Monday Watch

Weekend Headlines
Bloomberg:
- Traders are the most bearish toward the dollar since March on speculation the Fed may pause after 10 consecutive quarter-point interest-rate increases, a Bloomberg News survey shows.
- President Bush will nominate federal appeal court Judge John G. Roberts to replace William H. Rehnquist as chief justice of the US Supreme Court.
- The US dollar is rising against the euro for the first day in five in Asia on speculation its biggest two-week decline since December was excessive.
- Crude oil is falling for a second day in NY after producers including BP Plc resumed output in the US Gulf of Mexico and refineries in coastal states restarted after Hurricane Katrina.
- Chiron, a US vaccine maker recovering from a manufacturing shutdown, rejected Novartis AG’s $4.5 billion cash offer as “inadequate” as Chiron’s flu treatment moves closer to returning to the US market.

Barron’s:
- Sell-side strategists surveyed by Barron’s say the US stock market can rise 5 percent to 10 percent in the last four months of the year.

New York Times:
- Security of personal information and a perceived loss of control are two of the biggest reasons people don’t bank online, according to a Synergistics Research market poll.
- Manhattan’s gap between the rich and poor, on the basis of earnings, is greater than in any other county in the country.
- Harley-Davidson is among companies that have kept manufacturing jobs in the US by improving products and increasing efficiency.
- Hedge funds may be headed for another collapse because they are buying assets that are hard to sell quickly and borrowing more to increase returns, citing Andrew Lo, a fund manager.
- Iran yesterday rejected a European request to stop its nuclear program or face possible sanctions.
- Sales may be cut by the effects of Hurricane Katrina at online travel companies including Travelocity.com, Expedia and Orbitz, as well as at some specialty retailers.

USA Today:
- BellSouth Corp. may lose as much as $1 billion in sales as a result of damage from Hurricane Katrina, citing Jeff Bray, an analyst at Babson Capital Management LLC.

AFP:
- Former Iraqi Dictator Saddam Hussein will go on trial for murder from Oct. 19, four days after the referendum on the nation’s new constitution is scheduled to occur.

Observer:
- UK and US insurers will face more than $40 billion in claims for damage caused by Hurricane Katrina, citing a leaked document from forecasters within the Lloyds of London insurance market.

Oriental Morning Post:
- Prices of China’s commercial properties will fall in the second half because of oversupply, citing a report by the Ministry of Commerce.

Nihon Keizai:
- Japanese refiners including Nippon Oil Corp. and Idemitsu Kosan are preparing to draw down stockpiles of oil products and may export supplies to the US.

Weekend Recommendations
Barron's:
- Had positive comments on AVID, NUE, TXI, CAT, QNTA and ASTE.

Goldman Sachs:
- Reiterated Outperform on MDT, WAG and EBAY.
- Reiterated Underperform on STX.

Night Trading
Asian indices are +.25% to +.75% on average.
S&P 500 indicated +.37%.
NASDAQ 100 indicated +.38%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
SHFL/.21

Upcoming Splits
TIE 2-for-1

Economic Releases
10:00 am EST
- ISM Non-Manufacturing for August is estimated to fall to 60.0 from 60.5 in July.

BOTTOM LINE: Asian Indices are higher, spurred by gains in exporters in the region as energy prices fall. I expect US stocks to open modestly higher on gains in Asia and lower energy prices. The Portfolio is Market Neutral heading into the week.

***Alert***

Due to a scheduling conflict I will be unable to blog this holiday weekend. I will post the Tuesday Watch late Monday night.

Weekly Scoreboard*

Indices
S&P 500 1,218.02 +1.07%
DJIA 10,447.37 +.48%
NASDAQ 2,141.07 +.96%
Russell 2000 663.33 +2.26%
DJ Wilshire 5000 12,173.54 +1.27%
S&P Equity Long/Short Index 1,059.05 +.47%
S&P Barra Growth 582.29 +.86%
S&P Barra Value 631.49 +1.28%
Morgan Stanley Consumer 582.69 +.82%
Morgan Stanley Cyclical 737.68 +1.03%
Morgan Stanley Technology 494.46 +.69%
Transports 3,652.55 -.40%
Utilities 414.23 +3.58%
S&P 500 Cum A/D Line 7,781.00 +.97%
Bloomberg Crude Oil % Bulls 51.0 +.29%
Put/Call 1.13 -4.24%
NYSE Arms 1.18 -29.76%
Volatility(VIX) 13.57 -1.09%
ISE Sentiment 190.00 +10.47%
AAII % Bulls 31.76 -12.12%
US Dollar 86.30 -1.79%
CRB 331.35 +4.49%

Futures Spot Prices
Crude Oil 67.57 +1.99%
Unleaded Gasoline 218.37 +17.97%
Natural Gas 11.69 +19.05%
Heating Oil 209.11 +11.52%
Gold 447.80 +1.29%
Base Metals 131.91 +1.48%
Copper 167.15 +1.73%
10-year US Treasury Yield 4.03% -3.58%
Average 30-year Mortgage Rate 5.71% -1.04%

Leading Sectors
Alternative Energy +8.24%
Steel +7.69%
Energy +6.24%

Lagging Sectors
Retail -2.25%
Restaurants -4.18%
Airlines -8.54%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Mixed Mid-day on Economic Concerns Related to the Hurricane

