Stocks Lower Mid-day on Rising Long-term Rates

Indices
S&P 500 1,262.31 -.23%
DJIA 10,833.49 -.41%
NASDAQ 2,257.28 -.71%
Russell 2000 685.58 -.72%
DJ Wilshire 5000 12,627.11 -.31%
S&P Barra Growth 604.01 -.33%
S&P Barra Value 653.57 -.17%
Morgan Stanley Consumer 592.66 -.37%
Morgan Stanley Cyclical 779.03 -.30%
Morgan Stanley Technology 532.00 -.94%
Transports 4,088.52 -1.22%
Utilities 403.66 +.16%
Put/Call .85 unch.
NYSE Arms .98 -20.45%
Volatility(VIX) 11.59 +5.27%
ISE Sentiment 203.00 -12.50%
US Dollar 91.42 -.55%
CRB 326.45 +.96%

Futures Spot Prices
Crude Oil 60.15 +1.40%
Unleaded Gasoline 159.70 -.86%
Natural Gas 13.92 -.08%
Heating Oil 179.75 +1.44%
Gold 512.70 +1.12%
Base Metals 151.59%
Copper 200.70 +1.31%
10-year US Treasury Yield 4.56% +1.18%

Leading Sectors
Steel +1.64%
Energy +.69%
I-Banks +.28%

Lagging Sectors
Airlines -1.48%
Computer Services -1.48%
Semis -1.59%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Semi longs, Airline longs and Medical Information Systems longs. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is about average. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering more positive economic data and lack of follow-through from late last week. According to the Hedge Fund Center, the number of hedge funds trading commodity-related securities has risen 125% in just the past year. As well, $15 billion has flowed into investment funds that track commodity indices over the past 5 months, according to Barclays Capital. It is interesting to note that the CRB Index has barely risen over this time frame, notwithstanding the historical disruptions related to the hurricanes. I expect US stocks to trade modestly higher into the close on short-covering, more optimism and a reversal lower in energy prices from morning highs.

Today's Headlines

Bloomberg:
- GM CEO Wagoner will keep intact a spending plan for information technology, even as he slashes $7 billion in costs at the world’s largest automaker.
- Mergers and acquisitions may provide a record $18 billion in fees to the financial industry next year as corporations use their burgeoning stockpiles of cash for the biggest spending spree since the Internet bubble burst in 2000.
- Verizon Communications may sell the domestic operations of its directory publishing unit as it tries to exit that business to focus on selling telephone service and high-speed Internet connections.
- A four-year rally that enabled platinum to more than double in price may be over now that carmakers led by GM are switching to less costly palladium.
- Boston Scientific said it is proposing to acquire all the outstanding shares of Guidant for a combination of cash and stock worth $72 for each Guidant share.
- US newspaper companies may reduce their forecasts for 2006 advertising growth this week as circulation declines and ad spending moves to the Internet.
- Sears Holdings offered to buy the publicly traded shares in its Canadian unit for about $719 million, giving Chairman Ed Lampert more control over the struggling retailer.
- US Treasuries are falling as a private report showed the services industry, the largest part of the US economy, expanded in November.
- Crude oil and natural gas are surging as freezing temperatures gripped the US Midwest and the first snowstorm reached the Northeast.

Wall Street Journal:
- Blue Cross and Blue Shield health plans plan to charter a joint bank to manage more of the growing deposits into health savings accounts.
- Morningstar is modifying its mutual-fund ratings to reflect the rapid accumulation of cash in retirement plans.
- Global investors have become more exuberant in the past month, pushing up the prices of assets that are often seen as bets on rapid growth.

USA Today:
- Starwood Hotels’ Westin Hotels chain will say today that it will ban smoking at its 77 US Canadian and Caribbean outlets in all rooms, restaurants and pubic areas starting in January.
- NY, Texas, Ohio and at least nine other states are considering major highway projects as state revenue increases more than it has since 2001.

LA Times:
- Intel is trying to become a central figure in the expanding world of digital media with its Viiv platform.

AP:
- RealNetworks is starting a new version of it Rhapsody music service that lets users listen to tracks over the Internet without downloading software.
- Iran plans to build a second nuclear power plant amid international concern about its nuclear program, citing Iranian state television.

Washington Post:
- Six of the Democratic Party’s most prominent foreign-policy scholars, including five who served in the top ranks of government, are divided on the Bush administration’s Iraq war policy.

San Jose Mercury News:
- WJ Communications’ CEO and three directors bought shares last month in the communications network equipment maker, citing data from Thomson Financial.

JANA:
- Libya plans to raise its crude-oil production by 17% to 2 million barrels a day by mid-2006, citing the top Libyan oil official.

AFP:
- The trial of former Iraqi dictator Saddam Hussein resumed in Baghdad today after a one-week break.

Service Sector Still Strong, Prices Paid Decelerates

- ISM Non-manufacturing for November fell to 58.5 versus estimates of 59.0 and a reading of 60.0 in October.

