BETWEEN THE HEDGES

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 2.52% and is very high at 35.27. The ISE Sentiment Index is slightly below average at 137.0 and the total put/call is slightly below average at .78. Finally, the NYSE Arms has been running around average most of the day, hitting 1.60 at its intraday peak, and is currently .72. The Euro Financial Sector Credit Default Swap Index is falling 4.12% today to 144.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.01% to 175.18 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .57% to 98 basis points. The TED spread is now down 365 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.22% to 57.50 basis points. The Libor-OIS spread is falling 1.10% to 91 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.28%, which is down 136 basis points since July 7th. 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 yielding .13%, which is down 1 basis point today. Technology, Real Estate and Financial shares are propelling today’s rally. Given the news, the 6.5% surge in the heavily-shorted REIT Index is especially impressive today. I suspect many net short or market neutral portfolio managers are starting to get very nervous as the S&P 500 approaches flat ytd. The Nasdaq is now 6.4% higher for the year. One of my longs, (GOOG), reports after the close today. While the stock has risen substantially off its lows, I wouldn’t be a seller around current levels and will look to accumulate more shares on any meaningful pullback. Considering its stature as one of the leading technology growth stocks in the world and somewhat recession resistant biz, its 18.7x forward p/e is very cheap, in my opinion. As well, any sign of traction with Google’s monetization of YouTube should be viewed as a major positive. Finally, Google’s put/call open interest ratio is right near a record high at 1.12, which is also a positive. Nikkei futures indicate an +240 open in Japan and DAX futures indicate an +44 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, diminishing credit market angst, portfolio manager performance anxiety and less financial sector pessimism.

Late-Night Headlines
Bloomberg:

- China’s gross domestic product, battered by collapsing exports, grew at the slowest pace in almost ten years, probably marking the low point for the world’s third-biggest economy. GDP expanded 6.1 percent in the first quarter from a year earlier, after a 6.8 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure compares with the 6.2 percent median estimate of 13 economists surveyed by Bloomberg News.

- U.S. Treasury Secretary Timothy Geithner refrained from labeling China as a currency manipulator, backtracking from an assertion he made during his confirmation hearings in January. In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains “undervalued,” no country “met the standards” for illegal currency manipulation during the period of the report, from July 2008 through December 2008. The conclusion clashes with Geithner’s January 22 statement to a Senate panel that President Barack Obama “believes that China is manipulating its currency.” Today’s shift may anger U.S. lawmakers, companies and trade unions who have sought measures to punish nations perceived to have undervalued exchange rates. “Clearly the Treasury has made more of a political decision than an economic decision here,” Republican Senator Lindsey Graham of South Carolina said in a Bloomberg Television interview. “The truth is the Chinese manipulate their currency.”

- SL Green Realty Corp., Manhattan’s biggest office landlord, led real estate investment trusts higher in New York trading after Goldman Sachs Group Inc. said the industry is showing “signs of liquidity.” New York-based SL Green climbed 17 percent after Goldman analyst Jonathan Habermann raised the stock to “buy” from “neutral.” Simon Property Group Inc., the biggest U.S. mall owner, rose 14 percent. Habermann upgraded the shares to “conviction buy” from “buy.” “We have begun to see many REITs access the capital markets helping to address concerns over liquidity,” Habermann wrote in the report. “In fact, stocks with low earnings multiples have experienced the most significant lift as ‘going concern’ risk has abated with the capital raises.” Many REITs have managed to conserve cash by cutting dividends and selling properties, which should help them lower their debt obligations, he said. Habermann cited Indianapolis-based Simon Property, which raised more than $1 billion of capital, including a sale last month of $650 million of unsecured senior notes, and 15 million common shares. That “marks an important step in increasing the flexibility of Simon’s balance sheet and positions the company well for future distress,” he said. SL Green shares are “undervalued,” he said. While the company’s debt-to-equity ratio is “high” at 65 percent, “the company’s ability to address near-term debt maturities seems adequate. With nearly $700 million in cash on its balance sheet, we believe SL Green could self-fund its 2009 and 2010 obligations.” Federal Realty Investment Trust, a Rockville, Maryland- based retail REIT, today said its refinancing efforts had exceeded its expectations. It has obtained unsecured credit of $250 million from five banks, more than its $200 million target, and is working toward a line of as much as $350 million. The shares jumped $4.49, or 8.8 percent, to $55.71.

