BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:
- New Zealand's central bank cut its benchmark interest rate by a record 1 percentage point to 6.5 percent and foreshadowed further reductions to limit damage from the worldwide financial crisis and a slump in the global economy.

- Republican John McCain erased Democrat Barack Obama's lead in the presidential race less than two weeks before Election Day in an Associated Press-GfK poll, as two other surveys put Obama ahead by 10 points or more. The AP poll, taken over five days following the candidates' final debate Oct. 15, shows Obama with 44 percent support and McCain with 43 percent backing among likely voters. Similarly, an Investors Business Daily/TIPP poll shows the race tightening to a 4-point Obama lead.

- Canada's currency dropped the most since at least 1971 as the U.S. dollar strengthened, crude oil fell to a 16-month low and speculation mounted the country's central bank would extend interest-rate cuts. The loonie, as the currency is known because of the aquatic bird on the one-dollar coin, is poised for its worst monthly performance since at least 1971, when Bloomberg records begin. It has depreciated 15 percent in October. ``It's a question of not catching a falling knife,'' said Samarjit Shankar, director of global strategy for the foreign- exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank.

- The Australian dollar, headed for the worst year since a currency peg ended in 1983, may drop a further 25 percent through March as a slowing global economy saps demand for the country's raw materials, according to CBA Europe Ltd. The currency, which slid 17 percent in the third quarter, may trade as low as 50.45 U.S. cents, the weakest since Dec. 21, 2001, according to Divyang Shah, chief strategist in London at CBA Europe, a unit of Commonwealth Bank of Australia.

- Comcast Corp.(CMCSA), the largest U.S. cable provider, will double the speed of its Internet service for current subscribers and offer even faster connections at additional cost to improve movie, music and game downloads.

- Optimism on U.S. stocks among newsletter writers slid to the lowest level since 1988 as the Standard & Poor's 500 Index headed for its worst month since 1940, according to Investors Intelligence. The proportion of publications that were bullish sank to 22.2 percent in the week ended yesterday from 22.4 percent, the New Rochelle, New York-based firm said in a report today. Bearish stock advisers advanced to 54.4 percent, the highest since December 1994, from 52.9 percent the prior week. Bears outnumbered bulls by 32.2 percentage points, a ``rare and very bullish reading,'' Investors Intelligence said. ``Only 1.6 percent of readings since the survey's inception in 1963 have ever fallen to this level,'' the firm said, referring to the bear-bull spread. ``Sentiment readings are still bullish and favor higher stock prices.''

- Assets managed by hedge funds may shrink to $1.3 trillion within six months from about $1.7 trillion as investors withdraw their money amid declining returns, according to Credit Suisse Tremont Index LLC. “Institutional investors are monitoring their portfolios very closely, and we expect to see continued redemptions,” Oliver Schupp, president of NY-based Credit Suisse Index Co., said. “There will be a high degree of closures with many small funds pushed out.” Investors withdrew a record $43 billion from hedge funds last month, TrimTabs Investment Research said.

- Citic Pacific Ltd.'s attempt to manage currency risk means the Chinese steelmaker and property developer has four times more money riding on the Australian dollar than it earned last year. The unit of China's largest state-owned investment company has contracts committing it to buy as much as A$9.44 billion ($6.3 billion) of the currency, according to an Oct. 20 statement. That's more than quadruple Citic Pacific's market value yesterday, and compares with 2007 net income of HK$10.8 billion ($1.4 billion).

- Copper prices tumbled to the lowest in almost three years as a global economic slump reduces consumption of the metal used in pipes and wires.

- Newcrest Mining Ltd., Australia's biggest gold mining company, said output in the first-quarter rose 8.4 percent on record production at its Telfer and Cadia Hill mines in Australia and Gosowong operation in Indonesia. A record 485,978 ounces of gold was produced in the three months ended Sept. 30, from 448,103 a year earlier, Melbourne- based Newcrest said today in a statement.

- American Airlines parent AMR Corp.(AMR), Continental Airlines Inc.(CAL) and other carriers rose as some analysts said dropping fuel prices and falling industry capacity probably will produce 2009 profits. AMR rose 84 cents, or 7.6 percent, to $11.97 at 4:02 p.m. in New York Stock Exchange composite trading, while Continental increased $1.05, or 6 percent, to $18.50. United Airlines parent UAL Corp. climbed 85 cents, or 6.2 percent, to $14.65 in Nasdaq Stock Market composite trading.

- Amazon.com Inc.(AMZN), the world's largest Internet retailer, forecast 2008 sales that may be $1 billion less than analysts estimated, sending the shares down 14 percent in late Nasdaq trading.

- Amgen Inc.(AMGN), the world's largest biotechnology company, said third-quarter profit rose more than fivefold as sales of its drugs for anemia, cancer and arthritis increased.

- Baidu.com Inc.(BIDU), China's most popular Internet search engine, posted a 91 percent increase in third- quarter profit after surging Web usage in the country persuaded businesses to buy more advertising.

Wall Street Journal:
- Apple's(AAPL) MacBook laptop, the company's low-end portable computer aimed at average consumers, isn't just any old product. It's the best-selling Macintosh in history, at a time when Mac sales are growing much faster than sales of PCs in the U.S. overall.

- Boeing Co.(BA) machinists, who voted to strike on Sept. 6, are encouraged by recent US economic problems to continue to fight for job security, citing machinists including Butch Blount.

- Sanford Weill, the former chief executive officer of Citigroup Inc.(C), may start a private-equity fund to invest in financial companies and related assets. Weill and a team including former Citigroup executives Michael Klein and Michael Masin have spoken in recent weeks with sovereign wealth funds and other investors in an attempt to raise $5 billion.

