Mid-day Update

S&P 500 1,124.07 +.33%
NASDAQ 1,906.53 +.53%

Leading Sectors
Fashion +1.31%
Disk Drives +1.23%
Iron/Steel +1.15%

Lagging Sectors
HMOs -.38%
Tobacco -.39%
Oil Service -.39%

Other
Crude Oil 43.05 -1.15%
Natural Gas 4.68 -2.99%
Gold 406.40 -.10%
Base Metals 110.01 +1.13%
U.S. Dollar 88.89 -.29%
10-Yr. T-note Yield 4.09% -1.67%
VIX 14.38 -1.78%
Put/Call .65 -30.85%
NYSE Arms 1.15 -38.50%

Market Movers
RIMM +5.5% after announcing a new keyboard technology for cell-phones.
XMSR +5.3% after announcing XM Radio Online, a premium Internet music service.
NTMD +11.0% after saying data from a clinical trial of its treatment for heart failure in African Americans will be presented at the AHA meeting in November.
SWFT -10.7% after lowering 3Q estimates substantially.
NARA -7.8% after Keefe, Bruyette downgrade to Underperform.
MNT -7.0% after SunTrust Robinson downgrade to Neutral.

Economic Data
Consumer Price Index for August rose .1% versus estimates of a .1% gain and a .1% decline in July.
CPI Ex Food & Energy for August rose .1% versus estimates of a .2% increase and a .1% gain in July.
Initial Jobless Claims were 333K last week versus estimates of 340K and 317K the prior week.
Continuing Claims were 2882K versus estimates of 2880K and 2885K prior.

Recommendations
Goldman Sachs reiterated Outperform on AFL, BIIB, DHR, MERQ and GE. Goldman reiterated Underperform on AMCC and INFA. UBS rated TS Buy, target $50. Citi SmithBarney rated FRO Sell, target $28. Citi rated OSG Sell, target $45. Merrill Lynch rated NVT Buy, target $42. ITW raised to Overweight at Prudential, target $105. NAV cut to Underweight at Prudential, target $38. ASO cut to Sell at Deutsche Bank, target $22.

Mid-day News
U.S. stocks are modestly higher mid-day on a better-than-expected consumer inflation report and the passing of Hurricane Ivan. Iraqi Prime Minister Allawi will speak to a joint session of Congress and address the UN General Assembly during his visit to the U.S. next week, the Washington Post reported. Viacom and Blackstone Group could bid for Lions Gate Entertainment since Sony agreed to buy MGM, the New York Daily News reported. The Mondavi family may try to buy the Robert Mondavi Winery and other luxury-wine producing assets from Robert Mondavi, the NY Times said. CanWest Global Communications, Canada's largest media company, is shopping for cable operations in the U.S., the Globe and Mail reported. Coca-Cola's credit rating may finally be reduced after it lowered its forecast for second-half earnings, Bloomberg reported. U.S. consumer prices barely rose in August, restrained by cheaper automobiles and apparel, Bloomberg reported. Money manager Michael Price is betting on retailers such as Dillard's because of their real estate assets, Bloomberg said. International investors purchased a net $64 billion of U.S. Treasuries, stocks, corporate bonds and other securities in July, Bloomberg reported. Office Depot, which said Tuesday its third-quarter and year earnings would miss analysts estimates, will buy back as much as $500 million of its shares, Bloomberg reported. Charles Schwab and other U.S. retail brokerages will have a "delayed recovery" in profitability as long as market volatility remains near fifty-year lows, according to Sanford C. Bernstein analysts, Bloomberg reported. The Federal Reserve Bank of Philadelphia's index of regional manufacturing fell to 13.4 this month, below expectations, from 28.5 in August, Bloomberg said. Delta Air's corporate credit rating was lowered two levels by S&P after the airline offered to exchange debt to cut costs and avoid a bankruptcy filing, Bloomberg reported. Hurricane Ivan will cost insurers less than first estimated after the third storm to hit southern U.S. states in six weeks skirted New Orleans, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher mid-day as my rising software and Chinese ADR longs are more than offsetting my losses in consumer-oriented shorts. I took profits in one of my technology longs and added HNP long. I am using a stop-loss of $31.25 on this position. The tone of the market is pretty good today, however measures of investor anxiety are falling again. The extent of the decline in the Philly Fed is a bit worrisome, but I continue to expect an acceleration in economic growth during the fourth quarter. Interest rates are falling substantially today as another report shows that inflation is not the significant problem the bears and media made it out to be. As well, commodity prices are dropping again which is also a positive. I expect U.S. stocks to remain mixed into the close as worries over economic growth offset declining energy prices and interest rates.