- The cost of protecting investors in Asian bonds fell, credit-default swaps show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 5 basis points to 295 as of 9:13 am in Singapore, according to Barclays Capital. The Markit iTraxx Japan index fell 5 basis points to 290 at 10:07 am in Tokyo, BNP Paribas SA data show. The Markit iTraxx Australia index was quoted unch. at 315 basis points at 9:38 am in Sydney, according to Citigroup Inc. Prices.

- The Federal Reserve should identify U.S. banks funded by its emergency lending because taxpayers are “involuntary investors” who need to know the risks, Bloomberg LP said today in a court filing. The Fed refuses to name the borrowers, the amounts of loans or assets banks put up as collateral under 11 programs, arguing that doing so might set off a run by depositors and unsettle shareholders. Bloomberg, the closely held New York-based company majority-owned by Mayor Michael Bloomberg, sued Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. “The Board’s arguments are based on wispy speculation, lack evidentiary support and are contradicted by economic theory,” said Thomas Golden and Jared Cohen, lawyers with New York-based Willkie Farr & Gallagher LLP, in a motion asking the judge to require disclosure. “These government actions, which have been shrouded in secrecy, are at the heart of Bloomberg’s FOIA requests.”

- The Obama administration won’t impose additional sanctions on Iran if it freezes nuclear development work and joins talks over the future of its program, European diplomats said. Undersecretary of State William Burns informed Britain, China, France, Germany and Russia of the new U.S. approach to the so-called “freeze-for-freeze” proposal at a meeting in London on April 8, according to the diplomats, who spoke on condition they weren’t identified.

- The Federal Reserve and other regulators conducting stress tests on the 19 biggest U.S. banks will disclose how they carried out the examinations before any results are released, people familiar with the process said. The regulators plan to publish the paper within the next two weeks, ahead of the release of results by early May, in an effort to bolster credibility in the process.

- President Barack Obama designated three Mexican crime organizations as subject to a law that lets the U.S. Treasury block financial transactions or seize assets, White House spokesman Robert Gibbs said. The move “underscores” U.S. support for Mexican President Felipe Calderon’s efforts to battle drug cartels, Gibbs said today. The groups were designated under the Foreign Narcotics Kingpins Act.

Wall Street Journal:

- Worldwide PC shipments for the first three months of the year were slightly better than expected, reports market tracker IDC Corp. The report adds to the enthusiasm for personal computer industry turnaround generated by Intel Corp.'s (INTC) Chief Executive Paul Otellini's comments about PC sales hitting a bottom. Otellini drew attention to the PC market on Tuesday, when he said during a call to discuss the company's latest quarterly earnings that the PC industry had bottomed out during the first three months of the year. The surprising results makes IDC optimistic that PC sales growth will return by the end of they year, based on continuing demand for inexpensive and compact netbooks and falling prices.

- U.S. Interior Secretary Ken Salazar announced Wednesday that California will receive $260 million in economic-stimulus funds to improve its aging water infrastructure.

- NetFlix(NFLX) May Benefit From Thrifty Fitness Enthusiasts.

- President Barack Obama and his wife, Michelle, reported about $2.7 million in income for 2008, mainly from book sales. The first couple paid about $855,000 in federal income taxes. Their income declined from 2007, when the Obamas reported about $4.1 million, again mostly from books, and paid about $1.4 million in taxes.

