Today's Headlines

Bloomberg:
- Thomas H. Lee, the billionaire investor who plans to raise at least $7.5 billion for a new buyout fund, said the industry has entered a “golden age” of rising profits and transaction values.
- Crude oil in NY surged above $58 a barrel for the first time since reaching a record in April on signs that producers will struggle to meet growing fuel demand during the second half of the year.
- US 10-year T-notes are headed for their first back-to-back weekly drop in three months on stronger economic data.

Wall Street Journal:
- Independent stock-research firms are seeing a boost in business as fund managers and institutional investors buy their services with so-called soft dollars.
- The announcement that Morgan Stanley CEO Philip Purcell will step down after months of strife at the investment banking company may not provide a lasting gain in the stock.
- BellSouth plans to hire nearly 1,500 more workers as it expands its US broadband network in its region of nine southeastern states.
- Fund managers are increasing bets on emerging-market bonds denominated in local currencies to aim for higher returns.

NY Times:
- Inquiries into living wills, which allow people to specify medical measures at the end of their lives, have jumped since the death of Terri Schiavo.
- Guidant will pay the cost for a new defibrillator if both a patient and doctor decide the older device needs to come out.

San Francisco Chronicle:
- Intel will today announce the development of a chip that can access various so-called wireless fidelity, or Wi-Fi, networks to make it easier to use the Web.

Washington Post:
- US Democratic Senator Dick Durbin was rebuked by the White House for comparing treatment of detainees at the US naval prison in Guantanamo Bay, Cuba, to interrogations by Nazis and practices in Soviet gulags.

Lusa:
- Portugal will delay its referendum on the European Union’s constitution, which it planned to hold in October, citing Prime Minister Jose Socrates.

Consumer Expectations Jump, Current Account Gap Widens

- The 1Q Current Account Deficit rose to -$195.1B versus estimates of -$190.0B and -$188.4B in 4Q.
- Preliminary Univ. of Mich. Consumer Confidence for June rose to 94.8 versus estimates of 88.8 and 86.9 in May.

BOTTOM LINE: Higher-priced oil and strong demand for goods from US consumers propelled the current account deficit higher. The US economy is significantly stronger than that of Europe and Japan, which is the main reason for the widening deficit. I expect declining energy prices and a rising US dollar to help during the second half of the year.

US consumer sentiment rose more than expected in June as the job market improved and gasoline prices eased in recent months. The index is the highest in five months and showed the biggest improvement since January 2004. The unemployment rate fell to 5.1% last month, the best level since September 2001. As well, the average price for a gallon of gasoline at the pump fell to $2.17 for the week ended June 13 from a record $2.32 in the week ended April 11. The current conditions component of the index, which reflects Americans’ perception of their financial situation and whether it’s a good time to buy big-ticket items, rose to 110.4 from 104.9 in May. The expectations component of the index jumped to 84.8 from 75.3 last month. This was the largest gain since the US economy began a significant acceleration in the first half of 2003. I continue to believe consumer spending will remain vigorous through year-end on modest labor market improvements, low interest rates, a strong housing market, a rising stock market and lower energy prices.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Iran's former president Akbar Hashemi Rafsanjani, who is campaigning for more jobs and a "new chapter" in his country's relations with the US, may win the first round of presidential elections today, the latest polls show.
- The euro headed for its third weekly decline against the dollar in Asia on speculation European Union policy makers will today fail to resolve differences over the region's budget and constitution.

Wall Street Journal:
- Boeing and Lockheed Martin are competing to sell India 126 fighter jets.

Business Week:
- Older US workers may add 9% to GDP by 2045, or more than $3 trillion a year in today's dollars, as technology and better health allow people to work later into life.
- FedEx's earnings growth will get a boost from business in Asia.
- Hewlett-Packard CEO Hurd plans to reorganize the company's sales force, a move that would dismantle a key piece of predecessor Fiorina's strategic plan.

Financial Times:
- Microsoft must compromise further if it is to comply with its European Union antitrust order.
- Morgan Stanley will not split the role of chairman and chief executive when appointing a successor to Philip Purcell.

Xinhua:
- China will add bank loan fraud and illegal disposal of non-performing assets as new crimes under its Criminal Law.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on FCE/A.

Business Week:
- Alaska Communications Systems(ALSK) shares are an attractive buy because the company has an 8.4% dividend yield amid strong revenue growth.
- Casual Male Retail Group(CMRG) shares may almost double within 12 months as earnings from operations rise because of lower costs and sales of higher-margin brands.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated unch.

