Friday Watch

Late-Night Headlines
Bloomberg:
- Asian semiconductor-related stocks are rising, led by NEC Electronics and Chartered Semiconductor Manufacturing, after Texas Instruments and Intel said sales will be better than expected.

Wall Street Journal:
- Boeing and the US Justice Dept. are negotiating a settlement of criminal charges stemming from a military procurement scandal that may mean the company pays as much as $500 million.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on ENH, DDR, NSM, CMX, EMC, DO and PFE.
- Reiterated Underperform on MKL.

Business Week:
- Earnings at CVS Corp.(CVS) are likely to rise because of revenue growth from the stores it bought from Eckerd Corp. last year.
- Chesapeake Energy(CHK) will likely see its shares climb as demand for energy grows in the aftermath of Hurricane Katrina.
- AMN Healthcare Services(AHS), which provides nurse staffing, is likely to benefit from the surge in demand for such services in the aftermath of Hurricane Katrina.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.03%.

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- None of note

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Economic Releases
8:30 am EST
- The Import Price Index for August is estimated to rise 1.4% versus a 1.1% gain in July.

BOTTOM LINE: Asian indices are mostly lower as rising energy prices pressured exporters in the region. I expect US equities to open modestly lower and rally later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Modestly Lower on Losses in the Homebuilding Sector

Indices
S&P 500 1,231.67 -.38%
DJIA 10,595.93 -.35%
NASDAQ 2,166.03 -.28%
Russell 2000 673.47 -.57%
DJ Wilshire 5000 12,313.38 -.38%
S&P Barra Growth 590.14 -.31%
S&P Barra Value 637.18 -.44%
Morgan Stanley Consumer 587.90 -.56%
Morgan Stanley Cyclical 741.48 -.86%
Morgan Stanley Technology 503.37 -.08%
Transports 3,651.30 -.98%
Utilities 415.93 -.96%
Put/Call .86 +2.38%
NYSE Arms 1.12 +58.16%
Volatility(VIX) 12.93 +3.27%
ISE Sentiment 156.00 -9.83%
US Dollar 87.06 +.10%
CRB 324.71 +.16%

Futures Spot Prices
Crude Oil 64.72 +.54%
Unleaded Gasoline 203.80 +.78%
Natural Gas 11.40 +1.78%
Heating Oil 194.20 -1.03%
Gold 451.00 +.45%
Base Metals 127.84 -1.34%
Copper 161.85 -1.73%
10-year US Treasury Yield 4.14% +.19%

Leading Sectors
Gold & Silver +1.71%
Semis +1.14%
Wireless +.40%

Lagging Sectors
Utilities -.96%
Retail -.99%
Homebuilders -1.96%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on FCE/A.
- Reiterated Underperform on PAS.

Afternoon/Evening Headlines
Bloomberg:
- A new semiconductor design may boost the data-storage capacity of mobile telephones to that of personal computers.
- The Fed’s need to continue raising interest rates is “not as obvious” as it was and yet remains a “probable scenario” for the central bank, Fed Bank of San Francisco President Yellen said.
- Borrowing by US consumers increased for a second month in July as Americans financed new cars at discounted prices.
- Texas Instruments said third-quarter sales and profit will exceed earlier forecasts because of stronger-than-expected demand.
- Intel said third-quarter sales will be within previous forecasts amid rising demand for laptops.
- Yellow Roadway cut its third-quarter profit forecast, citing the impact of Hurricane Katrina and increased costs at its Roadway Express unit.

Boston Globe:
- Boston was ranked as the most expensive metropolitan area in the US because of rising home and rental costs.

BOTTOM LINE: The Portfolio finished higher today on gains in my Energy-related shorts, Internet longs, Medical Information System longs and Semiconductor longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was slightly below average. Measures of investor anxiety were higher into the close. Overall, today’s market action was slightly negative. Insider buy of note: A director at Petco Animal Supplies (PETC) recently purchased 1,818,600 shares of the stock at $21.86-$21.94. The stock is down 40% this year.

Stocks Modestly Lower Mid-day, Pressured by Homebuilders

Indices
S&P 500 1,231.18 -.42%
DJIA 10,584.87 -.46%
NASDAQ 2,165.43 -.30%
Russell 2000 673.11 -.62%
DJ Wilshire 5000 12,311.10 -.40%
S&P Barra Growth 589.81 -.36%
S&P Barra Value 637.28 -.43%
Morgan Stanley Consumer 587.97 -.54%
Morgan Stanley Cyclical 742.39 -.73%
Morgan Stanley Technology 504.08 +.06%
Transports 3,658.76 -.78%
Utilities 418.54 -.34%
Put/Call .87 +3.57%
NYSE Arms .94 +33.31%
Volatility(VIX) 12.71 +1.52%
ISE Sentiment 156.00 -9.83%
US Dollar 87.13 +.18%
CRB 322.70 -.46%

Futures Spot Prices
Crude Oil 63.70 -1.12%
Unleaded Gasoline 201.35 -.43%
Natural Gas 11.07 -1.17%
Heating Oil 190.75 -2.79%
Gold 450.60 +.36%
Base Metals 127.84 -1.34%
Copper 161.85 -1.73%
10-year US Treasury Yield 4.13% -.09%

Leading Sectors %
Gold & Silver +1.36%
Semis +1.28%
Wireless +.56%

Lagging Sectors
Insurance -.87%
Retail -.93%
Homebuilders -2.0%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Energy-related shorts, Semiconductor longs, Internet longs and Airline longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is below average. Measures of investor anxiety are higher. Today’s overall market action is slightly negative given declines in the homebuilding sector. The average 30-year mortgage rate remained at 5.71% this week. This is down from 6.04% on April 1 and only 50 basis points away from record lows set in June 2003. I expect US stocks to trade mixed-to-higher from current levels into the close on short covering.

