BETWEEN THE HEDGES

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short and then added back (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling 6.0% and is historically elevated at 74.43. The ISE Sentiment Index is low at 121.0 and the total put/call is above average at 1.08. Finally, the NYSE Arms has been running above average most of the day, hitting 2.32 at its intraday peak, and is currently .93. Nikkei futures indicate an +218 open in Japan and DAX futures indicate a -23 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.

Bloomberg:
- The cost to protect against default by U.S. insurers including Prudential Financial Inc. and Hartford Financial Services Group Inc. dropped the most in two weeks as the Treasury considered taking stakes in the industry. Credit-default swaps on Newark, New Jersey-based Prudential plunged 321 basis points to 538 basis points, according to CMA Datavision. Contracts on Hartford fell 230 to 440 and New York- based MetLife Inc. declined 120 to 446. The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, fell 2.5 basis points to 222.5 basis points as of 9:22 a.m. in New York, according to broker Phoenix Partners Group.

- Investments in funds tracking the Dow Jones-AIG group of commodity indexes plunged $20 billion, or 36 percent, in the third quarter amid financial market turmoil and concerns the global economy may fall into a recession. About $35 billion tracked the commodity indexes at the end of the third quarter, Dow Jones said today in an e-mailed statement. That compares with $55 billion at the end of the second quarter as the index surged toward a record on July 3. ``It's been a bloodbath for commodities and that looks set to continue,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``There's been a big movement out of these markets.'' The ``tidal wave'' of funds flowing into commodities early this year has collapsed as the global growth outlook deteriorated, Citigroup Inc. said last month. Investors pulled $525 million from commodity and energy funds in the week ended Oct. 22 as ``recessionary fears took their toll,'' money-flow researcher EPFR Global said on Oct. 24.

- European Central Bank President Jean-Claude Trichet said he may cut interest rates next week, less than a month after slashing the key rate by half a point, as the financial crisis intensifies.

- Sales of new houses in the U.S. were unexpectedly rising before credit markets froze this month, having rebounded from a 17-year low thanks to a drop in prices. Purchases increased 2.7 percent in September to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. builders cut inventories at a record pace. The number of homes for sale fell to a seasonally adjusted 394,000, the fewest since June 2004. The 7.3 percent decline from August was the biggest since record keeping began in 1963. The supply of homes at the current sales rate fell to 10.4 months' worth from 11.4 months.

- Fifteen regional U.S. banks, including SunTrust Banks Inc. and Capital One Financial Corp., accepted at least $34 billion in government cash as the Treasury rolled out the second half of its $250 billion package to shore up lenders and thaw frozen credit markets. Treasury Secretary Henry Paulson is doling out cash to recapitalize struggling lenders and jump-start takeovers.

- Emerging-market stocks dropped to a four-year low as Ukraine and Hungary became the latest countries to receive help from the International Monetary Fund and concern deepened that the global economy will fall into a recession. Equity indexes in the Philippines and Romania tumbled more than 6 percent, while Brazil, Colombia and other Latin American stock markets declined as commodity prices headed for their worst month in at least 38 years.

- The same tumbling oil prices that led OPEC to slash output last week threaten to send Venezuela's economy into a tailspin, and put an end to President Hugo Chavez's ambitions to expand his socialist revolution at home and abroad.

Wall Street Journal:

- Already struggling from the industry's worst stretch in decades, most of the largest U.S. newspapers saw a decline in print circulation in the six months through September, according to industry estimates of data the Audit Bureau of Circulations is releasing Monday.

CFO.com:

- The Incredible Shrinking Funds. High borrowing and the credit crisis are bad enough for hedge funds. Panicky clients are worse.

Wealth Bulletin:
- Hedge fund fees under fire as performance dives. “Two and twenty” are three words that have been music to the ears of hedge fund managers for decades. But this magical formula for fees is under intense pressure as performance collapses, and is set for the same upheaval that is facing the rest of the industry.

Reuters:
- New York City is exploring putting some of its pension fund of more than $100 billion (64 billion pounds) into U.S. infrastructure funds and whether this is "a good time" to invest in hedge funds, Comptroller William Thompson said on Friday. One impetus for considering such stakes now is the losses seen in the shares of companies the fund owns, the Democratic comptroller said in an interview on CNBC television.

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Valor Economico:

- Vehicle sales in Brazil have fallen 10% this month compared with the same period in September.

Yediot Ahronot:
- Hamas is planning a major attack inside Israel and has smuggled motorbikes into the Gaza Strip for this purpose.

National:

- The hotel occupancy rate in the Middle East fell 5.3% in September to 63% as the number of visitors declined because of the global credit crisis, citing a report from Smith Travel Research Inc.

Bahrain News Agency:

- Bahrain has set its national budget for the next two years with an estimated oil price of $60 a barrel.

BETWEEN THE HEDGES

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Monday, October 27, 2008

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