Friday Watch

Late-Night Headlines
Bloomberg:
- The Russell 2000 Index gained almost twice as much as the S&P 500 Index after JPMorgan Chase(JPM) said the measure of small US companies will surge because its members are cheap and investors are too pessimistc.
- OPEC Leaders to Keep Production Levels, Consider Cuts in March.
- Matsushita Electric Industrial, the world’s largest consumer electronics maker, climbed to the highest in a month in Tokyo trading after profit rose to a record on demand for its Lumix cameras and Viera flat-panel televisions.
- Financial Guaranty Insurance Co., the world’s fourth-largest bond insurer, lost its AAA credit rating at Standard & Poor’s, which said it may cut the top ranking on MBIA’s(MBI) insurance unit as well. Ambac Financial’s insurer unit had its AAA credit rating affirmed by S&P.
- Intuitive Surgical Inc.(ISRG) jumped 15.4%, to $293.05 in extended trading. The maker of the da Vinci Surgical System for robot-assisted surgery said fourth- quarter profit doubled on sales of new systems. Profit was $1.24 a share, beating the average $1.02 estimate of five analysts, according to a Bloomberg survey.
- Google Inc.(GOOG) dropped 6.5% percent, to $527.40 in extended trading. The owner of the most popular Internet search engine reported fourth-quarter profit and sales that trailed analysts' estimates, signaling that an economic slowdown may be cutting into online advertising.
- Motorola Inc.(MOT) climbed 10.8%, to $12.75 in extended trading. The biggest mobile-phone maker in the U.S. said it plans to review whether to split off its mobile-phone unit.
- Altera Corp.(ALTR) rose 4.2%, to $17.60 after the official close of U.S. exchanges. The world's second-biggest maker of programmable semiconductors said it expects revenue of at least $323.2 million in the first quarter. That exceeded the average estimate of $320.6 million from analysts in a Bloomberg survey.

Wall Street Journal:
- Clinton, Obama Mix Praise, Jabs in Debate.

NY Times:
- While interest in alternative energy is climbing across the US, solar power especially is risng in California, the product of billions of dollars in investment and mountains of enthusiasm.
- Google(GOOG) said it has seen no effect from a slowing economy on its advertising business, as it reported a 17% jump in profit and 51% growth in revenue in the fourth quarter.

CNNMoney.com:
- Fear! Panic! Time to buy. Wall Street is focusing only on bad news. That means there are opportunities to scoop up quality companies on sale.
- New $20 Billion subprime bailout on the table.
- Old Crocs(CROX) come back to life. The shoe company’s SolesUnited initiative recycles its used plastic footwear to provide shoes for the needy.

IBD:
- Tractor Maker Plows A Course To Growth As Agriculture Booms.

Financial Times:
- Intercontinental Exchange(ICE), owner of Europe’s largest energy market, held talks with a new futures exchange backed by some of Wall Street’s biggest banks.
- Big investors in hedge funds are banding together to produce a guide to the industry in part to head off concerns that neophyte pension fund trustees have been pushed into piling money into risky funds.
- Russia’s most likely next president has urged his country’s business people to follow the Chinese example and go on a buying spree of foreign companies to bolster the economy.
- Bank of America’s(BAC) $4.1bn offer for Countrywide Financial(CFC) was thrown into doubt on Thursday when a large shareholder in the biggest US mortgage lender said it would vote against the deal. SRM Global Fund said the offer “considerably undervalued” Countrywide.
- Cash-rich financiers including Warren Buffett, Wilbur Ross and Ron Perelman are preparing to pounce on US companies hit by the financial turmoil – moves that could herald a new era of “vulture investing.”

TimesOnline:
- Oil production in Iraq is at its highest level since 2003, reaching 2.4 million barrels a day, thanks largely to improved security measures in the north.

Australian:
- David Hicks, the first Guantanamo Bay detainee to be convicted by a US military commission, has fielded 30 offers from media companies to tell his story. The race to sign up the convicted terrorism supporter, who was released from an Australian prison on Dec. 29, involves television networks in Australia, the US and Italy, Hick’s lawyer said. Television, book and magazine rights could generate as much as $900,000 for the 32-year-old Hicks.

Late Buy/Sell Recommendations
Citigroup:
- Maintain Buy on (LLL), target $129.
- Maintained Buy on (HOLX), target $81.

CSFB:
- Reiterated Outperform on (GOOG). Google reported 4Q results slightly below expectations. The company posted revenue of $3.39 billion(+12.5% q/q, +52% y/y) below consensus at $3.45 billion, as the growth in paid clicks decelerated to 30% y/y from 45% in Q4, due primarily to changes in algorithms designed to improve advertisers conversion rates. Pro-operating margin fell 50 bps q/q to 49.8% due to a similar decline in gross margin as Traffic Acquisition Costs spiked 400bp due to issues with the company’s social networking inventory. This was clearly a transition quarter for Google. With the algorithm changes slowing revenue growth, though improving advertiser returns, and the lag between the development of social networking as an effective advertising medium and scheduled minimum payments, coming at the same time the impact was significant. Long term, we believe both factors will be positives for Google, the former manifesting itself in higher CPC’s and the latter targeted, high volume display inventories. With the stock trading at 25x ’08 EPS, below its long term growth rate of +30% we believe this is an extremely attractive entry point into what we believe is, by far, the strongest growth story in the sector.

Night Trading
Asian Indices are -.25% to +1.50% on average.
S&P 500 futures -.27%.
NASDAQ 100 futures -.37%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (GCI)/1.29
- (CVX)/2.29
- (CMI)/1.05
- (R)/1.08
- (XOM)/1.97
- (TDW)/1.52
- (NMX)/.65
- (ACI)/.47
- (MAN)/1.53
- (ADP)/.53
- (EL)/1.14

Upcoming Splits
- (PEG) 2-for-1

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for January is estimated at +70,000 versus +14,000 in December.
- The Unemployment Rate for January is estimated at 5.0% versus 5.0% in December.
- Average Hourly Earnings for January are estimated to rise .3% versus a .4% gain in December.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for January is estimated to fall to 79.0 versus a prior estimate of 80.5.
- ISM Manufacturing for January is estimated to fall to 47.4 versus 48.4 in December.
- ISM Prices Paid for January is estimated at 68.0 versus 68.0 in December.
- Construction Spending for December is estimated to fall .5% versus a .1% increase in November.

Afternoon:
- Total Vehicle Sales for January are estimated to fall to 16.0M versus 16.3M in December.

Other Potential Market Movers
- None of note

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