Stocks Ignoring Hurricane Katrina Mid-day, Moving Higher

Indices
S&P 500 1,211.45 +.53%
DJIA 10,456.76 +.57%
NASDAQ 2,134.91 +.69%
Russell 2000 652.97 +.67%
DJ Wilshire 5000 12,084.65 +.53%
S&P Barra Growth 581.15 +.66%
S&P Barra Value 626.15 +.42%
Morgan Stanley Consumer 581.05 +.54%
Morgan Stanley Cyclical 731.66 +.22%
Morgan Stanley Technology 493.68 +.53%
Transports 3,681.41 +.38%
Utilities 402.55 +.66%
Put/Call 1.16 -1.69%
NYSE Arms .72 -57.10%
Volatility(VIX) 13.47 -1.97%
ISE Sentiment 138.00 -19.77%
US Dollar 88.20 +.39%
CRB 323.13 +1.90%

Futures Spot Prices
Crude Oil 67.00 +1.32%
Unleaded Gasoline 206.00 +6.91%
Natural Gas 10.78 +10.29%
Heating Oil 190.50 +3.72%
Gold 441.70 -.09%
Base Metals 129.99 unch.
Copper 162.50 -1.10%
10-year US Treasury Yield 4.16% -.41%

Leading Sectors
Oil Tankers +3.57%
Steel +2.67%
Gold & Silver +1.75%

Lagging Sectors
REITs -.12%
Restaurants -.49%
Airlines -1.15%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Retail, Semiconductor and Computer longs. I added a few new longs this morning, thus leaving the Portfolio 100% net long. One of my new longs is AMR Corp.(AMR) and I am using a $13 stop-loss on this position. The tone of the market is positive as the advance/decline line is modestly higher, most sectors are higher and volume is very light. Measures of investor anxiety are mostly lower. Today’s overall market action is very positive given the damage from the hurricane. As I have surmised many times, the price of oil has substantially passed levels justified by the underlying fundamentals, as a speculative fervor not seen since the Internet bubble took over the commodity and related securities. The most massive storm the U.S. has seen in years just hit the area most vulnerable to energy supply disruptions and oil is up a $1.12 cents to $67.25, below the record $68 per barrel, which was seen just a few days ago. This may be the beginning of the "sell the news" phenomenon that I had anticipated as we reached a peak in hurricane and terrorism fears. I expect US stocks to trade modestly higher from current levels into the close on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Hurricane Katrina came ashore along the Louisiana coast, sparing New Orleans a direct hit, as it weakened on a path toward Biloxi, Mississippi.
- This month’s decline in shares of US homebuilders, the steepest in three years, may be short-lived as companies benefit from record demand and earnings.
- Intelsat Ltd. agreed to buy PanAmSat Holding for $3.2 billion in cash to become the world’s largest commercial-satellite operator.
- OPEC may raise its production ceiling when the oil exporters group meets next month to try to reduce record prices.
- Hurricane Katrina may cost US insurers such as Allstate as much as $25 billion, making it the most expensive storm to ever hit the US.
- Patients given a statin drug within 24 hours of a heart attack increase their chances of survival by more than 50%, according to a UCLA study of more than 170,000 patients.
- US Treasuries rose as Hurricane Katrina sent crude oil prices above $70 a barrel, stoking speculation economic growth will slow.
- Hewlett-Packard said customers of its Snapfish online photo service can pick up prints in one hour at Walgreen stores, one of three new offerings aimed at expanding its printing business.
- The yen is falling against the US dollar after opinion polls showed Japanese Prime Minister Koizumi’s lead over the opposition slipping before next month’s election.

Wall Street Journal:
- Abercrombie & Fitch’s CEO Michael Jeffries sold stock in the teen clothing retailer ahead of the second-quarter report.
- US workers may be able to reduce their retirement tax burden through a new 401K pension plan starting from next year.
- Delphi, GM, Ford and Visteon may cut wages and thousands of jobs in cost-saving restructuring plans.
- Tango dancing with more fluid, callisthenic movements to the music of Massive Attack or Jimi Hendrix is sweeping the dance floors across the US.
- The US and Mexico may be close to ending a 15-year disagreement about US antidumping duties on Mexican cement, as shortages in the US prompt political pressure to increase imports.

NY Times:
- An increasing number of religious groups are broadcasting their services to users of Apple’s iPod.

NY Post:
- Microsoft officials have held talks in recent weeks with NY real estate brokers who have sold retail space in Times Square.

Crain’s NY Business:
- China’s Beijing Ventone Real Estate wants to acquire as much as 1 million square feet of Manhattan office space to create a center for Chinese companies.

LA Times:
- Actor George Clooney will announce plans today to build a $3 billion, 25-acre casino, boutique hotel and condominium project in Las Vegas.

Economic Releases

None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- New Orleans residents were orders to evacuate the city today as Hurricane Katrina, one of the most powerful and potentially deadly storms ever to threaten the US Gulf Coast, approached land with its 160 mph winds. Here are a few New Orleans WebCams.
- Wal-Mart Stores said August sales at US stores open at least a year rose about 3.3%, within its forecast range, as surging gasoline prices led shoppers to limit purchases to food and basic back-to-school merchandise.
- The EU may start to unblock millions of Chinese garments from customs warehouses by mid-September.
- Crude oil is soaring to a record above $70/bbl. in NY after Hurricane Katrina forced companies including Exxon Mobil and Chevron to shut operations in the Gulf of Mexico.
- The US dollar is declining against the euro in Asia on speculation rising energy prices and declining consumer confidence will hamper growth in the US.
- Iraqi lawmakers completed a constitution to put before voters in an October referendum after Kurds and Shiite and Sunni Arabs failed to agree on all issues.

