Dow Theory, as I mention from time to time in this space, has as one of its tenets that new highs in either the Industrial or Transportation index need to be confirmed by a new high in the other index for the move up to be validated. The race to new levels between these two indexes recently resembles one of those carnival games where the horses advance as you squirt water into the bull’s eye. i.e. There’s a lot of confirmation going on.

A glance at the weekly highs and lows in Barron’s shows 343 new highs and 4 new lows on the NYSE and the VIX closed at its lowest level of the last 52 weeks on Friday at 24.2 after hitting an intraday low of 22.5. Additionally the Put/Call ratios on the CBOE and S&P are hanging right near their bullish levels of 60 and 125 respectively. Has anyone checked the calendar?

F3Q09 Earnings Call

September 10, 2009 10:00 am ET

Sentiment

Stocks slipped in early trading, but the early weakness was short-lived and the major averages are sporting modest gains for the third day this week. Economic data was in focus early after the Labor Department said weekly jobless claims fell 26,000 to 550,000 in the first week of September, which was better than the 16,000 drop economists had predicted. A separate report showed the showed the nation's trade balance widening to $32 bln in July, more than the -27.5 bln in June and economist forecasts of -27.5 bln.

The economic numbers didn't seem to matter much, as after two days of gains, and a 106-point advance in the Dow Jones Industrial Average, the major averages fell into the red early.

Navistar International Corporation (NAV) has showed a net loss of $35 million, or 49 cents per share for the third quarter of fiscal 2009 ended Oct. 31, 2009. The results include increased provisions for income taxes and exclude the extraordinary gain from the asset acquisition of the recreational vehicle manufacturing business of Monaco Coach Corporation.

This was worse than the Zacks Consensus Estimate of 66 cents per share. The truck maker had reported a net income $331 million or $4.47 per share in the comparable quarter of the previous year.

• BoA bites back against Cuomo. Bank of America (BAC) said it's 'surprised and disappointed' by accusations that's it's hiding behind attorney-client privilege, and called New York Attorney General Andrew Cuomo's allegations 'spurious' and 'simply wrong.' Meanwhile, Bank of America and the SEC are making their third attempt to convince Judge Jed Rakoff to approve a $33M settlement over disclosures of Merrill Lynch bonuses. The SEC called the settlement 'fair' and 'reasonable,' and Bank of America said it's prepared to litigate if the settlement isn't approved.
• Phasing out debt guarantees. The FDIC is considering a six-month, emergency-only extension to its debt guarantee program and is seeking public comment on the proposal, with FDIC's Sheila Bair noting "it has been a successful program but we would like to end it." The guarantee program had around $320B in outstanding debt guaranteed as of the end of July, and whether it expires Oct. 31 as planned or is extended by six months, the phase-out should provide an early indicator for how banks fare once emergency government support measures have been removed.
• U.S. levies duties on Chinese steel. In the largest countervailing duty case to date against Chinese-made products, the U.S. Commerce Department decided to impose preliminary duties of up to 31% on Chinese steel pipe because of unfair subsidies, bringing average duties on the $2.8B of annual imports to 21.3%. China 'strongly opposes' the ruling, which is only the latest in a series of events contributing to escalating trade tensions.
• Beige Book: Signs of slow improvement. In the Federal Reserve's latest Beige Book, most districts reported the economy was firming up overall and stability increasing, though many sectors still show weaknesses. In particular, despite some improvements in residential real estate, commercial real estate remains weak and non-residential construction activity is down. Credit remains tight, loan demand is down and retail sales are soft. (Read the Beige Book summary)
• OPEC holds steady. As expected, OPEC agreed to keep its oil production quotas unchanged, betting a recovery in the global economy will help keep prices near the current $72/barrel. The decision comes even as the Energy Information Administration's latest forecast calls for weaker oil demand and higher supply, which is projected to result in a daily world surplus of 70,000 barrels.
• Beijing Automotive steers for Saab. After a failed bid for Opel, Beijing Automotive is joining Koenigsegg Group's offer to buy General Motors' Saab. Beijing Automotive will become a minority shareholder in the bidding team, with the hope that a successful bid will allow it to spur model development and sales growth. (Read the memorandum of understanding)
• Apple's iPod refresh fails to dazzle. Investors were generally unimpressed at Apple's (AAPL) "Let's Rock" event yesterday, where Apple introduced a new version of iTunes, updated iPhone software and an iPod Nano with video camera and FM radio. Many had been hoping to see a camera on the iPod Touch and there was no sign of a much-talked-about tablet device. With no major product surprises, much of the attention was focused on CEO Steve Jobs, who made his first public appearance since returning from medical leave.
• Foreclosures remain elevated. U.S. foreclosure filings topped 300,000 for the sixth month in a row, coming in at 358,471 in August, according to RealtyTrac Inc. The number is just 0.5% below July's record all-time high, and is up 18% from August 2008. Nevada had the highest foreclosure rate, followed by Florida and California. With unemployment hovering at 9.7%, RealtyTrac expects foreclosures to rise for another year.
• Google preps for micropayments. Google (GOOG) plans to introduce a micropayments platform within the next year to help newspapers charge for their content. The move would create a direct competitor for Journalism Online, a site launched by media executives that aims to provide one-stop subscriptions for newspapers and magazines that want to charge for online content. (Read Google's micropayments plan (.pdf))
• Retail sales inch up. Chain store sales rose 0.2% in the first week of September, Redbook reported, better than the -0.3% expected. According to ICSC, weekly sales rose 0.6% from the previous week but dipped 0.1% vs. the previous year. Sales for September are expected to be down 2% vs. the previous year.

