Wednesday Watch

Late-Night Headlines
Bloomberg:
- Warner Music Group raised $554.2 million in an IPO after cutting the price of the shares to attract investors.
- Australia's $16.8 billion of income tax cuts announced in yesterday's budget will spur economic growth without stoking inflation or prompting the central bank to raise interest rates, executives and economists said.
- The Canadian dollar had the biggest fluctuation of any currency, falling in Asia after Parliament passed a motion calling on Prime Minister Paul Martin to resign.
- Wal-Mart Stores CEO Scott is adding upscale household goods and self-service checkout lines to revive same-store sales to fend off more-profitable Target Corp.

Fox News:
- Arab Bank Plc is the target of an FBI criminal investigation for suspicion of moving funds for alleged terrorists.

Financial Times:
- Apollo Management LP, the NY-based buyout firm founded by former Drexel Burnham Lambert banker Leon Black, plans to raise $6 billion for its next buy-out fund.

Korea Economic Daily:
- North Korea has shown no signs it is preparing for nuclear tests, citing an unidentified South Korean government official.

China Daily:
- China's media regulator awarded the country's first license for Internet protocol television and mobile-phone television programs to Shanghai TV Station, a unit of state-owned Shanghai Media Group.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on NFP, CSCO and YHOO.
- Reiterated Underperform on NFB, SIAL and RNWK.

Night Trading
Asian Indices are -.50% to -.25% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.21%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
FD/.67
MYL/.17
URI/.27
DIS/.32

Splits
None of note

Economic Releases
8:30 EST
- The Trade Balance for March is estimated to fall to -$61.9B versus -$61.0B in February.

2:00 EST
- The Monthly Budget Statement for April is estimated to rise to $60.0B versus $17.6B in March.

BOTTOM LINE: Asian indices are lower on renewed worries about slowing global growth. I expect US equities to open modestly lower on worries over slowing global growth and hedge fund troubles. However, stocks may gain ground later in the day on short-covering, an improving budget deficit and lower energy prices. The Portfolio is 75% net long heading into tomorrow.

Stocks Close Near Session Lows

Indices
S&P 500 1,166.22 -1.07%
DJIA 10,281.11 -.99%
NASDAQ 1,962.77 -.85%
Russell 2000 595.04 -1.31%
DJ Wilshire 5000 11,493.34 -1.02%
S&P Barra Growth 563.31 -.96%
S&P Barra Value 598.57 -1.18%
Morgan Stanley Consumer 578.81 -.77%
Morgan Stanley Cyclical 705.56 -1.39%
Morgan Stanley Technology 444.96 -1.28%
Transports 3,498.56 -1.70%
Utilities 365.25 -.70%
Put/Call .85 +1.19%
NYSE Arms 2.11 +234.17%
Volatility(VIX) 14.91 +8.44%
ISE Sentiment 133.00 -7.64%
US Dollar 84.45 -.22%
CRB 301.44 +.21%

Futures Spot Prices
Crude Oil 51.82 -.40%
Unleaded Gasoline 150.30 +1.06%
Natural Gas 6.68 +.07%
Heating Oil 144.55 +.37%
Gold 427.20 +.07%
Base Metals 124.43 +.45%
Copper 145.40 +.52%
10-year US Treasury Yield 4.20% -1.91%

Leading Sectors
Biotech +.67%
Restaurants -.19%
Hospitals -.31%

Lagging Sectors
Oil Service -2.25%
Airlines -3.33%
Steel -4.62%

Evening Review
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GuruFocus.com
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After-hours Movers
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on ARO and AEOS.
- Reiterated Underperform on FHN and SMP.

Afternoon/Evening Headlines
Bloomberg:
- Jefferson County International Baccalaureate School in Alabama topped Newsweek’s list of the best US high schools based on the number of advanced placement or college-level tests taken by students.
- Toyota Motor will form a fuel-cell joint venture with GM
- SkyEurope Airlines AS, a Slovakian low-cost airline, agreed to buy 16 of Boeing’s 737-700 aircraft valued at $880 million as the carrier expands service through the European Union.
- US Treasuries rose as demand at an auction of $22 billion in three-year notes surged to the highest since the government resumed sales of the security in 2003.
- Visteon, the second-biggest US maker of auto parts, said it would delay its US regulatory filing for the first quarter.
- Yahoo! said it would start a new subscription music service tomorrow that will compete with Apple and RealNetworks.

AP:
- A State Supreme Court judge ruled today that New York can’t revoke the driver’s licenses of as many as 252,000 illegal immigrants who don’t have Social Security numbers.

