Monday Close

S&P 500 1,145.20 +.52%
NASDAQ 2,065.48 +.61%

Leading Sectors
Nanotechnology +2.54%
Oil Service +2.43%
Energy +1.83%

Lagging Sectors
Airlines -1.22%
Utilities -1.69%
Homebuilders -1.73%

Other
Crude Oil 37.74 -.26%
Natural Gas 5.99 -.23%
Gold 421.00 +.02%
Base Metals 111.52 unch.
U.S. Dollar 88.93 -.02%
10-Yr. Long-Bond Yield 4.23% +.94%
VIX 15.28 -6.03%
Put/Call .75 +5.63%
NYSE Arms .81 -2.41%

After-hours Movers
MACE +32.50% on continued mania in small/mid-cap security-related stocks.
NVLS +3.72% after beating 1Q estimates and raising 2Q guidance.
IFIN +5.73% after beating 1Q estimates and raising 04 guidance.
TSCO +5.92% after substantially beating 1Q estimates and raising 2Q and 04 guidance.
NVTL +8.50% after boosting 1Q/2Q estimates.
TSO +9.96% after significantly raising 1Q estimates.
EVOL -13.95% after lowering 1Q guidance.

Recommendations
Goldman Sachs upgraded the Telecom Services sector to Neutral. GS reiterated Outperform on GCI, SVU and EQT.

After-hours News
U.S. stocks finished higher on strong earnings reports and gains in the energy sector. The world's top 14 knowledge economies are all in the U.S., San Francisco being number 1, the Financial Times reported. The interim Iraqi Governing Council is in talks with rebels in Fallujah to end a week of fighting with U.S. troops, and the U.S. is waiting for attacks to subside before entering the negotiations, American commanders said today. CALPERS will withhold votes to reelect Citigroup Chairman Sanford Weill and directors at Coca-Cola and 10 other companies, aiming to improve corporate governance by protesting the makeup of company boards.

BOTTOM LINE: The Portfolio had a good day as my homebuilding shorts continue to fall and technology longs rose. I began to initiate a few shorts in the security-related stocks. I am using tight stop losses and relatively small positions as these stocks are in a mania reminiscent of the internet bubble. I also added a couple of tech long positions on the close, thus leaving the Portfolio's market exposure at 75% net long.

Mid-day Update

S&P 500 1,143.67 +.39%
NASDAQ 2,062.61 +.48%

Leading Sectors
Nanotechnology +2.99%
Oil Service +1.91%
Energy +1.85%

Lagging Sectors
Airlines -.55%
Utilities -1.37%
Homebuilders -1.86%

Other
Crude Oil 37.82 +1.83%
Natural Gas 6.02 +1.25%
Gold 420.20 -.12%
Base Metals 111.52 unch.
U.S. Dollar 88.98 +.01%
10-Yr. Long-Bond Yield 4.24% +1.13%
VIX 15.29 -5.97%
Put/Call .56 -21.13%
NYSE Arms .83 unch.

Market Movers
CMCSA +3.8% after Bank of America upgraded to Buy.
PLB -9.95% after lowering 2Q sales and profit forecasts and Wachovia downgrade to Market Perform.
OSTK +12.53% on short-covering.
DECK +13.09% on short-covering.
VMSI +7.13% on Wachovia upgrade to Buy.
NFI -23.59% on negative WSJ article.
CDCY -21.53% on lowering 1Q forecast and multiple downgrades.
Small/Mid-cap security-related stocks up strongly across the board on terrorism/war fears.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on GE, ACS, MO, INTC and SNDK. GS thinks SYMC and MERQ, in the software sector, have the best chance to show revenue upside in their upcoming quarterly reports. GS raised 04 copper forecast by $.05 to $1.23/lb. GS rated NFP and BAC Outperform. Citi Smith Barney said to swap out of DAL and into AMR. Citi says CMA, MTB and TCB are banks best positioned for a rise in rates, CF, HBAN, NCF and NFB are worst positioned. Citi says proprietary 1Q construction equipment dealer survey very positive as demand is outstripping supply, providing strong backlog heading into spring/summer. Citi reiterated Buy on GE, $36 target. Citi raised estimates for 1Q and 04 on IR as they expect it to beat pre-announced upside. JP Morgan cut ABT to Underweight. CFSB rated G Underperform. CMCSA raised to Buy at Bank of America. FLEX raised to Strong Buy at Raymond James, CVG and INTC rated Outperform. DOX rated Overweight at Morgan Stanley.