- Wireless carriers such as AT&T Corp. are setting their sights on so-called smart grids as a big business opportunity that could juice up earnings by utilizing excess capacity on their cellphone networks. The upshot for consumers is they may eventually be able to monitor and control home-energy use through a cellphone that talks to a digital meter and other devices, though that service is still in development.

Barron’s:

- Apple(AAPL): Goldman Ups Ests; Piper Upbeat On iPhone Units.

MarketWatch.com:
- Foreign language software specialist Rosetta Stone Inc. (RST) sold its initial public offering at $18 a share Wednesday, the first IPO to price above its expected range in nearly a year. The company, scheduled to begin trading Thursday on the New York Stock Exchange under the symbol RST, sold 6.25 million shares for a dollar more per share than its expected range of $15 to $17, which was set by underwriters Morgan Stanley and William Blair & Co.

CNBC.com:
- Six large U.S. banks could pocket nearly $10 billion in federal subsidies if they modify troubled home loans and are able to save homeowners from foreclosure, the Treasury Department said on Wednesday. The mortgage specialty arms of Citigroup(C), JPMorgan Chase(JPM) and Wells Fargo(WFC) would each earn over $2 billion for modifications that have long-lasting success, according to the Treasury's formula.

- GameStop(GME) Wants Cheaper Consoles, Predicts Hot Titles.

- New information from the Fed's Beige Book is stoking speculation that merger mania could soon sweep over parts of the market. And if options action is any indication, than one of the sectors showing signs of life is – technology(XLK). In fact, OptionMonster Jon Najarian is particularly keen on this sector for possible M&A activity.

NY Times:

- Unions began to widen their efforts against imported steel after a train’s foreign freight for an oil pipeline project was spotted in Granite City, Ill.

Atlanta Journal Constitution:

- Thousands of tax protesters streamed Wednesday to state government’s front lawn, creating a sign-waving, anthem-shouting mass as darkness fell. The Atlanta “Tea Party” at the Georgia Capitol stretched for blocks in protest of federal spending and the Obama Administration’s efforts to stimulate the economy.

Business Week:
- Fresh Hope for Broadband. Speedy Internet infrastructure has been slow coming. But states are eager to use stimulus money to change that.

- If Goldman Sachs(GS) CEO Lloyd Blankfein wants to put his money where his mouth is, he won't stop with just giving back the $10 billion in federal bailout money the investment firm got last autumn. He'll also offer to return some of the $13 billion Goldman (GS) got from the U.S. government by way of the bailout of American International Group (AIG). If the government had allowed AIG to file for bankruptcy, Goldman likely would have incurred an even bigger fourth-quarter loss than it reported. So Blankfein owes a bit of gratitude to Uncle Sam. And as my BusinessWeek colleague Roben Farzad pointed out on CNBC on Mar. 27, Blankfein can thank taxpayers by forking over its AIG largesse. Maybe it was a smart move for the government to indirectly bail out AIG's trading partners to prevent a systemic financial collapse. But the government didn't have to make firms such as Goldman completely whole by paying face value for the CDOs that AIG had insured. If nothing else, maybe Goldman should now take the haircut it probably should have taken on those CDOs at the time of the AIG bailout. The bank could start by offering to give some of that $13 billion back, too.

- Wireless energy dashboards to monitor usage are coming to many U.S. homes starting this year.

Seeking Alpha:

- Is the Street Now Too Bearish on Google(GOOG)? After a recent round of estimate cuts, the Street now seems to be wondering if maybe it went too far. I would note that GOOG shares have rebounded 44% off the November lows, so there is some risk that even a strong quarter will trigger a round of profit-taking, not unlike what happened in Intel shares Wednesday. Bernstein Research analyst Jefferey Lindsay Wednesday boosted his target on GOOG to $460, from $400, asserting bluntly that “sentiment has become too pessimistic on Google.” He says that while the company “is feeling the downturn like everyone else,” its business “is still highly recession-resistant and is doing better than many expect. Lindsay contends the company is well-positioned to benefit from any economic upturn at the end of the year, “and will be the first major advertising business to register any improvement, since the online auction format of paid search “benefits almost immediately from increased economic activity and advertising spending.” Lindsay also said that, contrary to what some others have asserted, YouTube is getting close to break even.

