Consumer Confidence at 3-Year High

- Consumer Confidence for June rose to 105.8 versus estimates of 104.0 and an upwardly revised reading of 103.1 in May.

BOTTOM LINE: US consumer confidence rose to a three-year high in June, spurred by an improving labor market and rising incomes. The percentage of consumers expecting their incomes to rise was the highest this year even as gas prices rose. Incomes rose 7% last month from a year earlier, more than twice the rate of inflation. The present situations component of the index increased to 120.7, the highest since September 2001. The expectations component of the index rose to 95.8 from 93.4. The percentage of consumers who expected their incomes to increase in the next six months increased to 19.4%, the highest this year. The percentage of consumers who saw jobs as “hard to get” fell to 22.6% from 24.1%. Overall, a very positive report considering energy prices are near record highs.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- John Walton, son of Wal-Mart Stores founder Sam Walton, died in a plane crash near Jackson Hole Airport in Wyoming today.
- CNOOC Ltd., China's third-biggest oil company, will borrow $7 billion from its state-owned parents at below-market interest rates to help finance an $18.5 billion bid for Unocal Corp.

Xinhua News:
- Flooding in southern China caused by heavy rainfall has killed 607 people and caused $3.3 billion in damage this year. Some 164 people remain missing.

Beijing Times:
- Citigroup inc. scrapped talks with China Construction Bank to take a strategic stake in the Chinese lender.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on BAC and ENH.
- Reiterated Underperform on HBAN, FHN and NFS.
- Downgraded STX to Underperform.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.13%.
NASDAQ 100 indicated +.10%.

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Earnings of Note
Company/EPS Estimate
APOL/.74
BE/.00
DRL/.40
EMMS/.15

Upcoming Splits
None of note

Economic Releases
10:00 am:
- Consumer Confidence for June is estimated to rise to 104.0 versus 102.2 in May.

BOTTOM LINE: Asian indices are mostly higher as oil prices pulled back from early session highs. Consumer Confidence will likely come in modestly below expectations. I expect US equities to open mixed and move modestly higher in the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Lower as Oil Closes Above $60

Indices
S&P 500 1,190.69 -.07%
DJIA 10,290.78 -.07%
NASDAQ 2,045.20 -.39%
Russell 2000 628.31 -.33%
DJ Wilshire 5000 11,822.97 -.06%
S&P Barra Growth 568.12 +.03%
S&P Barra Value 618.48 -.18%
Morgan Stanley Consumer 569.58 -.16%
Morgan Stanley Cyclical 708.53 -.53%
Morgan Stanley Technology 473.50 -.61%
Transports 3,395.84 -.45%
Utilities 382.19 +.40%
Put/Call .95 +6.74%
NYSE Arms 1.27 -8.70%
Volatility(VIX) 12.52 +2.79%
ISE Sentiment 128.00 -48.18%
US Dollar 88.45 -.37%
CRB 311.37 -.28%

Futures Spot Prices
Crude Oil 60.29 -.41%
Unleaded Gasoline 167.30 -.12%
Natural Gas 7.12 -.18%
Heating Oil 167.50 -.07%
Gold 441.20 -.11%
Base Metals 123.51 -.64%
Copper 156.20 -.06%
10-year US Treasury Yield 3.90% -.39%

Leading Sectors
Energy +1.51%
Homebuilders +1.50%
Oil Service +1.32%

Lagging Sectors
Semis -1.32%
Networking –1.51%
Airlines -3.20%

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Afternoon Recommendations
Goldman Sachs:
- None of note

Banc of America:
- Upgraded RYL to Buy.

Afternoon/Evening Headlines
Bloomberg:
- Women who become sterilized form cancer treatments may still be able to get pregnant if their ovary tissues are frozen before high-dose chemotherapy, a new study suggests.
- Carlyle Group, a US-based private investor with $30 billion under management, plans to raise $1 billion in the next few months for a new Asia investment fund, said Rajeev Gupta, who will head the group’s India unit.
- Wyeth raised its estimate for 2005 earnings to $2.80 to $2.90 a share, citing revenue growth, slower-than-expected cost increases and favorable tax developments.
- Milberg Weiss Bershad & Schulman LLP, a law firm that specializes in shareholder fraud lawsuits, said it never made illegal payments to a client, a retired California lawyer, who was charged by a grand jury last week.
- IBM said the SEC started an informal probe of its disclosure about first-quarter earnings and stock-option expenses.
- Google’s shares rose above $300 after less than a year as a public company, cementing the most-used Internet search engine’s status as the world’s largest media company by market value.
- Crude oil closed above $60 a barrel for the first time on concern that Iran’s new president may limit foreign investment in the nation’s oil industry.

