Wednesday Watch

Late-Night Headlines
Bloomberg:
- House Financial Services Committee Chairman Barney Frank said Democrats are likely to reach an agreement with President Bush on an economic stimulus plan that may be passed early this year.
- The risk of Citigroup Inc.(C) defaulting fell after the biggest US bank wrote down the value of subprime mortgage investments by $18 billion, less than some analysts had anticipated. Credit-default swaps on NY-based Citigroup fell 2 basis points to 83 basis points.
- Stacy Smith, chief financial officer of Intel Corp.(INTC) sees no slowdown in computer business. (video)

Wall Street Journal:
- Toxic Factories Take Toll On China’s Labor Force.
- Romney Wins Michigan Primary After Tight Contest With McCain.
- John Paulson Bet Big on Drop in Housing Values; Greenspan Gets a New Gig, Soros Does Lunch.

MarketWatch.com:
- Rising oil prices meet silence on the campaign trail.
- Three Wall Street firms cut ratings across energy sector.

CNBC:
- Bank of America(BAC) said on Tuesday it would eliminate 650 corporate and investment banking jobs and sell its equity prime brokerage business.

NY Times:
- Bloomberg Hires Quadrangle to Manage His Wealth.

SmartMoney.com:
- Luxury Stocks at a Discount.
- Apple’s(AAPL) slim new laptop promises to pump up Mac sales.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (TIN) to Buy, target $26.
- Reiterated Buy on (MER), target $75.

Night Trading
Asian Indices are -3.0% to -2.0% on average.
S&P 500 futures -.65%.
NASDAQ 100 futures -1.56%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (AMR)/-.76
- (PGR)/.33
- (JPM)/.92
- (WFC)/.40
- (KMP)/.45
- (CLC)/.51
- (FIG)/.20

Upcoming Splits
- (STAN) 2-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for December is estimated to rise .2% versus a .8% gain in November.
- The CPI Ex Food & Energy for December is estimated to rise .2% versus a .3% gain in November.

9:00 am EST
- Net Long-term TIC Flows for November are estimated to fall to $50.0B versus $114.0B in October.

9:15 am EST
- Industrial Production for December is estimated to fall .2% versus a .3% gain in November.
- Capacity Utilization for December is estimated to fall to 81.2% versus 81.5% in November.

1:00 pm EST
- The NAHB Housing Market Index for January is estimated at 19.0 versus 19.0 in December.

2:00 pm EST
- Fed’s Beige Book

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, weekly EIA energy inventory report, Cowen Consumer Conference and Goldman Sachs Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Near Session Lows on Rising Economic Worries

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
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Sector Performance
ETF Performance
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In Play

Stocks Sharply Lower into Final Hour on Weakness in Homebuilders, Financials, Energy

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Computer longs, Semi longs, Retail longs and Medical longs. I added IWM/QQQQ hedges, was stopped out of my (UA) long and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, almost every sector is declining and volume is above average. Investor anxiety is high. Today’s overall market action is very bearish. It is a big negative that the most beaten up and heavily shorted sectors with the most bad news already priced in are today’s worst performers. The fact that Alan Greenspan is going to work with the hedge fund that has arguably benefited more than any other from the destruction in housing likely means even more vocal and negative commentary from the former Fed chairman. The market’s biggest problem, in my opinion, is a lack of confidence in the future. Unfortunately, due to the explosion in popularity of low correlation/negative correlation investment funds and all the businesses that cater to them, there has never been a time in US history when this many market participants actually want to see a recession and bear market. This is the main reason for the deafeningly pessimistic rhetoric, in my opinion. The TED spread, a meaningful gauge of credit market angst, is dropping another 5 basis points today to 85 basis points. The TED spread is down 139 basis points in just over one month and is at its lowest level since August of last year. It appears as though a much larger positive catalyst than IBM’s report is needed to shake investors free the current malaise. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, diminishing credit angst and lower energy prices.

Today's Headlines

Bloomberg:
- Crude oil is falling almost $3/bbl. after Saudi Arabia’s oil minister said OPEC is ready to increases production and on worries over global demand.
- Hedge-fund inflows declined by 33% in the fourth quarter as subprime-mortgage losses caused some investors to delay new deposits, according to data compiled by Hedge Fund Research Inc.
- Apple Inc.(AAPL) introduced a slim portable computer, an online movie-rental service and a revamped TV device as the maker of the iPod and iPhone seeks to extend a sales surge driven by new products.
- New Jersey’s pension fund will put $700 million into Citigroup Inc.(C) and Merrill Lynch(MER), the only US state retirement system to join investors in the Middle East and Asia in providing $21 billion to two to the biggest financial firms burned by mortgage-related losses.
- Soros Fund Management, the hedge-fund firm founded by billionaire George Soros, named BlackRock Inc. co-founder Keith Anderson as CIO, a post vacant since Soros’s son Robert stepped aside in July.
- A slump in the Baltic Dry Index, a measure of how much it costs to ship commodities, may herald a rally in the US dollar, according to Charles Diebel, head of European rates strategy at Nomura Intl. Plc in London.
- Saudi Oil Minister Ali al-Naimi said OPEC will raise supply if justified by increased demand when making its next output decision on Feb. 1.

