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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fed Chairman Greenspan said the "unusual" decline in long-term US Treasury yields still can't be full explained and that hedge funds may be over-reaching as they search for higher returns.
- CNOOC Ltd, China's third-largest oil producer, said it may bid for US-based Unocal Corp., rivaling a $16 billion offer by Chevron.
- People's Bank of China Governor Zhou Xiaochuan said the government plans to introduce new policies to spur consumer spending to help eliminate a trade surplus that's fueling tensions with the US and Europe.
- GM's CEO Wagoner is facing growing calls from investors to close plants as the world's largest automaker loses market share to rivals such as Toyota Motor.

Wall Street Journal:
- European Union regulators dropped for the time being a threat to fine Microsoft as much as $5 million a day for failing to comply with orders to open its markets to competitors.

AP:
- Pakistan sent Libyan terrorism suspect Abu Faraj al-Libbi, accused of planning two assassination attempts against President Pervez Musharraf, to the US.

Financial Times:
- Morgan Stanley senior banker David Topper has joined JPMorgan Chase as co-head of equity capital markets.

Chosun Ilbo:
- South Korea's steel imports from China more than tripled in the first four months of the year to 2.7 million metric tons.

Standard:
- Shanghai's real estate developers and homebuyers owed banks $42 billion at the end of 2004, a 41% increase from a year earlier.

China Daily:
- China's textile exporters will probably use up the quotas imposed by the US by the end of July as they rush to deliver existing orders to customers.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on LRY and AIG.
- Reiterated Underperform on HRB and AMAT.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.16%.

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Earnings of Note
Company/EPS Estimate
ABS/.27
ALOG/2.12
COO/.74
OLG/.46

Splits
CVS 2-for-1

Economic Releases
3:00 EST:
- Consumer Credit for April is estimated to rise to $7.4B versus $5.5B in March.

BOTTOM LINE: Asian indices are mostly lower on weakness in semiconductor shares after negative comments from Merrill Lynch. I expect US equities to open modestly higher on more Fed "pause" optimism and lower energy prices. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Higher as Oil Falls

Indices
S&P 500 1,197.51 +.12%
DJIA 10,467.03 +.06%
NASDAQ 2,075.76 +.21%
Russell 2000 622.94 +.43%
DJ Wilshire 5000 11,852.33 +.16%
S&P Barra Growth 578.22 +.14%
S&P Barra Value 614.83 +.10%
Morgan Stanley Consumer 584.00 +.06%
Morgan Stanley Cyclical 722.74 +.11%
Morgan Stanley Technology 483.72 +.20%
Transports 3,635.06 +.16%
Utilities 368.90 -.07%
Put/Call .87 -12.12%
NYSE Arms 1.31 -12.62%
Volatility(VIX) 12.28 +1.07%
ISE Sentiment 176.00 +3.53%
US Dollar 87.60 -.50%
CRB 307.28 +.19%

Futures Spot Prices
Crude Oil 54.29 -1.34%
Unleaded Gasoline 153.07 -1.70%
Natural Gas 7.12 +3.49%
Heating Oil 161.10 +.72%
Gold 428.20 -.05%
Base Metals 126.23 -.61%
Copper 156.00 -.26%
10-year US Treasury Yield 3.95% -.53%

Leading Sectors
Airlines +1.99%
Homebuilders +1.02%
Hospitals +.94%

Lagging Sectors
Biotech -.94%
Steel -1.08%
Gold & Silver -1.15%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on ROH and CK.

Afternoon/Evening Headlines
Bloomberg:
- Citigroup said UPS lost computer tapes containing personal data on about half its consumer finance customers in North America, some 3.9 million people.
- John Houldsworth, an executive at Berkshire Hathaway’s General Re unit, agreed to plead guilty to a federal criminal charge of helping AIG use reinsurance to distort its finances.
- E.W. Scripps, owner of the Home & Garden cable-tv network as well as newspapers and tv stations, said it will buy the Shopzilla comparison-shopping Internet search engine for $525 million in cash.
- Crude oil fell from a six-week high on speculation that oil inventories are sufficient to meet demand from refineries that are attempting to meet surging fuel consumption.

Reuters:
- Pope Benedict XVI today condemned same-sex unions as a threat to the future of the family, as the pontiff gave his first pronouncement on gay marriage since becoming pope in April.

Financial Times:
- The G8 may consider tax breaks to encourage large oil companies to boost refining capacity and reduce the risk of shortages.

Wen Wei Po:
- The US and China will avoid a trade war, even after the US’s decision to cap China-made textiles and garments, citing James Leonard, a US Commerce Department official.

Nikkei English:
- Apple Computer plans to bring its iTunes Music Store, the biggest online music shop, to Japan in early August.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet, Retail and Homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline finished modestly higher, sector performance was mixed and volume was light. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was slightly positive ahead of Greenspan’s comments and Intel’s mid-quarter update. Greenspan will likely not confirm or deny an impending "pause" by the Fed in comments from Beijing tonight. As long as he does not explicitly say the Fed will not “pause” after the June meeting, stocks should respond positively.

