Mid-day Report

S&P 500 1,183.43 +.06%
NASDAQ 2,123.61 -.12%

Leading Sectors
Homebuilders +3.75%
Broadcasting +1.77%
Oil Service +1.12%

Lagging Sectors
Iron/Steel -.94%
Disk Drives -1.25%
Semis -1.74%

Other
Crude Oil 42.50 +1.34%
Natural Gas 6.84 +2.35%
Gold 437.40 -.32%
Base Metals 113.57 -.46%
U.S. Dollar 82.24 +.40%
10-Yr. T-note Yield 4.17% +1.31%
VIX 13.04 -1.14%
Put/Call .71 -20.22%
NYSE Arms .86 -29.51%

Market Movers
ALTR -11.5% after lowering 3Q outlook.
SMA +20.6% on strong demand for IPO.
ATPG +17.6% after saying a test on its Mississippi Canyon No.4 ST1 well was successful and showed flow rates that exceeded its expectations.
DITC +14.5% on Roth Capital upgrade to Strong Buy, target $24.80.
TOL +9.8% after beating 4Q estimates and raising 05/06 guidance.
FNF +6.0% after announcing a leveraged recapitalization plan and a special $10/share cash dividend.
INTL -11.6% after saying a unit will pay $8.7 million and plead guilty to bid rigging and wire fraud in connection with a federal program that helps link schools and libraries to the Internet.
LNG -8.4% after ChevronTexaco decided not to invest in a Louisiana plant the company plans to build.
TLCV -7.2% after saying it entered into an underwriting agreement to sell 2.3 million shares of common stock in the ipo of Occulogix.
VIP -9.2% after saying it has enough cash to meet obligations if a claim of $157 million in back taxes from 2001 is upheld.
DWA -5.5% on Bear Stearns downgrade to Underperform.

Economic Data
The Import Price Index for November rose .2% versus estimates of unch. and a 1.6% increase in October.
Initial Jobless Claims for last week were 357K versus estimates of 335K and 349K the prior week.
Continuing Claims were 2796K versus estimates of 2746K and 2705K prior.
Wholesale Inventories for October rose 1.1% versus estimates of a .5% gain and a .6% increase in September.

Recommendations
-Goldman Sachs reiterated Outperform on INTC, SANM, SLR, TYC, FON, BAX, GCI, PG, AVP and BBBY. Goldman reiterated Underperform on DJ, DYN, JDSU, CR and TRB.
-UBS downgraded LZB to Reduce, target $10. UBS downgraded JNS to Reduce, target $15.
-Banc of America rated CW Buy, target $68. BofA rated UDI Buy, target $52.
-Thomas Weisel raised GRMN to Outperform.
-JP Morgan raised LAVA to Overweight.
-Citi SmithBarney raised TWX to Buy, target $22.
-Deutsche Bank raised PPC to Buy, target $36.
-CIBC raised FLSH to Sector Outperform, target $25.
-Bear Stearns rated DWA Underperform, target $33. Bear raised MBT to Outperform, target $176.

Mid-day News
U.S. stocks are mixed mid-day as strong gains in the homebuilding sector are being offset by losses in technology shares. La-Z-Boy and other recliner makers are designing smaller, more delicate chairs that appeal to women to combat stagnant sales, the Wall Street Journal reported. Former Vermont governor and presidential candidate Dean urged fellow Democrats to stick to their liberal principles and not move to a more moderate stance to attract voters, the Washington Post reported. Citigroup plans to open 400 branches in the U.S., Canada and Mexico this year and next year to improve its profitable consumer finance business, Reuters reported. MBNA Corp., the world's largest independent credit-card lender, has angered some cardholders by switching their accounts to its new partner, American Express, from Visa or MasterCard without permission, the NY Times reported. The U.S. successfully resisted the adoption of socialism after WWII in its economic ideology, yet government's role in the economy has increased in recent years and that must be checked, Milton Friedman wrote in a Wall Street Journal column. More workers in the U.S. are finding permanent jobs through temporary assignments, USA Today reported. The Teamsters union proposed cutting the AFL-CIO's budget to help stem a decline in organized labor, the NY Times reported. Mexico's federal government has contracts that protect next year's oil revenue against a decline in the price of oil exports below $23-$24/bbl., daily Reforma reported. Hyatt Corp. agreed to buy the AmeriSuites chain of 143 hotels to tap rising demand from corporate travelers for upscale self-service rooms, Bloomberg said. Eli Lilly said net income will rise to $2.80 to $2.90 a share for 2005 as the company wins approval to sell new medicines, Bloomberg said. Toll Brothers, the largest U.S. builder of luxury homes, said fiscal fourth-quarter earnings increased 93% on higher sales, and raised its forecast for profit growth next year, Bloomberg reported. Men and teenage boys who use laptop computers may be damaging their fertility, a U.S. study shows. DaimlerChrysler AG said it doubled its number of fuel-cell models to 19 in the U.S. as part of the automaker's goal to have 100 of the no-emissions cars, trucks and buses worldwide by the end of this year, Bloomberg reported. National Semiconductor said profit rose for a sixth straight quarter, Bloomberg said. The US dollar had its biggest two-day advance since October against the euro and rose versus the yen as German Chancellor Schroeder and Japanese Prime Minister Koizumi denounced gains in their currencies, Bloomberg reported. The number of U.S. workers filing initial jobless claims unexpectedly rose by 8,000 last week to the highest since September, Bloomberg reported. Nextel Communications and Sprint Corp. are in "active and ongoing" talks about a possible merger, CNBC reported.

