Stocks Modestly Higher Mid-day on Fed "Pause" Speculation

Indices
S&P 500 1,201.25 +.31%
DJIA 10,517.21 +.48%
NASDAQ 2,074.75 -.05%
Russell 2000 626.07 +.51%
DJ Wilshire 5000 11,892.79 +.32%
S&P Barra Growth 580.48 +.39%
S&P Barra Value 616.55 +.28%
Morgan Stanley Consumer 585.71 +.29%
Morgan Stanley Cyclical 723.40 +.10%
Morgan Stanley Technology 483.35 -.01%
Transports 3,639.51 +.13%
Utilities 372.62 +1.0%
Put/Call .83 -4.60%
NYSE Arms .75 -42.76%
Volatility(VIX) 11.84 -3.58%
ISE Sentiment 196.00 +11.36%
US Dollar 87.56 -.05%
CRB 306.65 -.20%

Futures Spot Prices
Crude Oil 53.85 -1.17%
Unleaded Gasoline 151.50 -.95%
Natural Gas 7.12 +.04%
Heating Oil 160.70 -.59%
Gold 426.60 -.42%
Base Metals 124.80 -1.13%
Copper 154.30 -1.34%
10-year US Treasury Yield 3.92% -.63%

Leading Sectors
Hospitals +1.89%
Airlines +1.55%
Papers +1.20%

Lagging Sectors
Computer Hardware -.26%
Oil Tankers -.60%
Gold & Silver -1.31%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Networking and Retail longs. I added a few tech longs this morning, thus leaving the Portfolio 100% net long. One of my new longs is XXIA and I am using an $18 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is average. Measures of investor anxiety are lower. Today’s overall market action is modestly positive considering Greenspan’s dovish comments last night. As I have stated numerous times over the last year, I do not believe there is a “conundrum” with respect to low long-term rates. I continue to believe the U.S. economy is temporarily slowing to below-average rates of growth. As well, global growth appears on the verge of slowing substantially.
A firmer U.S. dollar, slowing global growth, decelerating measures of inflation and a flight of capital back to the U.S. should keep rates low. The U.S. has likely experienced a cyclical bout of modest inflation within a secular disinflationary environment. This will become more apparent over the coming quarters. I expect US stocks to trade mixed-to-higher into the close on short-covering and more Fed “pause” speculation.

Today's Headlines

Bloomberg:
- Cisco Systems said it has seen a surge in demand for its fastest routers, a sign telephone carriers are stepping up spending on networks.
- LG.Philips LCD, the world’s largest maker of liquid crystal displays in monitors and televisions, said it won a contract to supply $5 billion worth of panels to Hewlett-Packard over the next three years.
- Frontline Ltd. and Teekay Shipping Corp., whose top executives gather today in Norway for four days of shipping conferences, may seek takeovers as a slump in freight rates threatens to erode earnings.
- Royal Dutch/Shell Group, E.ON AG and partners sought government permission to build the world’s largest wind park, a $2.75 billion offshore project big enough to serve one-fourth of London.
- GM CEO Wagoner said the automaker will cut at least 25,000 US manufacturing jobs in the next three years and close additional assembly and parts plants to cut costs.
- US 10-year Treasuries rose the most in five days after Fed Chairman Greenspan suggested yields may not rise soon following an “unusual” slide to a 14-month low.
- Crude oil is falling for a second day on speculation higher refinery output is boosting fuel supplies, undermining the justification for a two-week rally in prices.

Wall Street Journal:
- Italian, Spanish and Portuguese shoemakers will demand that the European Union curb leather-shoe imports from China, citing Leonardo Soana, director general of Italy’s National Footwear Assoc.
- GM is introducing new models, including replacements for the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade, in an effort to turn around a $1.3 billion first-quarter loss in North America.
- UAL’s United Airlines is giving up its costly and problem-ridden baggage system at the Denver Intl. Airport which may save the company considerable costs.

NY Times:
- Some legal US residents in both Mexico and the US rent their social security numbers to illegal immigrants looking for work.
- Mass graves in northern Iraq may prove that Saddam Hussein’s government killed as many as 100,000 Kurds in the late 1980s.
- The Bush administration today is publishing requests for proposals for $50 million in federal contracts to help build a computer health-care records system.
- NY City Schools Chancellor Joel Klein is scheduled to unveil plans today for a system of analyzing standardized-test scores that aims to identify which schools are helping students and which ones are behind.

Boston Globe:
- A proposed increase in the minimum wage in Massachusetts might lead to the loss of as many as 27,000 jobs.

Las Vegas Review-Journal:
- Nevada’s Legislature reached an agreement late Monday on a $300 million rebate to the state’s taxpayers.

NY Post:
- Apria Healthcare Group, the biggest US provider of home-health services, is trying to find buyers for the company almost a year after it put a possible sale on hold.

Star-Ledger:
- New Jersey public schools will stop selling sodas, candy and junk food to students by Sept. 1, 2007.

Reuters:
- European Central Bank President Jean-Claude Trichet said the ECB has no plans to cut interest rates in the dozen-nation euro region, citing Trichet.

Financial Times:
- World hedge-fund performance was little changed in May, as the effect of downgrades of Ford and GM debt didn’t materialize, citing Merrill Lynch’s global hedge fund monitor.

Valor Economico:
- Staples and Office Depot are considering the acquisition of two Brazilian office-supply companies.

AFP:
- OPEC’s president, Sheikh Ahmad Fahd al-Sabah, said he will seek a 500,000 barrel-a-day increase in the organization’s output quotas at a meeting next week if prices remain high.

Economic Releases

None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fed Chairman Greenspan said the "unusual" decline in long-term US Treasury yields still can't be full explained and that hedge funds may be over-reaching as they search for higher returns.
- CNOOC Ltd, China's third-largest oil producer, said it may bid for US-based Unocal Corp., rivaling a $16 billion offer by Chevron.
- People's Bank of China Governor Zhou Xiaochuan said the government plans to introduce new policies to spur consumer spending to help eliminate a trade surplus that's fueling tensions with the US and Europe.
- GM's CEO Wagoner is facing growing calls from investors to close plants as the world's largest automaker loses market share to rivals such as Toyota Motor.

Wall Street Journal:
- European Union regulators dropped for the time being a threat to fine Microsoft as much as $5 million a day for failing to comply with orders to open its markets to competitors.

AP:
- Pakistan sent Libyan terrorism suspect Abu Faraj al-Libbi, accused of planning two assassination attempts against President Pervez Musharraf, to the US.

Financial Times:
- Morgan Stanley senior banker David Topper has joined JPMorgan Chase as co-head of equity capital markets.

Chosun Ilbo:
- South Korea's steel imports from China more than tripled in the first four months of the year to 2.7 million metric tons.

Standard:
- Shanghai's real estate developers and homebuyers owed banks $42 billion at the end of 2004, a 41% increase from a year earlier.

China Daily:
- China's textile exporters will probably use up the quotas imposed by the US by the end of July as they rush to deliver existing orders to customers.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on LRY and AIG.
- Reiterated Underperform on HRB and AMAT.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.16%.

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Earnings of Note
Company/EPS Estimate
ABS/.27
ALOG/2.12
COO/.74
OLG/.46

Splits
CVS 2-for-1

Economic Releases
3:00 EST:
- Consumer Credit for April is estimated to rise to $7.4B versus $5.5B in March.

BOTTOM LINE: Asian indices are mostly lower on weakness in semiconductor shares after negative comments from Merrill Lynch. I expect US equities to open modestly higher on more Fed "pause" optimism and lower energy prices. The Portfolio is 75% net long heading into the day.