Wednesday Close

S&P 500 1,120.37 -.71%
NASDAQ 1,896.52 -.99%

Leading Sectors
HMO's +1.15%
Oil Service +.36%
Gaming +.32%

Lagging Sectors
Disk Drives -2.03%
Networking -2.76%
Semis -3.23%

Other
Crude Oil 43.57 -.02%
Natural Gas 4.85 +.64%
Gold 406.30 -.12%
Base Metals 108.78 +.58%
U.S. Dollar 89.15 +.78%
10-Yr. T-note Yield 4.16% +.93%
VIX 14.64 +7.96%
Put/Call .94 +18.99%
NYSE Arms 1.87 +122.62%

After-hours Movers
None of note.

Recommendations
Goldman reiterated Outperform on BBY, KO and KRB. Goldman reiterated Underperform on RAI.

After-hours News
U.S. stocks finished lower today on profit-taking in the technology sector. After the close, Venezuela's congress may approve changes to the constitution next year that would allow President Chavez to be re-elected indefinitely, removing the current limit of two 6-year terms, Bloomberg reported. Infineon Technologies AG agreed to please guilty to fixing prices for digital memory chips and pay a $160 million criminal fine, the third largest U.S. antitrust enforcement penalty, Bloomberg reported. A judge cut in half a $268 million request for fees from lawyers who represented California consumers in an antitrust suit against Microsoft, Bloomberg said. Delta Air's outside auditors questioned the airline's ability to continue as a viable business, Bloomberg reported. Goldman Sachs agreed to pay $656 million for stakes in 12 U.S. power plants and a natural-gas pipeline from PG&E's National Energy & Gas Transmission unit, Bloomberg reported.

BOTTOM LINE: The Portfolio finished higher today on strength in my security and internet longs and weakness in my consumer-oriented shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. Measures of investor anxiety rose throughout the day, which is a positive. The advance/decline line was weak, however it finished well off its lows. Finally, energy prices reversed today, which is very positive considering the current and potential disruptions from Hurricane Ivan and the much-larger-than-expected drawdown in inventories reported this morning.

Mid-day Update

S&P 500 1,121.55 -.60%
NASDAQ 1,895.79 -1.02%

Leading Sectors
Oil Service +1.39%
HMO's +.78%
Broadcasting +.40%

Lagging Sectors
Telecom -1.70%
Networking -2.72%
Semis -3.15%

Other
Crude Oil 44.83 +.99%
Natural Gas 4.86 -1.38%
Gold 406.50 -.25%
Base Metals 108.78 +.58%
U.S. Dollar 89.24 +.88%
10-Yr. T-note Yield 4.15% +.70%
VIX 14.46 +6.64%
Put/Call 1.0 +26.58%
NYSE Arms 1.65 +96.43%

Market Movers
TASR +19.0% after U.K./Wales approval of its stun gun for police use and the availability on its web site of the consumer version.
KO -4.33% after lowering 2nd-Half forecast.
XLNX -6.06% after cutting 2Q forecast and Wachovia downgrade to Market Perform.
AMZ +37.3% after PacifiCare Health Systems(PHS) said it agreed to buy it for $502 million. PHS +5.3%.
CYBX +23.2% after Advanced Neuromodulation Systems(ANSI) said it is prepared to offer $520 million in cash and stock to buy the company.
BBY +5.09% after meeting 2Q estimates and re-affirming 05 outlook.
CLS -12.4% after cutting 3Q estimates and multiple downgrades.
BHE -8.56% on CLS news.

