Friday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Bank of St. Louis President William Poole said policy makers face the challenge of crafting rules that promote financial stability without discouraging innovation in the subprime mortgage market.
- Protectionist Pandering a Strategy for Losers. Free trade is under attack all over the world.
- National Semiconductor(NSM), the maker of chips for devices that beat analysts’ estimates, sending the shares up 10% in late trading.
- The dispute over Democratic convention delegates from Michigan and Florida turned into a battle over money as state officials lobbied the national party organization to pay for a new vote.
- Citigroup to Pare Mortgage Holdings by $45 Billion.
- The Bank of Japan kept interest rates on hold at Governor Toshihiko Fukui’s final board meeting on concern that economic growth is slowing.
- Bush Leads Condemnation of Gun Attack on Jerusalem Seminary.

Wall Street Journal:
- Hedge Funds Squeezed As Lenders Get Tougher.
- Apple(AAPL) Positions iPhone as Rival To the BlackBerry.

MarketWatch.com:
- Those with a net worth of between $1 million and $10 million – that have earned rather than inherited – are being dubbed “middle-class millionaires,” a group that has grown on the heels of the economic boom over the past couple of decades. Middle-class millionaires now account for 10% of the US population.
- Doubting euro’s run. As the euro grows in size, as well as value, its inherent instability is plain to see.
- Strong storms, weak dollar mean ski country smiles. Influx of foreigners and record snowfalls soften economic downturn.
- Chain-store retail sales rose 1.9% based on a preliminary tally of 39 US retailers, better than its original forecast of a .5% to 1% increase, according to a report from ICSC.

CNBC.com:
- Big Names Are Hopping Into Munis, Should You?

NY Times:
- Apple(AAPL) to Encourage iPhone Programmers.

BusinessWeek.com:
- Are We Talking Ourselves Into Recession? While you can’t talk a strong economy into a weak one, maybe we’re making things worse by focusing on the negative news.

Forbes.com:
- Study: Solar Thermal Power Could Supply Over 90% of US Grid Plus Auto Fleet.

CNNMoney.com:
- High-cost mortgages just got cheaper. Freddie and Fannie can now purchase loans worth as much as $793,000, while the FHA can insure loans for up to $729,000.

AppleInsider:
- Apple’s(AAPL) iPhone takes on the Enterprise.
- Coming to iPhone: Instant Messenger, EA’s Spore, SEGA games.

AP:
- Democratic Senator Diane Feinstein and as many as nine other US lawmakers received packages today containing a photo of the Time Square military recruiting office before it was bombed. The manila envelopes had a photo of a man standing in front of the station with the word, “Happy New Year, We Did It.” The package also contained about a 10-page manifesto against the Iraq War.

Reuters:
- Short interest on the NSYE jumped another 4.2% to 14,957,000,000 shares in late February, hitting another all-time high.
- Short interest surged 27.7% in shares of Citigroup(C) to 118 million shares. Short interest jumped 28.4% in Fannie Mae(FNM) to 66 million shares. Short interest in shares of Verizon(VZ) soared 29.4% to 35 million shares. Short interest in shares of Chevron(CVX) surged 29.0% to 30 million shares.
- John Meriwether’s Relative Value Opportunity hedge fund is suffering its worst year since inception in 1999 due party to falling values in commercial mortgage-backed securities. Meriwether, the secretive former Salomon Brothers bond trading star who co-founded the failed hedge fund Long-Term Capital Management, told investors the RV Opportunity fund lost 9.2% year-to-date through Feb. 28.
- Hedge funds worldwide bled more red ink in February after delivering their worst-ever returns in January, investors and industry analysts said, noting that ongoing declines could force dozens of managers to close down.

Economist.com:
- Don’t mark to Markit. The king of credit indices casts doubt on its own products. Banks use the indices to help them calculate write-downs, or to hedge their exposures. The ABX is popular with hedge funds keen to take a view on the housing market. The indices’ relentless fall has added to pressures on banks, such as Merrill Lynch(MER) and Citigroup(C), with big mortgage-related holdings. Banks that mark assets far from where the indices trade incur the ire of their auditors. The indices are undoubtedly useful, but some people think banks are putting too much emphasis on them. They capture only a narrow slice of the market: the ABX references 20 securities, for instance. And they are prone to distortion(mostly downward) by heavy speculation. “They are not liquid enough to take the weight of short-selling heaped on them,” says one fund manager, who adds that the ABX “will probably be remembered as one of the most crowded hedge-fund trades in history.” Dick Bove, a veteran bank-watcher with Punk Ziegel, recently denounced Markit’s indices as “fallacious.” He expects to see write-ups as their flaws become apparent. Intriguingly, Markit agrees with the skeptics, up to a point.

Financial Times:
- Fears over the health of the financial system intensified on Thursday as forced selling and margin calls at hedge funds sparked acute stress in many areas of the fixed income markets.

TimesOnline:
- Mercedes-Benz gives green light to fuel-cell cars.

China Business News:
- China’s monetary-policy tightening “has just started” and “it’s not really tight yet,” former People’s Bank of China Vice Governor Wu Xiaoling said.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EXPE), target $38.
- Reiterated Buy on (AAPL), target $212. Apple chose to license Microsoft’s ActiveSync protocol for push e-mail/calendar/contacts and remote wipe rather than access to RIM’s Network Operating Center. While Apple claims superior reliability and security with ActiveSync, RIM currently enjoys an overwhelmingly dominate position within the enterprise installed-base. We view Apple’s solution as a viable option primarily for small to mid-sized businesses.
- Reiterated Buy on (URBN), target $35.

Night Trading
Asian Indices are -3.0% to -1.0% on average.
S&P 500 futures +.12%.
NASDAQ 100 futures +.18%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CIEN)/.38
- (SUP)/.15

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for February is estimated at 23K versus -17K in January.
- The Unemployment Rate for February is estimated to rise to 5.0% versus 4.9% in January.
- Average Hourly Earnings for February are estimated to rise .3% versus a .2% gain in January.

3:00 pm EST
- Consumer Credit for January is estimated to rise to $7.0 Billion versus a $4.5 Billion gain in December.

Other Potential Market Movers
- The Fed’s Hoenig speaking, Fed’s Fisher speaking, Fed’s Yellen speaking, Fed’s Mishkin speaking, Fed’s Kohn speaking and UBS Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.