Bottom Line: The Portfolio is unchanged mid-day as strength in my retail longs is offsetting weakness in my semi/equipment longs. I have not traded today and the Portfolio is still 50% net long. The tone of the market has improved from morning lows, however it remains weak. Measures of investor anxiety are falling again and breadth is poor. The SOX bounced off its 50-day moving-average, which is a positive considering the news. I expect U.S. stocks to trade mixed-to-higher into the close on short-covering and bargain-hunting.

Thursday Watch

Earnings of Note
Company/Estimate
COST/.40
MATK/.30
NSM/.14
SHFL/.26
TOL/.197

Splits
CAKE 3-for-2

Economic Data
The Import Price Index for November is estimated unch. versus a 1.5% increase in October.
Initial Jobless Claims for last week estimated at 335K versus 349K the prior week.
Continuing Claims are estimated at 2746K versus 2723K prior.
Wholesale Inventories for October estimated to increase .5% versus a .5% gain in September.

Recommendations
Goldman Sachs reiterated Outperform on BHI, AVP and MDT.

Late-Night News
Asian indices are mixed as strength in China is being offset by weakness in Japan. China may let the yuan appreciate as much as 9.5% o 7.72 yuan to the U.S. dollar next year, Sing Tao Daily reported, citing Goldman Sachs' China chief economist Hong. South Korean President Roh Moo Hyun made a surprise visit yesterday to the Asian nation's soldiers serving in the northern Iraqi town of Arbil, Bloomberg reported. American Intl. Group is expanding its insurance offerings with a special policy to help companies in China cover the costs of lawsuits and regulatory investigations, the Asian Wall Street Journal reported. U.S. Trade officials plan to urge the Japanese government to lower barriers to entering the mobile phone market when the two nations hold talks next week, Kyodo News reported. About 10% of U.S. personnel wounded in the Iraq and Afghanistan wars have died, less than half the rates of past wars, partly because of better medical care, according to an essay in the Dec. 9 New England Journal of Medicine. The U.S. FCC said it will consider loosening a ban on mobile-phone use in airplanes, Bloomberg reported. Japan's Cabinet has decided to extend the country's troop deployment in Iraq, Bloomberg reported. Newly appointed Afghan President Karzai called provincial officials and tribal leaders to a meeting on combating drug trafficking, two days after he vowed at his inauguration to tackle the problem, Agence France-Presse said. Australia added jobs in November for a third straight month and the unemployment rate fell to a 28-year low, suggesting the fifth-largest economy in the Asia-Pacific region may rebound from its slowest growth in almost four years. Economists raised their U.S. growth forecast for the fourth quarter to 3.8% from 3.5% as a result of the recent fall in energy prices, Bloomberg reported.

Late-Night Trading
Asian Indices are -1.25%. to +.50% on average.
S&P 500 indicated -.21%.
NASDAQ 100 indicated -.53%

BOTTOM LINE: I expect U.S. equities to open lower in the morning on weakness in technology shares and a bounce in oil prices. The Portfolio is 50% net long heading into tomorrow.

Wednesday Close

S&P 500 1,182.81 +.49%
NASDAQ 2,126.11 +.54%

Leading Sectors
HMOs +2.51%
Biotech +1.86%
Disk Drives +1.73%

Lagging Sectors
Defense -.68%
Iron/Steel -1.01%
Semis -1.28%

Other
Crude Oil 42.05 +.26%
Natural Gas 6.72 +.55%
Gold 441.00 +.52%
Base Metals 114.10 -3.29%
U.S. Dollar 81.87 +.78%
10-Yr. T-note Yield 4.12% -2.47%.
VIX 13.19 -3.51%
Put/Call .89 +21.92%
NYSE Arms 1.24 -18.42%

After-hours Movers
FNF +6.4% after announcing leveraged recapitalization plan and a special $10/share cash dividend.
XLNX -5.3% after lowering 3Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on IR, USB and ECA.

