BETWEEN THE HEDGES

Late-Night Headlines
Bloomberg:

- Texas Instruments Inc.(TXN), the second- largest U.S. chipmaker, reported a 56 percent drop in second- quarter profit after the global recession hurt chip demand. Net income fell to $260 million, or 20 cents a share, from $588 million, or 44 cents, a year earlier, the company said today in a statement. Analysts predicted profit of 19 cents a share, according to the average of estimates in a Bloomberg survey. Revenue declined 27 percent to $2.46 billion.

- Monsanto Co.(MON), the world’s largest seed producer, and partner Dow Chemical Co.(DOW) won U.S. and Canadian approvals to sell genetically modified SmartStax corn seed that allows farmers to plant less land with conventional corn. Their shares rose in late trading. Monsanto rose $4.20, or 5.5 percent, to $80.76 at 6:04 p.m., after the close of regular New York Stock Exchange trading. Dow gained 38 cents, or 2.1 percent, to $18.19.

- Legg Mason Inc.(LM) posted its first quarterly profit since December 2007 as the Baltimore-based asset manager reported improved fund returns and ended losses on money-market funds. The stock rose to $26.44 at 6:49 p.m. in electronic markets from a closing price of $24.94 in New York Stock Exchange composite trading.

- WSI Corp. reduced its forecast for the Atlantic hurricane season to 10 named storms, five of them hurricanes. “Ocean temperatures in the tropical Atlantic remain quite cool relative to the temperatures during the last 15, more tropically active, years,” Todd Crawford, a WSI seasonal forecaster, said in the statement. There have been no named storms in the Atlantic this season, a later start than the past four years, when such systems developed in May and June.

- Boston Scientific Corp.’s(BSX) second- quarter profit rose 61 percent, topping estimates, on higher sales of new stents and heart pumps. The shares rose 59 cents, or 5.7 percent, to $10.89 at 6:30 p.m., after the close of regular trading on the New York Stock exchange.

- China’s bonds will extend losses as the central bank soaks up cash in the financial system to prevent property and stock-market bubbles, Everbright Pramerica Fund Management Co. said.

- Mexican President Felipe Calderon said the economy probably contracted at an annual rate of at least 9% in the fist half of the year.

- The Markit iTraxx Japan index fell 35 basis points to 195 at 9:44 am in Tokyo, where market reopened after a public holiday, according to Barclays Capital. The Markit iTraxx Australia declined 11 basis points to 171.5 at 10:38 am in Sydney, Citigroup Inc. data show.

- The price of soybeans for delivery after this year’s harvest dropped for a third time in four sessions as unseasonably cool temperatures ease the stress of dry weather on plants in the U.S. Midwest. Some areas will be as much as 8 degrees Fahrenheit below normal during the next week, reducing evaporation rates for soil moisture, said Mike Tannura, a meteorologist and commodity analyst for T-Storm Weather in Chicago. Some fields will receive as much as 1.25 inches (3.2 centimeters) of rain in the next five days, boosting yield prospects, Tannura said. “There is no threatening weather at this time,” said Dan Basse, the president of AgResource Co. in Chicago. “There are some people already discussing record yield potential.”

- The number of elderly people in the world will exceed the number of children under 5 within 10 years, placing greater demands on a shrinking number of young caregivers and taxing social insurance programs, according to a report by the U.S. Census Bureau. The number of people older than 65 will double to 14 percent from 7 percent of the world’s population in the next 30 years, rising to 1.4 billion by 2040 from about 506 million in the middle of last year, said the report, “An Aging World: 2008,” commissioned by the U.S. National Institute on Aging. The most rapid rise in the elderly population is taking place in developing countries, where the increase in the number of people 65 and older is more than double the rate in developed nations. Last year, 313 million, or 62 percent, of the world’s elderly lived in developing countries, a number that is projected to rise to more than 1 billion, 76 percent of the world’s 65-and-over population, the report said. “Low fertility rates, extended life expectancy and better health conditions and care” are the driving forces of a global trend, said Wan He, a Census Bureau demographer and co-author of the report. The problem for developing countries is they have far fewer resources, she said. “It took France more than 100 years to go from 7 percent to 14 percent,” He said. South Korea and Singapore will accomplish that doubling in 19 years or less by sometime in the next decade, she said. “They will experience this doubling in the shortest time in human history,” He said. While the world’s two most populous countries, China and India, are lagging behind many other developing countries in the rate at which their elderly population grows, they are moving in the same direction, He said. “China and India, the two population billionaires, are not as old as other developed countries but they have huge numbers of older people and within a single generation they are going to age rapidly,” she said.