Mid-day News
U.S. stocks are higher mid-day on strong corporate earnings reports and no acts of terrorism over the religious holiday weekend. Medicare plans to publish comparative price listings for prescription drugs on its Web site later this month, giving consumers more insight into what pharmacies charge, the NY Times reported. Washington, D.C. tourism is rebounding, after more than 2 years of declines amid a slower economy and terrorism fears following the Sept. 11 attacks, the Washington Post reported. Silicon Valley technology executives who traditionally back Democratic political candidates are wavering over supporting John Kerry because they oppose his positions on job outsourcing, the NY Times reported. Iraqi insurgents freed 12 hostages today and more are expected to be freed later in the day, Reuters reported. Japan's government will likely boost its assessment of the nation's economy in its April outlook report to be released Friday, Kyodo News reported. New York gasoline futures rose to an all-time high after the IEA raised its forecast for global oil demand on strong economic growth in the U.S. and Asia. U.S. Treasury notes fell after San Francisco Fed President Parry said the Fed's key interest rate has the potential to rise to about 3.5% if inflation averages 1-2%.

BOTTOM LINE: The Portfolio is having a good day as my shorts are down and a few of my tech longs are up substantially. I have not traded yet and the Portfolio is still 75% net long. I am a little disappointed with the breadth of today's rally. I think comments made by the Fed's Parry and energy prices are weighing on the market. I will make a determination on whether or not to change market exposure this afternoon.

Monday Watch

Earnings Announcements
Company/Estimate
GCI/1.00
NYT/.36
NVLS/.10
TSCO/.05
SMSC/.16
MDC/1.51
IFIN/.45

Splits
FOSL 3-for-2

Economic Data
None of note.

Weekend Recommendations
Forbes on Fox had guests that were mixed on SU and BHP. Bulls and Bears had guests that were positive on SIMG, GS, IDTI, DIS, MECA and mixed on SLM, AA, GG and IACI. Cashin' In had guests that were positive on NUS, IJS, LLTC, UPL, SIRI, EBAY, mixed on FRED and negative on TYC. Louis Rukeyser's Wall Street had guests that were positive on EWJ, ACGL, HDI, ISLE, MRX, ZBRA, AAPL, SUNW, AMTD, G, APA and ATH. Wall St. Week w/Fortune had guests that were positive on MCD, TYC, IPG, BHI, BJS, SLB, SM, SPN and BLD. Business Week says NOK's recent shortfall is an anomaly in the booming cell-phone market. Business Week says improving ad market will help VIA. Finally, Business Week has a negative article on MSFT, saying slowing sales, late products and antitrust suits continue to plague the stock. Money manager's told Barron's they were positive on stocks and reducing cash, favorites include AL, WNC, DOW, HPQ, TYC and CHB. Barron's had positive columns on BIIB and COMS. Barron's had a negative article on ODSY. Goldman Sachs reiterated Outperform on PH and FD. GS says gulf-coast gaming trends better-than-expected. GS reiterated Underperform on MAY. GS views DELL as one of most attractive technology opportunities, likes EMC and LXK too.

Weekend News
Electronic News has an interesting article on recent research from In-Stat/MDR on the broadband market. France may sell about 100 tons of its central bank's gold reserves in the next few months, Le Parisien reported. Sony's motion-picture unit bought the rights to make a movie of the book written by former White House counterterrorism adviser Richard Clarke, the NY Times reported. Democrats and a few Republicans in the U.S. House of Representatives favor an increase in U.S. fuel taxes that is opposed by President Bush, the Washington Post reported. Public-safety officials in the U.S. expect a difficult wildfire season later this year because of drought, higher temperatures and millions of dead trees, the LA Times reported. Soaring plywood prices may crimp future profits of homebuilders, the NT Times reported. Israeli Prime Minister Ariel Sharon plans to give President Bush a written commitment next week that Israel will withdraw from the Gaza Strip, Agence France-Presse said. Samsung, Honda and Toyota are among foreign companies that are spending billions of dollars to build or expand U.S. operations, helping local economies, the NY Times reported. Travelers from Asia's growing middle class are expected to boost tourism revenue around the world by 600% within 10 years, Newsweek reported. The U.S. economy, with help from China, is spurring the first simultaneous acceleration of growth in Europe and Asia in 20 years, Bloomberg reported.

