Monday, June 14, 2004

Mid-day Update

S&P 500 1,125.12 -1.0%
NASDAQ 1,969.24 -1.53%

Leading Sectors
Airlines -.08%
Biotech -.12%
HMO's -.24%

Lagging Sectors
Networking -2.48%
Semis -2.82%
Disk Drives -3.18%

Crude Oil 38.17 -1.29%
Natural Gas 6.25 +1.28%
Gold 384.00 -.62%
Base Metals 103.74 +.16%
U.S. Dollar 89.96 -.06%
10-Yr. T-note Yield 4.85% +1.05%
VIX 16.10 +7.05%
Put/Call 1.21 +3.42%
NYSE Arms 1.46 +84.81%

Market Movers
IPIX +9.15% after saying it had been asked to meet with Olympic organizers regarding the Summer Games in Athens.
QLTI -15.6% after saying it agreed to buy ATRX for $855 million in stock and cash to add medications for prostate cancer and acne, ATRX +13.2%.
NDN -27.8% after lowering 2Q estimates substantially and Merrill Lynch downgrade to Sell.
CTRP +20.1% after saying Rakuten, Japan's only publicly traded online shopping mall, will acquire a 21.61% stake for $109 million in cash.
CDWC -6.65% after announcing disappointing May sales and Raymond James downgrade to Outperform.

Economic Data
Trade Balance for April came in at -$48.3B versus expectations of -$45.0B and -$46.6B in March.
Advance Retail Sales for May +1.2% versus expectations of +1.2% and -.6% in April.
Retail Sales Less Autos for May +.7% versus expectations of +.6% and -.1% in April.

XL, MAR, HMT raised to Overweight at JP Morgan. RARE rated Overweight at Prudential, target $32. FON raised to Overweight at CSFB, target $21. Merrill Lynch cut ratings on 25 REITs. MGG raised to Buy at UBS. Goldman Sachs estimates crude oil will average above $30/bbl. through 2010, benefiting XOM, AHC, VLO, SUN, BHI and SLB. Goldman reiterated Attractive view on Drug Wholesaling segment, favorite MCK. Goldman reiterated Outperform on KO, PEP, DNA, EMC, SLR, INTC, ATYT, NT, AMGN and AET. Goldman reiterated Underperform on BVF, HRB and NSM. Citi SmithBarney said June CIO vendor preference survey showed tech spending should accelerate slightly from recent levels. Citi said strongest areas of spending appear to be software(apps, security, storage, database) and network equipment/apps(Gigabit Ethernet, WLAN, VPNs). Citi also said 35-45% of CIOs are starting to use VoIP vs. 26% in 03, as well 40-50% of companies deploying VoIP expect to upgrade their network infrastructure to accommodate it, benefiting CSCO. Citi thinks airline sell-off overdone, favorites are AMR and AAI. Citi said early market-oriented leading inflation measures are already flattening or declining on Fed tightening expectations.

Mid-day News
U.S. stocks are falling mid-day as interest rates rise, prompting investors to lock in recent gains. Taiwan Semiconductor said it raised production at two plants because of increased demand, the Wall Street Journal reported. ABC television's advertisers are balking at the network's rate increases after its ratings dropped in the latest season, the LA Times reported. France and Israel may sign their biggest arms deal since the French declared an embargo on weapons sales to Israel before the 1967 Middle East war, Haaretz reported. Large phone companies such as AT&T, cable companies such as Cablevision and possibly local phone carriers are likely to dominate the growing Internet phone-service market, the NY Times reported. Some Democratic senators and Senate candidates are pressuring John Kerry to choose John Edwards as his running mate, the NY Times reported. U.S. states are benefiting from strong economic growth as 32 expect to post budget surpluses, the LA Times said. Pitney Bowes CEO told CNBC he hasn't seen any weakness in demand as a result of higher rates, Bloomberg reported. Scientists are developing a bomb detector that uses subatomic particles called neutrons to detect highly enriched uranium or plutonium, which may help expose a nuclear device hidden in ship cargo, the San Francisco Chronicle reported. MGM Mirage raised its offer for Mandalay Resort to $4.8 billion after Mandalay rejected a bid last week, Bloomberg said. Ford said prices for its new gasoline-electric Escape, the first sport-utility vehicle to use the fuel-saving technology, will start at $26,380 and get 40 miles per gallon in city driving when the model goes on sale during the second half of the year, Bloomberg reported. Gary Stern, president of the Federal Reserve Bank of Minneapolis, said he sees no threat of rising inflation and the central bank is ready to adjust the pace at which it raises rates should that expectation prove wrong, Bloomberg reported. A Somali national living in the U.S. is charged with plotting with al-Qaeda to blow up a shopping mall in the Columbus, Ohio area, the Justice Department announced.

BOTTOM LINE: The Portfolio is modestly higher today as my homebuilding and tech shorts are falling more than my industrial and basic material longs. I added a few Chinese ADR and retail shorts on the open, thus leaving the Portfolio with 25% net short market exposure. One of my new shorts is URBN and I am using a $58.75 stop-loss on this new position. is showing the chances of the Fed raising rates by 50 basis points on June 30 doubled over the weekend to 27%. I expect U.S. stocks to weaken modestly into the close on rising interest rates and profit-taking.

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