Wall Street Journal:
- The US government should make strengthening the US dollar a priority, to boost liquidity, cut oil prices and fuel economic growth, said David Malpass, Bear Stearns Cos.’ chief economist. Leaving dollar policy to the marketplace is unwise because currency values often go to extremes and aren’t based on economic fundamentals, he said. The US president, the chairman of the Federal Reserve or the Treasury Secretary could do much to make a strong dollar happen by saying that the government wants one, Malpass said.

NY Times:
- Zynga Game Network Builds Online Games With MySpace.

AP:
- President Bush urged OPEC nations Tuesday to put more oil on world markets and warned that soaring prices could cause an economic slowdown in the US to intensify.

Reuters:
- Hedge fund manager John Paulson, who earned billions of dollars last year by betting against the housing market, said on Tuesday that former Federal Reserve board chairman Alan Greenspan will advise him.

Reforma:
- Mexico’s mining production will jump 20% to $11 billion in 2008 on record metal prices.

Iran Daily:
- Iran’s Darkhovin oilfield’s output has doubled, reaching 100,000 barrels a day.

Bear Radar

Style Underperformer:

Large-cap Value (-1.91%)

Sector Underperformers:

Homebuilders (-4.24%), Oil Service (-4.09%) and I-Banks (-3.56%)

Stocks Falling on Unusual Volume:

EDU, MRX, FIC, WSM, HAR, MTN, PXD, SCOR, HIBB, GIVEN, CERN, FCTR, BPFH, COGO, GEOY, ZRAN, NILE, CONN, TTES, PTR, C, CHL and SNP

PPI Decelerates, Retail Sales Fall, NY Manufacturing Still Expanding, Business Inventories Hit New Record Low

- The Producer Price Index for December fell .1% versus estimates of a .2% rise and a 3.2% gain in November.

- The PPI Ex Food & Energy for December rose .2% versus estimates of a .2% gain and a .4% rise in November.

- Advance Retail Sales for December fell .4% versus estimates of unch. and a downwardly revised 1.0% increase in November.

- Retail Sales Less Autos for December fell .4% versus estimates of a .1% decline and a downwardly revised 1.7% gain in November.

- Empire Manufacturing for January fell to 9.0 versus estimates of 10.0 and 9.8 in December.

- Business Inventories for November rose .4% versus estimates of a .4% increase and a .1% gain in October.

BOTTOM LINE: Prices paid to US producers unexpectedly fell in December, pushed down by a decline in energy prices, Bloomberg reported. Core producer prices rose 2.0% for all of 2007, the same as the prior year. Energy costs fell 1.9% versus a 14% rise the prior month. Prices of gasoline fell 4.8% and diesel fuel costs dropped 3%. Costs of intermediate goods, such as steel used in earlier production stages, fell .2% versus a 3.7% increase the prior month. The 10-year TIPS spread, which is a good gauge of inflation expectations, is falling another basis point today to 2.24%, right near a multi-year low. I continue to believe inflation fears have peaked for this cycle and that inflation will continue to decelerate over the intermediate-term. The secular trend of disinflation remains firmly in tact, in my opinion.

Sales at US retailers unexpectedly fell in December, Bloomberg reported. For all of 2007, retail sales rose 4.2%. The drop in sales for the month was led by a 2.9% decline at building-material stores. Purchases at service stations fell 1.7%, reflecting lower gasoline prices. Excluding autos, gasoline and building materials, the figure the government uses to compute GDP, sales rose .1% for December. An early Thanksgiving boosted holiday shopping in November at the expense of December sales, economists said. As well, gift cards bought over the last two months won’t be reflected in the sales figures until they are redeemed this month or next. I expect retail sales to bounce back in January.

Inventories at US businesses increased as forecast in November, Bloomberg said. Sales rose 1.6%, the most since March of last year. The amount of inventory on hand fell to 1.24 months’ supply, the lowest in US history.

Manufacturing in NY state slowed slightly in January, Bloomberg reported. The Unfilled Orders component of the index rose to 1.2 from -10.0 the prior month. The Employment component fell to 2.4 from 5 the prior month. The Shipments component fell to 15.8 from 20.4 the prior month. The Inventories component rose to -4.9 from -10.0 the prior month. The Prices Paid component rose to 40.2 from 35 the prior month. I still expect manufacturing to help boost overall US economic growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of record exports.