BOTTOM LINE: Growth in US service industries slowed in November after accelerating the prior month by the most in more than three years, Bloomberg reported. The Prices Paid component of the index fell to 74.2 from 78 in October. The export orders component of the index rose to 57 from 54.5. The employment component of the index rose to 57 from 52.9. I continue to expect the service sector, which accounts for two-thirds of the US economy, to remain healthy over the intermediate-term as consumer sentiment improves, energy prices continue to fall, stocks rise, the job market stays healthy and interest rates remain low by historical standards.

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Monday Watch

Weekend Headlines
Bloomberg:
- Toshiba Corp. won the reversal of a $465.4 million verdict awarded to Lexar Media in a trade secrets dispute over flash-memory technology.
- Voters is Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, are going to the polls today to choose who will rule the country through 2012 and oversee a near tripling of crude oil output.
- US Treasury yields show investors are the most confident about the outlook for inflation since Hurricane Katrina sent oil prices to a record high.
- The US dollar, buoyed by international demand for US assets and a surging economy, is on the verge of having its biggest annual gain against the yen since 1979.
- Investment funds tracking commodity indexes drew $15 billion more cash in the past five months as investors chased alternatives to stocks and bonds.
- Japan’s third-quarter capital spending climbed more than expected as investment by manufacturers surged, signaling that the economy will keep expanding in the final three months of the year.

Wall Street Journal:
- Wal-Mart Stores added about 70,000 workers to its health-care plans for next year.
- Gap Inc. said Jeff Jones, head of marketing for its Gap store, will leave at month’s end.
- Donald Trump is considering starting a “Trump Shopping Network.”

Financial Times:
- Companies are spending $23 billion on market research amid concern that traditional advertising channels are losing their effectiveness, citing a report by ZenithOptimedia, a UK buyer of advertising space.

NY Times:
- Medicare, the US government health insurance program for the elderly, won’t cover the cost of some used of Johnson & Johnson’s heart drug Natrecor.
- Payless ShoeSource plans to change the way it designs shoes and remake its stores to reverse a market-share decline, the discount chain’s CEO said.
- US Lieutenant General Martin Dempsey said the Iraqi military and security forces will achieve their 2006 and 2007 headcount goals.
- Health-care coverage for US children has steadily improved during the past few years.
- Sales of impotence drugs have declined as fewer men are willing to use the medications and as oft-televised commercials for the products become less effective.

Chicago Tribune:
- A federal judge on Friday ruled that an Illinois law that would ban the sale of sexually explicit and violent video games to minors violates constitutional protections on freedom of speech.

LA Times:
- MoveOn.org, known for its opposition to the war in Iraq and its support of liberal Democratic politicians, is protesting job cuts at newspapers owned by Tribune Co.

Washington Post:
- GM and Ford are requesting tens of billions of dollars in assistance from the federal government, ranging from catastrophic health insurance coverage for their workers to tax write-offs.

Rocky Mountain News:
- Wells Fargo, the fifth biggest US bank by assets, is being dropped by Christian group Focus on the Family, because of the bank’s “pro-homosexual agenda.”

Sunday Telegraph:
- Richard Branson plans to take control of NTL Group to add its cable TV and telephone businesses to his Virgin Mobile Holdings Plc, in a combination worth $7.8 billion.

De Telegraaf:
- The Netherlands and other countries like Germany and France are being targets by al-Qaeda as locations for a terrorist attack, citing a document by imprisoned terrorist Abu Musab al-Suri.

Nihon Keizai:
- Japan and the US agreed to cooperate on United Nations reforms and Japan’s financial contributions to the organization.

Finanz & Wirtschaft:
- Medtronic is winning market share in the stent business and expects to control more of the market than analysts are estimating, CEO Collins said.

the Business:
- Boeing may win the largest share of a $15 billion order from Qantas Airways Ltd.

Xinhua News Agency:
- China plans to ease over-capacity in some industries next year, citing National Development and Reform Commission Minister Ma Kai.
- A pair of surveys released Thursday pointed to excess capacity as a growing problem in China's economy, although they gave mixed signals about the overall health of the manufacturing sector.

Middle East Economic Digest:
- Foster Wheeler Ltd., Technip SA and JGC Corp. are among companies that will be invited to bid for contracts worth $11 billion to boost output from Saudi Aramco’s Khurais oil field.

Weekend Recommendations
Barron's:
- Had positive comments on CVS, COH and FOSL.
- Had negative comments on GPS.

Goldman Sachs:
- Reiterated Outperform on IDIX, BSX and DHR.

Night Trading
Asian indices are -.25% to +.75% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/Estimate
BSG/.17
JOSB/.31
URI/.66

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- ISM Non-Manufacturing for November is estimated to fall to 59.0 versus a reading of 60.0 in October.

BOTTOM LINE: Asian Indices are mostly higher, led by energy-related shares in the region after oil climbed for a fourth day. I expect US stocks to open modestly higher and maintain gains throughout the day. The Portfolio is 100% net long heading into the week.