BETWEEN THE HEDGES

Thursday, January 31, 2008

Friday Watch

Posted by Gary .....at 6:09 PM

Late-Night Headlines
Bloomberg:
- The Russell 2000 Index gained almost twice as much as the S&P 500 Index after JPMorgan Chase(JPM) said the measure of small US companies will surge because its members are cheap and investors are too pessimistc.
- OPEC Leaders to Keep Production Levels, Consider Cuts in March.
- Matsushita Electric Industrial, the world’s largest consumer electronics maker, climbed to the highest in a month in Tokyo trading after profit rose to a record on demand for its Lumix cameras and Viera flat-panel televisions.
- Financial Guaranty Insurance Co., the world’s fourth-largest bond insurer, lost its AAA credit rating at Standard & Poor’s, which said it may cut the top ranking on MBIA’s(MBI) insurance unit as well. Ambac Financial’s insurer unit had its AAA credit rating affirmed by S&P.
- Intuitive Surgical Inc.(ISRG) jumped 15.4%, to $293.05 in extended trading. The maker of the da Vinci Surgical System for robot-assisted surgery said fourth- quarter profit doubled on sales of new systems. Profit was $1.24 a share, beating the average $1.02 estimate of five analysts, according to a Bloomberg survey.
- Google Inc.(GOOG) dropped 6.5% percent, to $527.40 in extended trading. The owner of the most popular Internet search engine reported fourth-quarter profit and sales that trailed analysts' estimates, signaling that an economic slowdown may be cutting into online advertising.
- Motorola Inc.(MOT) climbed 10.8%, to $12.75 in extended trading. The biggest mobile-phone maker in the U.S. said it plans to review whether to split off its mobile-phone unit.
- Altera Corp.(ALTR) rose 4.2%, to $17.60 after the official close of U.S. exchanges. The world's second-biggest maker of programmable semiconductors said it expects revenue of at least $323.2 million in the first quarter. That exceeded the average estimate of $320.6 million from analysts in a Bloomberg survey.

Wall Street Journal:
- Clinton, Obama Mix Praise, Jabs in Debate.

NY Times:
- While interest in alternative energy is climbing across the US, solar power especially is risng in California, the product of billions of dollars in investment and mountains of enthusiasm.
- Google(GOOG) said it has seen no effect from a slowing economy on its advertising business, as it reported a 17% jump in profit and 51% growth in revenue in the fourth quarter.

CNNMoney.com:
- Fear! Panic! Time to buy. Wall Street is focusing only on bad news. That means there are opportunities to scoop up quality companies on sale.
- New $20 Billion subprime bailout on the table.
- Old Crocs(CROX) come back to life. The shoe company’s SolesUnited initiative recycles its used plastic footwear to provide shoes for the needy.

IBD:
- Tractor Maker Plows A Course To Growth As Agriculture Booms.

Financial Times:
- Intercontinental Exchange(ICE), owner of Europe’s largest energy market, held talks with a new futures exchange backed by some of Wall Street’s biggest banks.
- Big investors in hedge funds are banding together to produce a guide to the industry in part to head off concerns that neophyte pension fund trustees have been pushed into piling money into risky funds.
- Russia’s most likely next president has urged his country’s business people to follow the Chinese example and go on a buying spree of foreign companies to bolster the economy.
- Bank of America’s(BAC) $4.1bn offer for Countrywide Financial(CFC) was thrown into doubt on Thursday when a large shareholder in the biggest US mortgage lender said it would vote against the deal. SRM Global Fund said the offer “considerably undervalued” Countrywide.
- Cash-rich financiers including Warren Buffett, Wilbur Ross and Ron Perelman are preparing to pounce on US companies hit by the financial turmoil – moves that could herald a new era of “vulture investing.”

TimesOnline:
- Oil production in Iraq is at its highest level since 2003, reaching 2.4 million barrels a day, thanks largely to improved security measures in the north.

Australian:
- David Hicks, the first Guantanamo Bay detainee to be convicted by a US military commission, has fielded 30 offers from media companies to tell his story. The race to sign up the convicted terrorism supporter, who was released from an Australian prison on Dec. 29, involves television networks in Australia, the US and Italy, Hick’s lawyer said. Television, book and magazine rights could generate as much as $900,000 for the 32-year-old Hicks.

Late Buy/Sell Recommendations
Citigroup:
- Maintain Buy on (LLL), target $129.
- Maintained Buy on (HOLX), target $81.

