BETWEEN THE HEDGES

- Durable Goods Orders for April fell .5% versus estimates of a 1.5% decline and a .3% fall in March.

- Durables Ex Transports for April rose 2.5% versus estimates of a .5% decline and an upwardly revised 1.7% increase in March.

BOTTOM LINE: Orders for US durable goods excluding cars and planes unexpectedly rose in April, signaling that international customers are helping factories ride out the economic slowdown, Bloomberg reported. Excluding transportation orders, durable goods orders jumped 2.5%, the most since July of last year. A surge in demand for electrical equipment and appliances, along with gains in metals and machinery, led the increase. Orders for electrical equipment soared a record 28% in April. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, jumped 4.2%, the most this year. Shipments of those goods, which are used to compute GDP, rose .5%. I expect Durable Goods Orders to continue to trend higher over the coming months on an end to the American Axle strike, strong international purchases, falling commodity prices and inventory rebuilding as the effects of the fiscal/monetary stimuli take hold.

Late-Night Headlines
Bloomberg:
- The soaring rates of childhood obesity steadied after 1999, a study shows, providing a “glimmer of hope” to researchers. About 32% of children ages 2 to 19 were at risk for being overweight or obese from 2003-2006, little changed from 1999, according to data in tomorrow’s Journal of the American Medical Association.
- Mortimer Zuckerman, the billionaire chairman of Boston Properties, said his company’s purchase of a stake in the General Motors Building was a show of faith in the NY office market.
- A relic from Russia’s debt default a decade ago is threatening the country’s economic resurgence by forcing more than 200 companies to increase the interest they pay to as much as 16%. With bond yields rising worldwide as the US subprime turmoil spreads, hedge funds and other investors in Russia are demanding the higher rates or their money back.
- Karl Case, co-founder of a home-price index that bears his name, said more auctions of foreclosed properties will hasten the reduction of inventories from record levels and may lead to a faster housing recovery. “I think we’re going to see some signs of life in the next few months,” Case said.
- The risk of Asia-Pacific companies and governments defaulting on their debt fell, according to traders of credit default-swaps. The Markit iTraxx Asian High-Yield index fell 18 basis points to 485, according to BNP Paribas SA.
- Jeff Broin, CEO of Poet LLC, the largest US ethanol producer, Sees Commercial Celluosic Ethanol within 3 years. (video)
- Venezuela’s economy grew at its slowest pace in more than four years in the first quarter as government nationalizations caused investment to decline.
- Crude oil traded near a one-week low in NY as US consumer confidence dropped to the lowest level since October 1992, signaling a slowdown in the world’s biggest oil user amid record energy prices.
- China began evacuating 80,000 people threatened by floods in Sichuan province as two aftershocks struck the region more than two weeks after the deadliest earthquake in 32 years left more than 87,000 dead or missing.
- LG Electronics and Haier Group are among the companies that may acquire GE’s(GE) century-old appliances division.
- Three ex-Duke University lacrosse players cleared of rape charges brought by former prosecutor Michael Nifong can proceed with their lawsuit against him outside bankruptcy court, a judge ruled. Nifong, who lost his law license for mishandling the criminal case against the players, had filed for Chapter 11 protection in hopes of wiping out the players’ legal claims against him.

Wall Street Journal:
- Fear, Rumors Touched Off Fatal Run on Bear Stearns(BSC). The brokerage’s sudden fall was a stark reminder of the fragility and ferocity of a financial system built to a remarkable degree on trust. Some partners, spotting a chance to profit, made bets against Bear Stearns, helping accelerate its demise. Regulators have been investigating whether there was a coordinated effort to fan negative rumors by those betting on Bear Stearn’s downfall.
- With gasoline costing upward of $9 a gallon in parts of Europe, protests are putting governments under pressure to cut the taxes that make up much of the price of fuel.

CNBC.com:
- Investors who spent the past nine months avoiding the skidding US stock market and economy by snapping up multinational companies are now coming back home. As stocks have staged a comeback and the economy is showing that it is in for at most a mild recession, portfolio managers have been in rebalancing mode to bring their national/international investment ratios back to a more normal level. It’s not that there’s any great fear over international firms, but rather a growing confidence that most of the bad stuff is over for domestic companies and there should be reason to grow.

Barron’s:
- Signs of a Waning Subprime Crisis.

BusinessWeek.com:
- Kleiner’s Pick for the Killer iPhone App. The location-based software from Pelago will allow smartphone users to find friends’ picks for local restaurants, shops and activities.

NY Times:
- The Guessing Game Has Begun on the Next iPhone.
- As Home Prices Drop Low Enough, a Committed Renter Decides to Buy.
- With Bold Steps, Fed Chief Bernanke Quiets Some Criticism.

