BETWEEN THE HEDGES

Wednesday, July 11, 2007

Thursday Watch

Posted by Gary .....at 8:38 PM

Late-Night Headlines
Bloomberg:
- North Korea will start shutting down its nuclear facilities from “early next week,” the head of the UN atomic agency said today.
- Lady Bird Johnson, widow of former President Lyndon Baines Johnson, has passed away at the age of 94.
- Copper prices fell for a third day in Asia on concern that China may be oversupplied.
- Michael Darda, chief economist at MKM Partners LP, sees demand “bottoming” in the US housing market.
- Yunnan Copper Industry, China’s third-largest producer of the metal, said it started output at a smelter in the northern city of Chifeng in Inner Mongolia with capacity of 100,000 tons a year.
- Shares of Western Mining Co., China’s second-largest maker of lead concentrate, more than doubled on their Shanghai debut after investors ordered more than 200 times the stock offered.
- South Korea’s central bank raised its benchmark interest rate for the first time in a year on concern record lending to small companies may spur inflation.
- Australia’s unemployment rate rose in June as employers added fewer jobs than economists expected after some of the nation’s largest companies fired workers to pare rising wage costs.

Wall Street Journal:
- News Corp.(NWS/A) Chairman Rupert Murdoch may be growing frustrated with negotiations to buy Dow Jones(DJ) because the company’s controlling shareholders “keep changing their minds.”
- Hewlett-Packard(HPQ) has developed a system for cosmetic companies to match people’s skin tones to make-up.

Chicago Tribune:
- Al Qaeda’s deputy leader threatened a jittery Britain on Tuesday with more attacks, accusing London of defying the Islamic world by honoring novelist Salman Rushdie.

USA Today:
- A man thought to be al-Qaeda’s second in command called for revenge after Pakistani troops cleared militants from Islamabad’s Red Mosque, citing an Internet video. “Your salvation is only through jihad,” or holy war, a voice said to be that of Ayman al-Zawahiri said on the tape.

Financial Times:
- The London Stock Exchange is preparing to introduce a market for private equity, property and hedge funds. To be called the Specialist Fund Market, the exchange will be announced today.
- President Bush on Wednesday predicted that the US budget deficit would drop to less than half its 2004 peak by the end of the current fiscal year but warned Democrats against loosening constraints on federal spending.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SNDK). NAND’s unfolding inflection(the most powerful in semis and more robust than we expected three months ago) argues for more aggressive estimates and share appreciation expectations. We increase our (SNDK) target to $62 from $52 for 20% upside and see catalysts including: 1) positive street 2H07/2008 revisions, 2) bullish 2H07 contract pricing, 3) new product activity (Apple, others), and 4) 3Q share price seasonality (averages +13% monthly from July through Sept., suggesting upside to $65-$70.
- Reiterated Buy on (WWW), target $33.
- Reiterated Buy on (MU), target $17.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
- (CBSH)/.76
- (ESIO)/.23
- (FAST)/.39
- (FLE)/-.31
- (MAR)/.53
- (PGR)/.45
- (TXI)/1.05

Upcoming Splits
- (TPL) 5-for-1

Economic Releases
8:30 am EST
- The Trade Deficit for May is estimated to widen to -$60.0B versus -$58.5B in April.
- Initial Jobless Claims for last week are estimated to fall to 315K versus 318K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2569K prior.

2:00 pm EST
- The Monthly Budget Surplus for June is estimated to rise to $27.7B versus $20.5B in May.

Other Potential Market Movers
- The Fed’s Yellen speaking, Fed’s Kroszner speaking, ICSC June Chain Store Sales, (MU) Analyst Conference, weekly EIA natural gas inventory data, Pacific Growth Equities Cardiology Conference, BMO Capital Markets Media/Comm./Tech Conference, CE Unterberg Towbin Emerging Growth Conference and CIBC Consumer Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and mining 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.

Stocks Finish at Session Highs on Short-Covering, Buyout Speculation and Diminished Sub-prime Fears

Posted by Gary .....at 5:29 PM

Indices
S&P 500 1,518.76 +.57%
DJIA 13,577.87 +.56%
NASDAQ 2,651.79 +.48%
Russell 2000 839.97 +.30%
Wilshire 5000 15,331.39 +.52%
Russell 1000 Growth 606.61 +.54%
Russell 1000 Value 863.51 +.59%
Morgan Stanley Consumer 729.85 +.65%
Morgan Stanley Cyclical 1,096.22 +1.0%
Morgan Stanley Technology 636.87 +.54%
Transports 5,287.51 +1.72%
Utilities 503.01 +.50%
MSCI Emerging Markets 138.13 +.25%

Sentiment/Internals
Total Put/Call .92 -7.07%
NYSE Arms .64 -65.52%
Volatility(VIX) 16.64 -5.29%
ISE Sentiment 136.0 -13.38%

Futures Spot Prices
Crude Oil 72.47 -.47%
Reformulated Gasoline 229.60 -3.10%
Natural Gas 6.59 -1.63%
Heating Oil 209.65 -1.29%
Gold 662.10 -.36%
Base Metals 258.84 +.80%
Copper 360.70 -.08%

Economy
10-year US Treasury Yield 5.08% +6 basis points
US Dollar 80.79 -.09%
CRB Index 322.87 -.05%

Leading Sectors
Wireless +1.15%
Steel +1.15%
Internet +.95%

Lagging Sectors
Gold -.35%
REITs -.41%
Oil Service -.82%

Evening Review
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In Play

Afternoon Recommendations
Deutsche Bank:
- Rated (DLB) Buy, target $42.