MarketWatch.com:
- Members of the Organization of the Petroleum Exporting Countries saw fit to schedule an "extraordinary" meeting this Friday after seeing oil prices drop more than 50% in three months. "It's about a snowball running downhill, and turning into an avalanche," said Anthony Sabino, a professor of law at St. John's University, whose legal practice includes oil and gas law. "Per-barrel price is cascading downward and only gaining momentum." "In a matter of less than six months, we have gone from 'running out of oil,' and prices projected to hit $200, to a current price of roughly $70 and fears of a drop to the $50 range if OPEC doesn't act," said Chip Hodge, a managing director at John Hancock Financial Services. Current production levels by OPEC members, combined with new non-OPEC supplies coming on are "going to swamp the market due to a drop in demand," he said. "A return to $100-plus per-barrel prices would likely lead to some sort of 'Manhattan Project' style of government action in to alternative energies," said Hartmann. "A step away from crude oil by the United States would be striking," he said. The U.S. is the world's biggest oil consumer, accounting for nearly a quarter of global consumption. And "if the U.S. could then export that technology and service to China, it would likely put crude back below $20 per barrel," he said. Looking further ahead, "the slowing global economy has raised the possibility of flat [or negative] oil demand growth in 2009," Morgan Stanley's Allidina said. At the same time, given the state of the world economy, "any cut will give [OPEC] bad press," said James Williams, an economist at WTRG Economics.

NY Times:
- The gilded age of hedge funds is losing its luster. The funds, pools of fast money that defined the era of Wall Street hyper-wealth, are in the throes of an unprecedented shakeout. Even some industry stars are falling back to earth.

- For three decades, China has fueled its remarkable economic rise by becoming the world’s workshop and unleashing a flood of low-priced exports. But faced with a possible global recession and weakening demand for Chinese exports, the question now is whether the ruling Communist Party can prevent the financial crisis from derailing the country’s economic miracle.

BusinessWeek:

- Genzyme’s(GENZ) Campath May slow MS.

NY Post:

- Biden’s Bungles: A Blatant Bias.

Reuters:

- Several large funds of hedge funds are trying to raise cash from individual hedge fund managers to satisfy their own clients' demands to get their money back, several investors said on Wednesday. "People are desperate," said one investor in hedge funds who asked not to be named because he is still negotiating his own planned redemptions.

Financial Times:
- Trading firms, investors and exchanges involved in the huge $60,000bn credit derivatives industry have been asked by European regulators to draw up plans to ensure that risks to financial markets from these instruments are reduced.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (OI), target $42.

Night Trading
Asian Indices are -5.0% to -3.0% on average.
S&P 500 futures +.14%.
NASDAQ 100 futures unch.

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US AM Market Call
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Commodity Movers
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Today in IBD
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Economic Preview/Calendar
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Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BEN)/1.47

- (STI)/.61

- (HOT)/.53

- (JCI)/.73

- (LH)/1.12

- (DO)/2.22

- (NYT)/.04

- (BMY)/.42

- (TRA)/1.61

- (LLL)/1.70

- (CELG)/.38

- (NCR)/.443

- (JBLU)/-.04

- (GR)/1.13

- (AMTD)/.30

- (BDK)/1.30

- (DOW)/.58

- (RTN)/.96

- (MO)/.44

- (ZMH)/.89

- (UPS)/.89

- (BNI)/1.69

- (YRCW)/-.08

- (AFL)/1.00

- (JNPR)/.29

- (CB)/.93

- (WFR)/.88

- (IM)/.23

- (FII)/.54

- (MSFT)/.47

- (CAKE)/.27

- (LLY)/1.02

- (MCHP)/.43

- (DECK)/1.84

Economic Releases
8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 468K from 461K the prior week.

- Continuing Claims are estimated to rise to 3715K versus 3711K prior.

10:00 am EST

- The House Price Index for August is estimated to fall .5% versus a .6% decline in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report and (CETV) Investor Day could also impact trading today.

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

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Internet longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is above average. Investor anxiety is historically elevated. Today’s overall market action is very bearish. The VIX is rising 26.0% and is historically elevated at 66.96. The ISE Sentiment Index is low at 100.0 and the total put/call is high at 1.19. Finally, the NYSE Arms has been running very high most of the day, hitting 4.77 at its intraday peak, and is currently 4.16. The Euro Financial Sector Credit Default Swap Index is rising 14.0% today to 110.97 basis points. This index is up from a low of 52.66 on May 5^th, but down significantly from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is gaining 2.4% to 191.30 basis points. The TED spread is plunging another 9.1% to 251 basis points. The TED spread is now down 213 basis points in less than two weeks. The 2-year swap spread is rising 1.64% to 108.75 basis points. The Libor-OIS spread is dropping 9.53% to 252 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8basis points to 1.03%, which is down 160 basis points in under four months and at the lowest level since April 1999. The market is pricing in a severe global recession as the most economically sensitive stocks continue to fall the hardest. On top of the slowdown in exports to developed countries, the collapse in commodity prices will further pressure economic growth in emerging markets. I continue to favor stocks that can grow earnings, notwithstanding a severe global slowdown. Small to mid-cap medical technology stocks remain my favorite group. I plan to cover some of my hedges into the close. Nikkei futures indicate a -500 open in Japan and DAX futures indicate a -104 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, global growth worries and earnings concerns.

BETWEEN THE HEDGES

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Thursday, October 23, 2008

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Wednesday, October 22, 2008

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Stocks Finish Sharply Lower, Weighed Down by Commodity, Construction and HMO Shares

Stocks Sharply Lower into Final Hour on Global Growth Worries and Earnings Concerns