Earnings: Thursday Before Open

• Lululemon Athletica (LULU): Q2 EPS of $0.13 beats by $0.03. Revenue of $98M vs. $88M. (PR)

Earnings: Wednesday After Close

• Men's Wearhouse (MW): Q2 EPS of $0.75 beats by $0.14. Revenue of $526M (-4%) vs. $523M. Sees Q3 EPS of $0.27-0.30 vs. $0.32. (PR)
• Navistar International (NAV): FQ3 EPS of -$0.16 does not compare to consensus of $0.69. Revenue of $2.5B (-38%) vs. $2.7B. Lowers full-year EPS guidance, which includes effects of Ford (F) settlement, to $4.95-5.25 vs. $2.92. (10-Q)
• NCI Building Systems (NCS): FQ3 EPS of $0.25 beats by $0.14. Revenue of $238M (-50%) vs. $263M. (PR)
• Smith & Wesson (SWHC): FQ1 EPS of $0.21 beats by $0.11. Revenue of $102M (+30%) vs. $94M. (PR)

Today's Markets

Asia locked in some gains but European markets and U.S. futures are trading down.

Bullish Calls:

Navistar International (NAV), Paccar (PCAR): "I think the world of Navistar. I also like PCAR. I think the trucking cycle will come back, but it is a 2010 story not a 2009 story."

Data flow continues to support those who argue that if the recession is not already over as of July, it soon will be. The July jobs report - while not exactly cheery news for those still losing their jobs - is another clear indicator that the employment picture is turning. Still, excitement over the end of the recession aside, the data also reveal that the economy is recovering in fits and starts, with tell-tale signals that the consumer orgy of this decade is not likely to be repeated.

The July employment report in many ways spoke for itself. Possibly most important is the clear improvement in the pace of job losses:

During his address yesterday at Navistar International's (NAV) facilities in Elkhart, Indiana, President Obama announced a total of $2 billion in ARRA battery manufacturing grants and another $400 million in Recovery Act awards for transportation electrification. The complete list of grant recipients, most of whom are private companies, is available here. The recipients of $1.25 billion in the primary class of grants for cell and battery manufacturing facilities are as follows:

Additional awards to other publicly traded companies include:

4:17 PM, Jul 1, 2009 --

• NYSE up 48.9 (0.8%) to 5,954.01.
• DJIA up 57.1 (0.7%) to 8,504.
• S&P 500 up 4 (0.4%) to 923.33.
• Nasdaq up 10.7 (0.6%) to 1,846.

GLOBAL SENTIMENT

Sentiment

Stocks are broadly higher to start the third quarter 2009. The major averages held steady early following gains in overseas markets. China's Shanghai rose nearly 2 percent on better-than-expected manufacturing data and benchmarks across Europe were up 1 to 2 percent before the exchanges opened for trading in New York.

The morning advance was extended mid-morning after a round of mixed economic data motivated some buying interest. The numbers, released at 10:00 a.m. eastern time, showed construction spending falling a bit more than expected and manufacturing (ISM) improving less than expected. Pending home sales edged up .1 percent, however, which was better than economist forecasts. In the end, investors seemed relieved that the news wasn't worse and the Dow Jones Industrial Average is up 75 points heading into the final hour of trading.

