Economic Week in Review

ECRI Weekly Leading Index 132.70 +.08%

Existing Home Sales for October were 6.75M versus estimates of 6.72M and 6.76M in September. "With low interest rates and an improving job market we're seeing some extraordinary numbers in housing," said the CEO of Foxtons North America, a real estate brokerage firm. October's sales were the fourth-highest ever, Bloomberg said. The median selling price of an existing home was $187,000 last month, up 8.8% from the same month last year. "As long as mortgage rates stay at about the 6-6.5% level, I think the housing market should be strong," said Bruce Harting, a senior analyst who covers mortgage companies at Lehman Brothers. Re-sales were the strongest in the South and West, rising 3.7% and 3.6% for the month respectively. While prices have increased, America's homeowners are not over-leveraged, according to the Homeownership Alliance. The latest Federal Reserve data show that mortgage payments accounted for 9.87% of disposable incomes in the second quarter of this year, down from over 10% in 1990-1992, Bloomberg said.

Durable Goods Orders for October fell .4% versus estimates of a .5% rise and an upwardly revised .9% gain in September. Durable Goods Orders Less Transportation for October fell .7% versus estimates of a .2% fall and an upwardly revised 2.8% increase in September. After the September revisions, the October dollar volume was close to estimates, Bloomberg reported. Shipments, which the government uses to calculate quarterly GDP, rose 3.1%, the biggest rise since March, Bloomberg said.

Initial Jobless Claims for last week were 323K versus estimates of 335K and 335K the prior week. Continuing Claims were 2755K versus estimates of 2795K and 2784K prior. The four-week moving average of claims dropped to a four-year low of 332,000. "Labor markets are improving, and we expect to see that reflected in payroll gains for November," said Gary Bigg, an economist at Banc of America Securities. A survey by the National Assoc. of Business Economists released on Nov. 22 showed economists expect the labor market to give a boost to the economy next year, with the unemployment rate falling to 5.2%, from its current 5.5%, Bloomberg reported. Moreover, economists project 2.2 million jobs will be created in 2005.

The Final Univ. of Mich. Consumer Confidence reading for November was 92.8 versus estimates of 96.0 and a prior forecast of 95.5. "With the election over, energy prices declining, and the labor market improving, we would have expected a more significant boost to attitudes," said Stephen Stanley, chief economist at RBS Greenwich Capital. However, the University's current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 104.7 from 104 in October, Bloomberg said. As well, the expectations index, based on optimism about the next one to five years, rose to 85.2 from 83.8 last month. "Based on the positive momentum over the past three weeks, Visa maintains an optimistic outlook for the holiday shopping season," said Wayne Best, senior vice president of strategic and economic analysis at Visa USA. Finally, the National Retail Federation is now projecting a fairly strong 4.5% gain in retail sales during the holiday season.

New Home Sales for October rose to 1226K versus estimates of 1200K and 1224K in September. This was the third fastest rate on record, Bloomberg said. The median price jumped to $221,800, up 14% from a year ago. The U.S. gained the most jobs in seven months during October and mortgage rates remain within a percentage point of an all-time low, helping boost sales, Bloomberg reported. "We are still seeing extremely strong traffic and demand," said Alan Levan, CEO of Levitt, a homebuilder based in Fort Lauderdale, Florida. Sales of new and existing homes will reach an all-time record this year, according to a forecast from the National Assoc. of Realtors. Sales were the strongest in the Northeast and West, rising 20% and 13% respectively.

Bottom Line: Overall, last week's economic data were mildly positive. The Weekly Leading Index has now risen 4 consecutive weeks since the election. Housing remains a pillar of strength for the U.S. economy and will remain so, barring an unexpected substantial rise in interest rates. The decline is Durable Goods Orders was a result of the significant upward revision to the prior month and is not of concern. The better jobless claims readings over the past few weeks suggest another good month for employment is in the offing. This should definitely result in better consumer confidence in the very near future, notwithstanding high energy prices. As well, stock market gains, less negativity by politicians and a strong housing market should also boost sentiment going forward. I continue to expect U.S. economic growth to surprise on the upside over the next few months. Data in December should confirm this view.

Friday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
None of note.

Economic Data
None of note.

Recommendations
Saks Inc.(SKS), which operates 350 traditional and luxury department stores, owns a high portion of is shops, making its stock an attractive buy, Business Week reported. Shares of Boston Scientific(BSX) are worth buying because the company has a "rich" pipeline of products, Business Week said. Shares of Bioenvision(BIVN), a maker of drugs to treat cancer, are expected to rise as the U.S. FDA considers approving the company's Clofarabine drug, Business Week said.

