Mid-day Report

S&P 500 1,2004.29 -.12%
NASDAQ 2,157.66 -.23%

Leading Sectors
Drugs +1.73%
Biotech +.42%
Boxmakers +.42%

Lagging Sectors
Transports -1.27%
Software -1.27%
HMOs -1.52%

Other
Crude Oil 43.65 -1.22%
Natural Gas 7.06 -2.43
Gold 439.20 -.68%
Base Metals 118.22 +.54%
U.S. Dollar 82.30 +.82%
10-Yr. T-note Yield 4.18% +2.50%
VIX 12.25 -.81%
Put/Call .66 +8.20%
NYSE Arms .60 -41.75%

Market Movers
SYMC -8.0% after agreeing to buy Veritas Software(VRTS) for $13.5 billion, the biggest software purchase in six years.
ISON +23.1% on optimism over 2Q report.
SEPR +9.7% after saying it won FDA approval for its Lunesta sleeping pill and positive comments by JP Morgan.
ARBX +44.3% on strong demand for IPO.
AEA +28% on strong demand for IPO.
HUBG +18.3% on Bear Stearns upgrade to Outperform.
POG +14.3% after Noble Energy(NBL) agreed to acquire it for $2.76 billion to expand in the Rockies.
WYNN +7.2% after Prudential raised its price target from $62 to $95.
JOYG +10.6% after announcing 3-for-2 split, beating 4Q estimates and raising 05 outlook.
LVS +7.3% on continuing strong demand for IPO.
FLIR +7.1% after announcing 2-for-1 split, raising 05 eps and lowering 05 sales outlook.
MFE -11.3% on worries over slowing growth in anti-virus biz.
APOL -5.1% after meeting 1Q estimates, lowering 05 guidance slightly and Merrill Lynch downgrade to Neutral.

Economic Data
Current Account Balance for 3Q was -$164.7B versus estimates of -$170.6B and -$164.4B in 2Q.
Housing Starts for November were 1771K versus estimates of 1980K and 2039K in October.
Building Permits for November were 1988K versus estimates of 2000K and 2018K in October.
Initial Jobless Claims for last week were 317K versus estimates of 342K and 360K the prior week.
Continuing Claims were 2737K versus estimates of N/A and 2787K prior.
Philadelphia Fed. rose to 29.6 in December versus estimates of 20.5 and a reading of 20.7 in November.

Recommendations
-Goldman Sachs reiterated Outperform on CEN, MSFT.
-Bank of America downgraded IPCC to Sell.
-Citi SmithBarney upgraded COO to Buy, target $84. Citi rated CD Buy, target $28. Citi rated INTU Buy, target $54. Citi rated SY Buy, target $22.50. Citi reiterated Buy on FNM, target $81. Citi rated CHK Buy, target $20. Citi reiterated Buy on BBY, target $73. Citi reiterated Buy on TWX, target $22. Citi reiterated Buy on AMGN, target $90. Citi reiterated Buy on LEN, target $80. Citi reiterated Sell on SEPR, target $40.
-JP Morgan rated VVTV Overweight. JPM rated UVN Underweight.
-UBS raised BKS to Buy, target $38.
-Thomas Weisel cut AW to Underperform.
-CSFB cut TER to Underperform, target $14. CSFB cut CMOS to Underperform, target $7.50. CSFB cut KLIC to Underperform, target $7.50.
-Deutsche Bank rated JBHT Buy, target $46. Deutsche rated SCST Buy, target $25.
-Bear Stearns raised HUBG to Buy, target $70. Bear cut MFC to Underperform, target $45.
-Oppenheimer rated IDBE Buy, target $23.

