Friday Watch

Earnings of Note
Company/Estimate
COO/.72
NT/.00

Splits
None of note.

Economic Data
Producer Price Index for November estimated to rise .1% versus a 1.7% increase in October.
PPI Ex Food & Energy for November estimated to rise .2% versus a .3% gain in October.
Preliminary Univ. of Mich. Consumer Confidence for December estimated at 93.5 versus a reading of 92.8 in November.
Monthly Budget Statement for November estimated at -$54.1B versus -$43.0B in October.

Recommendations
Goldman Sachs reiterated Outperform on DTV and A. Goldman reiterated Underperform on CIEN and CVC.

Late-Night News
Asian indices are mostly lower, led down by China and North Korea. AO VimpelCom, the second-largest mobile-phone operator in Russia, and Systema, another Russian cellular-phone service provider, are in talks with BPL Mobile Communications to buy a stake in the Indian company, the Economic Times reported. Gucci Group NV's new CEO, Robert Polet, is aiming to double sales of the company's brand-name merchandise within the next seven years, the NY Times said. China reported the slowest inflation in nine months as improved harvests boosted food supply, easing pressure on the central bank to raise interest rates, Bloomberg reported. Saudi Arabia supports an oil output cut of 1M barrels/day, Al-Hayat reported.

Late-Night Trading
Asian Indices are -1.25%. to unch. on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated -.15%

BOTTOM LINE: I expect U.S. equities to open modestly lower on weakness in Asia and concerns over comments from OPEC. However, I expect stocks to rise from morning lows on a better-than-expected consumer confidence report and lower oil prices. The Portfolio is 75% net long heading into tomorrow.

Thursday Close

S&P 500 1,189.24 +.54%
NASDAQ 2,129.01 +.14%

Leading Sectors
Homebuilders +4.80%
Oil Service +1.88%
HMOs +1.70%

Lagging Sectors
Airlines -.84%
Drive -1.01%
Semis -1.49%

Other
Crude Oil 42.54 +.02%
Natural Gas 6.95 +.94%
Gold 438.90 +.39%
Base Metals 113.57 -.46%
U.S. Dollar 82.05 +.18%
10-Yr. T-note Yield 4.17% +1.31%.
VIX 12.88 -2.35%
Put/Call .77 -13.48%
NYSE Arms .80 -34.43%

After-hours Movers
AMTD -4.8% said it's in talks with U.S. regulators about whether it had sufficient capital.
SHFL -4.3% after beating 4Q estimates and lowering 1Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on BAX, PG, TYC, NSM and FON. Goldman reiterated Underperform CR and SAY. Usana Health Sciences(USNA), the maker of nutritional supplements and weight-care products, will likely see its sales grow as new items are introduced, Business Week reported. Sipex Corp.(SIPX), whose President and CEO Maghribi quit this week, may be poised to be sold or taken over, Business Week reported. Ingersoll-Rand(IR), the world's biggest maker of refrigeration equipment for trucks, will benefits from increased demand for its products as the U.S. economy grows, Business Week reported.

After-hours News
U.S. stocks finished modestly higher today on optimism over the U.S. housing market, merger news and a rebound in technology shares from morning lows. After the close, deep tremors along the San Andreas fault in California might be a sign a large earthquake is coming, according to a study by scientists at the Univ. of California. Shares of Sprint and Nextel rose after reports that the U.S. mobile-phone companies are in merger talks, Bloomberg reported. Acer Inc. may sell its personal computers in the U.S. through Wal-Mart Stores to try and gain market share, the Commercial Times reported. DaimlerChrysler AG's Chrysler Group was asked by the U.S. government to recall about 600,000 vehicles, the Wall Street Journal reported.

BOTTOM LINE: The Portfolio finished slightly higher today and I added a few new longs from various sectors in the afternoon, leaving the Portfolio 75% net long. One of my new longs is PHM and I am using a $56.25 stop-loss on this position. The tone of the market improved throughout the afternoon with the major indices finishing near their highs for the day. As well, the advance/decline line, while negative, improved substantially from morning lows. The homebuilding index broke out of its recent trading range and closed at an ALL-TIME high, confounding the skeptics once again. It was also very positive to see semis rebound from morning lows on bad news and finish with minor losses. Finally, the weekly AAII % Bulls fell 9.5%, which is also a positive.

