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Wednesday Watch

Late-Night Headlines
Bloomberg:
- MGM Mirage said it's looking for more projects in the southern Chinese city of Macau in addition to a $975 million casino hotel being built in the former Portuguese enclave.
- School Specialty, which sells educational products to schools, agreed to be acquired by private buyout firm Bain Capital Parters LLC.
- Australia's economy grew less than expected in the first quarter as business investment shrank and farm output stalled, reinforcing expectations the central bank has finished raising interest rates this year.

Wall Street Journal:
- Lego Holdings AS, the Danish toy maker known for its plastic stackable bricks, is close to selling its theme parks to Blackstone Group LP for $462.1 million.

Financial Times:
- General Motors and Ford Motor may announce more cuts in their North American output.

Shanghai Daily:
- Shanghai imposed new taxes to cool an overheating property market.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MDT, AIG, MSFT, DIS and BSX.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.13%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
CMVT/.11
CPRT/.31
EASI/.53
NMG/A/1.55

Splits
GIL 2-for-1
PDS 2-for-1
WLP 2-for-1

Economic Releases
8:00 EST:
- Construction Spending for April is estimated to rise .6% versus a .5% increase in March.
- ISM Manufacturing for May is estimated to fall to 52.1 from 53.3 in April.
- ISM Prices Paid for May is estimated to fall to 67.5 from 71.0 in April.

Afternoon:
- Total Vehicles Sales for May are estimated to fall to 16.7M versus 17.5M in April.
- Domestic Vehicle Sales for May are estimated to fall to 13.5M versus 13.9M in April.

BOTTOM LINE: Asian indices are mixed as gains in Australia offset losses in China. I expect US equities to open modestly lower on worries over slowing global growth. The Portfolio is 50% net long heading into the day.

Stocks Finish Modestly Lower on Growth Concerns and a Rebound in Oil Prices

Indices
S&P 500 1,191.50 -.61%
DJIA 10,467.48 -.71%
NASDAQ 2,068.22 -.36%
Russell 2000 616.71 -.03%
DJ Wilshire 5000 11,778.43 -.47%
S&P Barra Growth 575.74 -.72%
S&P Barra Value 611.31 -.50%
Morgan Stanley Consumer 584.50 -.70%
Morgan Stanley Cyclical 720.28 -.75%
Morgan Stanley Technology 478.84 -.53%
Transports 3,599.58 -.65%
Utilities 363.33 +.23%
Put/Call .97 +19.75%
NYSE Arms 1.55 +25.94%
Volatility(VIX) 13.29 +9.38%
ISE Sentiment 192.00 +12.28%
US Dollar 87.76 +.94%
CRB 300.83 -.02%

Futures Spot Prices
Crude Oil 52.14 +.56%
Unleaded Gasoline 146.94 -.40%
Natural Gas 6.43 +.94%
Heating Oil 145.19 +.42%
Gold 419.10 -.85%
Base Metals 120.86 -.97%
Copper 145.10 +.52%
10-year US Treasury Yield 3.98% -2.16%

Leading Sectors
Airlines +1.11%
Hospitals +.88%
I-Banks +.78%

Lagging Sectors
Biotech -.98%
Computer Hardware -1.20%
Oil Tankers -1.71%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DIS, BSX, MSFT and BC.

Afternoon/Evening Headlines
Bloomberg:
- United Airlines and the Machinists union reached an agreement on concessions from about 20,000 bad handlers, reservation agents and customer-service workers, the final labor accord the carrier sought to help exit bankruptcy.
- Walt Disney’s ABC broadcast television network said advance advertising sales for next season rose about 30% to $2.7 billion after ABC gained viewers with hits including “Desperate Housewives.”
- US Treasuries rose the most in three months after an index of Chicago-area business fell more than forecast and a reading of inflation fell, pushing 10-year yields below 4% for the first time since February.

Financial Times:
- Chinese publicly traded companies should prepare for the sale of unlisted, state-owned shares.

Nihon Keizai:
- Yahoo Japan Corp. will work with Nikko Cordial Securities and E*Trade Securities to begin brokerage business as early as August.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs and Base Metal and Energy-related shorts. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was mildly negative today as the advance/decline finished slightly lower, most sectors declined and volume was light. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was slightly negative. I expect economic data tomorrow to come in mixed, resulting in another mildly negative day for stocks. An ISM reading below 50, which I expect, would make it very hard for the Fed to continue raising rates at the current pace. I continue to expect 10-year T-note yields to test 04 lows over the coming weeks.