Holiday News
U.S. experts expressed reservations over an accord signed by European officials and Iran to stop the country's uranium enrichment program, the NY Times reported. U.S. Steel is interested in bidding for two steel operations of insolvent Stelco, possibly provoking a bidding war, the Globe and Mail reported. A laboratory for the manufacture of chemical weapons was found in the Iraqi city of Fallujah, Reuters reported. The Ukrainian Supreme Court today suspended publication of the Nov. 21 presidential election results until it can examine an opposition appeal challenging them, Agence France-Presse reported. The European Central Bank is waiting for the right moment to sell euros or buy dollars and curb the European currency's record-breaking rally, Reuters said. TiVo's plan to use pop-up ads is too intrusive, the AP reported. Companies plan to hire 20% more college graduates this year, Business Week reported, citing a study of 582 companies by Collegiate Employment Research Institute at Michigan State. American Express said it would replace Ernst & Young LLP as the company's independent auditor. The U.S., as a net international borrower, has "little to fear" from the dollar's slide, said Paul McCulley, a managing director at PIMCO. The European Union and Russia clashed over the results of Ukraine's presidential election, with the EU rejecting the vote outcome and Russian President Putin urging other countries to stay out of Ukraine's domestic affairs, Bloomberg said. Warehouse Group, New Zealand's largest retailer, is betting it can revive flagging sales in its peak Christmas season by adding name-brand products such as Eastman Kodak digital cameras and Dell notebook PCs, Bloomberg reported. Asian stocks are mixed tonight, with a regional benchmark set for its sixth straight weekly gain, the longest winning stretch in 14 months, Bloomberg said. China's government has cut its holdings of U.S. Treasury bonds in the nation's foreign-exchange reserves to $180 billion, First Economic and Finance Daily said. Cell phones are increasingly becoming attractive targets to computer hackers, the Washington Post says. Asian steelmaker shares are advancing, led by Nippon Steel and Posco, on speculation automakers including Toyota Motor and Nissan will pay higher prices, Bloomberg reported. Crude oil futures may decline next week on speculation the U.S. is importing enough to boost inventories, easing concern about a shortage of winter fuel, according to a Bloomberg survey.

Late-Night Trading
Asian indices are mixed, -1.25% to +.25% on average.
S&P 500 indicated -.16%.
NASDAQ 100 indicated +.06%.

BOTTOM LINE: I expect U.S. stocks to open modestly lower on worries over higher interest rates and energy prices. However, stocks should rally later in the day on short-covering and more optimism as interest rates stabilize. The Portfolio is 125% net long heading into tomorrow.

HAPPY THANKSGIVING

I will resume blogging tomorrow night with the Friday Watch. Check out this long-term chart of the DJIA.

Mid-day Report

S&P 500 1,180.12 +.27%
NASDAQ 2,097.52 +.64%

Leading Sectors
Airlines +2.66%
Papers +1.18%
Internet +1.0%

Lagging Sectors
Defense unch.
Retail -.04%
Telecom -.63%

Other
Crude Oil 48.60 -.69%
Natural Gas 7.16 +5.4%
Gold 449.00 +.25%
Base Metals 120.24 +1.22%
U.S. Dollar 82.43 -.61%
10-Yr. T-note Yield 4.19% +.23%
VIX 12.82 +1.26%
Put/Call .61 -22.78%
NYSE Arms 1.08 -11.48%

Market Movers

Economic Data
Durable Goods Orders for October fell .4% versus estimates of a .5% increase and an upwardly revised .9% gain in September.
Durable Goods Orders Less Transportation for October fell .7% versus estimates of a .2% fall and an upwardly revised 2.8% gain in September.
Initial Jobless Claims for last week were 323K versus estimates of 335K and 335K the prior week.
Continuing Claims were 2755K versus estimates of 2795K and 2784K prior.
Final Univ. of Mich. Consumer Confidence for November was 92.8 versus estimates of 96.0 and a reading of 95.5 in October.
New Home Sales for October were 1226K versus estimates of 1200K and 1224K in September.
Help Wanted Index for October was 37 versus estimates of 37 and a reading of 36 in September.

Recommendations

Mid-day News

Bottom Line: The Portfolio is higher mid-day on strength in my medical instrument, gaming and internet longs. I took profits in an internet long this morning and added BWLD long, thus leaving the Portfolio 125% net long. I am using a stop-loss of $32.50 on this position. Overall, today's economic data was mildly positive. While durable goods orders unexpectedly fell, the upward revisions for last month were significant. I would have liked to see Consumer Confidence at higher levels, however this reading should continue higher through at least year-end. Considering the small gains by the major indices, today's breadth is very healthy. I expect U.S. stocks to trade modestly higher into the close as higher energy prices are more than offset by short-covering.

Wednesday Watch

Earnings of Note
Company/Estimate
PDCO/.32
HRL/.49

Splits
None of note.

Economic Data
Durable Goods Orders for October estimated to rise .5% versus a .2% increase in September.
Durable Goods Orders Less Transportation for October estimated to fall .2% versus a 1.8% increase in September.
Initial Jobless Claims for last week are estimated at 335K versus 334K the prior week.
Continuing Claims are estimated at 2795K versus 2792K prior.
Final Univ. of Michigan Consumer Confidence for November is estimated at 96.0 versus a prior estimate of 95.5.
New Home Sales for October are estimated at 1200K versus 1206K in September.
Help Wanted Index for October is estimated at 37 versus 36 in September.

