Stocks Lower Mid-day on Weakness in Tech

Indices
S&P 500 1,195.30 -.47%
DJIA 10,477.74 -.24%
NASDAQ 2,060.37 -.80%
Russell 2000 625.43 -.13%
DJ Wilshire 5000 11,842.16 -.41%
S&P Barra Growth 575.29 -.74%
S&P Barra Value 615.72 -.20%
Morgan Stanley Consumer 580.23 -.47%
Morgan Stanley Cyclical 719.76 +.22%
Morgan Stanley Technology 477.45 -1.33%
Transports 3,517.74 -.32%
Utilities 373.20 +.59%
Put/Call .71 -19.32%
NYSE Arms 1.0 +35.92%
Volatility(VIX) 12.18 +.83%
ISE Sentiment 153.00 -14.04%
US Dollar 88.68 +.69%
CRB 302.93 -.40%

Futures Spot Prices
Crude Oil 53.80 -.88%
Unleaded Gasoline 154.80 -1.49%
Natural Gas 6.99 -.71%
Heating Oil 161.70 -.53%
Gold 429.30 +.75%
Base Metals 123.80 +.45%
Copper 156.25 +1.0%
10-year US Treasury Yield 4.02% +2.03%

Leading Sectors
Gold & Silver +3.17%
Steel +.88%
Restaurants +.68%

Lagging Sectors
Software -1.24%
HMOs -1.36%
Semis -1.95%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet and Semiconductor longs. I took profits in a Base Metal short and added to an Oil Tanker short this morning, thus leaving the Portfolio 75% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are declining and volume is below average. Measures of investor anxiety are mostly higher. Today’s overall market action is negative considering the decline in energy prices, GM’s positive news and Intel’s guidance boost. The US budget deficit narrowed to $35.3 billion in may from a year earlier, a larger improvement than expected, as tax revenue soared. This was the smallest May budget shortfall since 2001. The Treasury said that tax receipts rose 32% to $152.7 billion during May compared with a year earlier. I expect the 2004 US budget deficit to come in substantially better than the $427 billion forecast by the White House. I expect US stocks to trade mixed into the close as profit-taking offsets positive fundamental developments.

Today's Headlines

Bloomberg:
- Intel will work with Nokia Oyj to develop products that deliver high-speed wireless Internet access over long distances.
- Crude oil is falling, heading for the first weekly decline in three, amid higher-than normal US inventories.
- China and the European Union agreed to limit shipments of Chinese textiles to the 25-nation bloc through 2007, repairing relations between the world’s two biggest clothing exporters.
- The US dollar reached a nine-month high against the euro after the US trade deficits in March and April were less than expected.
- US 10-year T-notes fell for the third day, the longest drop since March, on speculation yields near their lowest in 14 months don’t reflect prospects for economic growth and Federal Reserve interest-rate increases.
- GM shares are rising as much as 11% after reports that the world’s largest automaker is pressing the UAW for concessions and that the union authorized leaders to negotiate.

Wall Street Journal:
- Krispy Kreme Doughnuts’ Canadian franchise is selling the operator’s doughnut-making equipment, store leases and assets.

NY Times:
- Democratic Party Chairman Howard Dean met some Democrat senators that were concerned over his recent remarks that “Republicans haven’t earned an honest living in their lives.”
- Microsoft is nearing an agreement with News Corp.’s Twentieth Century Fox and Vivendi Universal’s Universal Pictures to produce a movie based on the Xbox video game “Halo.”
- High beer prices are promting consumers to buy chicken and pork.
- A suspected fourth case of a rare and potentially fatal nerve disorder in a patient taking Biogen Idec’s multiple-sclerosis drug Tysabri may have been a misdiagnosis.

USA Today:
- The US Army plans to double the cash bonus for some new recruits to $40,000.

Financial Times Deutschland:
Amgen is considering expanding its research into stem cells, an area in which it currently has a peripheral interest.

Trade Deficit Widens, Import Prices Decline

- The Trade Deficit for April rose to -$57.0B versus estimates of -$58.0B and -$53.6B in March.
- The Import Price Index for May fell 1.3% versus estimates of a .4% decline and an upwardly revised 1.2% gain in April.

BOTTOM LINE: The US trade deficit widened as Americans paid more for oil and bought more goods from China. However, US exports hit an all-time record. The number showing March’s deficit was narrower than first reported suggests first-quarter economic growth will be revised higher.

Prices of goods imported into the US declined in May for the first time this year, reflecting a drop in the costs of petroleum, building materials and automobiles. Excluding petroleum, the import price index declined .3%, the largest drop since August 2003. The price of imported building materials fell 3.9% in May after falling 2.0% a month earlier. Steel imports rose 30% during the first quarter versus a year earlier. This is one of the main reasons for the roughly 30% decline in prices for the metal since August of last year.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Yellow Roadway may buy a 50% stake in a freight-forwarding business owned by the Shanghai government to gain a foothold in the world's most populous country.
- Samsung Electronics said it will begin buying back $1.9 billion of shares this month to stabilize it stock price.

NY Times:
- The US and UK agreed on a plan to relieve 18 countries, mostly African, from paying back about $16.7 billion in debt to international lenders.