Economic Data
Empire Manufacturing for September rose to 28.34 versus estimates of 20.0 and a reading of 13.22 in August.
Business Inventories for July rose .9% versus estimates of a .8% increase and a 1.1% gain in June.
Industrial Production for August rose .1% versus estimates of a .5% gain and a .6% increase in July.
Capacity Utilization for August was 77.3% versus estimates of 77.4% and 77.3% in July.

Recommendations
Goldman Sachs reiterated Outperform on SYMC, DELL, EMC, DD, HD, YHOO, INTC, AMD, BBY, COH, LIZ, FCE, KO, KRB, GDT and IBM. Goldman reiterated Underperform on RAI, RNWK, FRX and PSS. Goldman lowered Computer Hardware and Software industries to Neutral from Attractive. Citi SmithBarney reiterated Buy on AFC, target $36. NVDA cut to Reduce at UBS, target $11. ADTN rated Buy at Deutsche Bank, target $30. FFIV rated Buy at Deutsche Bank, target $33. SONC rated Sector Outperform at CIBC, target $28. RFMD rated Underperform at CSFB, target $5.0. UTX raised to Overweight at JP Morgan. TSO raised to Overweight at Prudential, target $25. LABS rated Buy at Bank of America, target $35. PSUN raised to Buy at Bank of America, target $26. MIL rated Buy at Bank of America, target $57. Morgan Stanley lowered Auto and Auto Parts industries to Cautious from In-Line. STLD rated Buy at Merrill, target $45. KIND rated Buy at Merrill Lynch, target $31.

Mid-day News
U.S. stocks are lower mid-day as technology stocks give back some of their recent gains. CBS News, a unit of Viacom, may damage its credibility if documents it used in a report related to President Bush's National Guard service prove to be forgeries, the Wall Street Journal said. China's government will crack down harder on corruption and abuse of power among government officials, China Central tv said. Gander Mountain executives and directors have bought shares of the sporting-goods retailer following the company's IPO in April, the Wall Street Journal reported. Amazon.com is developing a search engine the company says will be more sophisticated than Google's, the NY Times reported. The number of Sudanese dying in the country's Darfur region from disease and violence is between 6,000 and 10,000 a month, the Washington Post reported. The median price of a home in Los Angeles County rose 20.4% from a year earlier, the LA Times reported. Tommy Hilfiger plans to snap up as many as five European brands to fuel growth in the region, Handelsblatt reported. A federal appeals court yesterday rejected a motion by the plaintiff in the Supreme Court's 1973 Roe v. Wade case to overturn the landmark ruling that legalized abortion in the U.S., the Dallas Morning News said. OPEC plans to boost quotas by 3.8% in a bid to lower near-record prices, said oil officials from Kuwait and Qatar, Bloomberg reported. Manufacturing in New York state grew at a faster-than-expected pace this month as rising orders and sales led to more hiring, Bloomberg reported. National Hockey League owners meet in New York today and may authorize a lockout of players if the parties fail to reach a new labor agreement before midnight, Bloomberg said. U.S. industrial production rose less-than-expected in August as the manufacture of business equipment slipped, mining output dropped, and utility production fell "significantly," Bloomberg reported. Jacob Goldfield, CIO for George Soros's flagship $8.3 billion hedge fund, resigned to start his own money management group, Bloomberg reported. The growth of Linux is being threatened by a $50 billion lawsuit against IBM, Bloomberg said. Six percent of adults with health insurance have bought low-cost drugs from Canada, according to a poll from the Civil Society Institute. Taser International said their weapons have been approved for use by police in England and Wales, Bloomberg reported. Martha Stewart asked a federal judge to let her begin serving her five-month prison term as soon as possible, while she appeals her conviction for obstructing justice, Bloomberg reported. Mobile, Alabama, residents made final preparations to face the most-powerful hurricane in 25 years as Hurricane Ivan takes aim at the city, Bloomberg said.