Barron’s:
- Oracle, IBM, Microsoft and SAP AG may be planning acquisitions to add customers because growth in the software market has slowed.
- The new US bankruptcy code, which will take effect on Oct. 17, may have companies such as Delphi and Northwest Air reconsidering reorganization as rules become more stringent.
- Share-price appreciation may be little-related to earnings growth and more driven by changes in p/e ratios, citing its own study of the past five decades.

New York Times:
- Apple Computer faces demands from at least two of the four major record companies that may jeopardize the flat 99-cent fee its iTunes service charges for downloaded songs.
- KPMG LLP will pay $456 million to settle a US Justice Department case over allegedly illegal tax shelters and accept an outside monitor.
- US patients suffering from chronic and acute back pain from broken vertebrae are clamoring for a surgical procedure that injects a form of cement into the bone and eases the pain.
- Barr Pharmaceuticals may conduct a new label-comprehension study to sell its Plan B “morning after” contraceptive over the counter.
- Shares of Microsoft may rise as the company introduces new versions of its Xbox game, SQL Server and Windows operating system.

San Francisco Chronicle:
- California’s Air Resources Board has proposed regulations that would require public transit systems to replace diesel buses with vehicles that run on natural gas.

Detroit News:
- The United Auto Workers won’t accept Delphi’s request for $2.5 billion of concessions.

Washington Post:
- Washington-area residents are diving less because of high gasoline prices, diminishing the fuel tax receipts used to fund local transportation projects.
- The US government plans to triple the number of airport quarantine stations to prevent the spread of deadly infectious diseases by international travelers.
- Starbucks, McDonald’s and other US companies such as grocery chains and clothing retailers are selling or giving away technology including video rentals and cell phone ring tones.

AFP:
- The US military freed 1,000 prisoners from Iraq’s Abu Ghraib prison.

London-based Times:
- Nasdaq Stock Market and Instinet Group’s planned merger is being further examined by the US Dept. of Justice over competition concerns.

Xinhua news:
- China’s lawmakers ratified a ban on cigarette vending machines in a bid to cut the incidence of smoking among minors.

China Business News:
- China’s government won’t repeat its decision last month to raise the value of the yuan and will instead allow supply and demand to drive the currency rate.

Weekend Recommendations
Forbes on Fox:
- Had guests that were positive on FDX, PKI, BMET and mixed on CAL, RYAAY.

Cashin' In:
- Had guests that were positive on GNSS, ENER, WMG, PVH, MDT, mixed on VCG and negative on GTW.

Barron's:
- Had positive comments on ALEX, ASI and BKS.

Goldman Sachs:
- None of note

Night Trading
Asian indices are -1.50% to -1.0% on average.
S&P 500 indicated -.75%.
NASDAQ 100 indicated -.70%.

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Earnings of Note
Company/Estimate
AES/.15
MBT/.62

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DADE 2-for-1
SPF 2-for-1

Economic Releases
None of note

BOTTOM LINE: Asian Indices are lower, spurred by losses in exporters in the region as Hurricane Katrina causes a spike in energy prices. I expect US stocks to open lower on losses in Asia and higher energy prices. The Portfolio is 75% net long heading into the week.

Weekly Outlook

There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - Consumer Confidence, Factory Orders and Fed Minutes
Wed. - 2Q GDP, 2Q GDP Price Index, 2Q Personal Consumption and Chicago Purchasing Manager
Thur. - Personal Income, Personal Spending, PCE Deflator, PCE Core, Initial Jobless Claims, Continuing Claims, Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales and Total Vehicle Sales
Fri. - Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - AES Corp.(AES)
Tues. - Zale Corp.(ZLC)
Wed. - Freddie Mac(FRE), Tiffany & Co.(TIF)
Thur. - H&R Block(HRB), Saks Inc.(SKS)
Fri. - Del Monte Foods(DLM)

Other events that have market-moving potential this week include:

Mon. - None of note
Tue. - GM Analyst Event, NVLS Mid-Quarter Update
Wed. - Fed’s Santomero speaks, Fed’s Yellen speaks
Thur. - None of note
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on higher volatility. Equities will likely come under pressure early in the week on fears over a spike in commodity prices related to Hurricane Katrina. According to Stratfor.com, the Port of Southern Louisiana is the fifth-largest port in the world and the biggest port in the United States. It is a key global port for the export and import of commodities. The port could become unusable if levees burst, thus substantially impacting global agricultural prices as peak harvest time is over the next 30 days. Gasoline prices would also rise on any significant and sustained disruption to transportation systems to and from the port. About 2% of global oil production and about 25% of US produced oil comes from the Gulf, according to Stratfor. Later this week, US stocks should rally as the negative economic impact of the hurricane is viewed as mostly temporary and economic data come in better-than-expected. I continue to believe we are in a consolidation phase within a significant intermediate-term move higher in the major averages. My trading indicators are now giving mixed signals and the Portfolio is 75% net long heading into the week.