Mid-day News
U.S. stocks are modestly lower mid-day as rising interest rates are more than offsetting lower energy prices, merger activity and strong economic reports. U.S. retailers including Gap, Nike and Build-A-Bear Workshop have aligned themselves with charities during this year's holiday shopping season to help appeal to customers, the NY Times reported. The average Wall Street bonus is up 15-20% this year, said Tom Cleary, a partner at Rhodes Associates. Sepracor CFO Southwell told CNBC that its newly approved sleeping pill Lunesta has the potential to reach $1 billion or more in sales. Peninsular & Oriental Steam Navigation, the largest UK shipping company, has been picked to establish a "green terminal" for the Port of Los Angeles, the LA Times reported. Illinois Governor Blagojevich wants to make renting or selling violent and sexually explicit video games to people under 18 illegal, the Chicago Sun-Times reported. The US dollar is "a little undervalued," said Mark Mobius, a managing director at Templeton Asset Management. Cendant agreed to buy the UK's Gullivers Travel and Octopus Travel for about $1.1 billion, Bloomberg reported. United Technologies agreed to buy Kidde of the UK for $2.8 billion in cash, Bloomberg said. FedEx said second-quarter net income almost quadrupled as international air shipments rose, Bloomberg said. Goldman Sachs said quarterly profit rose 23%, spurred by revenue from fixed-income trading and fees from providing merger advice, Bloomberg reported. Symantec will buy Veritas Software for $13.5 billion in stock to add data-storage products, Bloomberg said. The number of Americans filing first-time claims for unemployment insurance benefits fell by 43,000 last week to a five-month low, suggesting that more US companies are retaining workers to meet rising demand, Bloomberg reported. Johnson & Johnson agreed to acquire Guidant for $25.4 billion, Bloomberg said. Glamis Gold, which produces gold in Nevada and Honduras, made a hostile $3.38 billion takeover bid for Goldcorp, Canada's fourth-biggest gold producer, Bloomberg reported. The Philly Fed Index soared to 29.6 from 20.7 in November, substantially topping economists' estimates, Bloomberg said. The US dollar rose the most in two months against the euro after a report showed the US current-account deficit grew less than forecast in the third quarter, Bloomberg said.

Bottom Line: The Portfolio is higher unchanged mid-day as gains in my semi and rfid longs are offsetting losses in my internet longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is weaker today as interest rates rise on a better-than-expected Philly Fed report and lower jobless claims. Today's performance is a bit disappointing considering the merger activity, falling energy prices and strong economic/earnings reports. I do not view the weaker housing starts number as a problem, just a slowdown from scorching levels in October. I expect US stocks to trade mixed-to-weaker into the close.

Thursday Watch

Earnings of Note
Company/Estimate
FDX/1.27
ADBE/.42
APOL/.57
DRI/.23
CTAS/.44
CCL/.31
GS/2.32
KBH/4.13
NKE/.86
PLMO/.53
ZQK/.40
TTWO/1.55
TEK/.32

Splits
LCAV 3-for-2

Economic Data
Current Account Balance for 3Q estimated at -$170.6B versus -$166.2B in 2Q.
Housing Starts for November estimated at 1980K versus 2027K in October.
Building Permits for November estimated at 2000K versus 2018K in October.
Initial Jobless Claims for last week estimated at 342K versus 357K the prior week.
Continuing Claims estimated at N/A versus 2796K prior.
Philadelphia Fed. for December estimated at 20.5 versus 20.7 in November.
Minutes of Nov. 10 FOMC Meeting.

Recommendations
Goldman Sachs reiterated Outperform on BBBY, AMGN, IP and Underperform on AZR, HMT, VTS. Banc of America upgraded BIIB to Buy.

