Thursday Watch

Late-Night Headlines
Bloomberg:
- Oil and gasoline shortages in some parts of the country caused by the destruction from Hurricane Katrina should end in about a week, Allan Hubbard, director of the US National Economic Council, told CNBC.
- Australian Prime Minister John Howard said the country will strengthen counter-terrorism laws and citizenship rules to help guard the country against terror attacks.
- Japan’s Prime Minister Koizumi may win Sept. 11 elections, gaining a mandate to sell state assets, including postal services, and giver private companies a bigger role in spurring the world’s No. 2 economy.

Financial Times:
- Wyeth, the US drugmaker, is in talks with the US government to help prepare for a future flu pandemic.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on PFE, MSFT, BSX and LVS.
- Reiterated Underperform on UST and TER.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.18%.
NASDAQ 100 indicated -.13%.

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Earnings of Note
Company/EPS Estimate
PLB/.03
BRL/.72
CBRL/.74
FLE/-.33
MATK/-.03
NSM/.22
ZQK/.20
SHLD/1.36
SLR/.04

Upcoming Splits
PCP 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 315K from 320K the prior week.
- Continuing Claims are estimated to fall to 2582K from 2607K prior.

9:30 am EST
- Platt's estimates weekly crude inventories fell 7 million barrels, gasoline inventories fell 6.5 million barrels, distillate inventories declined 2.5 million barrels and refinery utilization fell 11.5%.

10:00 am EST
- Wholesale Inventories for July are estimated to rise .6% versus a .7% gain in June.

3:00 pm EST
- Consumer Credit for July is estimated to fall to $10.0B from $14.5B in June.

BOTTOM LINE: Asian indices are mostly higher as falling energy prices boosted exporters in the region. I expect US equities to open modestly lower, spurred by losses in the homebuilding stocks. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on Energy Price Decline

Indices
S&P 500 1,236.36 +.24%
DJIA 10,633.50 +.42%
NASDAQ 2,172.03 +.24%
Russell 2000 677.32 +.42%
DJ Wilshire 5000 12,360.66 +.28%
S&P Barra Growth 591.98 +.23%
S&P Barra Value 640.02 +.25%
Morgan Stanley Consumer 591.19 +.14%
Morgan Stanley Cyclical 747.88 +.65%
Morgan Stanley Technology 503.79 +.65%
Transports 3,687.30 -.05%
Utilities 419.98 +.05%
Put/Call .84 -6.67%
NYSE Arms .71 +22.07%
Volatility(VIX) 12.52 -3.17%
ISE Sentiment 173.00 +53.10%
US Dollar 86.93 +.42%
CRB 324.19 -1.57%

Futures Spot Prices
Crude Oil 64.73 +.56%
Unleaded Gasoline 206.00 +1.87%
Natural Gas 11.25 +.44%
Heating Oil 198.70 +1.26%
Gold 448.60 -.09%
Base Metals 129.57 -.87%
Copper 164.70 unch.
10-year US Treasury Yield 4.13% +1.08%

Leading Sectors
Gaming +3.13%
Restaurants +2.57%
Networking +2.42%

Lagging Sectors
Commodity -.39%
Oil Tankers -.57%
REITs -.75%

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Afternoon Recommendations
Goldman Sachs:
- None of note.

Afternoon/Evening Headlines
Bloomberg:
- Pixar, the computer-animation film studio run by Steven Jobs, will know in the “not-too-distant future” whether it will sign a distribution agreement with Walt Disney or another company, Jobs told CNBC.
- United Nations Secretary-General Kofi Annan knew about the corruption within the Iraqi/UN oil-for-food program and did little to stop the illegal activity, an inquiry led by former US Fed Chairman Paul Volcker said.
- The US economy expanded in the six weeks before Hurricane Katrina struck, led by car sales and tourism, even as the housing boom cooled and energy prices rose, the Federal Reserve said in its Beige Book report.
- The US Federal Emergency Management Agency will distribute $2,000 debit cards to survivors of Hurricane Katrina to use for emergency supplies.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Oil Tanker shorts, Internet longs, Medical Information System longs, Semiconductor longs and Medical Technology longs. I added to my GOOG long and VLO short in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, most sectors gained and volume was below average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was slightly positive given the decline in energy prices and rise in long-term rates. The Johnson Redbook same-store sales index rose 3.0% year-over-year last week despite the effects from Hurricane Katrina vs. a 3.7% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 18th week in a row the index has risen 3% or more. The Morgan Stanley Retail Index has risen about 3% in two days.

