BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- Petrobras(PBR), Brazil’s state-controlled oil company, said it struck oil in the BM-S-8 block of the coast of Sao Paulo state.
- The US House of Representatives passed a measure that would raise taxes on some hedge fund managers and extend dozens of popular tax breaks for companies, renewable energy producers and residents of high-tax states.
- Copper fell for the second time in three days as rising inventories of the metal signaled slowing demand in China and the US, the world’s two biggest users. Inventories monitored by the London Metal Exchange have surged 13% just this month. China reported this month that its copper imports dropped 19% in the first quarter from a year earlier.
- Any excuse seems good enough for new highs in the price of oil, according to Commerzbank AG analysts. They look for high prices to lead to larger reserves of crude. “The high is developing a momentum of its own,” a sign that “the trend will soon be coming to an end, and that the subsequent correction will be all the more severe,” write Eugen Weinberg and Barbara Lambrecht, commodity analysts at Commerzbank in Frankfurt, in a note today. “The world’s crude reserves are probably far larger than first estimated and are unlikely to run out over the next 50 years,” they write.

FINalternatives:
- For the first time on record, the hedge fund industry is actually shrinking, according to HedgeFund.net.
- 45 of the world’s largest 100 hedge funds are based in NYC, according to Alpha magazine.

Financial Times:
- The British economy is heading for its most protracted slowdown since the early 1990s, according to detailed growth forecasts from the Bank of England that show a sharply widening gap between its and the government’s outlook.
- The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the “downward spiral” of huge writedowns, emergency fundraisings and fire-sales of assets.

TimesOnline:
- Rip up your textbooks, the doubling of oil prices has little to do with China’s appetite. The escalation of oil prices threatens to do far more damage to the world economy than the credit crunch. The good news is that the world is not as impotent as is often suggested in the face of this danger, since soaring commodity prices are not the ineluctable outcome of some fateful conjuncture of global economic forces, but rather the product of a typical financial boom-bust cycle, which could be deflated - especially with some help from sensible political action - as quickly as it built up. The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s and, most recently, housing and mortgages in the US. China’s “insatiable” demand growth has decelerated. Since 2004, global oil demand growth has slowed from 3.6 million barrels per day to .7 million barrels per day. As a result, the increase in global demand growth is now well below last year’s increase of .8 million barrels per day in non-OPEC production. Rice, wheat and pork are 20-30% cheaper than they were two months ago, when financial pundits identified Asian and African food riots as the first symptoms of a commodity “super-cycle” that would drive prices much higher. And the price of industrial commodities such as lead, zinc and nickel, supposedly in short supply a year ago, has now dropped by 40-60%. In fact, most major commodity indices would already be in a downtrend were it not for the dominance of oil. In the later stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created “special purpose vehicles” to acquire vast “inventories” of bonds for which there were no genuine buyers - and dozens of similar examples can be cited from the bubbles in internet stocks and Japan. Similarly, the International Gold Council reported this week that gold demand for commercial uses and investment fell 17% in January, just as the gold price surged through $1,000 for the first time. The Gulf is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds. The amazing thing is that just months after losing hundreds of billions in the housing and mortgage bubbles, investors and governments around the world have reverted to the discredited fallacy that financial markets always reflect economic reality. (very good article)

Kyodo News:
- A Japanese cartoon depicting a character reading the Koran while ordering the execution of the animation’s hero and friends sparked protests on Islamic Web sites. The scene from JoJo’s Bizarre Adventure, adapted from a comic strip published from 1987 to 2003, generated angry responses on more than 300 Arab and Islamic Internet forums, with many accusing Japan of insulting the Koran.

Shanghai Securities News:
- China is unlikely to remove caps on prices of refined oil products in the short-term, citing a government official.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (UTHR), target $130.
- Rated (SPLS) Buy, target $28.
- Reiterated Buy on (CRM), target raised to $80.

Birinyi Associates:
- Shares of US energy companies have climbed too fast, leaving investors who buy at today’s prices vulnerable to losses, Laszlo Birinyi said. “Buying these here, you should recognize you’re crossing Fifth Avenue when the light is red. You might make it, you might be successful, but just be aware that the odds are not in your favor,” he said. The S&P 500 Energy Index has risen 22% in the past two months as crude soared more than 30%. 92% of companies in the S&P 500 energy index are “overbought,” Birinyi analysts said today.

Oppenheimer:
- Rated (AAPL) Outperform, target $235.

Night Trading
Asian Indices are -1.75% to -1.0% on average.
S&P 500 futures +.06%.
NASDAQ 100 futures +.08%.

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
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (STP)/.28
- (BKS)/.05
- (PDCO)/.51
- (DKS)/.18
- (SSI)/.06
- (HRL)/.55
- (ANN)/.46
- (TTC)/1.58
- (ARO)/.25
- (PSUN)/-.10
- (GPS)/.31
- (CA)/.29
- (HIBB)/.27
- (FL)/.14
- (TECD)/.42
- (ZLC)/-.42
- (BKE)/.57
- (ZUMZ)/.03
- (GME)/.35
- (PLCE)/.48
- (SAFM)/-.01

Upcoming Splits
- (WFT) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 373K versus 371K the prior week.
- Continuing Claims are estimated to rise to 3065K versus 3060K prior.

10:00 am EST
- The 1Q House Price Index is estimated to fall 1.3% versus a .1% gain in 4Q.

Other Potential Market Movers
- The Fed’s Kroszner speaking, (LOGI) analyst day, weekly EIA natural gas inventory report, Citigroup Healthcare Conference, Kaufman Tech/Services Conference, Goldman Internet Conference, Goldman Basic Materials Conference, Thomas Weisel Growth Stock Conference and UBS Global Oil & Gas Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and airline shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

BETWEEN THE HEDGES

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Thursday, May 22, 2008

Stocks Finish Higher, Boosted by HMO, Biotech, Insurance Shares

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Wednesday, May 21, 2008

Thursday Watch

Stocks Finish Sharply Lower, Weighed Down by Airline, Homebuilding, I-Banking and Steel Shares