Afternoon/Evening Headlines
Bloomberg:
- Fremont General(FMT) will halt foreclosures in Massachusetts for 90 days, state Attorney General Martha Coakley announced.
- Gasoline futures fell the most in more than a month, declining 3.0%, after a US Energy Dept. supply report today showed inventories rose more than expected despite lower-than-expected refinery utilization with oil inventories near decade highs.
- Motorola Inc.(MOT) said sales missed its forecasts for the third time this year after losing customers to rivals such as Nokia(NOK) and Apple Inc.(AAPL). The stock fell .20 in after-hours trading.
- Genentech Inc.(DNA) said second-quarter profit rose 41%, driven by the cancer drugs Avastin and Rituxin. The stock was flat in after-hours trading.
- Yum! Brands(YUM) said second-quarter profit rose 12% on higher sales in China, its fastest-growing market. The stock was flat in after-hours trading.
- The US budget deficit will narrow to $205 billion this year, the lowest in five years.
- Congressional proposals to raise taxes on the profits of managers of hedge funds and buyout firms may stifle US entrepreneurship and hurt the economy, the Treasury Dept. said, as Senate and House panels held hearings on the taxation and regulation of the industy.
- SLM Corp.(SLM), known as Sallie Mae, was told by the group planning to acquire the company that pending legislation in the US House may scuttle the deal. The shares fell 10% on the news.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Semi longs and Software longs. I trimmed back my (EEM) short and (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished mildly higher, most sectors rose and volume was above average. Measures of investor anxiety were about average into the close. Today's overall market action was mildly bullish. Despite sub-prime worries lingering in the background, as usual, the underlying tone remains constructive in the broad market. Technology stocks remain a source of strength. I suspect monthly chain store sales, which are released tomorrow, will come in below estimates. However, this is widely expected. The DJIA is only 0.5% off its all-time high, which is amazing considering all the sub-prime collapse talk. The many U.S. stock market bears remain stunningly complacent, in my opinion, notwithstanding the huge rally in stocks that has transpired over the last five years. I see few signs of capitulation by the bears, and their ranks appear to be growing ever more crowded.

Stocks Higher into Final Hour on Diminished Subprime Fears, Buyout Speculation, Short-Covering

Posted by Gary .....at 3:23 PM

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs and Semi longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive today as the advance/decline line is slightly lower, most sectors are rising and volume is above average. Tech stocks continue to trade very well. The Morgan Stanley Tech Index is now 12.1% higher year-to-date vs. a 7.7% gain in the S&P 500. As I said a couple of months ago when tech was being maligned on a daily basis, I think it will outperform through year-end. It still isn't too late to increase exposure to the group, in my opinion. I still plan to add to my Goldman Sachs (GS) long on any further significant weakness related to another spike in sub-prime fears. As I have said before, if housing results in a bear market, it will be the most telegraphed and obvious bear market catalyst in history. I continue to believe sub-prime problems will remain contained for the most part and that consumer spending will accelerate meaningfully into the fall as energy prices drop substantially, the job market remains healthy, inflation decelerates further, stocks rise more, home sales stabilize at relatively high levels and long-term rates move back down. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

Today's Headlines

Posted by Gary .....at 3:21 PM

Bloomberg:
- The SEC’s top market-regulation official said Bear Stearns(BSC) probably will sell assets and reduce leverage in an “orderly fashion” at its two hedge funds that almost collapsed last month.
- The House Financial Services Committee will draft legislation requiring US hedge funds to keep copies of trading data.
- The US Treasury Dept.’s top domestic-finance official and a Federal Reserve governor said investor losses from subprime-mortgage delinquencies aren’t posting broader risks to the financial system.
- The SEC adopted new rules ensuring it can sue hedge funds for misleading investors, following a court ruling that put in doubt the regulator’s authority over the $1.6 trillion industry.
- Financial advisers’ pessimism about US stocks grew by the most since 2004 last week, according to a survey by Investors Intelligence, amid lingering concern the slump in housing will reduce corporate profit.
- Yahoo! Inc.(YHOO) lost the battle with Google Inc.(GOOG) in searching the Internet and now may have jeopardized its lead in display advertisements.

Wall Street Journal:
- Nuance Communications(NUAN) is poised to prosper from the widening use of speech-recognition technologies.
- Express Scripts(ESRX) became one of the first US companies to put its headquarters on a college campus by installing offices at the Univ. of Missouri in St. Louis. The university’s willingness to allow a corporation to move on to its premises underscores an effort by colleges located in urban areas to spur economic development and reclaim declining neighborhoods.
- Liz Claiborne(LIZ) plans selling or licensing 16 of its 36 brands as part of a plan to cut back after a slump in department-store sales.
- A SEC proposal to require shareholders who want to nominate candidates to corporate boards to own at least 5% of shares has been deemed too stringent by critics.

NY Times:
- NY State Governor Eliot Spitzer has asked two administration officials to draft a plan for providing all state residents with universal health coverage. The program would be phased in over several years and could cost $3 billion to $6 billion annually.

NY Daily News:
- Serious crime on the NYC subway has fallen to its lowest level since 1990 because of police surveillance and a restriction on walking and riding between train cars.

Economic Releases

Posted by Gary .....at 11:14 AM

- None of note