Wednesday, August 30, 2006

Wednesday Watch

Late-Night Headlines
Bloomberg:
- National Aluminum Co., India’s biggest producer of alumina, expects second-half profit to decline because of falling prices of the raw material used to make the lightweight metal.
- Crude oil traded near a two-month low in NY on signs slowing US demand may take pressure off fuel stockpiles and as energy companies prepare to return workers to the Gulf of Mexico.

Financial Times:
- Private equity companies are attracting senior executives away from public companies, making it more difficult for publicly traded firms to acquire and retain management talent.

Shanghai Securities News:
- China should suspend approvals for development of new coal mines to curb a rise in inventories of the material used to make steel and fuel power plants.

China Securities Journal:
- China may widen the yuan’s trading band to help curb economic growth and damp speculation on the currency after an interest-rate increase this month.

Hindu Business Line:
- Indian steel companies may lower prices of hot-rolled coil starting Sept. 1.

Late Buy/Sell Recommendations
CSFB:
- Downgraded (ROK) to Underperform, target $58.
- Each of the key industry indicators we look to for the future direction of US steel prices continue to suggest there is more downside risk than upside potential in US steel prices in late 2006/early 2007.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.05%.

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Earnings of Note
Company/EPS Estimate
- (BSG)/.15
- (DSW)/.30
- (JDSU)/.00
- (TIVO)/-.14
- (UNFI)/.30

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Preliminary 2Q GDP is estimated to rise 3.0% versus a prior estimate of a 2.5% gain.
- Preliminary 2Q GDP Price Index is estimated to rise 3.3% versus a prior estimate of a 3.3% gain.
- Preliminary 2Q Personal Consumption is estimated to rise 2.5% versus a prior estimate of a 2.5% gain.
- Preliminary 2Q Core PCE is estimated to rise 2.9% versus a prior estimate of a 2.9% gain.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 1,500,000 barrels. Gasoline supplies are expected to fall by 600,000 barrels. Distillate inventories are estimated to rise by 1,300,000 barrels. Finally, Refinery Utilization is expected to rise .2%.

BOTTOM LINE: Asian indices are mostly 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.

Tuesday, August 29, 2006

Stocks Finish at Session Highs as Oil Closes Below $70/bbl. and Long-term Rates Fall Again

Indices
S&P 1,304.28 +.19%
DJIA 11,369.94 +.16%
NASDAQ 2,172.30 +.54%
Russell 2000 714.85 +1.16%
Wilshire 5000 13,032.94 +.30%
S&P Barra Growth 605.65 +.31%
S&P Barra Value 696.57 +.08%
Morgan Stanley Consumer 640.56 +.60%
Morgan Stanley Cyclical 796.56 +.43%
Morgan Stanley Technology 505.40 +1.03%
Transports 4,288.73 -.11%
Utilities 442.16 +.03%
Put/Call .97 -1.02%
NYSE Arms .96 -1.10%
Volatility(VIX) 12.28 +.82%
ISE Sentiment 134.00 +20.72%
US Dollar 84.95 -.36%
CRB 327.73 -.59%

Futures Spot Prices
Crude Oil 69.78 -1.18%
Unleaded Gasoline 178.54 +.13%
Natural Gas 6.81 +5.32%
Heating Oil 194.65 -.99%
Gold 622.80 -.18%
Base Metals 228.19 -1.04%
Copper 338.50 -1.90%
10-year US Treasury Yield 4.77% -.29%

Leading Sectors
Networking +1.84%
Semis +1.67%
Disk Drives +1.62%

Lagging Sectors
Energy -.51%
I-Banks -1.22%
Oil Tankers -1.51%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Crude oil closed below $70/bbl. for the first time in two months as energy speculators trimmed bets as the summer driving season winds down with only mild production disruptions.
- Apple(AAPL) today announced that Dr. Eric Schmidt, CEO of Google(GOOG), was elected to Apple’s board of directors at their meeting today.
- Inco Ltd.(N) urged investors to accept a $17.4 billion takeover by Phelps Dodge(PD) to merge their nickel and copper mines, rejecting a higher hostile bid from Brazil’s Cia. Vale do Rio Doce.
- Microsoft(MSFT) is selling its new Windows Vista operating system for $100 to $399 and will make the program available on Jan. 30, according to Amazon.com’s Web site.
- Federal Reserve officials saw their decision to suspend a two-year run of interest rate increases as a “close call” and were unsure whether they would further raise borrowing costs, the minutes showed.
- US 10-year notes gained, pushing yields to the lowest since March, as traders said the minutes of the Fed’s Aug. 8 meeting showed more support than expected for the decision to leave interest rates unchanged.

