BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- The US may be forced to eliminate a tariff on ethanol imports from Brazil as food and energy costs surge, a US government official said. The tariff of 54 cents a gallon on Brazilian ethanol, made from sugar cane, “looks backward, not forward,” said Thomas Shannon, US assistant secretary for Western Hemisphere affairs.
- Wachovia Corp.(WB), the fourth-biggest U.S. bank, named Treasury Undersecretary Robert Steel as chief executive officer to stanch losses caused by bad loans.
- The Senate gave final congressional approval to legislation that overhauls U.S. electronic spying and ends lawsuits against telephone companies that aided government wiretapping of suspected terrorists.
- Bank of America Corp.(BAC) Chief Executive Officer Kenneth Lewis said the biggest U.S. mortgage lender can renegotiate hundreds of thousands of troubled loans without trimming its dividend or raising cash.
- Singapore's economy expanded at the slowest pace in five years in the second quarter, as manufacturers cut production amid declining orders and accelerating inflation crimped spending.
- General Motors Corp.(GM) and Ford Motor Co., the biggest U.S.-based automakers, are ``going to be fine'' as they try to end losses in a slumping domestic market, said John Devine, a former finance chief at both companies.
- Iran might take delivery starting in December of sophisticated Russian-made anti-aircraft missiles that would ``dramatically'' improve its air defense capability, according to the Pentagon's Defense Intelligence Agency.
- China's export growth cooled in June, putting the government under more pressure to slow gains by the yuan to protect manufacturers.

Wall Street Journal:
- The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter, according to three people familiar with the matter, as the stock prices of both companies continue to fall sharply.
- As average gas prices hit a record high of $4.108 a gallon this week, the government released new data showing that drivers have cut back their use of the fuel to levels not seen in five years. Even through the Fourth of July weekend -- a time when Americans traditionally get on the road -- gasoline consumption dropped 3.3% from last year to 9.347 million barrels a day, according to weekly data.

MarketWatch.com:
- Insiders significantly cut back on their selling in June.

CNBC.com:
- America’s Top States For Business(ranked).
- The Federal Reserve should raise interest rates toward their "neutral" setting as quickly as reasonably possible to prevent high inflation taking root, a top Fed policy-maker said on Wednesday.
- The chief executive officers of a dozen U.S. airlines, beset by record fuel costs that have caused several to cut jobs, reduce capacity and impose higher fees on customers, are now asking for their customers' help to curb the rise of oil prices. They have co-signed a letter being sent to frequent fliers of their respective carriers, asking customers to contact Congress about the problem of market speculation, which they believe is driving up the price of oil. "Our highest priority is to tackle the overall price of fuel which is now 40 percent of our cost pie," Steenland told lawmakers. "Addressing excessive speculation is the most immediate remedy Congress could deliver." The letter from the airlines acknowledges that oil prices are partly a response to normal market forces, prompting a need for the country to focus on increased energy supplies and conservation. The letter says speculators buy up large amounts of oil and then sell it to each other again and again. The price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs, the letter says.

Wealth-bulletin:
- A hedge fund index tracking short sellers recorded the strongest returns in seven years for last month as other strategies struggled in a weakened market. Returns for data provider Hedge Fund Research’s HFRI Short Bias index were up 8.6% for June and 12.2% for the half year. The last time the strategy recorded stronger performance figures was in February 2001 when it had returns of 11.7%.

CNNMoney.com:
- House Agriculture panel hears testimony from lawmakers offering measures to curb ‘excessive’ oil speculation. "In light of the dramatically increased speculative inflows into the energy futures markets ... coinciding with a staggering 1,000% jump in the price of a barrel of oil, I believe the burden is on those who would argue for maintaining the status quo," said Rep. Chris Van Hollen. Since 2003, the volume of investment funds in commodity markets - especially oil - has risen from about $15 billion to $260 billion, according to the International Energy Agency (IEA), an influential oil-policy group.

USA Today.com:
- The risk of inflation has increased in the US and may become a bigger threat to the economy than slow growth, Gary Stern, president of the Federal Reserve’s Minneapolis regional bank, said in an interview.

Reuters:
- Private equity firm Blackstone (BX) plans to invest more than 1 billion euros ($1.57 billion) in a project to build wind farms in the North Sea to generate electricity, people familiar with the matter said.
- Financial news and data company Bloomberg LP is creating several new units as part of a reorganization that includes a shuffling of top management.

Financial Times:
- The four pillars of private investment groups, including sovereign wealth funds, saw rapid growth in assets under management in 2007 in spite of credit turmoil. The four - Asian governments, oil exporters, hedge funds and private equity groups - saw their combined assets expand more than 22 per cent to just less than $11,000bn by the end of last year from $8,800bn at the end of 2006, says a report to be published on Thursday by McKinsey Global Institute.

Sydney Morning Herald:
- JAMES PACKER is reported to be eyeing a $US2.4 billion ($2.5 billion) chain of US casinos which spreads across six states, a move which would instantly triple his presence in the American market. According to a note to clients of broker UBS, which cites a US gambling industry journal, Crown is a likely bidder for takeover target Ameristar Casino as its collection of eight casinos is considered a perfect fit for Crown's growing collection.

South China Morning Post:
- Casino billionaire Stephen Wynn may raise as much as $3 billion from a secondary listing in Hong Kong to help fund a resort on Macau’s Cotai strip.
- China is expected to have more than 160 million mobile-telephone users using the United States-developed code division multiple access (CDMA) technology by 2012, according to the Ministry of Industry and Information Technology.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.50% to unch. on average.
S&P 500 futures -.03%.
NASDAQ 100 futures unch..

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Earnings of Note
Company/EPS Estimate
- (PGR)/.37
- (TXI)/.75
- (MAR)/.49
- (CHTT)/1.03
- (FCSX)/.47
- (LWSN)/.10

Upcoming Splits
- (ATW) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims are estimated to fall to 395K versus 404K the prior week.
- Continuing Claims are estimated to rise to 3140K versus 3116K prior.

1:30 pm EST
- ICSC Chain Store Sales for June are estimated to rise 3.3% versus a 3.0% gain in May.

Other Potential Market Movers
- The Fed’s Bernanke speaking, Fed’s Yellen speaking, weekly EIA natural gas inventory report, (RUS) shareholders meeting, (SHS) shareholders meeting, (MEAD) shareholder meeting, (SIGM) shareholders meeting, (CRM) shareholders meeting, CE Unterberg Towbin Growth Conference, Collins Stewart Growth Conference and Oppenheimer Consumer Growth Conference could also impact trading today.

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

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Gaming longs and Software longs. I added (QQQQ)/(IWM) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is above-average. Today’s overall market action is very bearish. The VIX is rising 5.8% and is above-average at 24.49. The ISE Sentiment Index is below average at 118.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running very high most of the day and is currently 1.84. The Euro Financial Sector Credit Default Swap Index is falling 8.0% today to 87.67 basis points, which is a big positive. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising .52% today to 141.21. The TED spread is rising 3.49% to .97. One of the few positives today is oil's inability to rally, notwithstanding a weaker dollar, an Iranian missile test, recent losses and a large crude inventory drawdown. Nikkei futures indicate an +73 open in Japan and DAX futures indicate a -22 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

BETWEEN THE HEDGES

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Thursday, July 10, 2008

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Wednesday, July 09, 2008

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Stocks Finish at Session Lows, Weighed Down by REIT, Financial, Airline, Gaming, Technology Shares

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