BOTTOM LINE: The Portfolio finished modestly higher on gains in my Homebuilding longs and Steel shorts. I did not trade in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was modestly negative today as the advance/decline finished lower, most sectors fell and volume was light. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was mildly negative. I expect Consumer Confidence to come in slightly below estimates tomorrow. Google hit another all-time high today and remains my largest long position.

Stocks Modestly Lower Mid-day as Oil Trades Above $60

Indices
S&P 500 1,189.90 -.14%
DJIA 10,272.06 -.25%
NASDAQ 2,041.91 -.55%
Russell 2000 626.44 -.63%
DJ Wilshire 5000 11,810.44 -.16%
S&P Barra Growth 567.77 -.03%
S&P Barra Value 618.11 -.24%
Morgan Stanley Consumer 569.56 -.14%
Morgan Stanley Cyclical 708.65 -.51%
Morgan Stanley Technology 472.22 -.88%
Transports 3,386.49 -.73%
Utilities 382.53 +.48%
Put/Call 1.01 +13.48%
NYSE Arms 1.22 -12.0%
Volatility(VIX) 12.68 +4.11%
ISE Sentiment 128.00 -48.18%
US Dollar 88.44 -.38%
CRB 311.85 -.12%

Futures Spot Prices
Crude Oil 60.65 +1.35%
Unleaded Gasoline 167.95 +1.44%
Natural Gas 7.18 -2.45%
Heating Oil 168.00 +1.79%
Gold 441.80 -.05%
Base Metals 123.51 -.64%
Copper 156.30 +.81%
10-year US Treasury Yield 3.89% -.54%

Leading Sectors
Energy +1.47%
Homebuilding +1.40%
Oil Service +1.12%

Lagging Sectors
Networking -1.51%
Semis -1.56%
Airlines -2.81%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet and Semiconductor longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is light. Measures of investor anxiety are mostly higher. Today’s overall market action is modestly negative. The consumer discretionary industry saw the greatest amount of net insider selling in the S&P 500 last week. Insiders sold $110,306,445 worth of stock and made no purchases. The energy industry, which led insider selling the prior week, saw no purchases or sales. I expect US stocks to trade mixed-to-higher into the close on short-covering and quarter-end window-dressing.

Today's Headlines

Bloomberg:
- Ten Commandments displays designed for two Kentucky courthouses are unconstitutional, the US Supreme Court ruled in a high-profile church-state clash.
- The US Supreme Court bolstered the entertainment industry’s anti-piracy campaign, saying Grokster Ltd. and other Internet file-sharing networks may bear responsibility when users illegally download music and films.
- The euro rose the most in more than a week against the dollar and yen after European Central Bank officials damped speculation they are considering a reduction in interest rates.
- Crude oil touched a record for a third straight day on concern that Iran’s new president may limit foreign investment in the nation’s oil industry.
- President Bush said the US and its allies view Iran’s pursuit of nuclear weapons “unacceptable.”

Wall Street Journal:
- The US Housing and Urban is planning a review of closing costs for home mortgages in a bid to better define them and reduce their costs for homebuyers.
- US federal prosecutors have sent subpoenas to more than a dozen insurers and re-insurers that have entered into “finite-risk” and other non-traditional transactions with units of Warren Buffett’s Berkshire Hathaway.

NY Times:
- Viacom’s MTV Networks will promote Midway Games video games in advertising and programming in a partnership expected to be announced today.
- SBC Communications delayed plans to sell television programming over high-speed lines by six months because of problems with installation.

NY Daily News:
- NY’s murder rate may fall below 500 this year, which would be the lowest since 1991.

San Francisco Chronicle:
- Ethanol, a clean-burning fuel produced by corn and sugarcane, may require as much as six times as much energy to produce as it gives off, citing a study in the journal Critical Reviews in Plant Sciences.

Financial News:
- Blackstone Group LP may seek to raise an unprecedented $12.5 billion for its latest buyout fund, topping the record $8.5 billion raised by Goldman Sachs Group.

Washington Post:
- Employees of suppliers to Wal-Mart Stores are moving near the company’s northwest Arkansas headquarters, gentrifying the area and increasing the region’s average income.

Reuters:
- Cingular Wireless LLC, the biggest US cellular phone service, may sell a Motorola handset that can download and play songs from Apple Computer’s iTunes music service.

Financial Times:
- Wal-Mart Stores will start a new marketing push for George clothing, the brand the US-based discount-store chain acquired withy its 1999 purchase of Britain’s Asda sotres.