Bull Radar

Style Outperformer:

Large-cap Growth (-1.9%)

Sector Outperformers:

Coal (+2.30%), Airlines (+2.18%) and Defense (+.04%)

Stocks Rising on Unusual Volume:

FAF, FRX, COIN, VIGN, POZN, UAUA, BLUD, PCLN, CWCO, VRUS, MEE, JRCC, EMC, GLBC and WAL

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
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Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Victor Shum, senior principal at Purvin & Gertz, says $100 Oil ‘Unsunstainable’ (video)
- Sales of gold scrap in India, the world’s biggest buyer of the precious metal, have increased as record prices prompt housewives and other consumers to recycle more old jewelry, curbing demand for new supplies of bullion. Purchases by India in the three months ended December, the traditional peak consumption season, slumped 77% from a year earlier to 40 tons, the Bombay Bullion Assoc. Ltd. said last week.
- Federal Reserve Chairman Ben Bernanke told US House Speaker Nancy Pelosi during a private meeting today that he agrees some economic stimulus is needed.
- Taiwan’s stocks surged, pushing the island’s benchmark to its biggest two-day rally in 3 ½ years, on speculation the opposition Kuomintang party’s landslide victory in parliamentary elections will ease curbs on Chinese investment.
- AT&T(T), Verizon Wirless(VZ) and Google Inc.(GOOG) won clearance to bid for airwaves next week in a US government auction that aims to spur innovation in the mobile-phone market and raise as much as $15 billion.
- Japan’s bonds may rise as investors start betting that the central bank will cut rather than raise interest rates, Fukoku Mutual Life Insurance said.
- Samsung Profit Beats Estimates on Display Earnings.
- LG.Philips Gains After Company Has Record Net Income.

Wall Street Journal:
- The Heritage Foundation ranked the United States as the world’s fourth most free economy.

MarketWatch.com:
- How bad is inflation, really? The bond market is not betting that inflation will get worse.

CNNMoney.com:
- Detroit’s ‘new’ idea: Cars Americans want.
- Countrywide bankruptcy ‘a malicious rumor’

Forbes.com:
- Banks’ Kitchen-Sink Quarter.

IBD:
- Google(GOOG), Microsoft(MSFT) Look To Connect In 411 Phone Busines.

USA Today.com:
- Toyota pursues alternative fuel-saving technology.

Reuters:
- Hedge fund Lone Pine reports American Eagle(AEO) stake.
- Citigroup(C) is likely to announce on Tuesday a significant dividend cut, at least $10 billion of new capital and a writedown of as much as $20 billion.

Financial Times:
- Britain will be told by the European Commission to increase its use of renewable energy from about 2% to as much as 14% by 2020, citing EC and UK officials.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (FIC), target lowered to $37.
- Reiterated Buy on (AAPL), target $215.
- Reiterated Buy on (IBM), raised estimates, target $142.

Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 futures -.35%.
NASDAQ 100 futures -.15%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (USB)/.59
- (STT)/1.35
- (FRX)/.75
- (C)/-.97
- (MI)/.18
- (INTC)/.40
- (LLTC)/.41
- (FUL)/.52
- (CPKI)/.22
- (CBSH)/.77

Upcoming Splits
- (STAN) 2-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for December is estimated to rise .2% versus a 3.2% gain in November.
- The PPI Ex Food & Energy for December is estimated to rise .2% versus a .4% gain in November.
- Advance Retail Sales for December are estimated unch. versus a 1.2% increase in November.
- Retail Sales Less Autos for December are estimated to fall .1% versus a 1.8% decline in November.
- Empire Manufacturing for January is estimated to fall to 10.0 versus 10.3 in December.

10:00 am EST
- Business Inventories for November are estimated to rise .4% versus a .1% gain in October.

Other Potential Market Movers
- The weekly retail sales reports, (SVR) Analyst Meeting, (RBA) Analyst Meeting, Cowen Consumer Conference and National Retail Federation Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and real estate stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Above-Average Volume, Boosted by Economically Sensitive Shares

Indices
S&P 500 1,416.25 +1.09%
DJIA 12,778.15 +1.36%
NASDAQ 2,478.30 +1.57%
Russell 2000 712.48 +1.11%
Wilshire 5000 14,140.64 +1.03%
Russell 1000 Growth 585.98 +1.20%
Russell 1000 Value 768.30 +.91%
Morgan Stanley Consumer 711.63 -.27%
Morgan Stanley Cyclical 935.09 +2.24%
Morgan Stanley Technology 573.87 +2.59%
Transports 4,282.51 +2.27%
Utilities 545.70 +.41%
MSCI Emerging Markets 148.69 +.71%

Sentiment/Internals
Total Put/Call .85 -6.59%
NYSE Arms .83 -44.48%
Volatility(VIX) 22.90 -3.29%
ISE Sentiment 110.0 +23.60%

Futures Spot Prices
Crude Oil $94.15 +1.58%
Reformulated Gasoline 237.25 +2.25%
Natural Gas 8.34 +1.64%
Heating Oil 258.95 +2.11%
Gold 906.90 +1.02%
Base Metals 228.63 +2.53%
Copper 335.30 +1.48%

Economy
10-year US Treasury Yield 3.78% -1 basis point
US Dollar 75.61 -.48%
CRB Index 370.22 +1.39%

Leading Sectors
Computer Services +3.92%
Steel +3.12%
Computer Hardware +2.94%

Lagging Sectors
Gaming -.54%
Drugs -.71%
Foods -.75%

Evening Review
Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
Deutsche Bank:
- Rated (MGM) Buy.