After-hours News
U.S. stocks finished modestly higher today on optimism over a rebound in the US Dollar and falling interest rates. After the close, the California Public Employees' Retirement System is asking managers of companies and funds in which it's invested to disclose any investments they hold in Sudan, Bloomberg reported. TIAA-CREF, the largest U.S. retirement fund, said the staff of the SEC is conducting an informal inquiry into its arrangement with Ernst & Young, Bloomberg said. Gold in New York fell the most in seven months, and the prices of other metals declined, as a rebound in the dollar eroded the appeal of the commodities as an alternative to U.S. stocks and bonds, Bloomberg reported. Russia, one of Iraq's leading trading partners in the corrupt UN/Iraq Oil-for-food program, has refused to sign an agreement to cooperate with an investigation of it, Russian Deputy Ambassador Dolgov said.

BOTTOM LINE: The Portfolio finished unchanged today and I did not trade in the afternoon, thus leaving market exposure at 50% net long. The tone of the overall market improved from yesterday as the dollar rallied, interest rates plunged and commodity prices fell. Volume was lighter and the advance/decline line improved. However, most readings of investor complacency remain elevated. I continue to expect modest declines in the major indices in the near-term, setting the stage for a good year-end rally.

Mid-day Report

S&P 500 1,183.54 +.54%
NASDAQ 2,129.62 +.70%

Leading Sectors
Disk Drives +2.17%
Biotech +1.93%
HMOs +1.92%

Lagging Sectors
Defense -.94%
Semis -1.07%
Iron/Steel -1.06%

Other
Crude Oil 41.70 +.58%
Natural Gas 6.61 -.17%
Gold 438.70 -3.33%
Base Metals 114.10 -3.29%
U.S. Dollar 82.06 +1.02%
10-Yr. T-note Yield 4.14% -1.92%
VIX 13.34 -2.49%
Put/Call .91 ++24.66%
NYSE Arms 1.19 -23.03%

Market Movers
SIRI -15.3% on multiple downgrades to Sell.
VIP -26.9% after saying it received a claim of $157 million for back taxes, penalties and fines from 2001.
STX +6.4% after boosting 2Q estimates substantially and multiple upgrades.
GMR +13.6% after Frontline(FRO) indicated it bought at least 5% of the company and expressed interest in a business combination.
HITK +10.7% after beating 2Q estimates.
TTC +6.4% beating 4Q estimates, raising 1Q guidance and raising dividend.
MTL -20.5% after accusing the Russian police of raiding its Moscow offices to keep it from bidding for a stake in Russia's no. 2 steelmaker.
PIXR -6.0% after saying it and Disney are delaying the release of their movie "Cars" by six months and multiple downgrades.
DECK -5.8% on Piper Jaffray downgrade to Market Perform.
AVP -4.9% after lowering 4Q estimates.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Outperform on IBM, CSCO. Goldman reiterated Underperform on UIS. Goldman lowered AAI to Underperform.
-Citigroup SmithBarney rated ERTS Top Pick, target $62. Citi rated ATVI Buy, target $22. Citi reiterated Buy on MSFT, target $32. Citi reiterated Buy on TXN, target $27. Citi reiterated Buy on CSCO, target $30. Citi reiterated Buy on HOV, target $73.
-UBS raised NRP to Buy, target $60. UBS raised PVR to Buy, target $56. UBS raised USS to Buy, target $27.
-Deutsche Bank raised STX to Buy, target $22.
-Lehman Brothers raised GE to Overweight.
-CSFB rated SHOP Outperform, target $33. CSFB rated MRK Underperform, target $23. CSFB rated LLY Outperform, target $70. CSFB raised FDX to Outperform, target $130.
-Morgan Stanley raised AFL to Overweight, target $45.
-Banc of America downgraded Semis to Sell.

Mid-day News
U.S. stocks are modestly higher mid-day on optimism over falling interest rates and a rebound in the US dollar. Gap's Old Navy retail chain may suffer this holiday shopping season because it doesn't have many new apparel offerings, the NY Times reported. United Airlines may charge a $2/bag fee for curbside baggage check-in beginning in January, the NY Times said. Saudi Arabian Oil Minister Al-Naimi said today no action may be needed from OPEC to prevent oil prices from falling further, Platts reported. Construction contractors and equipment distributors are more confident about the industry and the economy than they have been in a decade, the Wall Street Journal reported today, citing a new survey. Nucor, the biggest U.S. maker of steel from recycled metal, yesterday lowered its prices on some products by $30/ton to compete with imports, American Metal Market reported. 99 Cents Only Stores' 65 union truck drivers voted to authorize a strike after contract negotiations fell through, the LA Times reported. Merck, already hurting from the withdrawal of Vioxx, said 2005 earnings will fall lower than expected as sales of its Zocor cholesterol medication decline, Bloomberg reported. Gold fell the most in 10 months as a rebound in the US dollar eroded the appeal of the precious metal as an alternative to stocks and bonds, Bloomberg said. Pfizer CEO McKinnell said sales of Lipitor may rise 15% in each of the next five or six years, Bloomberg reported. Nortel will file restated financial results on Jan. 10, the last day of a self-imposed deadline, Bloomberg said. The ACLU wants a federal judge to overturn a California law that requires anyone convicted of a felony to submit a DNA sample to law enforcement databases, the San Francisco Chronicle reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my retail longs are offsetting losses in my semi and semi-equipment longs. I have not traded today and the Portfolio is still 50% net long. The tone of the market is mildly positive today with measures of investor anxiety mixed. It is good to see interest rates falling, gold dropping, the dollar rebounding and the CRB declining near critical technical support. I continue to believe the CRB will fall next year which bodes well for future inflation readings. As well, commodity-related stocks will likely underperform in the intermediate-term. I expect U.S. stocks to trade mixed-to-higher into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
AZO/1.44
DWA/.16
KFY/.18