Mid-day Report

S&P 500 1,183.43 +.06%
NASDAQ 2,123.61 -.12%

Leading Sectors
Homebuilders +3.75%
Broadcasting +1.77%
Oil Service +1.12%

Lagging Sectors
Iron/Steel -.94%
Disk Drives -1.25%
Semis -1.74%

Other
Crude Oil 42.50 +1.34%
Natural Gas 6.84 +2.35%
Gold 437.40 -.32%
Base Metals 113.57 -.46%
U.S. Dollar 82.24 +.40%
10-Yr. T-note Yield 4.17% +1.31%
VIX 13.04 -1.14%
Put/Call .71 -20.22%
NYSE Arms .86 -29.51%

Market Movers
ALTR -11.5% after lowering 3Q outlook.
SMA +20.6% on strong demand for IPO.
ATPG +17.6% after saying a test on its Mississippi Canyon No.4 ST1 well was successful and showed flow rates that exceeded its expectations.
DITC +14.5% on Roth Capital upgrade to Strong Buy, target $24.80.
TOL +9.8% after beating 4Q estimates and raising 05/06 guidance.
FNF +6.0% after announcing a leveraged recapitalization plan and a special $10/share cash dividend.
INTL -11.6% after saying a unit will pay $8.7 million and plead guilty to bid rigging and wire fraud in connection with a federal program that helps link schools and libraries to the Internet.
LNG -8.4% after ChevronTexaco decided not to invest in a Louisiana plant the company plans to build.
TLCV -7.2% after saying it entered into an underwriting agreement to sell 2.3 million shares of common stock in the ipo of Occulogix.
VIP -9.2% after saying it has enough cash to meet obligations if a claim of $157 million in back taxes from 2001 is upheld.
DWA -5.5% on Bear Stearns downgrade to Underperform.

Economic Data
The Import Price Index for November rose .2% versus estimates of unch. and a 1.6% increase in October.
Initial Jobless Claims for last week were 357K versus estimates of 335K and 349K the prior week.
Continuing Claims were 2796K versus estimates of 2746K and 2705K prior.
Wholesale Inventories for October rose 1.1% versus estimates of a .5% gain and a .6% increase in September.

Recommendations
-Goldman Sachs reiterated Outperform on INTC, SANM, SLR, TYC, FON, BAX, GCI, PG, AVP and BBBY. Goldman reiterated Underperform on DJ, DYN, JDSU, CR and TRB.
-UBS downgraded LZB to Reduce, target $10. UBS downgraded JNS to Reduce, target $15.
-Banc of America rated CW Buy, target $68. BofA rated UDI Buy, target $52.
-Thomas Weisel raised GRMN to Outperform.
-JP Morgan raised LAVA to Overweight.
-Citi SmithBarney raised TWX to Buy, target $22.
-Deutsche Bank raised PPC to Buy, target $36.
-CIBC raised FLSH to Sector Outperform, target $25.
-Bear Stearns rated DWA Underperform, target $33. Bear raised MBT to Outperform, target $176.

Mid-day News
U.S. stocks are mixed mid-day as strong gains in the homebuilding sector are being offset by losses in technology shares. La-Z-Boy and other recliner makers are designing smaller, more delicate chairs that appeal to women to combat stagnant sales, the Wall Street Journal reported. Former Vermont governor and presidential candidate Dean urged fellow Democrats to stick to their liberal principles and not move to a more moderate stance to attract voters, the Washington Post reported. Citigroup plans to open 400 branches in the U.S., Canada and Mexico this year and next year to improve its profitable consumer finance business, Reuters reported. MBNA Corp., the world's largest independent credit-card lender, has angered some cardholders by switching their accounts to its new partner, American Express, from Visa or MasterCard without permission, the NY Times reported. The U.S. successfully resisted the adoption of socialism after WWII in its economic ideology, yet government's role in the economy has increased in recent years and that must be checked, Milton Friedman wrote in a Wall Street Journal column. More workers in the U.S. are finding permanent jobs through temporary assignments, USA Today reported. The Teamsters union proposed cutting the AFL-CIO's budget to help stem a decline in organized labor, the NY Times reported. Mexico's federal government has contracts that protect next year's oil revenue against a decline in the price of oil exports below $23-$24/bbl., daily Reforma reported. Hyatt Corp. agreed to buy the AmeriSuites chain of 143 hotels to tap rising demand from corporate travelers for upscale self-service rooms, Bloomberg said. Eli Lilly said net income will rise to $2.80 to $2.90 a share for 2005 as the company wins approval to sell new medicines, Bloomberg said. Toll Brothers, the largest U.S. builder of luxury homes, said fiscal fourth-quarter earnings increased 93% on higher sales, and raised its forecast for profit growth next year, Bloomberg reported. Men and teenage boys who use laptop computers may be damaging their fertility, a U.S. study shows. DaimlerChrysler AG said it doubled its number of fuel-cell models to 19 in the U.S. as part of the automaker's goal to have 100 of the no-emissions cars, trucks and buses worldwide by the end of this year, Bloomberg reported. National Semiconductor said profit rose for a sixth straight quarter, Bloomberg said. The US dollar had its biggest two-day advance since October against the euro and rose versus the yen as German Chancellor Schroeder and Japanese Prime Minister Koizumi denounced gains in their currencies, Bloomberg reported. The number of U.S. workers filing initial jobless claims unexpectedly rose by 8,000 last week to the highest since September, Bloomberg reported. Nextel Communications and Sprint Corp. are in "active and ongoing" talks about a possible merger, CNBC reported.

