Mid-day Update

S&P 500 1,073.48 +.78%
NASDAQ 1,794.88 +1.14%

Leading Sectors
Airlines +3.12%
I-Banks +2.0%
Networking +1.95%

Lagging Sectors
Oil Service +.25%
Tobacco unch.
Energy -.26%

Other
Crude Oil 44.45 -.87%
Natural Gas 5.91 +3.81%
Gold 402.70 -.07%
Base Metals 108.48 +.50%
U.S. Dollar 88.35 -.05%
10-Yr. T-note Yield 4.24% -.46%
VIX 17.72 -6.25%
Put/Call 1.11 +23.33%
NYSE Arms .63 -27.59%

Market Movers
DISH +6.2% after beating 2Q estimates and announcing $1B share buyback.
CEPH -8.1% after it was cleared by U.S. antitrust enforcers to complete its $515M purchase of Cima Labs and updating outlook.
ACF +16.4% after beating 4Q estimates, raising 05 forecast and Piper Jaffray upgrade to Outperform.
TASR +6.6% after winning 4 large orders for its weapons from three police departments and reiterated 3Q outlook.
SNIC +12.5% after announcing it would buy Roxio's consumer-software division to Sonic Solutions.
SOL +16.1% after beating 1Q estimates and reaffirming 2Q/05 view.
ESE +11.8% after beating 3Q estimates substantially and raising 4Q outlook.
FOSL +11.4% after beating 2Q estimates and raising 04 forecast.
PLMO +4.7% after Friedman, Billings rated it Outperform.
NDC -30.0% after missing 4Q estimates substantially and lowering 1Q outlook.
ADRX -16.6% after missing 2Q estimates.
KDE -12.8% after missing 2Q estimates.

Economic Data
Preliminary 2Q Non-farm Productivity rose 2.9% versus estimates of 2.0% and a 3.7% rise in 1Q.
Preliminary 2Q Unit Labor Costs rose 1.9% versus estimates of 2.0% and a .3% rise in 1Q.

Recommendations
STJ raised to Outperform at CSFB, target $76. DOX rated Outperform at Thomas Weisel. CMVT rated Outperform at Thomas Weisel. ET rated Overweight at Morgan Stanley, target $14.50. AMTD rated Overweight at Morgan Stanley, target $14. ISPH rated Overweight at Morgan Stanley, target $18. WCG rate Overweight at Morgan Stanley, target $20. CEPH cut to Underweight at Morgan Stanley. FCX raised to Overweight at Prudential, target $42. Goldman Sachs reiterated Outperform on FDC, AVP, AMGN, BIIB, NFX, FSH, BSX, MDT, GDT, BAX and DNA. Goldman reiterated Underperform on PSS. Goldman reiterated Attractive view of Gold sector, favorites are NEM and PDG. Citi SmithBarney reiterated Buy on URBN, target $35. Citi reiterated Buy on CHS, target $48. Citi reiterated Buy on TJX, target $27. Citi reiterated Buy on PLCE, target $30. Citi reiterated Buy on GPS, target $25. Citi reiterated Buy on BLS, target $32. Citi reiterated Buy on VIAB, target $50.

Mid-day News
U.S. stocks are higher mid-day on a reversal in oil prices and optimism over Greenspan's commentary after the rate announcement. Paul Volcker, the former Fed chairman who heads a panel investigating the corruption in the UN's former oil-for-food program in Iraq, said he will probably need a year to report his findings, the NY Times said. People who held mentally demanding jobs may be at a lower risk for developing Alzheimer's disease, the Wall Street Journal reported. Electric companies have fixed many of the problems that led to the largest blackout in U.S. history on Aug. 14, 2003, although many long-term power problems haven't been tackled, the Washington Post reported. Toy companies are selling their products in clothing stores, supermarkets and even Starbucks to boost sales and fight pressure to cut prices from discount retailers such as Wal-Mart, the NY Post said. U.S. Transportation Security Administration officials issued a directive ordering federal passenger screening for helicopter tours in New York City after officials learned that suspected al-Qaeda terrorist operatives had pictures and other information about the tours, the NY Times reported. Symantec estimates that as much as 30% of all Internet traffic is spam, CEO Thompson told CNBC. Kuwait's Supreme Petroleum Council approved a planned $7 billion development of oil fields in the north of the country, the Kuwait News Agency reported. President Bush named Representative Porter Goss, chairman of the House Intelligence Committee and a former U.S. intelligence officer, to head the CIA, Bloomberg reported. Kmart will scale back its sale of stores to Home Depot by as much as half from the plan announced in June, Bloomberg said. U.S. traffic deaths last year fell for the first time since 1988, as more people used seat belts, states cracked down on drunk driving and automakers built safer autos, Bloomberg reported. Crude oil fell on expectations that Iraq will start pumping oil through pipelines at normal rates after reducing the flow yesterday, Bloomberg said. A Pakistani man known as Kamran Shaikh appeared in U.S. federal court this morning after being spotted videotaping buildings in downtown Charlotte, NC, last month, the Charlotte Observer reported.

