Stocks Rising Modestly Mid-day Even as Energy Prices Rise

Indices
S&P 500 1,199.16 +.38%
DJIA 10,492.75 +.15%
NASDAQ 2,071.46 +.54%
Russell 2000 623.92 +.56%
DJ Wilshire 5000 11,869.96 +.41%
S&P Barra Growth 578.80 +.42%
S&P Barra Value 616.09 +.36%
Morgan Stanley Consumer 582.87 +.20%
Morgan Stanley Cyclical 716.58 -.47%
Morgan Stanley Technology 483.43 +.76%
Transports 3,512.93 -.70%
Utilities 369.99 -.08%
Put/Call .97 +5.43%
NYSE Arms .75 -17.05%
Volatility(VIX) 12.19 -4.02%
ISE Sentiment 191.00 +21.66%
US Dollar 88.02 +.16%
CRB 304.05 +.11%

Futures Spot Prices
Crude Oil 53.65 +2.11%
Unleaded Gasoline 153.00 +2.17%
Natural Gas 7.08 +1.14%
Heating Oil 161.50 +4.01%
Gold 426.10 -.12%
Base Metals 123.24 +.06%
Copper 154.70 +.06%
10-year US Treasury Yield 3.96% +.68%

Leading Sectors
Oil Service +3.02%
Energy +2.31%
Networking +1.59%

Lagging Sectors
Airlines -.94%
Steel -1.29%
Papers -1.58%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet and Semiconductor longs and Base Metal shorts. I re-entered my QQQQ long and added to some existing longs, thus leaving the Portfolio 75% net long. The tone of the market is modestly positive as the advance/decline line is higher, most sectors are gaining and volume is around average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive considering the rise in energy prices and Greenspan’s basically unchanged stance on his view of the economy and interest rates. The first tropical storm of the 2005 season has formed in the Caribbean and several oil companies have announced they will be removing non-essential personnel. So far, equities are mostly ignoring the spike in crude. I expect US stocks to trade modestly higher into the close on short-covering ahead of Intel’s mid-quarter update.

Today's Headlines

Bloomberg:
- Corus Group Plc CEO Varin said European steel demand will stagnate this year and producers should cut production to shore up prices.
- Millionaires in the US increased their number by 9.9% to 2.5 million people last year, excluding home values, as the stock market rallied and the economy improved. Today, almost 1 in every 110 Americans has more than $1 million of shares, bonds and other financial assets, according to a report by Capgemini and Merrill Lynch.
- KKR Financial, the real estate investment unit of buyout firm KKR, may raise $838.6 million in an IPO by selling shares at as much as $25 each.
- The US economy is still growing at a decent clip and the Fed can keep raising interest rates at a “measured” pace, Fed Chairman Greenspan said.
- The US dollar traded near the highest in a week against the euro after Greenspan said the US economy is on a “reasonably firm footing” and policy makers can keep raising interest rates.
- Crude oil is riding for the first day in four as investors said any promise of higher output from OPEC would be hollow because the group has little additional production capacity.

Wall Street Journal:
- World corporations should boycott Myanmar, formerly called Burma, to avoid supporting a government that kills, tortures and displaces its residents, said Paul Fireman, chairman and CEO of Reebok International.
- Hedge funds that trade convertible bonds continued to lose ground last month.
- Jessica Simpson, Jennifer Lopez and other celebrities are increasingly influencing the world of high-fashion once dominated by elite designers in New York and Europe.
- A growing number of companies are being created to help Internet advertisers detect malicious advertisement clicks that drive up their costs.
- Apple Computer’s adoption of Intel chips will strengthen Apple’s Mac computer, giving the Mac more options than IBM products could.
- The US Financial Accounting Standards Board may require issuers of financial guarantees to accept uniform standards for how they book revenue and claims reserves.
- Support for vouchers, tax credits and other measures that seek to boost parental choice in education as well as student achievement continues to increase, Milton Friedman, a Nobel laureate in economics wrote.

NY Times:
- Some Saudi Arabian writers, professors and theologians risk being labeled heretics or given prison sentences by supporting reforms with writings and teachings.
- Computer Associates International agreed to purchase Niku for $350 million in cash to expand its line of software-management products.

Washington Post:
- Science Applications International, one of the largest employee-owned companies in the US, may sell shares to the public to raise money to expand in defense contracting.
- Water bottling companies are building plants in economically depressed US rural towns to meet an increase in bottled-water demand.

Boston Globe:
- MIT plans to double energy-related research over the next five years to address demand and consumption issues.

Beijing Morning Post:
- Growth in China’s fixed-asset investment may slow by the end of this quarter, reducing demand for cement and steel, citing a forecast from the National Development and Reform Commission.

Jobless Claims Fall Back to Healthy Levels

- Initial Jobless Claims for last week fell to 330K versus estimates of 333K and 351K the prior week.
- Continuing Claims fell to 2588K versus estimates of 2591K and 2592K prior.