Stocks Quietly Mixed Mid-day Ahead of Greenspan Comments

Indices
S&P 500 1,194.97 -.09%
DJIA 10,452.92 -.07%
NASDAQ 2,071.20 -.01%
Russell 2000 620.28 unch.
DJ Wilshire 5000 11,843.40 -.04%
S&P Barra Growth 577.29 -.02%
S&P Barra Value 613.57 -.10%
Morgan Stanley Consumer 583.44 -.03%
Morgan Stanley Cyclical 720.39 -.22%
Morgan Stanley Technology 482.78 +.01%
Transports 3,620.77 -.23%
Utilities 368.83 -.08%
Put/Call 1.02 +3.03%
NYSE Arms 1.43 -4.70%
Volatility(VIX) 12.72 +4.69%
ISE Sentiment 148.00 -12.94%
US Dollar 87.62 -.48%
CRB 308.58 +.62%

Futures Spot Prices
Crude Oil 54.52 -.87%
Unleaded Gasoline 153.60 -1.36%
Natural Gas 7.18 +4.51%
Heating Oil 161.00 +.66%
Gold 428.90 +.73%
Base Metals 126.23 -.61%
Copper 156.05 +.35%
10-year US Treasury Yield 3.97% unch.

Leading Sectors
Airlines +1.16%
I-Banks +.55%
Homebuilders +.48%

Lagging Sectors
Disk Drives -1.07%
Gaming -1.07%
Steel -1.24%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Retail and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is below average. Measures of investor anxiety are mostly higher. Today’s overall market action is neutral ahead of Greenspan’s comments in China tonight. An official at the China Iron and Steel Association said last night that 90% of China's producers of rebar and wire rods will likely be unprofitable soon. Rebar and wire rods are used in construction. Steel prices in China have fallen more than $121/metric ton just since April. According to the last data, China is now exporting 2.07 million tons of steel products, up 417% since March 1, 2004. This should continue to pressure steel prices in the US. I expect US stocks to trade mixed-to-higher into the close on short-covering and merger speculation.

Today's Headlines

Bloomberg:
- Apple Computer’s plan to switch its computers to Intel chips for the first time may help CEO Jobs sell cheaper laptops and extend gains in market share.
- Washington Mutual said it will acquire Providian Financial for $6.45 billion.
- Weatherford International agreed to buy Precision Drilling’s energy-services and international contract drilling units for $2.28 billion.
- Microsoft agreed to give away some proprietary information on the inner workings of its Windows operating system to avert the threat of as much as $5 million in daily antitrust fines by the European Union, regulators said.
- Pfizer said it won US approval to sell its Viagra male-impotence drug as treatment for pulmonary arterial hypertension, a potentially fatal lung disorder.
- The UK suspended its referendum on the European Union constitution, defying calls from Germany and France for the ratification process to continue after French and Dutch voters rejected the treaty.

Wall Street Journal:
- McDonald’s is looking to work with a wider range of film studios for its movie-related promotions as its 10-year exclusive marketing partnership with Walt Disney is set to expire next year.
- General Motors shareholders are likely to question CEO Richard Wagoner at tomorrow’s annual meeting on his plans to reorganize the company.
- E*Trade Financial increased its offer for Ameritrade Holding, in the hope of thwarting the latter’s talks with TD Waterhouse.
- ProLogis, an Aurora, Colorado-based real estate investment trust, agreed to buy Catellus Development for $3.6 billion in cash and stock.
- CIT Group is expected to announce today it will expand services to provide investment banking and advice on mergers and focus its commercial finance department on aerospace, healthcare and retail.
- PricewaterhouseCoopers LLP said US hotel prices will rise 4% to $89.97/night this year.

NY Times:
- UAL’s United Airlines is the first US airline to receive regulatory approval to install Wi-Fi wireless Internet service on its planes.

Reuters:
- The US railway industry is facing a shortage of trained people to drive and maintain freight trains as experienced conductors and engineers retire.

Financial Times:
- Europe should increase spending on military equipment and research by as much as $55 billion a year to avoid falling behind the US in weapons technologies, citing the report of France’s Defense Economy Council.

Handelsblatt:
- European Central Bank Chief Economist said the bank’s monetary strategy doesn’t exclude the possibility of reducing interest rates.

China Business News:
- Falling steel prices are likely to make 90% of China’s producers of rebar and wire rods unprofitable, citing an official at the China Iron and Steel Association.

Les Echos:
- French economic growth will remain “very weak” and the country will lose influence in Europe after the referendum rejecting the European Union constitution, said Daniel Bouton, chairman of Societe Generale SA.

Frankfurter Allgemeine Zeitung:
- Allergan, the US drugmaker best known for its Botox anti-wrinkle product, expects to get approval to sell the injectible treatment in Germany and the UK in the next 12 months.

Le Monde:
- Labor rules protecting workers in Europe are hampering economic expansion and causing high unemployment, said Jack Welch, former CEO of GE.