Today's Headlines

Bloomberg:
- New Orleans port director Gary LaGrange told CNBC that shipping traffic passing through the port is about 40% to 50% of normal.
- The US government may set aside $51.8 billion more in relief dollars for Hurricane Katrina recovery as New Orleans floodwaters recede from last week’s levels amid repairs to the city’s levees.
- Sears Holdings ousted CEO Alan Lacy and named Aylwin Lewis to succeed him after comparable sales at Sears and Kmart stores fell.
- US Treasuries are rising after a government report showed Japanese investors bought the most overseas bonds in six weeks, raising optimism that demand for debt will increase at an auction today.
- Boeing’s third-quarter profit may be reduced by at least 14 cents a share if a strike by machinists against the world’s No. 2 commercial-airline maker isn’t resolved by the end of the month, analysts said.
- Crude oil is falling again after a government report showed that US oil and petroleum product inventories declined less than expected in the wake of Hurricane Katrina.
- The National Assoc. of Realtors was sued by US antitrust enforcers who accused the trade group of trying to restrain competition by restricting Internet brokers access to listings of home sales.
- GM will stop offering employee discounts to all buyers Sept. 30 and begin relying on lower list prices to sell 2006 models after sales fell in August.

Wall Street Journal:
- Insurers of offshore oil platforms and drilling rigs are likely to demand increases of more than 50% in premiums in the wake of the hurricane catastrophe on the US Gulf Coast, citing Charles Franks, an underwriter with Kiln Plc.
- News Corp. has agreed to pay $650 million for IGN Entertainment, a US video-games fan Internet company.
- EBay Inc. is in talks to buy Web telephone operator Skype Technologies SA for between $2 billion and $3 billion.
- Apple Computer’s latest member of its iPod portable music player family outperforms its maker’s specifications, Walt Mossberg wrote.
- Abbott Labs, Wyeth and Eli Lilly are among US drugmakers who bypassed the government to figure out how to quickly send medicine and equipment to clinics and hospitals helping victims of Hurricane Katrina.
- Insurers are facing pressure to should some of the cost of rebuilding flood-damaged homes along the US Gulf Coast, most of which lacked flood insurance.
- The NASDAQ stock market cut the fees it charges for listing closed-end mutual funds, as part of a contest to wrest market share from the NYSE, which dominates listings of such funds.

NY Times:
- Katrina will cost US farmers about $2 billion, citing the American Farm Bureau Federation.
- Fortune Brands is running television commercials for its Jim Beam bourbon for the first time in the brand’s 210-year history.

NY Post:
- The NASD asked companies to submit data on stock lending operations as part of a probe into illegal “naked” short selling.

Washington Post:
- US Senator Hillary Rodham Clinton is drawing criticism from some who say she’s using the Hurricane Katrina catastrophe to raise he political profile.

RollCall.com:
- California Governor Schwarzenegger plans to announce next week that he will run for re-election.

Financial Times:
- President Bush’s administration has told US refiners to postpone scheduled maintenance to get the most out of gasoline production, citing unidentified senior refinery executives.

Jobless Claims Still Low, Wholesale Inventories Fall, Energy Inventories Fall Less Than Estimates

- Initial Jobless Claims for last week fell to 319K versus estimates of 315K and 320K the prior week.
- Continuing Claims fell to 2593K versus estimates of 2582K and 2598K prior.
- Wholesale Inventories for July fell .1% versus estimates of a .6% increase and a .4% gain in June.
- The EIA reported crude inventories fell 6.45 million barrels vs. estimates of a 7.7 million barrel fall. Gasoline inventories fell 4.3 million barrels vs. estimates of a 6.25 million barrel decline. Distillate inventories fell 816,000 barrels vs. estimates of a 1.9 million barrel decline.

BOTTOM LINE: The number of Americans filing first-time claims for jobless benefits fell to 319,000 last week, as people thrown out of work by Hurricane Katrina weren’t able to apply for benefits, Bloomberg said. According to the CBO, Hurricane Katrina may cost the US economy 400,000 jobs this year. The four-week moving average of jobless claims rose to 318,500 from 316,500 the prior week. The insured employment rate, which tracks the US unemployment rate, was unchanged at 2%. I expect initial jobless claims to begin spiking next week as Katrina victims are able to file.

Stockpiles at US wholesalers unexpectedly fell in July for the first time in more than a year, led by a drop in supplies at computer-equipment, metals and pharmaceutical companies, Bloomberg said. Drug stockpiles fell 4.9%, the most on record. The inventory-to-sales ratio fell to 1.18 months, the lowest since April. Inventories should begin increasing again as port problems in Louisiana improve.

The energy inventory data is not nearly as bad as feared. As well, AAA is saying that gasoline demand has “fallen off a cliff” over the last week.

Links of Interest

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