Wednesday Watch

Late-Night Headlines
Bloomberg:
- The Louisiana Superdome, which housed thousands of people who were stranded by Hurricane Katrina, is likely to be torn down, citing an unnamed Louisiana state official.
- California lawmakers sent a bill legalizing gay marriage to Governor Arnold Schwarzenegger, the first state legislature in the US to pass such a law.
- Asia-Pacific finance ministers plan to call for an end to fuel subsidies and price controls, seeking to rein in oil demand as record crude costs threaten to curb growth in economies ranging from the US to Thailand.
- Crude oil is falling for a third day in NY on concern Hurricane Katrina will slow economic growth in the US.

Financial Times:
- Gap Inc. can’t say when its two most popular Web sites – Gap.com and Oldnavy.com – will return to full operation.

Late Buy/Sell Recommendations
Goldman Sachs:
- None of note

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
ABS/.34
CMVT/.13
COO/.85
HOV/1.78
NAV/.83
PRGO/.16
TTWO/-.38

Upcoming Splits
DW 2-for-1

Economic Releases
8:30 am EST
- Final 2Q Non-farm Productivity is estimated to rise 2.1% versus a prior estimate of a 2.2% increase.
- Final 2Q Unit Labor Costs are estimated to increase 1.4% versus a prior estimate of a 1.3% gain.

2:00 pm EST
- Fed’s Beige Book

BOTTOM LINE: Asian indices are higher as falling energy prices and increased expectations that the US Fed will “pause” boosted exporters in the region for a third day. I expect US equities to open modestly higher on gains in Asia. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Highs as Energy Prices Continue to Fall

Indices
S&P 500 1,233.39 +1.26%
DJIA 10,589.24 +1.36%
NASDAQ 2,166.86 +1.20%
Russell 2000 674.48 +1.68%
DJ Wilshire 5000 12,325.89 +1.25%
S&P Barra Growth 590.63 +1.43%
S&P Barra Value 638.42 +1.10%
Morgan Stanley Consumer 590.37 +1.32%
Morgan Stanley Cyclical 743.04 +.73%
Morgan Stanley Technology 500.52 +1.23%
Transports 3,689.01 +1.0%
Utilities 419.75 +1.33%
Put/Call .90 -20.35%
NYSE Arms .58 -51.19%
Volatility(VIX) 12.93 -4.72%
ISE Sentiment 113.00 -40.53%
US Dollar 86.72 +.53%
CRB 329.36 -.60%

Futures Spot Prices
Crude Oil 65.51 -3.05%
Unleaded Gasoline 202.00 -7.50%
Natural Gas 11.61 -.69%
Heating Oil 205.43 -1.76%
Gold 447.70 -.02%
Base Metals 130.71 -.91%
Copper 166.00 -.81%
10-year US Treasury Yield 4.09 +1.66%

Leading Sectors
Retail +2.44%
REITs +2.32%
Restaurants +1.96%

Lagging Sectors
Commodity +.41%
Oil Tankers -.31%
Gold & Silver -.52%

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Afternoon Recommendations
Goldman Sachs:
- None of note.

Afternoon/Evening Headlines
Bloomberg:
- Former Fed Bank of Dallas President Robert McTeer told CNBC he sees “no need” for the FOMC to raise interest rates at its Sept. 20 meeting in the aftermath of Hurricane Katrina.
- Iraqi President Jalal Talabani said the nation’s former dictator Saddam Hussein confessed to ordering the murder of thousands of Kurds in the 1980s.
- Northwest Airlines sued its mechanics union over striking members’ efforts to block buses carrying replacement workers.
- Crude oil and gasoline fell for a third session in NY on expectations the release of emergency fuel reserves will ease shortages after Katrina cut US oil production and shut refineries.
- President Bush will ask Congress for at least $40 billion more in emergency spending to help pay for the recovery from Katrina.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semiconductor, Computer and Medical Information System longs. I exited my remaining IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector was higher and volume was below average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was very positive given the concerns over economic growth and the Fed. It is a big positive that stocks rose so strongly today with sectors other than energy providing leadership.