Late-Night News
Asian indices are quietly higher, led by Korean and Australian shares. Carlyle Group, a U.S. buyout fund, will acquire a 25% stake in China Pacific Life Insurance, the nation's third-biggest life insurer, for up to $400 million, in the biggest overseas private-equity purchase in China, the Financial Times reported. China's Supreme People's Court will issue new rules making piracy and counterfeiting of software and other goods a more severe criminal offense, stepping up the nation's crackdown on bootlegged intellectual property, China Daily reported. Isuzu Motors, Japan's largest truckmaker, is in talks with GM to get more steel as a worldwide shortage of the material crimps automakers, the Sankei newspaper said. Samsung said it expects to increase mobile phone sale by about 16% next year to more than 100 million units, Korea Economic Daily reported. Latin America's economy will grow by 5.5% this year, the fastest in 24 years, the Financial Times reported. Fannie Mae, the biggest source of money for U.S. home mortgages, failed to comply with accounting rules for financial contracts designed to protect against swings in interest rates, the SEC said. Johnson & Johnson agreed to acquire Guidant for $25.4 billion, adding electrical devices for treating heart disease to a lineup of thousands of health products ranging from Band-Aids to cardiac stents, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25%. to +.50% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated -.06%

BOTTOM LINE: I expect U.S. equities to open modestly higher on better-than-expected economic/earnings reports, short-covering and merger activity. The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,205.72 +.19%
NASDAQ 2,162.55 +.13%

Leading Sectors
Homebuilders +3.38%
Iron/Steel +2.67%
Disk Drives +1.78%

Lagging Sectors
Wireless -.44%
Airlines -.49%
Telecom -1.16%

Other
Crude Oil 44.53 +.77%
Natural Gas 7.22 -.15%
Gold 443.10 +.16%
Base Metals 117.59 +1.29%
U.S. Dollar 81.65 +.02%
10-Yr. T-note Yield 4.07% +.09%.
VIX 12.35 -2.99%
Put/Call .61 -20.78%
NYSE Arms 1.03 +18.39%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished higher today on gains in my internet, homebuilding, semi and healthcare longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. Once again, the tone of the market improved throughout the day as volume increased and the major indices closed near their highs. Today's mild gains should be considered a win for the bulls as the US dollar fell and energy rose. As well, it is a positive to see long-term rates decline again even as cyclicals and small-caps outperformed.

Mid-day Report

S&P 500 1,202.09 -.11%
NASDAQ 2,156.79 -.14%

Leading Sectors
Homebuilders +2.52%
Iron/Steel +1.94%
Disk Drives +1.34%

Lagging Sectors
Biotech -.40%
Airlines -.73%
Telecom -.99%

Other
Crude Oil 43.80 +4.38%
Natural Gas 7.32 unch.
Gold 442.50 +1.19%
Base Metals 117.08 +.85%
U.S. Dollar 81.49 -1.01%
10-Yr. T-note Yield 4.08% -.93%
VIX 12.59 -1.10%
Put/Call .62 -19.48%
NYSE Arms 1.04 +19.54%

Market Movers
LVS +55.2% on strong demand for IPO.
RIMM -4.2% on continuing worries over yesterday's patent ruling.
LEN +10.1% after beating 4Q estimates and raising 05 guidance.
MSTR +8.2% on rebound after yesterday's fall related to CFO resignation.
SUN +4.2% on Prudential upgrade to Overweight.
FS +4.7% on positive comments from Goldman Sachs.
BBY +5.6% after beating 3Q estimates and raising 4Q outlook.
BMET -6.9% on disappointing 2Q report.
JRCC -7.0% on continuing worries over recent 3Q report.
JMDT -9.64% on NXTL/FON merger news.
PLMO -3.45% on profit-taking and Lehman downgrade to Equal Weight.
*Homebuilders up across the board on falling long-term rates and LEN report.

Economic Data
Empire Manufacturing for December rose to 29.93 versus estimates of 20.0 and a reading of 18.86 in November.