BOTTOM LINE: Jobless filings jumped in the prior week because of temporary layoffs in the automobile industry, the government said. The four-week average of jobless claims dropped to 331,750 from 334,500. The claims figures are consistent with much stronger hiring than the unexpectedly small 78,000 gain in May payrolls reported by the Labor Department last week, economists said. The four-week moving average of continuing claims declined to 2.587 million from 2.589 million. Finally, the uninsured unemployment rate, which corresponds with the US unemployment rate, held at 2.0%.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- North Korea is in the process of building more nuclear bombs, citing an interview with the country's Vice Foreign Minister, Kim Gye Gwan.
- Taiwan's constitutional changes passed this week could help ease tensions with China as they made it more difficult for the island to declare independence and may prod President Chen Shui-bian to improve ties with the mainland, analysts said.

Financial Times:
- The process of ratification of the European Union draft constitution will be put on "pause" for the time being, though it will be completed, citing European Parliament President Josep Borrell.

Commercial Times:
- Chi Mei Optoelectronics, Taiwan's second-largest maker of flat panel displays, plans to raise prices of large-size liquid-crystal displays because of short supply.

China Daily:
- China's government is considering measures to restrict shoe exports as tensions rise with trading partners including the European Union over surging shipments.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GE and DO.
- Reiterated Underperform on CVC.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated -.07%.

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Earnings of Note
Company/EPS Estimate
NSM/.22
NAV/.71
TOY/-.03
TOM/.24
SHFL/.18

Splits
Various ETFs

Economic Releases
8:30 EST:
- Initial Jobless Claims for last week are estimated to fall to 330K versus 350K the prior week.
- Continuing Claims are estimated to fall to 2591K versus 2602K prior.

BOTTOM LINE: Asian indices are mostly lower, led down by exporters in the region, on apprehension ahead of comments by the Fed's Greenspan. I expect US equities to open mixed-to-lower and to rally modestly later in the day after Greenspan's comments. As I stated earlier today, I expect Greenspan to hint that the Fed will remove the word "measured" from the June policy statement. However, I expect him to make convoluted statements otherwise, giving something to the doves and hawks. I do not expect him to explicitly state that the Fed is nearly done hiking rates. The Portfolio is 50% net long heading into the day.

Stocks Finish Modestly Lower, Energy Prices Fall

Indices
S&P 500 1,194.67 -.22%
DJIA 10,476.86 -.06%
NASDAQ 2,060.18 -.34%
Russell 2000 620.47 -.53%
DJ Wilshire 5000 11,821.87 -.25%
S&P Barra Growth 576.38 -.36%
S&P Barra Value 613.87 -.08%
Morgan Stanley Consumer 581.73 -.39%
Morgan Stanley Cyclical 719.91 -.25%
Morgan Stanley Technology 479.80 -.33%
Transports 3,537.73 -2.07%
Utilities 370.27 +.04%
Put/Call .92 +9.52%
NYSE Arms .90 -22.25%
Volatility(VIX) 12.70 +2.50%
ISE Sentiment 157.00 +.64%
US Dollar 87.88 +.45%
CRB 303.73 -.81%

Futures Spot Prices
Crude Oil 52.50 -.08%
Unleaded Gasoline 149.50 -.17%
Natural Gas 7.02 +.29%
Heating Oil 154.89 -.25%
Gold 425.10 -.35%
Base Metals 123.16 -1.31%
Copper 154.60 unch.
10-year US Treasury Yield 3.93% +.82%

Leading Sectors
I-Banks +.71%
Networking +.65%
Semis +.64%

Lagging Sectors
Homebuilders -1.49%
Airlines -1.51%
Oil Tankers -1.75%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AVP.
- Reiterated Underperform on CHTR and FGP.

Smith Barney:
- Rated GOOG Buy, target $360.

Afternoon/Evening Headlines
Bloomberg:
- Caterpillar split its stock 2-for-1 and increased its quarterly dividend by 22% after sales jumped by a third last year.
- US economic growth will slow to 3.4% in 2005 from 3.9% last year, a report from President Bush’s administration says, down slightly from its December forecast.
- Scientists say they have discovered a way to make fuel cells that generate the heat they need to function, which could lead to new designs of lighter and more powerful batteries for portable electronic devices.
- John Malone, chairman of Liberty Media, resigned from the board of Cablevision Systems to avoid conflicts that might arise because both companies own television programming assets.
- US Treasuries fell today, pushing yields on 10-year notes up from near the lowest in more than a year, on speculation Federal Reserve Chairman Alan Greenspan will say tomorrow that inflation is still a threat.
- Crude oil fell for a third day as refiners increased production of heating oil and diesel, bolstering inventories.

Fox News:
- President Bush said China has signaled a willingness to adjust its currency, and the US is “serious” about blocking North Korea’s development of nuclear weapons.

Financial Times:
- Toyota Motor Chairman Okuda said he fears a protectionist backlash from the US if financial problems worsen at GM and Ford.

Globe and Mail:
- Negotiators for the NHL and its players union have agreed on a salary cap system based on team-by-team revenue.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet and Homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was modestly negative today as the advance/decline finished lower, most sectors declined and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was slightly negative. Today’s rally in the US dollar looks like it will continue in the near-term, which should help spur another decline in commodity prices.