At the end of each trading week, our market direction radar scans the Hillbent 3000 universe (minimun average daily volume of 100k and largest 3000 market capitalization stocks) for the top 3 and bottom 3 sectors based upon aggregate performance and analyzes their winners and losers.

Using this weekly sector report on a regular basis allows Hillbent.com’s readers to efficiently monitor sector rotations and investor sentiment biases.

Q2 2009 Earnings Call

June 9, 2009 10:00 am ET

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up on our series is Galleon Group. Galleon was founded by Raj Rajaratnam in 1997 and currently manages in excess of $7 billion. Raj previously worked for Needham & Company and when he left was responsible for a compounded rate of return of 37% over 4 years while overseeing $250 million. Raj received both a Bsc in Engineering and an MBA in Finance from the University of Pennsylvania. Galleon Group's Buccaneer fund was up 13.39% as of late February 2009. Additionally, its Diversified fund was up 9.87% through the same time period, as noted in our January & February hedge fund performances (March '09 numbers here). We'll be posting up more recent metrics here soon.

Although the industry got a teaser of what’s to come when Defense Secretary Gates announced the top line budget figure as well as some decisions regarding the fate of the largest programs and initiatives, the key event that will guide the sector’s performance over the next several months is the release of the line item details and program specifics found in the FY10 budget -- anticipated to provide specifics not just for the forthcoming year but the next several. These details are now expected, according to White House sources, sometime in May.

Overall, analysts have stated that there were no big downside surprises in the proposal and the shift in priorities had little impact on most firms. As we said last month, we needed to see whether additions in some programs would offset declines in others. Lockheed Martin (LMT) for example was seen as one of the big winners and big losers with the F-22 production begin shut down while the F-35 was expanded.

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up, we have Harbinger Capital, a $13 Billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). And, just recently, we've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, Falcone has been focused on equities it seems, but Harbinger's new fund will redirect Falcone's focus back to his roots.

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Jeffrey Gendell's Tontine Associates. If you're unfamiliar with Tontine, they specialize in macro investing and take very large, concentrated positions in companies Gendell feels will benefit from those macro themes. Additionally, he will take on an activist role when necessary, to ensure shareholder returns. The fund has posted returns in excess of 100% in both 2003 and 2005. Conversely, 2008 was the year from hell for Tontine.

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

This week, turning the focus to global macro funds, we'll be checking in on Louis Bacon's Moore Capital Management. Do note that global macro funds are typically not necessarily equity focused funds. While they do indeed have equity exposure, the majority of their holdings are in other markets. So, we mainly track them to check in on their sector exposure to see what types of global macro themes they may be investing in. This is a switch from some of the more value oriented funds we've been covering, like the 'Tiger Cub' funds including Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, John Griffin's Blue Ridge Capital, and Andreas Halvorsen's Viking Global. Global macro funds seek to find investments in whatever market they can gain an edge, whether it be equities, bonds, currencies, debt, commodities, and more. But, they are only required to disclose equity holdings.

Of course, Warren Buffett is the most admired living investor but for my money, I appreciate Seth Klarman’s insights and approach as much if not more than the Oracle. Readers can see all of the Baupost Group’s portfolio moves in easy-to-read spreadsheet format here but below is a summary of items that caught my eye:

• Klarman didn’t open any new big-money positions but he did add substantially to CapitalSource (CSE) and Theravance (THRX). Interesting to note that he moved up the capital structure with convertible debt on both those stocks in addition to adding more equity. Also of interest is Baupost’s selective move into financials with CSE and iStar Financial (SFI). Of course, Klarman thrives on complexity and Baupost has great expertise in commercial financing due to their activities; it may be perilous for less-informed investors to follow.
• Baupost seems to have completely abandoned its medical insurers position by selling off Wellpoint (WLP) and UnitedHealth Group (UNH). I’m not sure what caused the about-face but it definitely was not profit-taking.
• Klarman seems undaunted by the troubles currently roiling the media industry as he continues adding to his News Corp (NWS) stake.
• I noticed some bifurcation on his natural gas positions, with Klarman adding a third to his Breitburn Energy (BBEP) holdings, even as the share price halved, while at the same time, cutting its Linn Energy (LINE) stake by 20%. In a previous investor letter, he indirectly referred to both companies as being well-hedged for at least a few years.

Meryl Witmer, of Barron’s Roundtable renown, runs an extremely focused portfolio. View the spreadsheet breakdown here. My thoughts on her moves:

Philip Falcone's $13 billion hedge fund, Harbinger Capital Partners, has recently filed amended 13Ds with the SEC.