Bottom LINE: The Portfolio is up substantially today as my alternative energy and security longs are rising and my Chinese ADR shorts are declining. I added a few new longs this morning, bringing the Portfolio's market exposure to 100% net long. One of my new longs is GS and I am using an $84.50 stop-loss on the position. The tone of the market is much better than yesterday's. I expect U.S. stocks to rise modestly into the close after the rate-hike and Fed commentary.

Tuesday Watch

Earnings of Note
Company/Estimate
ANF/.43
AGI/.26
CSCO/.20
CSC/.57
DISH/.22
ECLG/.09
FOSL/.17
MAY/.35
OSIP/-1.18
DIS/.26

Splits
None of note.

Economic Data
Preliminary 2Q Non-farm Productivity estimated +2.0% versus +3.8% in 1Q.
Preliminary 2Q Unit Labor Costs estimated +2.0% versus +.8% in 1Q.
The Fed is expected to raise rates 25 basis points.

Recommendations
Goldman Sachs reiterated Outperform on BAC, BSX, UNH and SYMC. Goldman reiterated Underperform on DAL.

Late-Night News
Asian indices are quietly mixed ahead of the U.S. Fed rate announcement. California's power-grid operator predicted record demand for electricity Wednesday and extended its power use warning for another two days, Dow Jones News reported. Sony will use its game console chips in flat-panel tv for fall release, the Nihon Keizai said. Former Enron Chairman Lay asked a federal judge to separate his case from two other ex-Enron officers and schedule his trial on fraud charges to start Sept. 14, his lawyer said. China's industrial production rose in July at its slowest pace in a year, adding to evidence that the government's lending curbs are cooling growth in the world's seventh-largest economy.

Late-Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.08%.
NASDAQ 100 indicated +.11%

BOTTOM LINE: I expect U.S. stocks to open modestly lower ahead of the Fed rate announcement. However, stocks should rise later in the day after the hike and Fed comments. I expect the Fed will raise rates 25 basis points tomorrow and make comments that they are monitoring the recent weakness in some parts of the economy and will slow the pace of increase if necessary. Moreover, they will likely say they are seeing positive signs with respect to slowing inflation. The Portfolio is 25% net long heading into tomorrow.

Monday Close

S&P 500 1,065.22 +.12%
NASDAQ 1,774.64 -.13%

Leading Sectors
Energy +1.56%
Oil Service +1.51%
Commodity +1.05%

Lagging Sectors
Biotech -1.15%
Fashion -1.16%
Airlines -2.26%

Other
Crude Oil 44.90 +.13%
Natural Gas 5.78 +1.62%
Gold 402.20 -.20%
Base Metals 107.94 -.61%
U.S. Dollar 88.45 +.07%
10-Yr. T-note Yield 4.26% +.04%
VIX 18.89 -2.33%
Put/Call .90 -34.78%
NYSE Arms .87 -74.71%

After-hours Movers
DISH +4.73% after beating 2Q estimates.
SNDA +13.7% after strong 2Q report.
ACF +12.4% after beating 4Q estimates and raising 05 forecast.

Recommendations
Goldman Sachs reiterated Underperform on CVH.

After-hours News
U.S. stocks finished quietly mixed today ahead of the Fed rate announcement tomorrow. After the close, U.S. lawmakers have been advised to take underground tunnels when they walk from their offices to the Capitol for votes instead of going outside where they might be vulnerable to a terrorist attack, Time magazine reported. MCI Inc., which filed for bankruptcy protection in 2002 following an $11 billion accounting fraud, said it make $453 million of errors in its reorganization, Bloomberg said. Mylan Labs said its drug-pricing is being investigated in California, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly lower today on weakness in my medical and gaming longs and strength in my steel shorts. I did not trade in the afternoon, thus leaving the Portfolio 25% net long.