Politico:

- Texas Gov. Rick Perry’s star is rising among a new constituency — the anti-tax “tea party” crowd — in the wake of his recent endorsement of a Texas state House resolution affirming the state’s sovereignty. The resolution urges that “all compulsory federal legislation that directs states to comply under threat of civil or criminal penalties or sanctions or that requires states to pass legislation or lose federal funding be prohibited or repealed.” The Republican governor’s public embrace of that language — a thinly veiled reference toward the conditions set by the Obama administration’s financial stimulus package — and his efforts to reject some of the stimulus funds have made him popular among the big government opponents who attended Wednesday’s “tea party” events across the nation.

- Sen. Chuck Schumer (D-NY) who has long pushed China on its currency, was none too thrilled with the Obama administration's pronouncement today that Beijing isn't manipulating the Yuan. Schumer, in a statement, says he plans to reintroduce a bill with Lindsey Graham (R-S.C.) that would impose a tariff on Chinese imports whose prices are kept artificially low by China's devaluation of the yuan.

IndexUniverse.com:

- Are you ready for some more hot sauce on your exchange-traded funds smorgasbord? IndexIQ, which recently introduced the first ETF to replicate hedge funds, has filed to launch 15 more. Each will effectively splice and dice hedging strategies into different categories. Assuming the Securities and Exchange Commission finds no special quirks to halt a launch, the new ETFs will be the:

Reuters:

- The U.S. economy continued to weaken in March and early April but the speed of contraction was fading amid scattered signs the country's recession may be nearing an end, the Federal Reserve said on Wednesday. "Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level," according to the Fed's Beige Book summary of anecdotal reports from its 12 regional banks.

- China's refined copper production is expected to rise about 6 percent to more than 4 million tonnes in 2009, the official Shanghai Securities News said on Thursday, citing an executive in the industry group. The growth was due to capacity expansion including a 300,000-tonne project run by Jiangxi Copper, China's largest smelter, the newspaper cited the China Nonferrous Metals Industry Association executive as saying.

Financial Times:
- NYSE Euronext CEO Duncan Niederauer said the surge in stocks last month was propelled by traders taking advantage of price fluctuations rather than “real money” investors, who are waiting to see whether the gains will hold. “We’re waiting for another rally, in my opinion, in around June and July,” when institutional and other long-term investors start putting more money into equities.

- Asia is the last bastion of the strong dollar policy. US policymakers still repeat the mantra of a strong currency. But it is Asia’s central bankers that have backed up their words with action, accumulating thousands of billions’ worth of US Treasuries. The dollar remains the world’s premier currency as a result. It still accounts for nearly two-thirds of all foreign reserves. The risk of the dollar losing its reserve status remains slim for the foreseeable future. First, central banks are likely to keep holding most of their reserves in dollars as global trade remains denominated in dollars. Second, the incentive for reserve managers to diversify into other foreign currencies to increase portfolio returns is mitigated by all the G7 central banks now setting interest rates close to zero. Third, central banks across Asia and elsewhere have seen how Russia rapidly lost one third of its $600bn reserves as the rouble came under severe pressure. Fourth, the alternatives to the dollar remain unattractive. Liquidity in the US Treasury market is superior to eurozone bond markets. Holding euro-denominated assets also incurs the long-term risk that the single currency may one day break up. As for the other choices, Japanese government bonds only offer very low returns, while the gold market is too small to be a liquid alternative for most central banks. Finally, allocating foreign reserves is as much a political decision as an economic choice. The US’s allies in Asia and the Middle East are hardly likely to dump the assets of the country whose military umbrella they shelter under. Thus the dollar is likely to retain its premier reserve status.