- Pacific Investment Management Co., manager of the world’s largest bond fund, said it will buy five- to 10-year Treasury securities, reversing a policy to steer clear of U.S. debt. “With Treasury yields near the top of our expected range, Pimco plans to overweight duration and take exposure to the five- to 10-year portion of the yield curve,” Pimco said today in a report on its Web site. The strategy may be a change for the Newport Beach, California-based firm, which has avoided Treasuries in recent months. Bill Gross, manager of Pimco’s Total Return Fund, the world’s largest, has said before today that he has no interest in buying Treasuries.

- Intel Corp.(INTC), the world’s largest chipmaker, plans to sell $1.5 billion in debt, using the money to buy back shares.

- A rapid test for cancer using tiny magnetic sensors was able to detect as few as two cancer cells in a sample of human tissue within 15 minutes, a study said. The new technology, developed at the Center for Systems Biology at Massachusetts General Hospital in Boston, uses a small diagnostic magnetic resonance (DMR) chip that detects and profiles cancer cells in tissue taken from fine-needle biopsies, said a report published today in the Proceedings of the National Academy of Sciences.

- Citigroup Inc.(C), in its biggest dollar-denominated sale without U.S. backing in almost a year, issued $2.5 billion of 30-year bonds, according to data compiled by Bloomberg.

- Gold’s recent advance may stall as the metal meets two important resistance points, Standard Bank Group Ltd. said, citing trading patterns. The $965.23 and $995 levels represent “resistance trendlines of short-term and medium-term consolidation phases,” Darran Grabham, the bank’s technical analyst, wrote in a note.

Wall Street Journal:

- The Fed’s Exit Strategy by Ben Bernanke.

- 10 Questions on the Health-Care Overhaul.

- The California Public Employees' Retirement System is expected to report this week a decline of roughly 23% for its latest fiscal year, the worst return in decades for the largest public pension fund in the U.S. as it struggles with other problems. The decline for the fiscal year ended June 30, based on a preliminary figure posted that day on the pension fund's Web site and the previous year's audited results, is equivalent to the loss of about $55 billion in assets.

- Friday’s bombings of the J.W. Marriott and Ritz-Carlton hotels in Jakarta, Indonesia, underscore the emergence of a new terrorist target of choice: the international luxury hotel. In the 19 months leading up to the Jakarta attacks, Islamic terrorists have brought their holy war to upscale properties in Kabul, Afghanistan; Islamabad, Pakistan; Mumbai, India; and Peshawar, Afghanistan. The casualties thus far number about 116 people killed and hundreds more injured.

- Gov. Arnold Schwarzenegger and California legislative leaders on Monday said they reached a compromise to close the state's $26 billion budget deficit. The deal must still be approved by rank-and-file legislators, who are expected to vote on the budget proposal by the weekend.

- Volkswagen AG (VLKAY) expects Mexico automobile production to fall a worse than expected 30% this year due to the global recession, said Otto Lindner, the head of the company's Mexico operations, on Monday. In January Volkswagen predicted a 20% drop in Mexican output this year. Volkswagen is operating at partial capacity at its factory in Puebla, currently its only plant in North America.

- An anti-abortion Democrat on Monday said he is negotiating a compromise aimed at resolving concerns that House health-care legislation would allow federal funding of abortions. Rep. Bart Stupak, D-Mich., said he is in talks with Energy and Commerce Chairman Henry Waxman, D-Calif., on the language. Stupak said his and Waxman's staff discussed the issue over the weekend and suggested that a compromise could be voted on this week as an amendment to a health-care bill under consideration by the House Energy and Commerce Committee. Stupak represents an important vote on the health-care measure, which already faces possible opposition from conservative Democrats on the panel who are concerned about its costs. His comments suggested an easing of tensions among anti-abortion Democrats and proponents of the health-care measure. "I hope we're not going to use reproductive rights as a red herring in every amendment that comes up," Stupak said. A group of 20 House Democrats signed a letter sent last Friday to House Democratic leaders stating they "cannot support any health care reform proposal unless it explicitly excludes abortion from the scope of any government-defined or subsidized health insurance plan."

- Borders Group Inc.(BGP) is launching a teens department to capitalize on such hot writers as Stephenie Meyer and Sarah Dessen, as young-adult authors provide a badly needed lift to booksellers.

MarketWatch.com:
- With businesses and consumers paying less for goods than a year ago, Corporate America is getting a bigger break than the average shopper, a disparity that historically represents a good omen for U.S. stocks' performance in the third quarter. In theory, the margin between prices paid at the producer and consumer levels offers insight into a company's ability to pass on, or benefit from, price adjustments to the consumer, said Dan Greenhaus, an analyst at Miller Tabak & Co.

Politico:

- A series of bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23 trillion, the U.S. government’s watchdog over the effort says – a staggering amount that is nearly double the nation’s entire economic output for a year. If the feds end up spending that amount, it could be more than the federal government has spent on any single effort in American history.

Rasmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 30% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-seven percent (37%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –7 (see trends).