Recommendations
-Goldman Sachs reiterated Outperform on SYMC, BBY and KRB.
-Citi SmithBarney upgraded DD to Buy, target $57. Citi upgraded LZ to Buy, target $42. Citi reiterated Buy on GE, target $44. Citi reiterated Buy on SCH, target $14.50. Citi reiterated Buy on SLM, target $61. Citi reiterated Sell on FCEL, target $7. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on BNI, target $50.50. Citi reiterated Buy on VRTS, target $33.
-Banc of America rated CENT Buy, target $44.
-UBS rated NAT Buy, target $42. UBS rated ATB Buy, target $24. UBS raised WEN to Buy, target $44.
-Morgan Stanley cut RAD to Underweight.
-Prudential raised SUN to Overweight, target $73. Pru cut VLO to Underweight, target $41. Pru raised MRO to Overweight, target $42. Pru cut PCO to Underweight, target $42.
-Raymond James rated ASPT Buy, target $15. RJF raised MRK to Strong Buy, target $38.50.

Mid-day News
U.S. stocks are modestly lower mid-day as worries over a bounce in oil prices and a decline in the US dollar more than offset declining interest rates and strong economic/earnings reports. U.S. hedge funds' returns are dwindling as more and more funds chase the same investment opportunities, the Wall Street Journal reported. Ali Hassan al-Majid, known as "Chemical Ali" because of his role in gas attacks on the Kurds, will become the first former aide of deposed Iraqi dictator Saddam Hussein to stand trial next week, Agence France-Presse reported. Palestinian public tv has been airing less anti-Israeli rhetoric, the NY Times reported. Charles Schwab CFO Dodds said the company may be able to beat a fourth-quarter earnings forecast by 10-20%, Dow Jones reported. Crude oil prices are expected to trade at $37 to $39/bbl. next year, Kyodo News reported, citing Japan's Institute of Energy Economics. Career Education Corp. may lose the right to operate its schools in California, the Financial Times reported. EchoStar Communications may soon start offering high-definition tv and high-speed Internet services using a new satellite to be launched this week, the Rocky Mountain News of Denver reported. Google can keep selling ads prompted by searches using trademarked company names, the AP reported, citing a federal judge in a case between Geico and Google. OAO Yukos said it sought Chapter 11 bankruptcy protection in the U.S. and requested an emergency court hearing to stop the government's auction of its biggest unit, Bloomberg reported. Russia is committed to a market economy and foreign investment, Finance Minister Kudrin said. Best Buy, the world's largest electronics retailer, said third-quarter earnings rose as it limited holiday discounts and sold more digital televisions, cameras and MP3 players, Bloomberg reported. Manufacturing in New York state expanded more than forecast this month as more factories reported rising orders, sales and increased employment, Bloomberg said. U.S. communications regulators approved a plan to foster high-speed Internet access aboard airplanes, Bloomberg said. The dollar fell the most in two months against the yen on a report showing purchases of assets in the U.S. increased in October at the slowest pace in a year, Bloomberg said. AT&T, MCI and other U.S. telephone companies that lease competitors' networks to sell local service will lose discount rates in early 2006, regulators said. Crude oil had its biggest gain in six months after the government reported a decline in U.S. heating-oil inventories and below-normal temperatures boosted demand, Bloomberg reported. Sprint agreed to buy Nextel for about $35 billion in a transaction that would leave three companies in control of 70% of the US mobile-telephone market, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on gains in my semi, internet and homebuilding longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is mildly positive today, notwithstanding today's small losses in the major indices. The advance/decline line is slightly higher and many leaders are higher. It is also a positive to see interest rates lower again even with a decline in the dollar on worries over foreign demand for US treasuries. As well, the bounce in energy prices isn't resulting in any significant selling of equities. Oil will likely approach $45-$47/bbl. in the near-term before heading to $35/bbl. over the next few months. I expect US stocks to rise modestly into the close on short-covering, strong economic data, falling interest rates, good earnings reports and merger optimism.

Wednesday Watch

Earnings of Note
Company/Estimate
BBBY/.39
BBY/.44
BMET/.38
MLHR/.23
LEH/1.69
LEN/2.21
SCHL/1.76
WGO/.57
VTS/.18

Splits
None of note.

Economic Data
Empire Manufacturing for December estimated at 20.0 versus 19.76 in November.
NAHB Housing Market Index for December estimated at 70 versus 71 in November.