Nikkei English News:
- The People’s Bank of China is “technically” prepared to carry out currency reforms, citing Deputy Governor Wu Ziaoling.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet and Airline longs. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market weakened into the afternoon as the advance/decline finished near its daily lows, almost every sector fell and volume was light. Measures of investor anxiety were higher into the close. Overall, today’s market action was negative considering energy prices finished lower. Rumors of a large hedge fund “blow-up” were behind today’s sell-off. I suspect these fears are exaggerated. The spike in the NYSE Arms is a positive. In my opinion, any further declines over the coming weeks should be viewed as buying opportunities for longer-term investors.

Stocks Lower Mid-day on Worries Over a Hedge Fund Blow-up

Indices
S&P 500 1,170.60 -.70%
DJIA 10,321.07 -.60%
NASDAQ 1,968.44 -.56%
Russell 2000 597.64 -.87%
DJ Wilshire 5000 11,537.68 -.64%
S&P Barra Growth 565.35 -.62%
S&P Barra Value 601.03 -.77%
Morgan Stanley Consumer 580.74 -.44%
Morgan Stanley Cyclical 708.54 -.97%
Morgan Stanley Technology 445.81 -1.10%
Transports 3,523.17 -1.01%
Utilities 366.71 -.30%
Put/Call .83 -1.19%
NYSE Arms 1.54 +138.56%
Volatility(VIX) 14.31 +4.07%
ISE Sentiment 115.0 -20.13%
US Dollar 84.46 -.20%
CRB 301.67 +.29%

Futures Spot Prices
Crude Oil 52.15 +.23%
Unleaded Gasoline 151.00 +1.53%
Natural Gas 6.72 +.76%
Heating Oil 145.75 +1.20%
Gold 427.90 +.23%
Base Metals 124.43 +.45%
Copper 145.80 +.79%
10-year US Treasury Yield 4.23% -1.21%

Leading Sectors
Biotech +.84%
Oil Tankers +.49%
Restaurants +.15%

Lagging Sectors
I-Banks -1.47%
Airlines -2.58%
Steel -3.65%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Airline and Semiconductor longs. I exited a few longs this morning as they hit stop-losses, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is light. Measures of investor anxiety are higher. Today’s overall market action is modestly negative considering last week’s gains and the rebound from morning lows. I am closely monitoring the “sentiment” with respect to oil. I do not believe the fundamentals justify current prices. It is the belief that 4Q oil demand will outstrip supply that is currently propping up prices. As inventories build and demand continues to decelerate, I believe this perception will change and provide the catalyst for the accelerated decline I envision in the second half of the year. I expect US stocks to trade mixed into the close as short-covering ahead of Cisco’s report offsets worries over a hedge fund blow-up.

Today's Headlines

Bloomberg:
- China is improving its far-flung system of human spies, recruits, sleeper agents and electronic eavesdropping in tandem with its buildup of conventional military power, according to a new Pentagon report and analysts.
- Crude oil and gas in NY are rising as ConocoPhillips said that portions of its Alliance refinery in Belle Chasse, Louisiana, closed because of a power failure.
- Delta Air Lines is seeking to ease terms of loan agreements and said it may have to file for bankruptcy protection if those efforts fail.
- US Treasury notes are rising on speculation an increase in yields will boost demand at government debt auctions starting today.

Wall Street Journal:
- European Aeronautic Defense & Space may announce today that it will join Raytheon to bid on a Pentagon contract for a US Army transport aircraft.
- The group Citizens for Responsibility and Ethics, known for their criticism of Republican House Majority Leader Tom DeLay over ethics issues, has contributed nearly 60 times as much money to Democratic causes than Republican ones.
- Dissidents at Morgan Stanley may urge investors to sign a petition calling on the board to hold a special shareholders meeting.
- A possible lawsuit by the US Justice Department against the National Association of Realtors could help boost the number of realtors selling homes at discount prices over the Internet.
- Warner Music Group may sell shares as early as tomorrow in its IPO.

NY Times:
- The Bush administration said it would pay $1 billion through September 2008 to doctors and hospitals for providing emergency services to illegal immigrants.
- IBM will announce today that it will buy Gluecode Software, as part of its strategy to build a business around open-source software.
- Goldman Sachs’ decision to withdraw its plan to build a $2 billion headquarters next to the World Trade Center site could damage Lower Manhattan’s stature as a financial and commercial center.
- The Ford Foundation plans to give $50 million over five years to support public broadcasting on television and radio.

Washington Post:
- Merrill Lynch is among securities firms that are trying to sell services to South-Asian Americans and Hispanic Americans to boost revenue.

Lloyd’s List:
- Malaysia International Shipping, the world’s biggest carrier of liquefied natural gas, said freight rates may fall because of a glut in the world fleet.

Tex Report:
- Brazilian steelmakers offered to sell hot-roiled coil at $600 a ton to Asian buyers.

Reuters:
- Pfizer CEO Hank McKinnell said the company’s arthritis drug Bextra will likely return to the market.

No Economic Releases of Note Today

Links of Interest

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