Afternoon/Evening Headlines
Bloomberg:
- Goldman Sachs Group(GS) said it bet on declines in the subprime mortgage market for most of 2007, as many of its competitors suffered record losses from the market’s collapse.
- Yamana Gold Inc., the miner that bought Meridian Gold Inc. last year, said it will increase output by as much as 39% this year as it develops new mines in South America to gain from rising precious-metal prices.
- CIBC plans to sell more than $2.7 billion in stock to investors including Hong Kong billionaire Li Ka-Shing and Manulife Financial to rebuild its balance sheet after taking writedowns tied to the US mortgage market.
- Genetech Inc.(DNA) said profit climbed 6.4%. Sales of its top product, the cancer drug Avastin, fell short of analysts’ expectations and shares declined $1.22 in extended trading.

Wall Street Journal:
- Will Hedge Funds Get Active…on Themselves?

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Medical longs, Semi longs, Computer longs and Internet longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were about average into the close. Today's overall market action was bullish as the major averages and breadth closed near session highs. The (XLF) and (RTH) both finished near session highs, as well, which was a big positive considering tomorrow’s likely bad news from (C) and weak Advance Retail Sales report. The total put/call finished slightly below average at .85, however this was mainly the result of the very low OEX put/call(smart money) reading of .75. Moreover, the 10-day OEX put/call is a low .96 versus an average reading of 1.49. According to Bloomberg data, this is the lowest the 10-day OEX put/call has been since August 2004, right before the S&P 500 tacked on a total return of almost 20% in a little over a year. Nikkei futures are indicating a +100 open in Japan.

Stocks Surging into Final Hour on IBM Earnings Report, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on Gains in my Medical longs, Computer longs, Semi longs, Retail longs and Internet longs. I covered all of my IWM/QQQQ hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is mostly positive and volume is above average. Investor anxiety is about average. Today’s overall market action is bullish. Economically sensitive and "growth" shares are especially strong today. The TED spread, a meaningful gauge of credit market angst, is plunging another 26 basis points today to 90 basis points. The TED spread is down 134 basis points in just over one month and is at its lowest level since August of last year. As well, the 30-day asset backed commercial paper yield is plunging another 26 basis points to 4.10%. This is down 223 basis points since September of last year and is now at the lowest level since November 2005. I continue to believe bear complacency remains extraordinarily high given how much bad news is already factored into stock prices at current levels and the real potential for significant positive near-term catalysts. I am finally seeing signs that size buyers are stepping in at current levels. Last week, I said a significant confidence-boosting near-term catalyst needed to materialize soon to prevent the major averages from taking out recent lows. It looks like the (IBM) report was that catalyst. As well, (SAP) is rising 4.1% on its report. These reports should quell global economic slowdown concerns and investor reaction to them should greatly worry the many bears, specifically the tech bears. Today’s action makes me more confident that a durable bottom is now in place, especially given the “off-the-charts pessimism” in the investment community, media and the general public. I want to see a follow-through rally on good breadth and volume materialize over the coming days and more stocks ignore bad news before getting more aggressive on the long side. Better economic data, more buyouts/capital infusions, constructive Fed commentary or earnings reports could provide further upside catalysts in the near-term. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, diminishing credit angst and less economic pessimism.

Today's Headlines

Bloomberg:
- IBM(IBM) and SAP AG(SAP) posted results that topped analysts’ projections, sending the shares higher and signaling that technology companies may weather an economic slowdown better than anticipated.
- Stainless-steel production will expand as much as eight times faster this year than in 2007 as mills replenish stockpiles, research group CRU said.
- Yale University, following Harvard, will cut in half the cost of attendance for families needing financial aid, step up assistance for students for students from households earning as much as $200,000 a year, and trim tuition increases.
- US Home Sales to Reach Bottom in 2008, Bankers Say.
- Fidelity Investments plans to open its Magellan mutual fund to new investors for the first time in more than a decade.
- News Corp.’s(NWS/A) MySpace unit, the largest US social-networking site, agreed with 49 states to adopt a new set of online safety standards to better protect children online.
- The cost of borrowing dollars fell the most in four months before a $30 billion auction by the Fed Reserve as the logjam in money markets eases.
- Sears Holdings Corp.(SHLD), the retailer run by investor Edward Lampert, fell the most in more than six weeks after forecasting profit that will trail analysts' estimates.