Recommendations
Goldman Sachs reiterated Outperform on EBAY, FS, GE, MDT, COH and Underperform on CR.

Late-Night News
Asian indices are higher as exporters in the region gained on optimism over sales to the US. Abby Joseph Cohen, chief investment strategist for Goldman Sachs, said she expects 2005 economic growth "will be good," averaging about 3.5%, CNBC reported. Wal-Mart declined to comment on a report that it may pull out of the bidding for Japan's Daiei, Bloomberg said. North Korea would consider any decision by Japan to impose economic sanctions against it as a "declaration of war," the communist nation's Foreign Ministry said. Sprint is close to an agreement to buy Nextel for more than $35 billion, doubling its customers, Bloomberg reported.

Late-Night Trading
Asian Indices are +.50%. to +1.25% on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strong earnings reports, economic data, merger speculation and gains in Asia. The Portfolio is 125% net long heading into tomorrow.

Tuesday Close

S&P 500 1,203.38 +.39%
NASDAQ 2,159.84 +.53%

Leading Sectors
Broadcasting +2.69%
Oil Service +1.89%
Semis +1.86%

Lagging Sectors
Software -.39%
Wireless -.47%
Networking -1.18%

Other
Crude Oil 41.91 +.22%
Natural Gas 7.29 -.52%
Gold 436.80 -.11%
Base Metals 116.09 +.37%
U.S. Dollar 82.32 +.27%
10-Yr. T-note Yield 4.12% -.56%.
VIX 12.73 +1.52%
Put/Call .77 +8.45%
NYSE Arms .87 +20.83%

After-hours Movers
BBI +5.33% after billionaire financier Icahn boosted his stake in Hollywood Entertainment to 9.54% and said he supports Blockbuster's bid for it.
ADCT +10.89% after beating 4Q estimates substantially.
MANC +5.0% on continuing optimism over 1Q report.
ABGX -5.7% after announcing it intends to sell approximately $150 million principal amount of its Convertible Senior Notes through a private placement.

Recommendations
Goldman Sachs reiterated Outperform on RIMM. Goldman cut WTW to Underperform .

After-hours News
U.S. stocks finished modestly higher today as merger speculation increased, long-term interest rates fell and the US dollar rallied. After the close, Russian policies are damaging the economy and the achievements of its rapid economic growth, the Financial Times reported. Federal Reserve policy makers raised the benchmark U.S. interest rate a quarter point to 2.25% and restated a plan to carry out further increases at a "measured" pace to keep inflation in check, Bloomberg reported. The US dollar rose against the yen after the Fed indicated it will keep increasing interest rates as the economy extends an expansion that's outpacing growth in Japan, Bloomberg said. The Nasdaq has advanced 23% from its 2004 low on Aug. 12, bringing its gain for the year to 7.8%. The index has jumped 94% since Oct. 9, 2002, Bloomberg reported. MCI Inc., formerly known as WorldCom before filing the biggest US bankruptcy, can pay more than $165 million to some of the consultants, lawyers and other advisers who guided its reorganization, Bloomberg said. Berkshire Hathaway named Microsoft founder Bill Gates to its board of directors, Bloomberg reported. Las Vegas Sands, owner of the Venetian Casino Resort in Las Vegas and China's Sands Macau, raised $690 million in the biggest IPO by a U.S. gaming company, Bloomberg reported. China has set the inflation target for 2005 at 4%, Wen Wei Po reported. China's consumer prices rose 2.8% in November from a year earlier, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly higher today as gains in my internet, semi and semi-equipment longs more than offset losses in my Chinese ADR and software longs. I exited a software long in the afternoon as it hit my stop-loss and added a new internet long, thus leaving the Portfolio 125% net long. I added MNST and I am using a $29.50 stop-loss on this position. The tone of the market improved throughout the day as volume increased and the advance/decline line finished near its daily high. It was also a positive to see long-term interest rates fall and the US dollar rally in the face of a disappointing trade report.