Recommendations
Goldman Sachs reiterated Outperform on PFE, GE, NKE and ACN. Goldman reiterated Underperform on HRB and GCO.

Late-Night News
Asian indices are higher, led by financial, basic material and technology companies in the region. Newmont Mining will study Gold Fields' mines outside South Africa in case they are sold to defend against a hostile takeover bid, Reuters said. Shandong TV-net Media Development is preparing for China's first initial share sale of a business that directly controls tv channels, the Financial Times reported. South Korea's government will ask companies to refrain from aggressively selling dollars, Edaily reported. China's central bank considers growth in fixed-asset investment too fast and is monitoring the economy to gauge whether to boost interest rates again, the Financial Times said. China may relax the yuan's decade-old peg to the dollar by April 1 as the government attempts to slow inflation and cool economic growth, analysts at Banc of America and Merrill Lynch said. Intel said it's helping Chinese and Indian customers build personal computers that use the Linux operating system, an alternative to Microsoft's Windows software, Bloomberg reported. India's investment climate has improved over the past three years and it has overtaken China on "some indicators," the Financial Times reported, citing a World Bank study. The U.S. Postal Reserve will seek a bigger-than-expected increase in postage rates early next year, the Wall Street Journal reported. The Fed will raise the interest-rate target for overnight loans between banks a quarter point to 2.25% next month, said 20 of the 22 largest bond-trading firms. Russian President Putin's support for Ukrainian Prime Minister Yanukovych after Sunday's disputed presidential election may aggravate relations with the U.S. and Europe, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25% to 1.0% on average.
S&P 500 indicated +.25%.
NASDAQ 100 indicated +.41%

BOTTOM LINE: I expect U.S. equities to open higher on better-than-expected economic reports, lower energy prices, short-covering and more optimism. The Portfolio is 125% net long heading into tomorrow.

Tuesday Close

S&P 500 1,176.94 -.03%
NASDAQ 2,084.28 -.04%

Leading Sectors
Restaurants +1.66%
Oil Service +1.16%
Airlines +1.11%

Lagging Sectors
Papers -.50%
Drugs -.59%
Semis -.73%

Other
Crude Oil 48.74 -.41%
Natural Gas 6.77 -.34%
Gold 447.00 -.20%
Base Metals 118.79 +1.19%
U.S. Dollar 82.94 -.30%
10-Yr. T-note Yield 4.18% +.09%
VIX 12.67 -2.31%
Put/Call .79 +11.27%
NYSE Arms 1.22 +23.23%

After-hours Movers
GOOG +5.4% after Goldman Sachs rated it Outperform, target $215.
CWTR +3.7% after beating 3Q estimates.
ELN +4.4% after winning FDA approval for its Tysabri drug to treat multiple sclerosis.
STCR +27.0% after Quantum Fuel Systems(QTWW) agreed to buy it for $185 million in stock and assumed debt.
TSA +7.8% after meeting 3Q estimates and reiterating 4Q guidance.
MIK -7.3% after meeting 3Q estimates and lowering 4Q outlook.
SEAC -9.1% after missing 3Q estimates and lowering 4Q guidance.

Recommendations
Goldman Sachs reiterated Underperform on DE and PVH. Goldman rated GOOG Outperform, target $215.

After-hours News
U.S. stocks finished quietly lower today, pressured by mild declines in semiconductor shares. After the close, the SEC and the NASD are starting an informal inquiry into gifts given to mutual fund executives by brokerage firms, CNBC reported. Users of Nokia's 7610 mobile phone are being warned about a virus that generates skull images and makes some functions on the so-called smartphone difficult to use, BBC reported. GM may use BMW's high-performance diesel engines in its Cadillac models in Europe, the Financial Times said. Sumner Redstone, CEO of Viacom, said his daughter is taking an increasingly important role at the media company, Bloomberg reported. Biogen and Elan won FDA approval of their multiple sclerosis drug, which will be called Tysabri, Bloomberg said. The U.S. said a screening test that last week indicated a possible case of mad cow disease was a "false positive," based on a more complete exam of the animal's brain tissue at a government lab, Bloomberg said. Women hold more top jobs on Wall Street than ever before, according to the Securities Industry Association. The NFL, undeterred by last week's brawl between NBA players and fans, will put spectators on the sidelines this weekend to test a new premium seating program, Bloomberg reported. Supporters of Ukraine's Viktor Yushchenko, who declared himself president after the Nov. 21 election, are surrounding the presidential office in Kiev demanding Yushchenko is allowed to begin managing the country, Bloomberg reported.

BOTTOM LINE: The Portfolio finished higher today on gains in my security, Chinese ADR, internet and retail longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The underlying tone of the market was pretty good today as most stocks advanced and volume increased. As well, energy prices fell from their daily highs into the afternoon. I expect U.S. stocks to rise tomorrow on better-than-expected economic reports, falling energy prices, strength in the tech sector, short-covering and more optimism.