Wall Street Journal:
- Motorola Inc.(MOT) hopes to beef up sales to the retail industry with two new kinds of hand-held scanners designed to speed customers through supermarket checkout aisles and make shop-floor assistants more productive.
- EMC Corp.(EMC), the market-share leader in big computer storage systems, said it will start selling flash-memory drives – similar to those in ultra-portable music players – to replace some of the slower disk drives in its most powerful systems.
- Electric-Car Firms Get Star Investors.

NY Times:
- Google(GOOG) Sees Surge in iPhone Traffic.

Seeking Alpha:
- eBay(EBAY) Watch: Overtaking Craigslist, Skype Launches ‘To Go’, Takeover Talk.

MSNBC.com:
- GM’s(GM) CFO Sees No Spread of Subprime to Auto Loans.

Financial Times:
- US Economy Needs More Regulation, Democrat Barney Frank Says.

Tehran Times:
- Five out of 12 Chinese banks that stopped lending to Iran have resumed transactions with the country, citing a trade official.

Bear Radar

Style Underperformer:

Mid-cap Value (-.03%)

Sector Underperformers:

REITs (-1.86%), Drugs (-.90%) and Foods (-.70%)

Stocks Falling on Unusual Volume:

HAR, TGI, TIF, BLUD, SHOO, USNA, SHLD, PBKS, SGEN, ONXX and SGP

Bull Radar

Style Outperformer:

Large-cap Growth (+1.20%)

Sector Outperformers:

Computer Services (+4.45%), Computer Hardware (+3.32%) and Networking (+2.63%)

Stocks Rising on Unusual Volume:

SAP, RKT, SNN, SNX, CTR, FTD, ASVI, COIN, BFAM, DROOY, ACOR, FCSX, CPHD, PETD, OPLK, MSTR, HTLD, GOLD, WRNC, DEC, IPSU, XNPT, QCOM, PAAS, PSMT, ABAX, NVTL, OMTR, MRCY, TKS, JNPR, CLF, IBM, AIXG, BBL and PFB

Economic Releases

- None of note

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Monday Watch

Weekend Headlines
Bloomberg:
- Federal Reserve officials signaled they’ve shifted their stance in favor of taking out greater “insurance” against the risk of recession.
- The euro’s gains are harming the economy of the 15 nations sharing the currency and may exacerbate a forecast slowdown in growth, European officials.
- Global investment in speculative commodity funds rose by almost a third to $175 billion last year, the second-biggest jump ever, helping to push energy, metal and agriculture prices to records, according to a report by Barclays Capital. Investments in exchange-traded products, US commodity-linked mutual funds and products tracking commodity indexes rose by $41 billion, short of the record $48 billion increase in 2006. Such investments have seen $160 billion in inflows since 2001.
- The Baltic Dry Index, a measure of shipping costs for commodities, fell the most since 1989 on concern that economic growth in the US and China is slowing.
- Total SA’s CEO Christophe de Margerie said that Saudi Arabia, the world’s biggest oil producer and the country with the biggest reserves, should produce more and do “everything” to help cut the fuel’s price increase.
- France to Ban Monsanto’s Biotech Corn Seed on Health Concerns.
- Venezuelan President Hugo Chavez said Colombia’s biggest guerrilla group, identified by the US as a terrorist organization, is an “army” with political goals that is worthy of the world’s repect.
- Ford Motor(F), the world’s third-largest carmaker, is unveiling its second small-car prototype, part of CEO Alan Mulally’s effort to create “one Ford.”
- Gulf Air, Bahrain’s loss-making national carrier, and Boeing Co.(BA) signed a $6 billion agreement for the delivery of 24 Dreamliner aircraft to begin in 2016, airline spokesman Adnan Malik said.
- Researches grew a new beating animal heart using transplanted heart cells from young, healthy rats, opening a new field of research for treatment of an ailment affected an estimated 5 million Americans.
- Democratic presidential candidate Barack Obama, raising rival Hillary Rodham Clinton by $5 billion, offered a $75 billion economic stimulus plan that includes tax cuts and government spending.
- Taiwan’s stocks rose after the opposition party won a landside victory in parliamentary elections on a platform promising better ties with China.

Wall Street Journal:
- Prince Alwaleed bin Talal is poised to once again come to the rescue of Citigroup Inc.(C).
- Two senior executives are leaving Steven Cohen’s big hedge fund, SAC Capital Advisors, including Mr. Cohen’s right-hand man for the past 11 years.

Forbes.com:
- We’re Too Gloomy. Since the foreign economy is twice America’s size, and is strong, America should do well in 2008 – better, at any rate, than people expect.