CSFB:
- Reiterated Outperform on (GOOG). Google reported 4Q results slightly below expectations. The company posted revenue of $3.39 billion(+12.5% q/q, +52% y/y) below consensus at $3.45 billion, as the growth in paid clicks decelerated to 30% y/y from 45% in Q4, due primarily to changes in algorithms designed to improve advertisers conversion rates. Pro-operating margin fell 50 bps q/q to 49.8% due to a similar decline in gross margin as Traffic Acquisition Costs spiked 400bp due to issues with the company’s social networking inventory. This was clearly a transition quarter for Google. With the algorithm changes slowing revenue growth, though improving advertiser returns, and the lag between the development of social networking as an effective advertising medium and scheduled minimum payments, coming at the same time the impact was significant. Long term, we believe both factors will be positives for Google, the former manifesting itself in higher CPC’s and the latter targeted, high volume display inventories. With the stock trading at 25x ’08 EPS, below its long term growth rate of +30% we believe this is an extremely attractive entry point into what we believe is, by far, the strongest growth story in the sector.

Night Trading
Asian Indices are -.25% to +1.50% on average.
S&P 500 futures -.27%.
NASDAQ 100 futures -.37%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (GCI)/1.29
- (CVX)/2.29
- (CMI)/1.05
- (R)/1.08
- (XOM)/1.97
- (TDW)/1.52
- (NMX)/.65
- (ACI)/.47
- (MAN)/1.53
- (ADP)/.53
- (EL)/1.14

Upcoming Splits
- (PEG) 2-for-1

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for January is estimated at +70,000 versus +14,000 in December.
- The Unemployment Rate for January is estimated at 5.0% versus 5.0% in December.
- Average Hourly Earnings for January are estimated to rise .3% versus a .4% gain in December.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for January is estimated to fall to 79.0 versus a prior estimate of 80.5.
- ISM Manufacturing for January is estimated to fall to 47.4 versus 48.4 in December.
- ISM Prices Paid for January is estimated at 68.0 versus 68.0 in December.
- Construction Spending for December is estimated to fall .5% versus a .1% increase in November.

Afternoon:
- Total Vehicle Sales for January are estimated to fall to 16.0M versus 16.3M in December.

Other Potential Market Movers
- None of note

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

Stocks Finish Sharply High on Strength in Retail, Financial, Homebuilding Shares

Posted by Gary .....at 4:21 PM

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Soaring on Heavy Volume into Final Hour on Less Extreme Economic Pessimism

Posted by Gary .....at 2:44 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs, Semi longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges, added to my (WMS)/(PWR) longs and covered some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average, despite today’s gains. Today’s overall market action is very bullish. The VIX is falling 5.0% today, but remains high at 26.0. The total put/call hit an above average 1.14 and the ISE Sentiment Index hit a depressed 72.0 today. Moreover, the 3-month T-Bill yield is plunging 21 basis points to 1.94%, the lowest since October 2004. Short interest on the S&P 500 is at the highest level since January 2002. I still suspect a very large percentage of the investors are watching the long side from the sidelines, convinced that a complete retest of the lows or new lows are a certainty. Gartner Group said today that (AAPL) would get over 12% of the US PC market by 2011. I think that is a conservative estimate. The 30-day asset backed commercial paper yield is dropping another 22 basis points today to 3.22%, the lowest since June 2005. The 10-year/TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 2.33% today, down from 2.48% in November, despite the huge stimuli that will hit the economy over the next year. The JPMorgan Emerging Market Bond Index has risen .32% over the last five days and the Bear Stearns High Yield Index has surged 1.9% over that period. Fed fund futures imply a 74% chance for another 50 basis point rate at the March 18 meeting. In my opinion, the Fed is now “ahead of the curve.” Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +100 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Posted by Gary .....at 2:41 PM