Stocks Slightly Higher Mid-day as Falling Energy Prices Offset Rising Rates

Indices
S&P 500 1,232.33 -.08%
DJIA 10,600.15 +.10%
NASDAQ 2,166.47 -.02%
Russell 2000 674.24 -.04%
DJ Wilshire 5000 12,321.41 -.04%
S&P Barra Growth 590.26 -.06%
S&P Barra Value 637.91 -.08%
Morgan Stanley Consumer 589.97 -.07%
Morgan Stanley Cyclical 746.05 +.41%
Morgan Stanley Technology 503.02 +.51%
Transports 3,677.65 -.31%
Utilities 417.73 -.47%
Put/Call .76 -15.56%
NYSE Arms .74 +26.26%
Volatility(VIX) 12.71 -1.70%
ISE Sentiment 186.00 +64.60%
US Dollar 86.92 +.40%
CRB 323.61 -1.75%

Futures Spot Prices
Crude Oil 64.15 -2.74%
Unleaded Gasoline 198.50 -3.65%
Natural Gas 11.15 -4.44%
Heating Oil 194.95 -5.15%
Gold 448.50 -.02%
Base Metals 129.57 -.87%
Copper 164.95 -.69%
10-year US Treasury Yield 4.16% +1.64%

Leading Sectors %
Gaming +2.96%
Restaurants +2.27%
Steel +2.24%

Lagging Sectors
Oil Tankers -.57%
Telecom -.66%
REITs -.92%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Energy-related shorts, Semiconductor longs, Networking longs and Restaurant longs. I added some new longs this morning and added to a few existing longs, thus leaving the Portfolio 100% net long. One of my new longs is GNSS and I am using a $25.50 stop-loss on this position. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is slightly negative given another decline in energy prices and higher long-term rates. I expect US stocks to trade modestly higher from current levels into the close on declining energy prices.

Today's Headlines

Bloomberg:
- BearingPoint said regulators started a formal probe into its accounting and delayed plans to complete its financial statements.
- Delta Air Lines said it is realigning service at some of its US hubs, adding international flights and selling 11 Boeing 767-200 aircraft to ABX Air Inc.
- Hurricane Katrina may slow US economic growth by .5 to 1 percentage points, the CBO told lawmakers.
- US lawmakers from both parties are urging the Fed to forgo raising interest rates at its Sept. 20 meeting to help consumers and businesses recover from the destruction of Katrina.
- Egyptians began voting today in the nation’s first presidential election, which incumbent Hosni Mubarak, who has ruled the country for a quarter of a century, is set to win against nine less known challengers.
- BMW AG will join GM and DaimlerChrysler AG to develop fuel-saving gasoline-electric power systems and catch up with hybrid leader Toyota Motor.
- Apple Computer CEO Jobs introduced a Motorola phone that runs Apple’s iTunes music software.
- Ford is recalling 3.8 million 1994-2002 vehicles because a cruise-control switch can overheat and cause fires.
- US Treasuries remained lower after Michael Moskow, president of the Fed’s Chicago branch, said the risk of faster inflation needs to be addressed with “appropriate” increases in interest rates.
- Crude oil is falling for a third session, touching a two-week low, as the EIA slashed demand estimates for the commodity.

Wall Street Journal:
- One of Boeing’s airplane-parts suppliers said it will lay off more than 200 workers because of the Boeing-machinists strike, and another said that it will cut workers to a three-day week.
- Bank of America, JP Morgan Chase, and Wells Fargo are among US lending institutions that are giving customers in areas affected by Hurricane Katrina some breaks on paying loans.
- Credit Suisse First Boston issued an open letter to the board of Novell, a US software maker, urging management changes, asset sales and share buybacks.
- US government expenditure on caring for the victims of Hurricane Katrina and on reconstruction may reach between $150 billion and $200 billion, citing early congressional estimates.
- Steel used in building cars and industrial machinery may cost as much as 20% more because flooding caused by Hurricane Katrina in New Orleans has cut supplies and stalled the distribution of raw materials.
- The reconstruction of New Orleans will occur in phases once the water has been pumped out of the flooded city after Katrina’s passage, URS Corp. CEO Koffel told CNBC.

NY Times:
- Iraq’s national baseball league has grown to 26 teams from 18 provinces since it started in 2003.

AP:
- United Airlines parent UAL Corp. plans to file its reorganization plan today as part of a series of hearings ahead of a Dec. 1 deadline as it seeks to emerge from bankruptcy.

Iran Daily:
- The assets held by Iranians living in the US rose by a third last year to $800 billion as capital flight increased.

Productivity Decelerates, Unit Labor Costs Rise More-Than-Expected

- Final 2Q Non-farm Productivity rose 1.8% versus estimates of a 2.1% gain and prior estimates of a 2.2% increase.
- Final 2Q Unit Labor Costs rose 2.5% versus estimates of a 1.4% gain and prior estimates of a 1.3% increase.

BOTTOM LINE: US worker productivity grew at a slower-than-expected pace from April through June and labor costs accelerated, which may prompt the Fed to keep raising interest rates, Bloomberg reported. The 2.5% increase in unit labor costs is still below the long-term average of a 3.4% quarterly increase. However, hurricane rebuilding could push up labor costs temporarily to unacceptable levels.

Links of Interest

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