NY Times:
- Senator Barack Obama may give NY Senator Hillary Clinton a battle in her home state’s primary election if he is able to win the South Carolina contest on Jan. 26.
- Cosmetic medical procedure centers in US malls increased to as many as 2,500 from 25 in 2002, driven by baby boomers who want to retail a youthful appearance.
- Toyota Will Offer a Plug-In Hybrid Vehicle by 2010.
- Looking for a growth industry? Look no further than pet products and services.

CNBC.com:
- 5-Star Real Estate Stock Picks. (video)
- Countrywide(CFC) sale expected to spur more deals.
- Hovnanian(HOV): Housing Slump Is Nearing Bottom. (video)
- Sell Block: Mortgage Madness! Cramer thought it was time to go through, one by one, to determine if these stocks still belong in the Sell Block.
- See the New Cars Detroit Has to Offer.

MarketWatch.com:
- Surging gold ETF holds more metal than some governments.
- New ETF takes value-based approach to large-cap growth stocks.

IBD:
- Internet’s The Way Of Life For Chinese Youth.

TheStreet.com:
- Deere(DE) Ready to Grow in a Corn-Crazed World.

CMP Channel:
- Interview: VMware(VMW) CEO Diane Greene.

ZDNet:
- GM invests in ‘trash to ethanol’ start-up.

Philly Metro:
- Hybrids, advanced diesels and green alternatives are pushing aside the traditional displays of speed and chrome at this week’s Detroit auto show, a nod to a new fuel-efficient reality for car makers.

NY Post:
- WaMu(WM), JPMorgan(JPM) In Talks.

Business Week:
- Bank M&A heats up amid subprime fallout.
- What should Apple(AAPL) do next?
- Researchers and utility companies are pushing the idea of systems that adjust household electricity use to ease periods of peak demand and cut consumers’ bills.
- Stocks: 14 Debt-Free Favorites. S&P’s latest screen reveals some top-ranked outfits, including Microsoft, Aflac and eBay.
- Behold the Broadband Value Circle.

LA Times:
- “American Idol,” the most-watched show on US television, probably will profit from the Hollywood writers’ strike because it can demand higher advertising rates as competing shows relay on reruns.

USA Today:
- A small software developer on Monday plans to unveil a suite of applications – browser, camera, games and more – based on the new Google-endorsed operating system, Android.
- Apple(AAPL) fans hope for subcompact computer at Macworld.

CNNMoney.com:
- Rise robots, rise!
- Why the Countrywide(CFC) deal makes sense.

SmartMoney.com:
- The Case for Recession Is Wrong. For years, as the economy has boomed, the permabears have said recession is just around the corner. They’ve been wrong.

Reuters:
- BMW sees no signs of US demand slowdown.
- Dollar may finally find reprieve in 2008.
- Biotech companies race for drought-tolerant crops.
- Faced with potential loss of black support, presidential hopeful Hillary Rodham Clinton said on Sunday her chief rival for the Democratic nomination Barack Obama was distorting her comments on race.

AP:
- New Jersey last year moved into first place from second as the US state with the most millionaire households. About 7.12% of the state’s 3.2 million households had a total of $1 million in assets, up from the 6.46% in 2006, citing a study by Phoenex Affluent Marketing Service. Both liquid and investable assets were considered in the survey, including savings, stocks and bonds, precious metals and retirement accounts. The equity in homes wasn’t included. Maryland and was second last year, Connecticut was third and Hawaii fourth.
- Netflix Inc., the largest US mail-order movie-rental service, plans to announce that it will permit unlimited viewing of movies and television shows over the Internet.

Financial Times:
- Kuwait May Make ‘Significant’ Investment in Merrill(MER).
- GE(GE) to double investments in renewable energy.
- Mobility and music are expected to take centre stage on Tuesday as Steve Jobs, Apple’s(AAPL) CEO, introduces new products at the computer maker’s annual MacWorld conference in San Francisco.
- Wal-Mart Stores(WMT) will open small-format grocery stores under the name “Marketside” in Arizona this year in an attempt to challenge UK-based Tesco Plc’s Fresh & Easy markets.

TimesOnline:
- Goodbye to all that: the worst is over for the global credit crunch.

Oberver:
- Merrill Lynch(MER) held talk with potential bidders for its $5 billion stake in Bloomberg LP. Merrill, the owner of about 20% of Bloomberg, discussed the sale of the stake with private-equity firm Blackstone Group LP(BX) last week.

Independent:
- Britain’s wind power revolution. Hutton’s dramatic policy shift signals less reliance on nuclear energy. Offshore wind farms could provide all UK homes with electricity within 13 years.

The People:
- UK troops may stay in Afghanistan for decades as they try to rebuild the South Asian country and battle Taliban insurgents, British Defense Secretary Des Browne said in an interview.