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CC/-.02
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Economic Releases
8:30 EST:
- Current Account Balance for 1Q is estimated at -$190.0B versus -$187.9B in 4Q.

9:45 EST:
- Preliminary Univ. of Mich. Consumer Confidence for June is estimated at 88.8 versus 86.9 in May.

BOTTOM LINE: Asian indices are mostly higher, led by commodity-related stocks in the region. I expect US equities to open mixed and move modestly higher later in the day on better-than-expected consumer confidence and lower long-term rates. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs on Lower Long-term Rates

Indices
S&P 500 1,210.96 +.36%
DJIA 10,578.65 +.12%
NASDAQ 2,089.15 +.69%
Russell 2000 644.03 +1.07%
DJ Wilshire 5000 12,018.08 +.47%
S&P Barra Growth 581.07 +.27%
S&P Barra Value 625.56 +.45%
Morgan Stanley Consumer 583.62 +.05%
Morgan Stanley Cyclical 741.15 +1.23%
Morgan Stanley Technology 481.19 +.46%
Transports 3,566.69 +1.12%
Utilities 373.11 -.22%
Put/Call .96 +15.66%
NYSE Arms .86 -2.17%
Volatility(VIX) 11.15 -2.71%
ISE Sentiment 173.00 -18.78%
US Dollar 88.68 +.05%
CRB 308.59 +.52%

Futures Spot Prices
Crude Oil 55.53 -.09%
Unleaded Gasoline 159.60 -.11%
Natural Gas 7.56 -.63%
Heating Oil 162.20 -.22%
Gold 437.60 -.07%
Base Metals 125.06 +.77%
Copper 157.10 +.10%
10-year US Treasury Yield 4.06% -.75%

Leading Sectors
Gold & Silver +3.34%
Biotech +2.93%
Steel +2.33%

Lagging Sectors
Tobacco -.31%
Telecom -.33%
Oil Tankers -.75%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on KLAC, DNA and SVU.
- Rated MNST Outperform, target $35-40.

Afternoon/Evening Headlines
Bloomberg:
- Ford Motor may have used cruise-control switches that can cause a fire in 16 million vehicles.
- US Treasury notes rose after the Philly Fed. Index unexpected slowed.
- Genentech agreed to buy a manufacturing plant in Oceanside, California, from Biogen Idec for about $408 million to make its Avastin cancer medicine.
- The United Auto Workers union said again it won’t reopen its contract with GM, while saying it would be a “huge mistake” to take “any unilateral action on health care benefits.”
- A magnitude 4.9 earthquake struck San Bernardino County near the town of Yucaipa, 71 miles east of LA.
- Crude oil traded near an 11-week high amid signs that surging global fuel consumption will strain the production capacity of OPEC and other exporters.
- The US Office of the Comptroller of the Currency filed a lawsuit to stop NY Democratic Attorney General Spitzer’s probe of mortgage-lending data from nationally chartered banks, saying he is exceeding his authority.
- XL Capital, PartnerRe, Philadelphia Consolidated and two other insurers received subpoenas from investigators.
- European Union leaders put ratification of the EU’s first constitution on hold as the stalemate over the $128 billion budget deepened and Britain and France fought over how to run the 25-nation bloc.

Wall Street Journal:
- Bank of America agreed to buy 9% of China Construction Bank for $2.5 billion.

AP:
- Two temporary memorials to victims of the Sept. 11 terrorist attacks are being built near the site of the former World Trade Center.

Frankfurter Allgemeine Zeitung:
- GM’s Opel and Saab units will introduce new sports utility vehicle models next year.

BOTTOM LINE: The Portfolio finished slightly higher on gains in my Gaming, Homebuilding longs and Oil Tanker shorts. I exited a few shorts in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline finished higher, almost every sector gained and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was positive considering the major indices and breadth closed at session highs in the face of rising energy prices and a disappointing Philly Fed. According to the latest data from the Energy Intelligence Group, global demand for crude has risen 1.59% over the last 12 months to 83.2 million barrels/day. However, global supply has risen 4.17% to 84.9 million barrels/day. The price of a barrel of crude is up over 60% during this same period of time. I expect tomorrow’s consumer confidence report to exceed estimates. As well, another decline in long-term rates could spur gains in US stocks.