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Friday Watch

Late-Night Headlines
Bloomberg:
- Yellow Roadway may buy a 50% stake in a freight-forwarding business owned by the Shanghai government to gain a foothold in the world's most populous country.
- Samsung Electronics said it will begin buying back $1.9 billion of shares this month to stabilize it stock price.

NY Times:
- The US and UK agreed on a plan to relieve 18 countries, mostly African, from paying back about $16.7 billion in debt to international lenders.

AP:
- The US Consumer Product Safety Commission's chairman has orders the agency to review how to reduce deaths and injuries among riders of all-terrain vehicles.

Financial Times:
- Eurex AG, the Frankfurt-based futures market, may offer foreign exchange futures contracts later this year to boost its US business.

London-based Times:
- Man Group Plc CEO Stanley Fink received a reduced salary after the hedge fund manager's growth slowed.
- British retail space demand has fallen 10% following a decline in consumer spending.

Shanghai Securities News:
- China's central bank has lent $2.4 billion to eligible brokerages to alleviate their capital shortages.
- The US curbs on seven categories of Chinese textiles will cost China $2 billion and 400,000 jobs.

China Daily:
- Nu Skin Enterprises will open a $20 million factory in Shanghai by the start of 2006.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on NSM, BSX, INTC, FSH and SAP.

Business Week:
- Shares of Aztar Corp.(AZR), which owns the Tropicana Casino & Hotel in Las Vegas, may rise 25% in the next year because it's an "attractive" acquisition target for Station Casinos and Boyd Gaming.
- Perficient's(PRFT) acquisitions will boost sales this year and next.
- PriceSmart(PSMT) CEO Price may take the company private or put it up for sale.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
BSG/.18
CYBX/-.32
RL/.80

Splits
TKC 1.25-for-1

Economic Releases
8:30 EST:
- The Trade Deficit for April is estimated to rise to -$58.0B versus -$55.0B in March.
- The Import Price Index for May is estimated to decline .4% versus a .8% increase in April.

2:00 EST:
- The Monthly Budget Statement for May is estimated at -$45.0B versus -$55.0B in April.

BOTTOM LINE: Asian indices are higher, led by exporters in the region, after US Fed Chairman Greenspan said the economy is on "firm footing" and inflation is "contained." I expect US equities to open mixed-to-lower and to rally modestly later in the day on short-covering and mostly positive economic data. The Portfolio is 75% net long heading into the day.

Stocks Finish Higher, Led by Tech

Indices
S&P 500 1,200.93 +.52%
DJIA 10,503.02 +.25%
NASDAQ 2,076.91 +.81%
Russell 2000 626.23 +.93%
DJ Wilshire 5000 11,890.26 +.58%
S&P Barra Growth 579.56 +.55%
S&P Barra Value 619.93 +.50%
Morgan Stanley Consumer 582.95 +.21%
Morgan Stanley Cyclical 718.20 -.24%
Morgan Stanley Technology 483.86 +.85%
Transports 3,529.21 -.24%
Utilities 370.99 +.19%
Put/Call .88 -4.35%
NYSE Arms .73 -18.25%
Volatility(VIX) 12.08 -4.88%
ISE Sentiment 178.00 +13.38%
US Dollar 88.07 +.22%
CRB 304.18 +.15%

Futures Spot Prices
Crude Oil 54.28 unch.
Unleaded Gasoline 157.14 unch.
Natural Gas 7.10 +.78%
Heating Oil 162.56 unch.
Gold 425.90 -.05%
Base Metals 123.24 +.06%
Copper 154.10 -.39%
10-year US Treasury Yield 3.95% +.39%

Leading Sectors
Oil Service +3.43%
Energy +2.90%
Networking +1.97%

Lagging Sectors
Steel -.86%
Airlines -.96%
Papers -1.30%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AVP, BBY and GD.

Afternoon/Evening Headlines
Bloomberg:
- The number of Hispanics in the US is growing three times faster than the population as a whole, the US Census Bureau said.
- US House Republicans plan to combine a proposal to revamp the US private pension system with an effort to save Social Security in a bid to attract Democratic support.
- Intel raised its second-quarter sales and profitability forecasts after laptop shipments surged.

CNBC:
- PIMCO Managing Director William Gross said 3% is an “effective limit” for inflation, which is unlikely to go higher.
- AMB Property CEO Moghadam said he expects further consolidation in the industrial real estate market following ProLogis’s $3.6 billion purchase of Catellus Development.
- Crude oil rose $1.74/bbl. in NY as concerns increased over a tropical storm in the Gulf of Mexico.

Cnet News.com:
- Microsoft will begin selling a music-subscription service later this year to compete with market-leading Apple Computer’s iTunes music store.

Financial Times:
- US and European companies are increasingly adopting “near shoring” policies to avoid problems of supply and management associated with investments in Asia, citing research by Deloitte & Touche.

Handelsblatt:
- Reebok International will seek acquisition targets to broaden its product base.