Stocks Quietly Lower Mid-day on Growth Worries

Indices
S&P 500 1,193.99 -.40%
DJIA 10,494.60 -.45%
NASDAQ 2,069.58 -.30%
Russell 2000 617.42 +.08%
DJ Wilshire 5000 11,797.58 -.31%
S&P Barra Growth 577.48 -.42%
S&P Barra Value 612.08 -.37%
Morgan Stanley Consumer 585.85 -.47%
Morgan Stanley Cyclical 721.34 -.60%
Morgan Stanley Technology 478.98 -.50%
Transports 3,607.96 -.42%
Utilities 365.35 +.08%
Put/Call 1.08 +33.33%
NYSE Arms 1.74 +41.34%
Volatility(VIX) 13.11 +7.82%
ISE Sentiment 209.00 +22.22%
US Dollar 87.65 +.82%
CRB 300.38 -.17%

Futures Spot Prices
Crude Oil 51.65 -.39%
Unleaded Gasoline 146.20 -.90%
Natural Gas 6.33 -.55%
Heating Oil 144.60 +.01%
Gold 418.40 -1.02%
Base Metals 120.86 -.97%
Copper 145.50 +.80%
10-year US Treasury Yield 4.00% -1.60%

Leading Sectors
Airlines +1.86%
Hospitals +.82%
I-Banks +.38%

Lagging Sectors
Steel -.90%
Oil Service -.93%
Oil Tankers -1.44%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs and Base Metal and Energy-related shorts. I have not traded today and the Portfolio is still 50% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is very light. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral, given last week’s gains, global growth concerns and mixed US economic data. I expect US stocks to trade mixed-to-higher into the close as slowing growth concerns are offset by lower-long term interest rates and better consumer sentiment. NYSE short interest as a percentage of total shares reached 2.4% as of today, an all-time high. I continue to see a "negativity bubble." Morgan Stanley's Stephen Roach, who has been predicting interest rates would soar for several years, is now changing his tune. He is now saying the 10-year T-note yield will hit 3.5% within the next 12 months. Roach seems to agree with my view of a continuing fall in commodity prices as a result of slowing global demand. As I stated a few months ago, I believe the new breed of "perma bears" will begin switching arguments from inflation to deflation over the coming months.

Today's Headlines

Bloomberg:
- Russia isn’t ready to join the WTO, US Commerce Secretary Carlos Gutierrez said.
- A provision added to a federal bill that would reform government-sponsored enterprises could lead to as much as $1.6 billion of tax-exempt debt for affordable-housing and community-development projects, the Bond Buyer reported.
- Iraqi President Jalal Talabani said today that the trial of ousted dictator Saddam Hussein for crimes against humanity may begin in two months.
- Frontline Ltd., the world’s biggest oil-tanker company by capacity, reported its smallest profit gain in three quarters as sales growth barely increased, raising concern that global shipping markets have peaked.
- French Prime Minister Jean-Pierre Raffarin quit as President Jacques Chirac moves to win back confidence in this government after losing a referendum on the European Union’s constitution two days ago.
- AIG lowered five years of profit by $3.9 billion to correct improper accounting.
- The US Supreme Court unanimously overturned accounting firm Arthur Andersen’s conviction for obstructing an investigation into energy trader Enron Corp.
- W. Mark Felt, the second in command at the FBI in the early 1970s, has revealed in the July 2005 issue of Vanity Fair magazine that he was “Deep Throat,” the source who helped Washington Post reporters Bob Woodward and Carl Bernstein uncover the Watergate break-in.
- Morgan Stanley Chief Economist Stephen Roach said he is no longer bearish on bonds, and that yields on 10-year Treasuries may fall to 3.5% over the next year.
- The euro fell to a seven-month low against the US dollar on concern France’s rejection of the EU constitution will slow the region’s economic integration.
- US Treasuries are rallying, commodities are dropping and the US dollar is rising on France’s rejection of the EU constitution.

Wall Street Journal:
- DreamWorks Animation SKG miscalculated sales for “Shrek 2” because the company didn’t understand the fast changing pace of the DVD market.
- Shares of Bed Bath & Beyond are being snapped up by hedge funds that know a bargain when they see one.
- US doctors are testing whether so-called smart drugs such as Novartis AG’s Gleevec and Genentech’s Avastin will help children fight cancer as well as adults.
- UnitedHealth Group, Aetna and other US health insurers are marketing policies for the 45 million Americans without insurance offering cheaper programs with fewer benefits.
- Purdue Pharma LP, which makes the OxyContin painkiller, and wholesaler HD Smith plan to use radio-frequency identification tags to record the movement of drugs.
- The US housing market isn’t in a “bubble” destined to burst, according to Brian Wesbury, chief investment strategist at Claymore Advisors.
- Wal-Mart caters to a growing number of Hispanic shoppers at its stores by offering a free magazine called Viviendo and printing monthly ad circulars in English and Spanish.
- GM and Ford are focusing on building sales in India, the world’s fastest growing auto market.

Chicago Sun-Times:
- Illinois lawmakers are poised to limit the awards from medical lawsuits over concerns that rising costs for malpractice insurance are prompting doctors to leave the state.

Dow Jones Newswires:
- Samsung Electronics raised its forecast for 2005 worldwide handset sales because of “robust” shipments during the first quarter.

USA Today:
- More US states are increasing their minimum wages, pushing hourly rates above $7 in some and reducing the role of the federal minimum wage.

Financial Times:
- A “poisonous” regulatory environment in the US played a part in the fall of the value of mergers and acquisitions in the financial services industry.
- Ameritrade Holding is in “advanced talks” to buy Toronto-Dominion Bank’s TD Waterhouse brokerage.

Hurriyet:
-Turkey’s probable entry into the European Union was the fifth most-cited reason by French voters who rejected the EU constitution in the May 29 referendum.