BOTTOM LINE: The Portfolio is higher mid-day as substantial gains in my security and internet longs and my declining consumer shorts are more than offsetting losses in other longs. I have not traded today and the Portfolio is still 100% net long. Measures of investor anxiety are climbing today which is a positive. While most stocks are lower, a number of market leaders are gaining. More bullish news for energy could not push prices substantially higher. I continue to believe oil will head towards $35/bbl. during the fourth quarter. U.S. stocks should trade mixed-to-higher into the afternoon on profit-taking and short-covering.

Wednesday Watch

Earnings of Note
Company/Estimate
BBY/.52
MLHR/.20

Splits
None of note.

Economic Data
Empire Manufacturing for September estimated at 20.0 versus 12.57 in August.
Business Inventories for July estimated to rise .8% versus a .9% increase in June.
Industrial Production for August estimated to increase .5% versus a .4% rise in July.
Capacity Utilization for August estimated at 77.4% versus 77.1% in July.

Recommendations
Goldman Sachs reiterated Outperform on YHOO, RE, NKE, PMMAY, DNA, COH, LIZ and ENH. Goldman reiterated Underperform on PSS. NOK raised to Buy at UBS.

Late-Night News
Asian indices are mixed on strength in China and weakness in Japan. Taiwan's AU Optronics will delay indefinitely construction of a new plan to make liquid-crystal displays for televisions because of overcapacity, the Commercial Times said. China Central Television has arranged to have Chinese channels carried in the U.S. by the EchoStar satellite network, the South China Morning Post said. Apple Computer's iTunes music download service may be investigated by the U.K.'s Office of Fair Trading on concern it's charging U.K. customers more than French and German customers to buy tracks, the FT said. The U.S. is preparing to ask the UN for sanctions against Iran, aimed at halting its suspected nuclear weapons program, the Financial Times reported. Crude oil rose for a third day as Hurricane Ivan prompted Gulf of Mexico producers such as Royal Dutch/Shell Group to evacuate and shut platforms in the biggest disruptions of the region's output in at least two years, Bloomberg reported. Interest in the presidential election among the nation's youth is near the highest level since 18-to-20 year olds were given the right to vote in 1972, the NY Times said.

Late-Night Trading
Asian Indices are -.50% to +.25% on average, however China is rising 4.0%.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.38%

BOTTOM LINE: I expect U.S. equities to open modestly lower in the morning on rising energy prices, worries over damage from Hurricane Ivan and weakness in semiconductor shares. While stocks may come under slight pressure tomorrow, I do not expect a sharp decline. Software and internet shares should outperform in the technology sector. The Portfolio is 100% net long heading into tomorrow.

Tuesday Close

S&P 500 1,128.33 +.22%
NASDAQ 1,915.40 +.26%

Leading Sectors
Internet +1.59%
Restaurants +.84%
Drugs +.75%

Lagging Sectors
Iron/Steel -.29%
Fashion -.30%
Hospitals -.40%

Other
Crude Oil 44.55 +.36%
Natural Gas 4.99 +1.22%
Gold 407.40 -.02%
Base Metals 108.15 -.01%
U.S. Dollar 88.46 -.09%
10-Yr. T-note Yield 4.12% -.28%
VIX 13.56 +2.96%
Put/Call .79 +17.91%
NYSE Arms .84 -1.18%

After-hours Movers
ORCL +3.79% after meeting 1Q estimates.
CPRT +4.73% after beating 4Q estimates.
CPTS +11.6% after announcing Humana has approved Essure for reimbursement.
CLS -10.78% after cutting 3Q estimates.
XLNX -3.83% after cutting 2Q forecast.