USA Today.com:

- The average price drivers paid for gasoline fell to $2.46 a gallon, the lowest level in eight weeks, the Energy Department said Monday. The national price for regular unleaded gasoline dropped 6.5 cents over the last week and was down $1.60 from a year ago, the department's Energy Information Administration said in its weekly survey of service stations.

Reuters:

- JDA Software Group Inc (JDAS) posted a second-quarter profit that handily beat market expectations as revenue from software licenses surged, and the company named a new chief financial officer, sending its shares up 22 percent. "We have started to see the turn around in our consulting services metrics that we previously forecasted," CEO Hamish Brewer said in a statement. Shares of the Scottsdale, Arizona-based company were trading at $20.09 after the bell. They closed at $16.44 Monday on Nasdaq.

21^st Century Business Herald:

- China is studying imposing a tariff on iron ore imports that exceed actual demand. The country may also consider imposing an import quota.

South China Morning Post:

- Rivals of China Mobile Ltd. are eroding the dominance of the nation’s largest mobile operator by offering new third-generation handsets, citing the companies and analysts. China Mobile’s market share slipped to 60.8% last month from 78% in January.

Late Buy/Sell Recommendations

Morgan Stanley:

- Samsung Electronics stock price target was raised to 855,000 won from 750,000 won at Morgan Stanley, which cited faster-than-anticipated business recovery at the South Korean company. Morgan Stanley raised Samsung’s earnings-per-share estimates by 26% for 2009 and 19% for 2010.

Jefferies:

- Rated (EXPE) Buy, target $19.

CSFB:

- Rated (USB) Outperform, target $21.

- Cut (BIDU) to Underperform.

Night Trading
Asian Indices are -.25% to +1.0% on average.

Asia Ex-Japan Inv Grade CDS Index -.29%.
S&P 500 futures -.39%.
NASDAQ 100 futures -.36%.

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Earnings of Note
Company/EPS Estimate
- (BJS)/.00

- (PNR)/.39

- (CMA)/-.36

- (LUV)/.07

- (CAL)/-1.35

- (UAUA)/-2.66

- (KO)/.89

- (AMTD)/.29

- (DGX)/.94

- (UTX)/1.05

- (MRK)/.77

- (FRX)/.82

- (SGP).45

- (BTU)/.48

- (SHW)/1.32

- (UNH)/.70

- (PCP)/1.75

- (STT)/.92

- (FCX)/.71

- (LMT)/1.81

- (BLK)/1.56

- (DD)/.53

- (LXK)/.60

- (CAT)/.21

- (JEF)/.26

- (ITW)/.35

- (AKS)/-.51

- (ATHR)/.14

- (RHI)/.03

- (SYK)/.72

- (GILD)/.65

- (CHRW/.53

- (AMD)/-.46

- (BXP)/1.21

- (AAPL)/1.17

- (QLGC)/.18

- (YHOO)/.14

- (LLTC)/.22

- (VFC)/.60

- (SBUX)/.19

- (ILMN)/.18

- (SLM)/.08

- (VMI)/1.21

- (SY)/.52

- (NRG)/.68

Economic Releases

8:30 am EST

- The Chicago Fed National Activity Index for June is estimated to rise to -1.30 versus -2.30 in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed Chairman Bernanke’s monetary policy testimony before the House, ABC Consumer Confidence, (BEC) analyst event and the (NRG) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Defense longs, Medical longs, Biotech longs, Technology longs and Financial longs. I have not traded 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 below average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling .21% and is high at 24.29. The ISE Sentiment Index is below average at 125.0 and the total put/call is below average at .69. Finally, the NYSE Arms has been running very high most of the day, hitting 1.83 at its intraday peak, and is currently .96. The Euro Financial Sector Credit Default Swap Index is falling 5.79% today to 92.67 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 2.68% to 126.53 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .53% to 34 basis points. The TED spread is now down 432 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.75% to 47.19 basis points. The Libor-OIS spread is falling .88% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.87%, which is down 77 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. The Euro Financial Sector Credit Default Swap Index is breaking down to the lowest level since early January, which is a large positive. As well, the GE Capital CDS is breaking down 7% today to the lowest since mid-January. Economically-sensitive stocks are jumping again today, with the MS Cyclical Index surging 2.79%. Banks, which had been one of today’s worst performing groups, are now heading into positive territory. One negative I saw today was the low total put/call reading of .46 this morning. One of my longs, (ISRG), is gaining 5.5% today ahead of its earnings release this Wed. The short interest ratio on (ISRG) is currently at a record high of 9.03. I plan to add to my long position on any meaningful earnings related weakness in the shares from current levels. Nikkei futures indicate an +270 open in Japan and DAX futures indicate an +13 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, less economic pessimism, lower long-term rates and earnings optimism.

BETWEEN THE HEDGES

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Monday, July 20, 2009

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Stocks Finish at Session Highs, Boosted by Steel, Transportation, Gaming, REIT, Homebuilding and Construction Shares

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