Bottom Line: The Portfolio is unchanged mid-day as strength in my retail longs is offsetting weakness in my semi/equipment longs. I have not traded today and the Portfolio is still 50% net long. The tone of the market has improved from morning lows, however it remains weak. Measures of investor anxiety are falling again and breadth is poor. The SOX bounced off its 50-day moving-average, which is a positive considering the news. I expect U.S. stocks to trade mixed-to-higher into the close on short-covering and bargain-hunting.

Thursday Watch

Earnings of Note
Company/Estimate
COST/.40
MATK/.30
NSM/.14
SHFL/.26
TOL/.197

Splits
CAKE 3-for-2

Economic Data
The Import Price Index for November is estimated unch. versus a 1.5% increase in October.
Initial Jobless Claims for last week estimated at 335K versus 349K the prior week.
Continuing Claims are estimated at 2746K versus 2723K prior.
Wholesale Inventories for October estimated to increase .5% versus a .5% gain in September.

Recommendations
Goldman Sachs reiterated Outperform on BHI, AVP and MDT.

Late-Night News
Asian indices are mixed as strength in China is being offset by weakness in Japan. China may let the yuan appreciate as much as 9.5% o 7.72 yuan to the U.S. dollar next year, Sing Tao Daily reported, citing Goldman Sachs' China chief economist Hong. South Korean President Roh Moo Hyun made a surprise visit yesterday to the Asian nation's soldiers serving in the northern Iraqi town of Arbil, Bloomberg reported. American Intl. Group is expanding its insurance offerings with a special policy to help companies in China cover the costs of lawsuits and regulatory investigations, the Asian Wall Street Journal reported. U.S. Trade officials plan to urge the Japanese government to lower barriers to entering the mobile phone market when the two nations hold talks next week, Kyodo News reported. About 10% of U.S. personnel wounded in the Iraq and Afghanistan wars have died, less than half the rates of past wars, partly because of better medical care, according to an essay in the Dec. 9 New England Journal of Medicine. The U.S. FCC said it will consider loosening a ban on mobile-phone use in airplanes, Bloomberg reported. Japan's Cabinet has decided to extend the country's troop deployment in Iraq, Bloomberg reported. Newly appointed Afghan President Karzai called provincial officials and tribal leaders to a meeting on combating drug trafficking, two days after he vowed at his inauguration to tackle the problem, Agence France-Presse said. Australia added jobs in November for a third straight month and the unemployment rate fell to a 28-year low, suggesting the fifth-largest economy in the Asia-Pacific region may rebound from its slowest growth in almost four years. Economists raised their U.S. growth forecast for the fourth quarter to 3.8% from 3.5% as a result of the recent fall in energy prices, Bloomberg reported.

Late-Night Trading
Asian Indices are -1.25%. to +.50% on average.
S&P 500 indicated -.21%.
NASDAQ 100 indicated -.53%

BOTTOM LINE: I expect U.S. equities to open lower in the morning on weakness in technology shares and a bounce in oil prices. The Portfolio is 50% net long heading into tomorrow.

Wednesday Close

S&P 500 1,182.81 +.49%
NASDAQ 2,126.11 +.54%

Leading Sectors
HMOs +2.51%
Biotech +1.86%
Disk Drives +1.73%

Lagging Sectors
Defense -.68%
Iron/Steel -1.01%
Semis -1.28%

Other
Crude Oil 42.05 +.26%
Natural Gas 6.72 +.55%
Gold 441.00 +.52%
Base Metals 114.10 -3.29%
U.S. Dollar 81.87 +.78%
10-Yr. T-note Yield 4.12% -2.47%.
VIX 13.19 -3.51%
Put/Call .89 +21.92%
NYSE Arms 1.24 -18.42%

After-hours Movers
FNF +6.4% after announcing leveraged recapitalization plan and a special $10/share cash dividend.
XLNX -5.3% after lowering 3Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on IR, USB and ECA.

After-hours News
U.S. stocks finished modestly higher today on optimism over a rebound in the US Dollar and falling interest rates. After the close, the California Public Employees' Retirement System is asking managers of companies and funds in which it's invested to disclose any investments they hold in Sudan, Bloomberg reported. TIAA-CREF, the largest U.S. retirement fund, said the staff of the SEC is conducting an informal inquiry into its arrangement with Ernst & Young, Bloomberg said. Gold in New York fell the most in seven months, and the prices of other metals declined, as a rebound in the dollar eroded the appeal of the commodities as an alternative to U.S. stocks and bonds, Bloomberg reported. Russia, one of Iraq's leading trading partners in the corrupt UN/Iraq Oil-for-food program, has refused to sign an agreement to cooperate with an investigation of it, Russian Deputy Ambassador Dolgov said.

BOTTOM LINE: The Portfolio finished unchanged today and I did not trade in the afternoon, thus leaving market exposure at 50% net long. The tone of the overall market improved from yesterday as the dollar rallied, interest rates plunged and commodity prices fell. Volume was lighter and the advance/decline line improved. However, most readings of investor complacency remain elevated. I continue to expect modest declines in the major indices in the near-term, setting the stage for a good year-end rally.