DealReporter:
- Hershey Co.(HSY), the biggest US chocolate maker, has hired JPMorgan Chase(JPM) to seek advice on mergers and acquisitions.

CNNMoney.com:
- 100 Most Desirable MBA Employers.

USA Today.com:
- Pump prices may have peaked.

Wired:
- Toyota, Hino Motors Develop Train-Bus Hybrid. What do you get when you cross a bus with a train? A dual-mode vehicle that has the versatility of a bus, the speed of light rail and fuel economy vastly better than either.

Pensions&Investments:
- Nearly half of institutional investors, 46%, are willing to invest in young and/or small hedge funds, according to a survey by database manager Preqin Hedge.

Reuters:
- The Federal Reserve is intent on not letting inflation spiral out of control, said Janet Yellen, president of the San Francisco Federal Reserve Bank. She indicated more interest rate cuts are not in the offing.
- Starting a hedge fund was long considered the road to riches for money managers, but the path has become much rockier in the last months.
- Short interest on the Nasdaq rose another .8% in mid-May.

Financial Times:
- The SEC has stepped up its investigation into DB Zwirn, seeking information about the $5 billion hedge fund valued some of its assets.
- A debate is breaking out across Wall Street about whether hedge funds that specialize in illiquid investments should adopt compensation policies more like those of private equity firms.

TimesOnline:
- JPMorgan Chase(JPM) won a $700 million court case yesterday that has dealt a blow to investors claiming compensation for allegedly being mis-sold exotic investments. Lawyers said the judgment was a significant win for investment banks that are steeling themselves for a wave of similar litigation in the wake of the current credit crisis.

Economist.com:
- Iraq has the potential to supply much more oil. Speculators are betting huge sums on the assumption that the oil market will remain tight for many years to come. Iraq holds (at least) 10% of the world’s proven reserves, but accounts for only 2.5% of total production. Iraq has the potential to furnish a long-term solution to the oil market’s long-term supply problem, but it will need to improve on its recent performance before buyers of oil futures will be convinced that it can deliver. If history had been kinder, Iraq could now be producing at a comparable level to Saudi Arabia. Instead, three wars, 13 years of sanctions and five years of internal conflict have eroded Iraq’s oil infrastructure and human capital. There is even concern that damage may have been caused to some fields in order to maintain production at modest levels. However, Iraq also has a history of recovery. Iraq’s deputy prime minister, Barham Salih, said in April that Iraq’s total reserves, could be as high as 350 billion barrels, triple the 115 billion that has been its officially stated level for many years. If there are promising signs of progress over the next 18 months, then it might be enough to mitigate fears of shortages next decade and dampen the futures market.

Malaysia Sun:
- The global sub-prime crisis will this year lower investment in Asia’s property sector, international property consultant Jones Lang LaSalle said.

Late Buy/Sell Recommendations
Wachovia:
- Raised (KNX) to Outperform, target $21.50.

Morgan Stanley:
- IDC released 1Q08 server tracker data showing unit acceleration of 8% for the overall market. Dell(DELL) grew units 16% YoY with revenue growth of 9% YoY, faster than any other top 5 server vendor(and compares to 9% unit growth in the prior quarter). Based on the increased unit sales of PCs and servers reported by IDC, there appears to be modest upside to top-line estimates. Although pricing pressure is a risk to the bottom-line, we believe the combination of favorable enterprise mix and initial operating expense reductions may bolster EPS versus expectations.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 futures -.09%.
NASDAQ 100 futures -.10%.

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Earnings of Note
Company/EPS Estimate
- (CHS)/.06
- (RL)/.65
- (MW)/.22
- (DBRN)/.26
- (JAS)/.01
- (CBRL)/.48
- (CWTR)/-.15
- (AEO)/.19
- (DLTR)/.42
- (WSM)/.01

Upcoming Splits
- (ATLS) 3-for-2

Economic Releases
8:30 am EST
- Durable Goods Orders for April are estimated to fall 1.5% versus a .3% decline in March.
- Durables Ex Transports for April are estimated to fall .5% versus a .9% gain in March.

Other Potential Market Movers
- The (FIS) investor day, (IRBT) investor day, (NFLX) analyst meeting, HGSI analyst meeting, (HTZ) analyst meeting, weekly MBA mortgage applications report, weekly retail sales reports, Cowen TMT Conference, FBR Investor Conference, Citigroup Retail Conference, Sanford C. Bernstein Strategic Decisions Conference, Deutsche Bank Energy/Utilities Conference, Morgan Keegan Homeland Security Conference, Lehman Brothers Wireless Conference and UBS Global Specialty/Generic Pharma Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

BETWEEN THE HEDGES

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Wednesday, May 28, 2008

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Tuesday, May 27, 2008

Wednesday Watch

Stocks Finish at Session Highs, Boosted by Transport, Technology, REIT, Biotech and I-Banking Shares