The Australian:
- Alcoa Inc.(AA) may be waiting for an opportunity to take over partner Alumina Ltd.

Weekend Recommendations
Barron's:
- Made positive comments on (TEX) and (FHN).

Citigroup:
- Reiterated Buy on (BKC), target $31.
- Our top picks in softline retail for 2008 are (GPS), (ANF) and (PLCE).
- Upgraded (UA) to Buy, target $65.

CSFB:
- Rated (FISV) Outperform, target $64.
- Upgraded (NWA) to Outperform.

Night Trading
Asian indices are -1.0% to -.25% on avg.
S&P 500 futures +.25%.
NASDAQ 100 futures +.30%.

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Earnings of Note
Company/Estimate
- (MTB)/1.68
- (DNA)/.68
- (SCHW)/.26

Upcoming Splits
- (STAN) 2-for-1

Economic Data
- None of note

Other Potential Market Movers
- The National Retail Federation Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by shipbuilding and mining shares in the region. I expect US stocks to open mixsed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for the weekly economic preview by Bloomberg.

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Producer Price Index, Advance Retail Sales, Empire Manufacturing, Business Inventories, weekly retail sales

Wed. – Weekly EIA energy inventory report, weekly MBA mortgage applications report, Consumer Price Index, Net Long-term TIC Flows, Industrial Production, Capacity Utilization, NAHB Housing Market Index, Fed’s Beige Book

Thur. – Housing Starts, Building Permits, Initial Jobless Claims, Philly Fed

Fri. – Univ.of Mich. Consumer Confidence, Leading Indicators

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – M&T Bank Corp.(MTB), Genentech Inc.(DNA), Charles Schwab(SCHW)

Tues. – US Bancorp(USB), Forest Labs(FRX), Citigroup(C), Marshall & Ilsley, California Pizza Kitchen(CPKI), State Street(STT), Intel Corp.(INTC), Linear Tech(LLTC)

Wed. – JPMorgan Chase(JPM), Wells Fargo(WFC), Progressive Corp.(PGR), Fortress Investment Group(FIG), AMR Corp.(AMR)

Thur. – PNC Financial Services(PNC), BlackRock(BLK), BB&T Corp.(BBT), Parker Hannifin Corp.(PH), Merrill Lynch(MER), Comerica Inc.(CMA), Bank of NY(BK), PPG Industries(PPG), CIT Group(CIT), Washington Mutual(WM), Seagate Technology(STX), TD Ameritrade(AMTD), International Game Technology(IGT), Advanced Micro Devices(AMD), Briggs & Stratton(BGG), Xilinix(XLNX), Domino’s Pizza(DPZ), Continental Airlines(CAL), International Business Machines(IBM)

Fri. – Schlumberger(SLB), Mentor Corp.(MNT), Johnson Controls(JCI), General Electric(GE)

Other events that have market-moving potential this week include:

Mon. – The National Retail Federation Conference

Tue. – Cowen Consumer Conference, National Retail Federation Conference, (RBA) analyst meeting, (SVR) analyst meeting

Wed. – Cowen Consumer Conference, Goldman Sachs Energy Conference

Thur. – Fed’s Fisher speaking, Fed’s Lockhart speaking, Goldman Sachs Energy Conference, (AEE) analyst meeting, (AMAT) analyst meeting

Fri. – Fed’s Lacker speaking, Bear Stearns Mortgage Servicer Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a firmer US dollar, lower energy prices, diminishing credit market anxiety, more constructive Fed comments, less economic pessimism, less financial sector uncertainty, bargain hunting and short-covering. My trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,401.02 -.75%*

Click here for the Weekly Wrap by Briefing.com.

Weekly Scoreboard*

Indices
S&P 500 1,401.02 -.75%
DJIA 12,606.30 -1.51%
NASDAQ 2,439.94 -2.58%
Russell 2000 704.65 -2.35%
Wilshire 5000 13,995.85 -1.12%
Russell 1000 Growth 579.05 -1.17%
Russell 1000 Value 761.37 -.77%
Morgan Stanley Consumer 713.53 +.11%
Morgan Stanley Cyclical 914.63 -2.65%
Morgan Stanley Technology 559.36 -4.13%
Transports 4,187.60 -1.71%
Utilities 543.46 +2.14%
MSCI Emerging Markets 147.65 +.17%

Sentiment/Internals
NYSE Cumulative A/D Line 59,269 -1.13%
Bloomberg New Highs-Lows Index -617
Bloomberg Crude Oil % Bulls 23.0 -55.8%
CFTC Oil Large Speculative Longs 242,131 +1.58%
Total Put/Call .91 -18.75%
NYSE Arms 1.49 -65.59%
Volatility(VIX) 23.68 -1.09%
ISE Sentiment 89.0 -4.30%
AAII % Bulls 19.6 -23.65%
AAII % Bears 58.9 +6.59%

