BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- The cost of protecting corporate bonds from default fell as the Federal Reserve signaled it won't boost borrowing costs anytime soon and U.S. stocks rallied the most since April. Credit-default swaps on the Markit CDX North America Investment Grade Index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, fell 3 basis points to 131 basis points, according to Credit Suisse Group AG.
- The cost to protect Japanese and Australian corporate bonds from default fell the most in a week, credit-default swaps show. The Markit iTraxx Australia Series 9 Index declined 7.5 basis points to 134 at 9:49 a.m. in Sydney, Citigroup Inc. prices show. The benchmark, which falls as perceptions of credit quality improve, is tied to 25 companies including Lend Lease Corp. and Macquarie Group Ltd. The Markit iTraxx Japan index fell 7 basis points to 106.5, according to Credit Suisse Group.
- The US dollar traded near a seven-week high against the euro as the price of a barrel of oil tumbled to the lowest level in three months. The U.S. currency was near its highest versus the yen in more than a month on optimism lower crude prices will bolster economic growth in the world's largest consumer of the fuel. Australia's dollar declined to a four-month low and Canada's traded near its weakest in almost a year as prices of commodities the nations export fell. ``The U.S. dollar should continue to be buoyed,'' said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co. ``The fall in oil is a plus for the U.S. At the same time, it encourages the withdrawal of funds from the commodity currencies.''
- Crude oil fell for a third day in New York, trading near $118 a barrel as demand may be further eroded by economic slowdowns in the U.S., Europe and China. Oil has lost more than $28 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending. Oil has also fallen as its appeal as an inflation hedge has been curbed on recent gains by the dollar against the euro and the yen. U.S. gasoline demand fell for a 15th consecutive week, as motorists cope with high fuel prices by driving less, a MasterCard Inc. report yesterday showed. Demand last week dropped 3.4 percent from a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report.
- China's soybean production, the world's fourth-biggest, may surge 36.7 percent from year ago after farmers boosted planting and favorable weather improved yields, a state-owned market forecaster said. Output may rise to 17.5 million metric tons, the China National Grain and Oils Information Center said in an e-mailed monthly forecast report. Corn production may surge 2.7 percent to a record 156 million tons, it said. The country's output of wheat, the world's biggest producer, may gain 2.4 percent to 112.5 million tons, while rice production may rise 0.5 percent to 186.5 million tons, the center said. Production of rapeseed may also increase 8.5 percent to 11.5 million tons, it said.
- Gold fell below $900 an ounce for the first time since June as the dollar's rebound and plunging energy costs reduced the appeal of the precious metal as a hedge against inflation. ``The crude bubble looks like it's bursting, and the dollar is moving higher,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The main drivers for gold are reversing course, and you're seeing gold prices suffer for it.'' ``If gold closes weakly today, we will throw the towel in on our strong one-month and three-month views tomorrow,'' said John Reade, a UBS AG metals strategist in London. UBS forecast last month the metal would reach $1,000 in one month and $1,050 in three months.
- Cisco Systems(CSCO) said profit rose 4.4 percent and gave forecasts for the next six months in line with analysts' estimates, suggesting sales are holding up even in the face of an economic slump. The stock surged 7.3 percent in after-hours trading.
- Whole Foods Market Inc.(WFMI), the largest U.S. natural foods grocer, plunged 17.8% following the close of U.S. markets after reporting third-quarter profit that dropped more than analysts estimated.
- Priceline.com Inc.(PCLN), the travel agency that gets about two-thirds of its revenue from the U.S., fell 15.4 percent in late Nasdaq trading after saying bookings may suffer as high gas prices force consumers to cut back on travel.
- U.S. air travelers can keep laptop computers in some types of carry-on bags at security checkpoints starting Aug. 16 as part of an effort to speed up screening.
- General Motors Corp.(GM), Ford Motor Co.(F) and Chrysler LLC should have access by January to $25 billion in government loans to convert factories to build alternative-fuel vehicles, a Michigan lawmaker told U.S. regulators.
- Time Warner Inc.'s(TWX) ``The Dark Knight'' surpassed $400 million in ticket sales in 18 days, cementing the latest Batman movie's place as Hollywood's fastest moneymaker.