Bloomberg:
- U.S. stocks rose, sparing the Standard & Poor's 500 Index from its worst January ever, after the nation's largest bond insurer said it expects to keep its AAA credit rating.
- The Bush administration is looking for “additional measures” to limit foreclosures.
- President Bush said the Senate should quickly pass the $146 billion economic stimulus plan already approved by the House so there is no delay in the effort to boost a slowing US economy.
- Google Inc.(GOOG) succeeded in its push to force the winner of airwaves being sold by the US government to open its network to any mobile device.
- The series of rate cuts by the Fed will benefit companies that rely on debt based on LIBOR, including leveraged loan borrowers, according to analysts at Merrill Lynch(MER).
- Copper is rising 2.5% on speculation lower US borrowing costs will bolster economic growth.
- An Islamic Web site has announced the death of Abu Laith al-Libi, a senior al-Qaeda commander in Afghanistan.
- MasterCard Inc.(MA), the second-biggest payment-card network, said fourth-quarter profit climbed senvenfold as US consumers spent more. The shares are soaring 14.4% on the news.
- Concur Technologies(CNQR) rose the most in almost seven years on the Nasdaq after boosting its forecast as business travel exceeded its expectations.
- Sony Corp.(SNE), the world’s second-largest maker of consumer electronics, reported record quarterly earnings after the PlayStation 3 unit turned profitable.

Wall Street Journal:
- Multitouch Interface Is Starting to Spread Among New Devices.
- New research analyzing more than 22,000 US cases of aortic aneurysm repair is likely to hasten the trend toward more procedures being done with a device called a stent-graft instead of the typical surgery that requires up to eight weeks of recovery.

NY Times:
- Bill Clinton’s Ties to Kazakhstan Deal Examined.

CNNMoney.com:
- MBIA(MBI) Confident In Ability To Maintain AAA Rating. CEO Dunton mounted a spirited defense on a conference call against “fear mongering” and “distortions” by short-sellers that he said have contributed to last year’s dramatic stock-price decline. He also said that MBIA’s capital plan currently exceeds all stated rating agency requirements. The stock is soaring from morning lows on the news.

Briefing.com:
- MBIA(MBI) management again says very clearly that there is no scenario that they can identify that would result in MBI becoming insolvent, having a liquidity event, becoming intervened with, or having a default of any kind.

Mediaweek:
- News Corp.’s(NWS/A) Fox may get as much as $260 million in ad revenue for its Super Bowl programming on Feb. 3, including the broadcast of the game and the four-hour pre-game show.

Financial Times:
- OPEC policies set to ensure oil prices stay on the boil. Iran and Venezuela have injected anti-US and radical positions on to the OPEC agenda.

globeandmail:
- Kerviel made millions from mortgage meltdown.

Incomes/Spending Rise More Than Estimates, Inflation Gauge Muted, Jobless Claims Rise, Chicago PMI Falls From 6-Month High

Posted by Gary .....at 1:03 PM

- Personal Income for December rose .5% versus estimates of a .4% increase and a .4% gain in November.

- Personal Spending for December rose .2% versus estimates of a .1% gain and a 1.0% increase in November.

- The PCE Core for December rose .2% versus estimates of a .2% gain and a .2% increase in November.

- Initial Jobless Claims for this week rose to 375K versus estimates of 319K and 306K the prior week.

- Continuing Claims rose to 2716K versus estimates of 2685K and 2669K prior.

- The 4Q Employment Cost Index rose .8% versus estimates of a .8% gain and a .8% increase in 3Q.

- The Chicago Purchasing Manager for January fell to 51.5 versus estimates of 52.0 and a reading of 56.4 in December.

- The Help Wanted Index for December rose to 22 versus estimates of 20 and a reading of 21 in November.

BOTTOM LINE: Personal spending and income growth exceeded estimates in December, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose 2.2% year-over-year in December, the same as November. For all of 2007, spending rose 5.5%. Personal income growth of .5% is right at the 20-year average. Personal spending rose less than the long-term average, but over the last four months it is .5%, slightly above the long-term average. I expect personal spending to pick up, income growth to remain healthy and inflation to decelerate over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits rose more than forecast this week, Bloomberg reported. This week’s report was distorted by difficulties adjusting for the Martin Luther King holiday, a Labor Department spokesman said. The four-week moving average of jobless claims rose to 325,750 from 315,500 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at a historically low 2.0%. Today’s report showed 50 states and territories reported a decrease in new claims, while three had an increase. The Employment Cost Index for December rose .8%, below the long-term average of .9%. Economists have increased their consensus forecast for tomorrow’s jobs report to +70,000. I suspect we will come in around or above that estimate, despite today’s jobless claims report. I expect jobless claims to fall next week and the labor market to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

A measure of US business activity fell this month from a six-month high, Bloomberg said. The New Orders component of the index fell to 44.7 from 56.7 the prior month. The Prices Paid component rose to 81.7 from 67.4. The Employment component fell to 47 from 49.3. The Inventories component rose to 51.1 from 44.3. I expect the Chicago PMI to bounce higher next month on inventory rebuilding as exports continue to boom.