Recommendations
Goldman reiterated Outperform on ISG, MO, HOT, SBC and DEX. Goldman reiterated Underperform on AZR.

After-hours News
U.S. stocks finished slightly higher today, as gains in internet stocks offset weakness related to rising energy prices. Arab League Secretary-General Amr Mussa called on the 22-member body to re-establish full diplomatic ties with Iraq, Agence France-Presse reported. News Corp. is expected to release details today of the company's plan to shift to the U.S., the Australian Financial Review reported. Brazil has become the global capital for computer hacking and Internet fraud, the BBC reported. The U.S. House of Representatives passed a bill requiring judges to impose fines on attorneys who file lawsuits dismissed as frivolous, Bloomberg said. Makers of antidepressants including Pfizer, Wyeth and GlaxoSmithKline should be required to put stronger warning labels on their drugs, a U.S. advisory panel said. The U.S. Senate leaders agreed to legislation excluding companies based in overseas tax havens from bidding for billions of dollars in homeland security contracts. The provision, if it becomes law, may shut out Tyco, Ingersoll-Rand and other companies from more than $8 billion in contracts over the next fiscal year, Bloomberg reported. Oracle reported a 16% gain in first-quarter profit on rising demand for database software, Bloomberg said. Xilinx said second-quarter sales will miss its forecast because customers have too much inventory, Bloomberg reported. Lockheed Martin and General Dynamics will stop competing and instead work together on a $12 billion program to design a communications network for the U.S. Army under a plan to speed development, Bloomberg reported. Goldman Sachs donated 1,000 square miles of virgin forest in Chile to the Wildlife Conservation Society, creating a preserve the size of Rhode Island from land the firm acquired as collateral for bad loans, Bloomberg said.

BOTTOM LINE: The Portfolio finished modestly higher today as gains in my security, internet and software longs more than offset losses in my steel longs. I added a few internet longs in the afternoon, bringing the Portfolio's market exposure to 100% net long. One of my new longs is CHINA and I am using a $4.95 stop-loss on this position. The overall tone was mixed today as the market consolidated recent gains. Volume was lackluster and more stocks fell than rose. The fact that oil is not rising more in the face of current and potentially large disruptions in the Gulf is a positive.

Mid-day Update

S&P 500 1,129.03 +.29%
NASDAQ 1,917.02 +.35%

Leading Sectors
Internet +1.44%
Restaurants +1.18%
Biotech +.77%

Lagging Sectors
Fashion -.30%
Iron/Steel -.31%
Disk Drives -.40%

Other
Crude Oil 44.55 +1.55%
Natural Gas 4.96 +2.27%
Gold 408.00 +.49%
Base Metals 108.11 -.05%
U.S. Dollar 88.38 -.18%
10-Yr. T-note Yield 4.14% +.05%
VIX 13.64 +3.57%
Put/Call .80 +19.40%
NYSE Arms .81 -4.71%

Market Movers
CAH +4.22% on bargain-hunting after saying it will restate three years of financial results and delay its report for the fiscal quarter by an additional 15 days.
ERES +9.1% after saying that it had been awarded approximately $4.1 million in cardiac safety monitoring and services from an emerging West Coast pharmaceutical organization.
PGR +6.0% after saying it plans to buy back as many as 17.1 million shares. The purchase will be structured like a Dutch auction in which shareholders can tender their shares at any price between $78 and $88 a share.
KMRT +4.92% after UBS raised price target to $101 from $85.
VOL +7.7% after beating 3Q estimates substantially.
AOS -12.8% after lowering 3Q/04 estimates on high steel prices.
MGLN -5.0% after disappointing 05 outlook.
OS -8.9% after announcing a 7.5 million share common stock offering.