Wall Street Journal:
- Beijing Taxis Are Rigged for Eavesdropping.
- The new Muslim-outreach coordinator to the presidential campaign of Barack Obama has resigned amid questions about his involvement in an Islamic investment fund and various Islamic groups. Chicago lawyer Mazen Asbahi, who was appointed as a volunteer national coordinator for Muslim American affairs by the Obama campaign on July 26, stepped down Monday after an Internet newsletter wrote about his brief stint on the fund's board, which also included a fundamentalist imam.
- In an ambitious power grab, President Hugo Chávez has enacted a slew of presidential decrees which formalize the creation of a popular militia and further consolidate state control over key areas of the economy such as agriculture and tourism.

MarketWatch.com:
- Venture-capital and private-equity investments in the clean-technology sector more than doubled to nearly $6 billion across the globe in the second quarter, just as oil traded at record levels near $150 a barrel and the stock market moved lower on economic woes.
- A $550 million trust fund, created under the nation's new housing law, is the first concentrated effort to establish affordable housing for renters in the lowest income brackets since the formation of Section 8 housing in 1974, experts say.
- News Corp.(NWS/A) said Tuesday its quarterly profit rose 27% on improved results at its film studios and cable television networks, as well as gains related to its sale of stakes in Fox Sports Bay Area and Gemstar-TV Guide.

NY Times:
- Big-Dollar Donors Are Major Force in Obama Campaign. In an effort to cast himself as independent of the influence of money on politics, Senator Barack Obama often highlights the campaign contributions of $200 or less that have amounted to fully half of the $340 million he has collected so far. But records show that one-third of his record-breaking haul has come from donations of $1,000 or more: a total of $112 million, more than Senator John McCain, Mr. Obama’s Republican rival, or Senator Hillary Rodham Clinton, his opponent in the Democratic primaries, raised in contributions of that size. Behind those larger donations is a phalanx of more than 500 Obama “bundlers,” fund-raisers who have each collected contributions totaling $50,000 or more. The biggest fund-raisers include people like Julius Genachowski, a former senior official at the Federal Communications Commission and a technology executive who is new to political fund-raising; Robert Wolf, president and chief operating officer of UBS Investment Bank; James A. Torrey, a New York hedge-fund investor; and Charles H. Rivkin, chief executive of an animation studio in Los Angeles. Hedge-fund executives have bundled large sums for Mr. Obama at a time when their industry has been looking to increase its clout in Washington.

AutomatedTrader:
- Bloomberg Tradebook has released REACT, a new opportunistic trading strategy for US equity trading. This algorithm seeks to capture maximum price improvements by trying to predict and react to short-term price direction and by dynamically adjusting the quantity, price and market venues in which to represent an order. REACT makes decisions based on a number of factors including: real-time market trades; intraday stock trading performance; bid/offer spread and volatility; and deviation from historical trading patterns.

TV Squad:
- The presidential debate moderators are chosen.

Financial Times:
- Crude oil and natural gas producers are scrambling to "lock in" prices by buying insurance against further drops in prices, as oil on Tuesday hit a fresh three-month low of $118 a barrel. In the options market over the last week, for every buyer of insurance against a rise in prices in 2009 there were almost 10 buyers of protection against a fall. The number of financial bets providing insurance against a fall in prices below $100 a barrel before the end of the year has more than doubled in the past six weeks, according to the New York Mercantile Exchange. On Tuesday there were more than 46,000 outstanding contracts for Nymex December 2008 put options at $100 a barrel, up about 135 per cent on late June. Traders said a single market participant, believed to be a Latin American national oil company, had in the past 10 days taken a large position in put options to protect itself against a drop below $70 by December 2009.
- Petrol prices boost distance learning.

