Mid-day Update

S&P 500 1,142.25-.44%
NASDAQ 2,028.62-.85%

Leading Sectors
Tobacco+.14%
Food+.01%
Energy-.09%

Lagging Sectors
Disk Drives-1.92%
Iron/Steel-2.7%
Networking-2.85%

Other
Crude Oil 35.47-1.47%
Natural Gas 5.18-1.05%
Gold 399.50-2.63%
Base Metals 111.94-.87%
U.S. Dollar 87.11+1.47%
10-Yr. Long-Bond Yield 4.09%+1.38%
VIX 16.31+3.23%
Put/Call 1.0+49.2%
NYSE Arms 1.72+77.3%

Market Movers
BEAS+4.5% on better-than-expected 4Q and multiple upgrades.
TASR+6.9% on positive reception from investor conference.
BCSI+16.5% on very strong 3Q report, significantly above expectations.
CEGE+12.1% on optimism over lung cancer vaccine.
VAPH+25% on 3-for-1 split announcement.
KVHI-10.8% on 4Q report below expectations.
UVN-4.8% on weak 1Q guidance.

Recommendations
Morgan Stanley says demand for semis in Asia is stronger than seasonal in 1Q, capital spending plans are conservative. MS also says JWN had best 4Q margin performance in 10 years. MS raising price target on UTX to $110 from $100. 9 of 14 insurance companies that MS follows beat 4Q expectations by a significant margin. Goldman Sachs believes the U.S. Treasury yield curve will flatten in 04, benefiting ALL, AIG, C, MWD and STT. This would hurt FTN, NCC, JP, NFB and FNM. GS would buy HPQ at current levels. GS positive on newspaper stocks in 04. GS also like JWN, saying it is in the early stages of a dramatic systems-enhanced turnaround. Finally, GS raised WMT to "Outperform" from "In-line." Smith Barney says to switch from Copper to Aluminum stocks. Likes AA and AL. SB also likes CCI on significantly better-than-expected earnings. SB also positive on WMT, saying it will benefit from improved apparel offerings and tax cut spending. TheStreet.com is negative on RMBS, saying INTC will use a new standard for memory that relies on a technology different than that offered by RMBS. MU was cut to "Neutral" at CSFB. BEAS raised to "Buy 2" at UBS.

Economic Data
Consumer Price Index rose .5% vs. .2% last month.
CPI Ex Food and Energy rose .2% vs. .1% last month.

Mid-day News
U.S. stocks fell as comments from Hewlett Packard about computer-industry growth, higher-than-expected inflation readings, options expiration and plain profit-taking weighed on shares. AMG Data reporting Equity funds had net cash inflows of $3.6B for the week ended February 18. TXN announced 21M share buyback. Morgan Stanley says that 87.5% of the S&P 500 either met or beat earnings expectations in 4Q, only 12.5% disappointed. Earnings growth was 27.8% on avg. 78% of information tech companies surprised on the up-side with 54.3% average earnings growth. Japan raised its terror alert to the highest level. The Fed's Poole said slowing rates of productivity growth combined with strong economic growth should lead to "substantial gains" in payroll employment growth in 04. President Bush named FDA commissioner Mark McClellan to lead Medicare, as it rolls out expanded prescription drug coverage for seniors.

BOTTOM LINE: The market was looking for a reason to decline today and the CPI report was the catalyst. This report resulted in an increase in the U.S. dollar, interest rates and worries that the Fed was getting behind the curve on inflation. With base metal and energy prices soaring on US/Chinese demand, the Fed may have to raise rates sooner rather than later. I added a few more shorts on the open and the Portfolio is now 20% net short. The put/call and trin readings are at levels that suggest we are getting close to a short-term bottom. I may take some profits in a few of my better shorts on the close. If the U.S. dollar continues to rally next week, we may get the first 5%+ correction in the S&P in over a year, as a rising dollar hurts U.S. multi-nationals.