Sankei:

- Nippon Steel Corp., Japan’s largest steelmaker, and domestic rivals may agree to an iron ore price cut of about 30% for the year started April 1. The lower cost of iron ore would lead to a decline in prices of steel for sales to carmakers and electronics companies.

Shanghai Securities News:

- China’s power demand fell 3.6% in the first half of April, led by a decline in consumption in southern provinces, citing State Grid Corp. of China. Electricity demand in Guangdong province dropped 8.1% and plunged 12.6% in Guangxi, according to the report. The nation’s coal-fired electricity output dropped 3.6% in the first half of this month, biggest than a March decline.

Nikkei:

- Japan’s government will maintain its assessment of the economy as being in a “severe” state and “worsening rapidly.” The monthly Cabinet Office repot, to be released tomorrow, will maintain the same description of the economy as used in the March and February reports.

Caijing:

- China’s economy won’t reach a bottom this year, citing Wang Xiaoguang, director of the academy of macroeconomic research under the National Development and Reform Commission. Wang said he is currently unable to see a bottom. Exports and real estate will no longer be able to spur economic growth in the further, citing Wang.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (HPQ), target $51. We believe HPQ’s April quarter is tracking ahead of mgmt guidance and consensus, and remain comfortable with our non-GAAP EPS estimate of $.89(consensus $.85, guidance $.84-.86). Revenue upside is being driven by stronger-than-expected consumer PC demand and FX, while EPS upside is being driven by overly conservative guidance, EDS cost synergies and a 5% company-wide salary cut implemented early in the quarter.

- (GILD) Buy – Weekly IMS Rx look ok and we model total HIV at $1,267M vs. consensus $1,247M. Strong revenues(Citi $1,4506M, +$5M vs. consensus $1,501M) driven by US HIV sales could drive upside to non GAAP EPS of $.64(vs. consensus $.63)

Night Trading
Asian Indices are +.50% to +2.0% on average.
S&P 500 futures -.05%.
NASDAQ 100 futures +.11%.

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US AM Market Call
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Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
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Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BAX)/.81

- (CY)/-.23

- (GPC)/.50

- (HOG)/.52

- (PH)/.45

- (GCI)/.24

- (SHW)/.21

- (LUV)/.00

- (FCS)/-.33

- (PII)/.20

- (JPM)/.32

- (ITW)/.30

- (GOOG)/4.96

- (VRTX)/-.81

- (ISRG)/1.02

- (PPG)/.13

- (BIIB)/1.00

- (VMI)/1.08

- (BGG)/.63

- (TITN)/.21

Economic Releases

8:30 am EST

- Housing Starts for March are estimated to fall to 540K versus 583K in February.

- Building Permits for March are estimated to fall to 559K versus 564K in February.

- Initial Jobless Claims for last week are estimated to rise to 660K versus 654K the prior week.

- Continuing Claims are estimated to rise to 5893K versus 5840K prior.

10:00 am EST

- Philly Fed. For April is estimated to rise to -32.0 versus -35.0 in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Yellen speaking, weekly EIA natural gas inventory report, (BP) annual meeting, (CRAI) annual meeting, (RF) shareholders meeting, (VLCK) shareholders meeting, (WY) shareholders meeting, (TXN) shareholders meeting and the (PPG) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

BETWEEN THE HEDGES

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Thursday, April 16, 2009

Stocks Soaring into Final Hour on Less Economic Fear, Diminishing Credit Market Angst, Less Financial Sector Pessimism, Short-Covering

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Wednesday, April 15, 2009

Thursday Watch

Stocks Finish at Session Highs, Boosted by REIT, Financial, Homebuilding, Airline and Paper Shares

Stocks Mostly Higher into Final Hour on Less Financial Sector Pessimism, Diminishing Economic Fear, Short-Covering, Bargain-Hunting