AP:
- Lawyers for customers of AT&T(T), Verizon Communications(VZ) and BellSouth(BLS) who are suing the companies for violating privacy laws by turning over phone records for terrorism surveillance plan to subpoena the Bush administration.

LA Times:
- Rapid commercial growth and new jobs in Orange County, south of Los Angeles, have attracted workers to the area, which is leading to a reversal in the region’s usual commuting routes.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Semi longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was light. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. The statements from the Fed Minutes were mixed. There was something for the doves and hawks. I still believe there is almost zero chance of a rate hike at the Sept. meeting and very little chance of another hike this year. The Fed almost never hikes the Fed Funds rate above the 10-year T-note yield. Currently, there is a 45-basis-point spread between the two. With most market participants bearish and continuing to look for more significant market weakness, these types of reversal days are usually followed by more strength.

Stocks Mostly Higher into Final Hour on Falling Energy Prices and Long-term Rates

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Networking longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is light. The Johnson Redbook same-store sales index rose 3.3% year over year last week vs. a 3.2% rise the prior week. The long-term average is a gain of around 2.8%. I still see little evidence that a significant decline in consumer spending is beginning, even as investors continue to price this into stocks. I still expect the back-to-school selling season to exceed lowered expectations. Weekly retail sales have averaged a healthy 3.2% during the month of August. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates and declining energy prices.

Today's Headlines

Bloomberg:
- Crude oil dropped below $70 a barrel and natural gas fell as oil companies prepared to send workers back into the Gulf of Mexico and Tropical Storm Ernesto moved away from the region’s oil fields.
- Iranian President Ahmadinejad said it’s “unlikely” the UN Security Council will take action over his country’s nuclear program.
- Germans who left their country last year amid record postwar unemployment pushed emigration to its highest level since 1954, Federal stats show.
- Oil tanker earnings may almost halve by 2008 as a “phenomenal” increase in the delivery of new vessels leads to an oversupply of capacity, Drewry Shipping Consultants Ltd. said.

Wall Street Journal:
- BP Plc(BP) is the subject of investigations by US authorities for possible manipulation of the crude-oil and unleaded gasoline markets.
- Sony Corp.(SNE) and Apple Computer(AAPL) may increase demand for NAND flash-memory chips as they both plan product launches later this year, citing iSuppli.
- L-3 Communications(LLL) may expand faster than its peers.
- Plans to build more doctor-owned specialty hospitals are under review in Texas, California, Pennsylvania and Indiana after the US Centers for Medicare and Medicaid Services decided on Aug. 8 to resume certifying the facilities.
- Hundreds of thousands of seniors are paying monthly premiums to sign up for private Medicare plans.

NY Times:
- Former US President Bill Clinton said he was sorry his administration failed to intervene during the Rwandan genocide in 1994 and the US “blew” its chance to stop the bloodshed.

Washington Post:
- Privacy concerns in the European Union have made collecting intelligence on terrorists before they appear on watch lists harder for the US, Secretary of Homeland Security Chertoff wrote.

NY Daily News:
- Viacom’s(VIA) Paramount Pictures will donate $2.6 million from early ticket sales for its film “World Trade Center” to charities supporting Sept. 11 victims’ families and memorials.

Financial Times:
- EBay Inc.(EBAY) will likely make more money choosing Google(GOOG) over Yahoo!(YHOO) to run advertising outside the US.

Reuters:
- Alcatel SA(ALA) investors were urged by French advisory firm Proxinvest to reject the network equipment maker’s proposed purchase of Lucent Technologies(LU).
- Venezuela’s President Hugo Chavez plans to travel to Syria today.

Gazeta Wyborcza:
- Russia has given up opposition to the construction of a missile defense shield the US may build in Poland or the Czech Republic.

Consumer Confidence Dips, Expect Rebound Next Month

- Consumer Confidence for August fell to 99.6 versus estimates of 102.7 and an upwardly revised reading of 107.0 in July.
BOTTOM LINE: Confidence among US consumers fell in August on worries over a slowing housing market and job prospects, Bloomberg reported. The Conference Board surveys 5,000 households by the middle of the month. The survey was completed prior to the recent fall in oil and gas prices. Optimism about consumers’ present situation fell to 123.4 versus 134.2. The share of people expecting better employment opportunities in the next six months fell to 14% versus 14.3% the prior month. Since the middle of August, the average national gas price has declined .16 to $2.81/gallon, the Nasdaq is up 4% and the average 30-year mortgage rate has fallen another 7 basis points. Finally, the Middle East cease-fire didn't go into effect until the 14th of August, which has taken war off the front pages. I expect confidence to rebound next month.

Links of Interest

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