Caijing:
- China’s securities regulator expanded the information listed banks must disclose in earnings reports to include details of subprime holdings. The China Securities Regulatory Commission will order the banks to inform investors of the type, face value, yield, maturity, and provisions of their financial bond holdings for the first time. The new rules, effective from Sept. 1, also require public banks to disclose investments, acquisitions and asset sales that are worth more than $292 million, or that exceed 5% of last year’s net assets, the report said.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (FCX), added to Top Picks Live list, target $142.
- Reiterated Buy on (ONNN), target $14.
- Reiterated Buy on (HEW), target $50.
- Reiterated Buy on (MXGL), target $33.

Thomas Weisel:
- Rated (SONO) Overweight, target $40.
- Rated (CNMD) Overweight, target $36.

Night Trading
Asian Indices are +1.0% to +2.25% on average.
S&P 500 futures +.14%.
NASDAQ 100 futures +.56%.

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
- (RIG)/3.21
- (FWLT)/.84
- (EP)/.40
- (MMC)/.35
- (PCG)/.81
- (BX)/.08
- (TWX)/.23
- (LAMR)/.14
- (PWR)/.22
- (DF)/.32
- (DVN)/3.29
- (FRE)/-.54
- (ABK)/-.61
- (Q)/.10
- (S)/.03
- (RL)/.72
- (VRSN)/.23
- (AIG)/.79
- (CECO)/.09
- (AAP)/.72
- (CAR)/.10
- (SUN)/.36
- (HK)/.27

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -200,000 barrels versus an -81,000 barrel decline the prior week. Gasoline supplies are expected to fall by -1,500,000 barrels versus a -3,525,000 barrel decline the prior week. Distillate supplies are estimated to rise by +2,000,000 barrels versus a +2,396,000 increase the prior week. Finally, Refinery Utilization is expected remain unch. versus a .3% increase the prior week.

Other Potential Market Movers
- The weekly MBA mortgage applications report, (AXP) analyst meeting, (TXT) analyst call, BMO Capital Healthcare Conference and RBC Capital Tech/Media/Communications Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and automaker shares 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.

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, Gaming longs and Retail longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling 6.56% and is still above-average at 21.95. The ISE Sentiment Index is slightly below average at 138.0 and the total put/call is below average at .73. Finally, the NYSE Arms has been running slightly above average most of the day and is currently .92. The Euro Financial Sector Credit Default Swap Index is falling 4.75% today to 80.83 basis points. 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 falling 1.5% today to 131.50 basis points. The TED spread is falling 3.39% to 1.07. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 4 basis points to 2.25%, which is the lowest since May 1st and down 38 basis points in a month. Energy-sensitive Russian equities fell another 4.42% today and are now down 27.5% in less than three months. I think part of the reason US equities are lifting as much as they are today is due to the fact that the large fund or funds that were cutting risk across the board yesterday is done selling. The (XLF) is at session highs, rising 4.1%. I view the Fed’s policy statement as a positive for stocks. The US dollar is maintaining recent gains on the announcement, which is a large positive. I keep hearing investors on CNBC make the case that commodity stocks are cheap because of their “low p/e ratios.” However, historically commodity stocks always appear the cheapest before substantial declines as their earnings growth peaks. Weakening earnings and falling stocks prices then lead to substantial p/e multiple increases in these types of stocks. That is what makes the fertilizer stocks so dangerous, in my opinion. Potash Corp.(POT), an investor favorite, currently has a trailing p/e of 27.3 even after recent losses and as earnings growth is likely near a multi-year peak. This company carried a p/e of around 7.0 in 2001. The fertilizer stocks are getting very oversold on a short-term basis. However, as I said a couple of months ago, I still view these stocks as carrying the most downside risk of any group in the market over the intermediate-term. Nikkei futures indicate an +250 open in Japan and DAX futures indicate an +57 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower commodity prices, diminishing credit market angst, less financial sector pessimism and short-covering.

BETWEEN THE HEDGES

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Wednesday, August 06, 2008

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Tuesday, August 05, 2008

Wednesday Watch

Stocks Finish at Session Highs, Boosted by Transportation, Gaming, Retail, REIT and Financial Shares

Stocks Soaring into Final Hour on Diminishing Credit Market Angst, Less Financial Sector Pessimism and Lower Commodity Prices