Stocks Sharply Higher as Energy Prices Fall Again

Indices
S&P 500 1,230.27 +1.01%
DJIA 10,558.83 +1.06%
NASDAQ 2,161.74 +.97%
Russell 2000 670.98 +1.15%
DJ Wilshire 5000 12,291.99 +.97%
S&P Barra Growth 589.11 +1.17%
S&P Barra Value 636.67 +.82%
Morgan Stanley Consumer 589.11 +1.10%
Morgan Stanley Cyclical 741.81 +.56%
Morgan Stanley Technology 499.84 +1.08%
Transports 3,683.09 +.83%
Utilities 418.57 +1.05%
Put/Call .94 -16.81%
NYSE Arms .78 -33.86%
Volatility(VIX) 13.23 -2.51%
ISE Sentiment 104.00 -45.26%
US Dollar 86.55 +.32%
CRB 330.55 -.23%

Futures Spot Prices
Crude Oil 66.20 -2.03%
Unleaded Gasoline 213.40 -2.28%
Natural Gas 11.80 +.93%
Heating Oil 208.75 -.17%
Gold 448.60 +.18%
Base Metals 130.71 -.91%
Copper 166.10 -.75%
10-year US Treasury Yield 4.07% +1.18%

Leading Sectors %
Restaurants +1.92%
Retail +1.89%
Internet +1.80%

Lagging Sectors
Oil Tankers -.33%
Steel -.37%
Gold & Silver -.43%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Energy-related shorts, Retail longs and Computer longs. I added to some existing longs this morning and covered some of my shorts, thus leaving the Portfolio 50% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive given the worries over the effects from Katrina. During the week ended Sept. 2, the energy industry saw the greatest net insider selling in the S&P 500. Insiders sold $55,855,662 worth of stock and bought no stock. Oil is down $1.62 today to $65.95, near session lows. I expect US stocks to trade mixed from current levels into the close as worries over economic growth offset lower energy prices.

Today's Headlines

Bloomberg:
- Iran offered to deliver to the US as much as 20 million barrels of crude oil to help offset a disruption to supplies from the Gulf of Mexico caused by Hurricane Katrina.
- Entergy has restored power to about 633,000 of its 1.1 million customers who lost electricity when Katrina struck the central US Gulf Coast last week.
- PetroQuest Energy CEO Charles Goodson told CNBC that 95% of its oil and gas production has been restored a week after Hurricane Katrina slammed ashore.
- The Fed can afford to “wait and see” the economic impact of Katrina before raising interest rates again, the OECD said.
- US troops today handed military control of the Shiite city of Najaf to Iraqi forces, in what is the first step in the transfer of security responsibilities across the country, the military said.
- President Bush is likely to name a woman or minority to the US Supreme Court.
- US Treasuries are falling after the ISM services index unexpectedly rose and oil prices fell, bolstering the prospects for the economy.
- Crude oil and gas are falling on expectations the release of emergency fuel reserves after Katrina will ease shortages and record prices will curb demand.
- The US dollar is rising the most in almost three weeks against the euro and gained against the yen after an industry report showed growth in US service industries unexpectedly accelerated in August.

Wall Street Journal:
- Shares of small and medium-sized US companies are still climbing, whereas the major stock indices have been going nowhere in particular for some time.
- Gulf coast companies are offering employees affected by last week’s hurricane money, food or shelter even as they try to get them back to work.
- Officials in President Bush’s cabinet meet today to plot a strategy for helping victims of Katrina regain jobs and shelter.
- WWL-AM, a conservative talk-radio station, was the only New Orleans-area broadcaster able to report what was happening when Hurricane Katrina hit the southern states last week, and presenters became advisers helping to plot escape routes and alerting authorities.
- US Muslim organizations said at a convention this weekend that they have begun several programs aimed at preventing people from using their religion to justify violence.
- The recovery from Katrina could create so much demand for temporary housing for relief workers and displaced residents that it could offset losses in the hotel industry from buildings damaged in the storm.

Bond Buyer:
- John Kennedy, treasurer for the state of Louisiana, said speculation that the state, the city of New Orleans or other local municipal issuers might need to seek bankruptcy protection after Katrina is “nonsense.”

Market News International:
- China won’t revalue its currency again until at least the second half of 2006 because of disagreement within the government.

ISM Non-Manufacturing New Orders Highest in Two Years

- ISM Non-Manufacturing for August rose to 65.0 versus estimates of 60.0 and a reading of 60.5 in July.

BOTTOM LINE: Growth at US service companies unexpectedly accelerated in August, suggesting the economy was strong even as energy prices rose before Hurricane Katrina struck, Bloomberg said. The new orders component of the index rose to 65.8, the highest in two years. Export orders soared from 53.5 in July to 63.5. The prices paid component of the index fell to 67.1 from 70.3 in July. Finally, the employment gauge rose to 59.6 from 56.2 in July. This was a very positive report. However, the effects of Katrina will hurt future Non-ISM readings for several months.

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