Late-Night Trading
Asian indices are unch. to +2.00% on average.
S&P 500 indicated -.12%.
NASDAQ indicated -.07%.

BOTTOM LINE: The Portfolio is 75% net long heading into the week. I expect U.S. stocks to rise tomorrow as the situation in Iraq improved slightly and no terrorist attacks occurred over the religious holidays. I will look to add market exposure on any unexpected weakness in the morning.

Weekly Outlook

There are a number of economic reports scheduled for release this week. There are also several notable U.S. companies due to report earnings. Scheduled economic reports include Advance Retail Sales, Business Inventories, Consumer Price Index, Empire Manufacturing, Initial Jobless Claims, Philadelphia Fed, Housing Starts, Industrial Production, Capacity Utilization and U. of Mich. Consumer Confidence. Advance Retail Sales, Consumer Price Index and U. of Mich. Consumer Confidence are the most important releases this week.

Intel(INTC), Johnson & Johnson(JNJ), Merrill Lynch(MER), Citigroup(C), Apple Computer(AAPL), Bank of America(BAC), Delta Air(DAL), Harley-Davidson(HDI), Texas Instruments(TXN), EMC Corp.(EMC) and IBM(IBM) are some of the more important companies that release quarterly earnings this week.

BOTTOM LINE: The numerous economic and corporate earnings reports on tap this week should continue to paint a positive picture of the current state of the U.S. economy. I expect stocks to rise barring a worsening of the situation in Iraq or a significant rise in energy prices.

Charts of the Week

Unit Labor Costs Non-farm Business (1977-2003)

30-Year Treasury Yield (1977-2003)


BOTTOM LINE: It is not a coincidence that interest rates have fallen as unit labor costs fall. 70% of inflation is comprised of unit labor costs, while only 5% is comprised of commodity costs. It is very likely the Fed will begin raising rates in the next few months, however the frequency and magnitude of their subsequent hikes will probably be less than investors currently anticipate. The current slack in the labor market and deflationary forces emanating from developing countries should keep unit labor costs in check for the foreseeable future, thus allowing the Fed to raise rates at a relatively slow pace compared to past periods of Fed tightening.

Market Week in Review

S&P 500 1,139.32 +.63% for the week.

U.S. stocks finished mostly higher on the week as stellar corporate earnings and economic reports were offset by rising energy prices and violence in Iraq. Yahoo!(YHOO), Dell(DELL), General Electric(GE), Genentech(DNA), Research in Motion(RIMM), Cummins(CMI), Black & Decker(BDK) and Cigna(CI) are notable U.S. companies that raised their revenue or earnings guidance. HMO's paced gains for the week as Cigna's strong quarterly report and Oxford Health(OHP) takeover speculation ignited investor interest in the group. The all-time high reading in the ISM Non-manufacturing Index and three-year low in initial jobless claims both painted very positive pictures of the current state of the U.S. economy, thus leading to further strength in commodity-related groups. Finally, small/mid-cap security-related stocks soared as traders speculate demand for their products from government's around the globe will significantly increase on terrorism fears.

With strong economic growth comes increased demand for energy. Crude oil rose 8.3% for the week, its strongest rise in over a year. The very strong economic reports also resulted in speculation that the Fed was falling behind the curve with respect to inflation. This prompted further selling in Homebuilders as investors bet interest rate increases will dampen demand for homes. Retailers also underperformed last week. Rising gasoline prices, harder year-over-year future sales comparisons and declining monetary stimulus all led to weakness in retail shares. Violent headlines from overseas also contributed to a lackluster performance for U.S. stocks. The very positive economic and corporate earnings reports were drowned out by the media's intense focus on all that could go wrong in Iraq.

BOTTOM LINE: It is my optimistic opinion that the burst of violence in Iraq in temporary in nature. This is giving investors a chance to buy U.S. shares at artificially depressed levels. Numerous bell-weather U.S. companies are beating estimates by a significant margin, thus making current valuations even more attractive. Inflation is not currently a problem and won't be for the foreseeable future. Only 5% of inflation is comprised of commodity prices. 70% of inflation comes from unit labor costs. There is still too much slack in the labor market to see any significant pick-up in unit labor costs at this time, thus allowing the Fed to increase rates at a slower pace than most investors currently anticipate.