Indices
S&P 500 1,220.30 -.10%
DJIA 10,471.03 +.11%
NASDAQ 2,145.21 -.13%
Russell 2000 664.48 -.59%
DJ Wilshire 5000 12,193.27 -.19%
S&P Barra Growth 583.35 -.10%
S&P Barra Value 632.71 -.11%
Morgan Stanley Consumer 583.81 +.60%
Morgan Stanley Cyclical 739.65 +.32%
Morgan Stanley Technology 495.44 +.01%
Transports 3,670.94 -.01%
Utilities 414.45 -.43%
Put/Call 1.13 +29.88%
NYSE Arms 1.07 -12.64%
Volatility(VIX) 13.30 +1.14%
ISE Sentiment 192.00 +25.49%
US Dollar 86.24 -.35%
CRB 331.33 -1.45%

Futures Spot Prices
Crude Oil 67.57 -2.74%
Unleaded Gasoline 218.37 -9.35%
Natural Gas 11.69 -.56%
Heating Oil 209.11 -4.89%
Gold 447.50 +.22%
Base Metals 131.91 +1.20%
Copper 167.30 +1.52%
10-year US Treasury Yield 4.03% +.09%

Leading Sectors %
Foods +.60%
Drugs +.56%
Steel
+.53%

Lagging Sectors
Computer Hardware -1.57%
Energy -1.94%
Oil Service -2.05%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Oil Tanker shorts and Internet longs offset losses in my Financial longs. I added to some existing shorts this morning and added a few new energy-related shorts, thus leaving the Portfolio market neutral(%long -%short=0). One of my new shorts is VLO and I am using a $115 stop-loss on this position. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mixed and volume is very light. Measures of investor anxiety are mixed. Today’s overall market action is negative given the decline in energy prices. The ECRI Weekly Leading Index fell slightly to 135.20 this week from 135.30 the prior week. This is up from 132.00 during the last week of May and still very near the cycle highs of 135.90 set in mid-March. It is forecasting stabilizing healthy economic growth, however I expect it to begin heading lower next week. I expect US stocks to trade mixed-to-lower from current levels into the close as worries over economic growth offset short-covering ahead of the three-day weekend.

Today's Headlines

Bloomberg:
- Boeing’s 18,300 machinists went on strike for the first time in 10 years after rejecting the company’s wage and benefit offer, shutting down production at the world’s largest aircraft maker.
- US two-year Treasuries are headed for their best week since January 2002 on speculation the Fed will only raise interest rates one more time this year as manufacturing slows and Hurricane Katrina threatens growth.
- Albertson’s may put itself up for sale.
- Vadim Kouznetsov, who leads the United Nations General Assembly budget panel, has been arrested by the FBI for laundering money.
- Hurricane Katrina’s catastrophic flooding will cause more than $100 billion total economic losses to the US, said storm modeler Risk Management Solutions Inc.
- Lehman Brothers and Bear Stearns economists reduced their forecasts for third-quarter economic growth, citing damage from Katrina.
- New Orleans water levels have steadied as nearby Lake Pontchartrain stopped rising, and federal efforts began to repair broken levees, said Army Corps of Engineers Lieutenant General Carl Strock.
- Crude oil and gas are having their biggest declines since Hurricane Katrina devastated US Gulf Coast production and refining facilities, as the IEA considers releasing emergency oil supplies and the Bush administration will order the release of an additional 900,000 barrels per day from the Strategic Petroleum Reserve.

Wall Street Journal:
- US law firms, such as Milberg Weiss Bershad & Schulman LLP and Cohen, Milstein, Hausfeld & Toll PLLC, are searching for European clients as new US laws cap damages and make it more difficult to move cases to friendly jurisdictions.
- Ford Motor is considering two sets of final bids from private equity firms offering as much as $10 billion including debt for its Hertz Corp. rental-car unit.
- The US Financial Accounting Standards Board plans to characterize Hurricane Katrina and its aftermath as “ordinary” rather than “extraordinary” for company bookkeeping purposes.
- Louisiana Governor Kathleen Blanco called on the administration to send 40,000 troops into New Orleans amid growing chaos in the hurricane stricken city.
- Hurricane Katrina has so far had only limited impact on travel outside the regions affected by the storm.

Washington Post:
- The US departments of State and Homeland Security said they will move ahead with plans to require travelers from Mexico, Canada and other allied nations to show a passport or other documents to enter the country.
- A group of 160 law school professors joined in the opposition to Supreme Court nominee John G. Roberts yesterday.

Dallas Morning News:
- Texas will triple the number of refugees made homeless by Hurricane Katrina that it will shelter and take in some 75,000.

Salt Lake Tribune:
- Internet scams and e-mails from people purporting to be soliciting money for Hurricane Katrina relief efforts began appearing within a day of the storm’s landfall.

Unemployment Falls to 4-year Low in August

- The Change in Non-farm Payrolls for August was 169K versus estimates of 190K and an upwardly revised 242K in July.
- The Unemployment Rate for August fell to 4.9% versus estimates of 5.0% and 5.0% in July.
- Average Hourly Earnings for August rose .1% versus estimates of a .2% gain and a .4% increase in July.

BOTTOM LINE: US employers added 169,000 workers in August, signaling a confidence in the economy that will be tested by the further surge in fuel prices following Hurricane Katrina. The Unemployment Rate fell to 4.9%, the lowest rate in 4 years, Bloomberg reported. Employers added jobs in the month as consumer spending and confidence remained strong. However, the director of the White House National Economic Council said today that about 1 million workers have been displaced by Katrina. Monster Worldwide’s index of online help-wanted ads in the US had risen to an all-time record in August before the hurricane. I expect the job market to temporarily weaken over the next few months before rebounding sharply around year-end/early next year.