Mid-day Update

S&P 500 1,067.54 +.33%
NASDAQ 1,779.61 +.15%

Leading Sectors
Energy +2.13%
Oil Service +1.88%
Commodity +1.42%

Lagging Sectors
Utilities -.52%
Airlines -.94%
Fashion -1.16%

Other
Crude Oil 44.84 +2.03%
Natural Gas 5.67 +.83%
Gold 402.50 +.12%
Base Metals 107.94 -.61%
U.S. Dollar 88.49 +.15%
10-Yr. T-note Yield 4.24% +.45%
VIX 18.90 -2.28%
Put/Call .91 -34.06%
NYSE Arms .81 -76.45%

Market Movers
WPSG +14.1% after beating 2Q estimates and making positive comments on 3Q.
UTEK +10.7% after saying it sees solid 3Q order growth and Adams Harkness upgrade to Strong Buy.
BID +13.8% after reporting better-than-expected 2Q results.
DDS +6.8% after the company said it would sell its credit-card business to GE for $850 million in cash.
IDCC -17.0% after missing 2Q forecast and lowering 04 outlook.
IART -8.65% after Adams Harkness downgrade to Market Perform.

Economic Data
Wholesale Inventories for June rose 1.1% versus estimates of a .6% rise and a 1.4% rise in May.

Recommendations
Goldman Sachs reiterated Outperform on VNO, BSX, KO, STZ, ACS, WMT, HD, IGT, FS, ASN, and AMT. Goldman reiterated Underperform on GFI, PSA, KZL and UNM. Citi SmithBarney upgraded TOY to Buy, target $22. Citi said it was very bullish on brokers, favorite is GS. Citi reiterated Buy on MGA, target $92.00. Citi reiterated Buy on MXIM, target $56.00. CZN raised to Buy at Merrill Lynch, target $14.50. CTL raised to Buy at Merrill, target $34. SIE cut to Sell at Bank of America, target $33. OTEX raised to Strong Buy at Raymond James, target $31.50. NXTP raised to Overweight at Prudential, target $18. ULCM raised to Strong Buy at Raymond James, target $13. PCLN raised to Outperform at CSFB, target $28. LTM rated Outperform at CSFB, target $32. DE raised to Buy at UBS. CHRW raised to Buy at Deutsche Bank, target $48.

Mid-day News
U.S. stocks are slightly higher mid-day on a muted bounce after Friday's steep declines. Nationwide Mutual Insurance said the SEC and New York Attorney General Spitzer's office are probing the company's variable insurance products, Dow Jones News reported. TiVo, which has lost market share since helping to introduce the digital video recorder in 1999, is poised to make major changes in its strategic, marketing and advertising plans, the NY Times said. Senator Kerry has been campaigning for the votes of gun owners in undecided U.S. states by depicting himself as a "lifelong hunter," including an ad that shows him posing with a shotgun, the Washington Post reported. An international team will monitor the U.S. presidential election for the first time ever in November, CNN reported. New Jersey has increased taxes more than any state other than New York since Governor McGreevey took office in 2002, the Star-Ledger reported. Affymetrix won a contract from NY City to help analyze the DNA in body parts recovered from the rubble of the collapsed World Trade Center after the 9/11 attacks, the NY Post reported. Senator Kerry's plan to reduce the number of U.S. troops in Iraq by shifting responsibility to allies faces a lack of international support, the LA Times said. ConAgra Foods will unveil its Ultragrain flour this week, which tastes like white bread and is nutritious, USA Today reported. Washington, DC, officials ruled that a gambling referendum will not be on the Nov. 2 ballot because too few valid signatures were gathered, the Bond Buyer said. Iraq's Southern Oil Co. stopped pumping oil after militia troops threatened to attack oil facilities, Agence France-Presse reported. Puma AG may increase its brand sales to as much $3.1 billion without acquisitions, CEO Zeitz told Handelsblatt. The U.S. economy will probably grow at a 3.9% annual rate from July through September, slower than the 4.2% estimated last month, according to the median of 54 economists surveyed by Bloomberg News. The National Association of Realtors, the U.S. industry's largest trade group, increased its estimate for home sales for the eighth time this year, saying low mortgage rates and an improving economy will spurt the housing market, Bloomberg reported. Copper prices in New York fell for a sixth session, the longest slide in 22 months, Bloomberg reported.