AP:
- The US Consumer Product Safety Commission's chairman has orders the agency to review how to reduce deaths and injuries among riders of all-terrain vehicles.

Financial Times:
- Eurex AG, the Frankfurt-based futures market, may offer foreign exchange futures contracts later this year to boost its US business.

London-based Times:
- Man Group Plc CEO Stanley Fink received a reduced salary after the hedge fund manager's growth slowed.
- British retail space demand has fallen 10% following a decline in consumer spending.

Shanghai Securities News:
- China's central bank has lent $2.4 billion to eligible brokerages to alleviate their capital shortages.
- The US curbs on seven categories of Chinese textiles will cost China $2 billion and 400,000 jobs.

China Daily:
- Nu Skin Enterprises will open a $20 million factory in Shanghai by the start of 2006.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on NSM, BSX, INTC, FSH and SAP.

Business Week:
- Shares of Aztar Corp.(AZR), which owns the Tropicana Casino & Hotel in Las Vegas, may rise 25% in the next year because it's an "attractive" acquisition target for Station Casinos and Boyd Gaming.
- Perficient's(PRFT) acquisitions will boost sales this year and next.
- PriceSmart(PSMT) CEO Price may take the company private or put it up for sale.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
BSG/.18
CYBX/-.32
RL/.80

Splits
TKC 1.25-for-1

Economic Releases
8:30 EST:
- The Trade Deficit for April is estimated to rise to -$58.0B versus -$55.0B in March.
- The Import Price Index for May is estimated to decline .4% versus a .8% increase in April.

2:00 EST:
- The Monthly Budget Statement for May is estimated at -$45.0B versus -$55.0B in April.

BOTTOM LINE: Asian indices are higher, led by exporters in the region, after US Fed Chairman Greenspan said the economy is on "firm footing" and inflation is "contained." I expect US equities to open mixed-to-lower and to rally modestly later in the day on short-covering and mostly positive economic data. The Portfolio is 75% net long heading into the day.

Stocks Finish Higher, Led by Tech

Indices
S&P 500 1,200.93 +.52%
DJIA 10,503.02 +.25%
NASDAQ 2,076.91 +.81%
Russell 2000 626.23 +.93%
DJ Wilshire 5000 11,890.26 +.58%
S&P Barra Growth 579.56 +.55%
S&P Barra Value 619.93 +.50%
Morgan Stanley Consumer 582.95 +.21%
Morgan Stanley Cyclical 718.20 -.24%
Morgan Stanley Technology 483.86 +.85%
Transports 3,529.21 -.24%
Utilities 370.99 +.19%
Put/Call .88 -4.35%
NYSE Arms .73 -18.25%
Volatility(VIX) 12.08 -4.88%
ISE Sentiment 178.00 +13.38%
US Dollar 88.07 +.22%
CRB 304.18 +.15%

Futures Spot Prices
Crude Oil 54.28 unch.
Unleaded Gasoline 157.14 unch.
Natural Gas 7.10 +.78%
Heating Oil 162.56 unch.
Gold 425.90 -.05%
Base Metals 123.24 +.06%
Copper 154.10 -.39%
10-year US Treasury Yield 3.95% +.39%

Leading Sectors
Oil Service +3.43%
Energy +2.90%
Networking +1.97%

Lagging Sectors
Steel -.86%
Airlines -.96%
Papers -1.30%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AVP, BBY and GD.

Afternoon/Evening Headlines
Bloomberg:
- The number of Hispanics in the US is growing three times faster than the population as a whole, the US Census Bureau said.
- US House Republicans plan to combine a proposal to revamp the US private pension system with an effort to save Social Security in a bid to attract Democratic support.
- Intel raised its second-quarter sales and profitability forecasts after laptop shipments surged.

CNBC:
- PIMCO Managing Director William Gross said 3% is an “effective limit” for inflation, which is unlikely to go higher.
- AMB Property CEO Moghadam said he expects further consolidation in the industrial real estate market following ProLogis’s $3.6 billion purchase of Catellus Development.
- Crude oil rose $1.74/bbl. in NY as concerns increased over a tropical storm in the Gulf of Mexico.

Cnet News.com:
- Microsoft will begin selling a music-subscription service later this year to compete with market-leading Apple Computer’s iTunes music store.

Financial Times:
- US and European companies are increasingly adopting “near shoring” policies to avoid problems of supply and management associated with investments in Asia, citing research by Deloitte & Touche.

Handelsblatt:
- Reebok International will seek acquisition targets to broaden its product base.

Asahi:
- Toyota Motor will increase prices in the US by as much as 3% this autumn to help US automakers.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet and Semiconductor longs and Base Metal shorts. I exited a few energy-related shorts in the afternoon as they hit stop-losses and added a couple of new chemical shorts, thus leaving the Portfolio 75% net long. One of my new shorts is PPG and I am using a $67 stop-loss on this position. The tone of the market was positive today as the advance/decline finished higher, most sectors rose and volume was below average. Measures of investor anxiety were lower into the close. Overall, today’s market action was positive. It was a good day for the bulls considering the fact that the Nasdaq and breadth finished at session highs even with oil spiking. However, stocks are displaying a muted reaction to Intel’s positive comments after-hours.