Futures Spot Prices
Crude Oil 92.90 -5.18%
Reformulated Gasoline 232.64 -7.45%
Natural Gas 8.17 +4.14%
Heating Oil 254.50 -5.51%
Gold 897.50 +3.92%
Base Metals 222.98 -1.24%
Copper 330.0 +4.96%

Economy
10-year US Treasury Yield 3.78% -9 basis points
4-Wk MA of Jobless Claims 341,000 -.9%
Average 30-year Mortgage Rate 5.87% -20 basis points
Weekly Mortgage Applications 760,000 +32.23%
Weekly Retail Sales +1.3%
Nationwide Gas $3.09/gallon +.02/gallon
US Heating Demand Next 7 Days 13.0% below normal
ECRI Weekly Leading Economic Index 136.60 +1.11%
US Dollar Index 75.98 +.24%
CRB Index 365.15 -.29%

Best Performing Style
Large-cap Value -.77%

Worst Performing Style
Mid-cap Growth -2.82%

Leading Sectors
Drugs +6.0%
Biotech +5.26%
Medical Equipment +3.17%
HMOs +2.93%
Utilities +2.14%

Lagging Sectors
Retail -4.43%
Telecom -4.52%
Semis -4.80%
Networkin-7.41%
Oil Tankers -7.72%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Sharply Lower into Final Hour Despite Financial Sector Strength on Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added IWM/QQQQ hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, sector performance is mostly negative and volume is above average. Investor anxiety is above average. Today’s overall market action is bearish. It is very disappointing that we are giving back this much of the last two days’ gains given the relative strength in the financials. Large-cap growth leaders with any exposure to consumer spending are especially weak as investors continue to price in the worst case economic scenario. Meanwhile, the odds of a recession have actually declined over the last two days, according to Intrade.com. Bear complacency remains extraordinarily high given how much bad news is already factored into stock prices at current levels and the real potential for significant positive near-term catalysts. However, size buyers are scarce as investor confidence remains extraordinarily depressed. A significant confidence-boosting near-term catalyst needs to materialize soon to prevent the major averages from taking out recent lows. I expect US stocks to trade mixed into the close from current levels as short-covering, lower energy prices and diminishing credit angst offset more economic pessimism.

Trade Deficit Widens, Exports Hit Another Record, Import Prices Decelerate

- The Trade Deficit for November widened to -$63.1 billion versus estimates of -$59.5 billion and -$57.8 billion in October.

- The Import Price Index for December was unch. versus estimates of a .1% gain and an upwardly revised 3.3% gain in November.

BOTTOM LINE: The US trade deficit widened more than forecast in November as Americans spent a record amount on imported oil, overwhelming another record-setting month for US exports, Bloomberg said. Sales of automobiles, corn, refined petroleum products and industrial engines contributed to another surge in US exports. Imports rose 3%, reflecting record purchases of crude oil as the average price shot up to $79.65 a barrel, the highest ever. The rise in petroleum imports accounted for about two-thirds of the increase in the trade gap. Purchases of capital equipment by US companies and consumer imports also contributed to the increase. The US economy shouldn’t fall into recession as consumer spending softens without falling too much and exports keep surging to records, a Bloomberg News survey of economists this month showed. I expect the Trade Deficit to continue to trend lower over the intermediate-term as energy prices fall.

Prices of goods imported into the US were unchanged in December, as oil costs receded from a record high, Bloomberg reported. The price of imported petroleum and petroleum products dropped .6% after jumping 12.7% the prior month. Natural gas prices rose 2.8% in December, but were 2.7% lower from year ago levels. Costs for industrial materials, such as metals, fell .1%. I still think Import Prices increases have peaked for this cycle and that overall inflation will continue to decelerate over the intermediate-term.

Bear Radar

Style Underperformer:

Large-cap Growth (-1.14%)

Sector Underperformers:

Restaurants (-5.16%), Airlines (-2.81%) and Telecom (-2.66%)

Stocks Falling on Unusual Volume:

TIF, AXP, MCD, ININ, PLCE, ACGY, JNPR, PGNX, PBKS, CVGI, ARUN, CECO, INFY, LOGI, CTSH, NILE, BIGG, NILE, BGFV and TLEO

Bull Radar

Style Outperformer:

Large-cap Value (-.11%)

Sector Outperformers:

Disk Drives (+1.05%), I-Banks (+.72%) and Medical Equipment (+.55%)

Stocks Rising on Unusual Volume:

DYS, IHS, SNX, IMN, GGL, SPW, AGU, DBA, COIN, USNA, BVN, PZE, SNCR, EQIX, CHU, HL, TRA, MOS, PFCB, CPHD, WFMI, AKNS, DRYS, NUAN, CEPH and CNH

Links of Interest

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