selling shares to pay off debt - as it suggests there is little more to come. Research by Goldman Sachs last week estimated that hedge funds owned 3.5% of US equities at the end of September, down from 4.5% in June.

- Insight: The bear’s about to roar. By Barton Biggs. Before we all are swept away into total despair, let's take a step back and imagine what could get stocks around the world going up for a while. First, let me point out that by definition the bottom of a bear market has to be the point of maximum bearishness. Thus sentiment becomes a crucial indicator. The systematic work that we do on measuring sentiment (and we monitor about twenty indicators for the US and a dozen or so for other equity markets) show very extreme and in many cases record levels of bearishness. I've never seen capitulation and despair like this. We must be pretty close to maximum bearishness. The 4 per cent dividend return on the S&P 500 exceeds the yield on the ten and thirty year Treasury bonds for the first time in fifty years. History shows that even in enduring, secular bear markets there are not just 20 per cent bounces but usually one 30 to 50 per cent rally. We should be due. In the US average hourly earnings are rising at a 3 per cent annual rate and the CPI is probably declining at a 5 per cent rate thanks to the fall in gasoline, fuel, and food prices, so real average hourly earnings are rising at an 8 per cent pace. The savings rate is rising. The sharp collapse in the price of oil while hurtful to parts of the world, is very beneficial to the US, Europe, and Asia. Hedge fund redemptions are substantial and will continue into next year, but hedge fund liquidity is at a record high and hedge funds' gross exposure and net long is at a record low. Conversely investor liquidity is at a record high. All good contrary indicators. I have no idea when the next bull market starts, but I do think we are setting up for the mother of all bear market rallies.

Guardian:
- The UK coal industry may grow at its fastest pace in 40 years, citing freedom-of-information requests and council records. In the past 18 months, 14 companies have applied to mine nearly 60 million metric tons of coal at 58 new or expanded opencast mines. At least six coal-fired power plants are planned, it said. Expansion is being driven by coal prices that have quadrupled in two years.

Intereconomia Radio:

- European Central Bank Executive Board member Joese Manuel Gonzalez-Paramo said the bank may lower borrowing costs next week.

Die Welt:

- Chancellor Angela Merkel faces growing pressure from members of her Christian Democratic Union Party to reduce taxes to spur the economy. Government spending should be cut 5% across the board to pay for tax cuts, the party says.

National:
- The average hotel room rates in Dubai have fallen as much as 30% as consumers cut leisure spending amid the global economic slowdown, citing Sharaf Travel Holidays. Four-and five-star hotels in the emirate have cut room rates from 10% to 30%, Aloke Dey, the manager of Sharaf said.

Sarmayeh:

- Iran’s annual inflation may accelerate to 50% if a plan to introduce cash payments for the poor is implemented, citing the head of the Iranian Parliament’s Strategic Research Center. Iran’s inflation accelerated to an annual 29.4% in September.

BETWEEN THE HEDGES

Top Menu

Monday, November 24, 2008

Stocks Finish Near Session Highs, Boosted by Financial, Commodity, Gaming, Construction, Homebuilding and REIT Shares

Stocks Soaring into Final Hour on Less Financial Sector Pessimism, Short-Covering and Bargin-Hunting

Today's Headlines

Bear Radar

Bull Radar

Links of Interest