Economic Data
2Q Current Account Balance -$166.2B versus estimates of -$158.3B and -$147.2B prior.
Advance Retail Sales for August fell .3% versus estimates of a .1% decline and a .8% rise in July.
Retail Sales Less Autos for August rose .2% versus estimates of a .2% increase and a .3% rise in July.

Recommendations
HET and MUR raised to Overweight at JP Morgan. MBG lowered to Underweight at JP Morgan. FLEX raised to Buy at CSFB, target $16. UTHR raised to Buy at Deutsche Bank, target $40. TMO rated Buy at Deutsche Bank, target $32. TYC rated Buy at Deutsche Bank, target $37. ROK rated Buy at Deutsche Bank, target $45. CPB raised to Overweight at JP Morgan. EMR rated Buy at Deutsche Bank, target $80. HON rated Buy at Deutsche Bank, target $42. DHR rated Buy at Deutsche Bank, target $60. VIP rated Outperform at Bear Stearns. PFGC raised to Buy at UBS, target $28. Goldman reiterated Outperform on MDT, EBAY, CCL, RCL, BBY, FD, GDT. Goldman reiterated Underperform on HC, LSI and KZL. Goldman upgraded RIG and DO to Outperform. Citi SmithBarney riterated Buy on AFC, target $36. Citi reiterated Buy on ACS, target $70. Citi reiterated Buy on ITT, target $92. Goldman reiterated Outperform on MUR and SBC.

Mid-day News
U.S. stocks are modestly higher mid-day as the broad market consolidates after recent gains. The U.S. Congress is expected to recommend tougher laws to stop marketing practices that allow hospitals to overcharge for medical supplies, the NY Times reported. Ericsson AB is starting to benefit from its spending on 3G equipment which allows cell phones to carry video pictures and other multimedia, the Wall Street Journal reported. The Bush administration is proposing to cancel billions of dollars in debt owed by poor nations, the Washington Post reported. A federal appeals court in NY is reviewing a decision that may lead to the largest-ever ruling of punitive damages against the tobacco industry, the NY Times reported. The U.S. Nuclear Regulatory Commission has concluded a terrorist attack that crashes a jetliner into a nuclear plant probably wouldn't release significant amounts of radiation, the AP reported. Three French paparazzi who took pictures of Princess Diana and Dodi Fayed the night they died in a Paris car crash in August 1997 were acquitted of invasion of privacy, Agence France-Presse reported. The U.S.'s global plan to fight AIDS has helped at least 25,000 people with the disease receive antiretroviral therapy since a program began distributing money to 15 countries in February, the Washington Post reported. Yahoo! said it plans to buy closely held Musicmatch for $160 million to add online music services, Bloomberg said. Global fund managers' optimism about earning growth gained this month for the first time in 2004, a Merrill Lynch survey showed. Iraqi President al-Yawar said 55,000 members of a planned 80,000-strong Iraqi security force have already been recruited, Bloomberg reported. U.S. retail sales excluding autos rose for a fourth month in August, suggesting consumer spending will help the economy expand this quarter, Bloomberg said. McDonald's raised its annual dividend 38% to 55 cents a share from 40 cents, Bloomberg reported. Crude oil rose for a second day on concern that Hurricane Ivan will slash U.S. offshore production in the Gulf of Mexico by the biggest amount in two years, Bloomberg reported. The European Union said the U.S. would have to cut subsides to Boeing to win a reduction in aid to Airbus SAS as both sides prepared for talks this week on revising aircraft-support restrictions, Bloomberg said.

BOTTOM LINE: The Portfolio is slightly higher mid-day as my declining consumer-oriented shorts are more than offsetting my falling steel longs. I have not traded today and the Portfolio is still 75% net long. The market's resilience in the face of Hurricane Ivan, rising energy prices and a few earnings shortfalls is impressive. I expect U.S. stocks to trade mixed into the close as short-covering offsets the market's overbought technical condition.