Asahi:
- Toyota Motor will increase prices in the US by as much as 3% this autumn to help US automakers.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet and Semiconductor longs and Base Metal shorts. I exited a few energy-related shorts in the afternoon as they hit stop-losses and added a couple of new chemical shorts, thus leaving the Portfolio 75% net long. One of my new shorts is PPG and I am using a $67 stop-loss on this position. The tone of the market was positive today as the advance/decline finished higher, most sectors rose and volume was below average. Measures of investor anxiety were lower into the close. Overall, today’s market action was positive. It was a good day for the bulls considering the fact that the Nasdaq and breadth finished at session highs even with oil spiking. However, stocks are displaying a muted reaction to Intel’s positive comments after-hours.

Stocks Rising Modestly Mid-day Even as Energy Prices Rise

Indices
S&P 500 1,199.16 +.38%
DJIA 10,492.75 +.15%
NASDAQ 2,071.46 +.54%
Russell 2000 623.92 +.56%
DJ Wilshire 5000 11,869.96 +.41%
S&P Barra Growth 578.80 +.42%
S&P Barra Value 616.09 +.36%
Morgan Stanley Consumer 582.87 +.20%
Morgan Stanley Cyclical 716.58 -.47%
Morgan Stanley Technology 483.43 +.76%
Transports 3,512.93 -.70%
Utilities 369.99 -.08%
Put/Call .97 +5.43%
NYSE Arms .75 -17.05%
Volatility(VIX) 12.19 -4.02%
ISE Sentiment 191.00 +21.66%
US Dollar 88.02 +.16%
CRB 304.05 +.11%

Futures Spot Prices
Crude Oil 53.65 +2.11%
Unleaded Gasoline 153.00 +2.17%
Natural Gas 7.08 +1.14%
Heating Oil 161.50 +4.01%
Gold 426.10 -.12%
Base Metals 123.24 +.06%
Copper 154.70 +.06%
10-year US Treasury Yield 3.96% +.68%

Leading Sectors
Oil Service +3.02%
Energy +2.31%
Networking +1.59%

Lagging Sectors
Airlines -.94%
Steel -1.29%
Papers -1.58%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet and Semiconductor longs and Base Metal shorts. I re-entered my QQQQ long and added to some existing longs, thus leaving the Portfolio 75% net long. The tone of the market is modestly positive as the advance/decline line is higher, most sectors are gaining and volume is around average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive considering the rise in energy prices and Greenspan’s basically unchanged stance on his view of the economy and interest rates. The first tropical storm of the 2005 season has formed in the Caribbean and several oil companies have announced they will be removing non-essential personnel. So far, equities are mostly ignoring the spike in crude. I expect US stocks to trade modestly higher into the close on short-covering ahead of Intel’s mid-quarter update.

Today's Headlines

Bloomberg:
- Corus Group Plc CEO Varin said European steel demand will stagnate this year and producers should cut production to shore up prices.
- Millionaires in the US increased their number by 9.9% to 2.5 million people last year, excluding home values, as the stock market rallied and the economy improved. Today, almost 1 in every 110 Americans has more than $1 million of shares, bonds and other financial assets, according to a report by Capgemini and Merrill Lynch.
- KKR Financial, the real estate investment unit of buyout firm KKR, may raise $838.6 million in an IPO by selling shares at as much as $25 each.
- The US economy is still growing at a decent clip and the Fed can keep raising interest rates at a “measured” pace, Fed Chairman Greenspan said.
- The US dollar traded near the highest in a week against the euro after Greenspan said the US economy is on a “reasonably firm footing” and policy makers can keep raising interest rates.
- Crude oil is riding for the first day in four as investors said any promise of higher output from OPEC would be hollow because the group has little additional production capacity.

Wall Street Journal:
- World corporations should boycott Myanmar, formerly called Burma, to avoid supporting a government that kills, tortures and displaces its residents, said Paul Fireman, chairman and CEO of Reebok International.
- Hedge funds that trade convertible bonds continued to lose ground last month.
- Jessica Simpson, Jennifer Lopez and other celebrities are increasingly influencing the world of high-fashion once dominated by elite designers in New York and Europe.
- A growing number of companies are being created to help Internet advertisers detect malicious advertisement clicks that drive up their costs.
- Apple Computer’s adoption of Intel chips will strengthen Apple’s Mac computer, giving the Mac more options than IBM products could.
- The US Financial Accounting Standards Board may require issuers of financial guarantees to accept uniform standards for how they book revenue and claims reserves.
- Support for vouchers, tax credits and other measures that seek to boost parental choice in education as well as student achievement continues to increase, Milton Friedman, a Nobel laureate in economics wrote.

NY Times:
- Some Saudi Arabian writers, professors and theologians risk being labeled heretics or given prison sentences by supporting reforms with writings and teachings.
- Computer Associates International agreed to purchase Niku for $350 million in cash to expand its line of software-management products.

Washington Post:
- Science Applications International, one of the largest employee-owned companies in the US, may sell shares to the public to raise money to expand in defense contracting.
- Water bottling companies are building plants in economically depressed US rural towns to meet an increase in bottled-water demand.

Boston Globe:
- MIT plans to double energy-related research over the next five years to address demand and consumption issues.

Beijing Morning Post:
- Growth in China’s fixed-asset investment may slow by the end of this quarter, reducing demand for cement and steel, citing a forecast from the National Development and Reform Commission.