Splits
VCP 5-for-2

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on XRX, WFC, AVP and BAC.

Late-Night News
Asian indices are mixed as optimism over a bounce in the US Dollar is being offset by weakness in commodity-related stocks in the region. The euro zone's growth slowdown in the past three months was a "one-off, temporary nature," the Financial Times said, citing an interview with European Central Bank Chief Economist Issing. Israel and the Palestinian leadership denied a report from Egypt that an agreement is close that could serve as the basis for a peace settlement between them, Haaretz reported. New York lawmakers voted today to reduce the state's mandatory prison sentences for drug crimes, the NY Times reported. Lenovo Group Ltd., China's biggest personal computer maker, agreed to pay $1.25 billion for control of IBM's PC business, Bloomberg reported. Ukraine's opposition leader Yushchenko was the target of a plot to poison him during the country's recent election campaign, the London-based Times said. The BBC may start a worldwide children's tv channel, to capitalize on its success with characters such as the "Teletubbies," the Wall Street Journal reported.

Late-Night Trading
Asian Indices are -.50%. to +.50 on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.03%

BOTTOM LINE: I expect U.S. equities to open modestly higher on a bounce in the US dollar and bargain-hunting. However, stocks may fall modestly later in the day on continuing worries over slowing global growth. The Portfolio is 50% net long heading into tomorrow.

Tuesday Close

S&P 500 1,177.07 -1.11%
NASDAQ 2,114.66 -1.70%

Leading Sectors
Hospitals +.31%
Drugs -.57%
I-Banks -.58%

Lagging Sectors
Software -2.24%
Iron/Steel -2.84%
Disk Drives -3.14%

Other
Crude Oil 41.53 +.17%
Natural Gas 6.65 +.44%
Gold 452.40 -.29%
Base Metals 117.98 +.62%
U.S. Dollar 81.24 -.05%
10-Yr. T-note Yield 4.22% unch.
VIX 13.67 +3.64%
Put/Call .73 -3.95%
NYSE Arms 1.52 +53.54%

After-hours Movers
STX +10.6% after boosting 2Q estimates substantially.

Recommendations
Goldman Sachs reiterated Outperform on INTC, PFE and HOT.

After-hours News
U.S. stocks finished lower today on profit-taking and worries over global growth. Crude oil fell to the lowest in more than four months on speculation that warm weather and increased refinery production bolstered U.S. heating-oil stockpiles last week, Bloomberg said. The California Public Employees' Retirement System, the largest U.S. pension fund, agreed to disclose the fees it pays to venture capital and hedge fund managers as part of a legal settlement, Bloomberg reported. Texas Instruments narrowed its fourth-quarter sales forecast because industrial customers for its chips continue to reduce inventory, Bloomberg said. Axa SA, Manulife Financial and other global life insurers are preparing for rule changes in China this week that will give them greater access to a $50 billion market that is growth at more than 20% a year, Bloomberg said. General Motors will add rebates on many models starting Dec. 10 to attract buyers after U.S. sales fell 16% in November, Bloomberg reported. Global aluminum prices may rise after China said it will curb output to try to prevent a repeat of power shortages next year, Bloomberg reported. U.S. Representative Allen Boyd became the leading Democrat to endorse President Bush's plan to create private Social Security accounts, Bloomberg reported. The U.S. House of Representatives approved legislation reorganizing the nation's intelligence agencies and creating the job of national intelligence director to oversee efforts to thwart terrorist attacks, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today and I pared a number of long positions in various sectors, thus lowering market exposure to 50% net long. The tone of the market was poor today as volume increased and the advance/decline line was very weak, finishing at it lows for the day. As well, measures of investor complacency remained elevated. U.S. stocks will likely weaken further in the near-term. However, I do not anticipate a substantial pullback from current levels. As well, I foresee a resumption of the recent rally closer to year-end. Thus, I will look to rebuild long exposure into any near-term weakness.