BOTTOM LINE: The Portfolio is slightly lower today as my steel shorts are rising more than my gaming and medical longs. Several longs hit stop-losses this morning and I exited the positions, leaving the Portfolio 25% net long. Today's action is disappointing as I anticipated a better bounce. The advance/decline line is poor and measures of investor anxiety are falling, notwithstanding oil's rise. I expect U.S. stocks to rise modestly into the close as shorts take profits ahead of tomorrow's Fed announcement. I also expect a more vigorous bounce tomorrow on the rate-hike and calming Fed comments.

Monday Watch

Earnings of Note
Company/Estimate
KDE/.29
ADRX/.33
CVC/-.40
CHTR/-.50
DOVP/-.51
PSUN/.23
WMS/.04

Splits
None of note.

Economic Data
Wholesale Inventories for June estimated +.6% versus +1.2% in May.

Weekend Recommendations
Forbes on Fox had guests that were positive on RL, LYO, VSEA, OVTI, AMD and negative on BRCM, XLNX, MU. Bulls and Bears had guests that were positive on DHI, SSL, JNJ, MER, LTD, SPLS, FFH, mixed on WMT, NOK and negative on MSFT, LTD. Cashin' In had guests that were positive on SU, BR, UHCO and WMT. Louis Rukeyser's Wall Street had guests that were positive on SGMS, AZR, GET, LEA and GM. Barron's had positive comments on TRB, GTW, BEN, DANKY and negative comments on GOSHA. Goldman Sachs reiterated Outperform on WFC, EBAY, TU, GDT, CMA, ASN and Underperform on UNM, PSA.

Weekend News
U.S. intelligence officials said Abu Issa al-Hindi, the al-Qaeda terrorist suspect in U.K. custody, visited the U.S. in early 2001 to conduct surveillance of possible targets at the direction of Osama bin Laden, the NY Times reported. Martha Stewart Living Omnimedia plans a show starting in January on public tv stations that stars feature chefs instead of Martha Stewart herself, the NY Times said. More than 4,200 U.S. families who say that mercury used in vaccines caused their children's ailments are suing drug companies for damages, the LA Times reported. U.S. health officials and pharmaceutical makers say there is no proof that small amounts of mercury caused the problems, Bloomberg reported. A consortium of Dubai-based investors is backing a $10 billion offer to avert bankruptcy of OAO Yukos Oil, Russia's biggest oil exporter, the Sunday Times reported. OPEC, which says it produces 28% of the world's oil requirements, exaggerates daily output by as much as 7.5%, helping to push fuel prices higher, the Business newspaper reported. A Pakistani man arrested last month was communicating with al-Qaeda terrorists who are said to be planning an attack to disrupt the U.S. elections, the NY Times said. Charter Communications and EchoStar Communications are considering going private, a move Cox Communications announced last week, the NY Times reported. Workers are now suing their employers more often than during the recession as lawyers find more creative ways to bring their grievances to court, Crain's New York Business reported. Almost half of all private businesses surveyed this year by Chubb Corp. said they expect one of their employees will sue or file a discrimination complaint, Bloomberg reported. China's inflation will probably slow in the second half as government lending curbs help cool the economy, Bloomberg reported. BellSouth reached a tentative five-year agreement last night with the Communications Workers of America on labor contracts for 45,000 employees in nine states, Bloomberg said. Dillard's agreed to sell its private credit-card unit to GE's consumer-finance division for about $1.25 billion.

Late-Night Trading
Asian indices are mixed, -.50% to +.75% on average.
S&P 500 indicated +.23%.
NASDAQ 100 indicated +.46%.

BOTTOM LINE: I expect U.S. stocks to open higher in the morning on declining oil prices and no domestic acts of terror over the weekend. The extreme rise in the Arms and Put/Call readings on Friday also bodes well for the very near-term. I added market exposure into Friday afternoon's carnage, leaving the Portfolio 50% net long. One of my new longs is FCEL and I am using a $7.70 stop-loss on the position.

Chart of the Week

Bottom Line: While most stocks fell substantially last week, homebuilders rose. The Homebuilding Index is now up 5.6% over the last 11 days while the S&P 500 has declined 1.9% during the same period. With Friday's plunge in the yield of the 10-yr T-note, mortgage rates should fall further in the near future. The Homebuilding Index is down 16% from its all-time high set in March and has a P/E on forward 12 month earnings estimates of 7.2. This index will likely test those recent highs by year-end.