Stocks Finish Lower as Tropical Storm Rita Approaches Gulf

Indices
S&P 500 1,231.02 -.56%
DJIA 10,557.63 -.79%
NASDAQ 2,145.26 -.70%
Russell 2000 667.02 -.74%
DJ Wilshire 5000 12,289.08 -.53%
S&P Barra Growth 587.12 -.50%
S&P Barra Value 639.70 -.61%
Morgan Stanley Consumer 582.65 -.95%
Morgan Stanley Cyclical 728.19 -1.10%
Morgan Stanley Technology 501.85 -.51%
Transports 3,589.75 -1.21%
Utilities 429.97 +.26%
Put/Call .92 +13.58%
NYSE Arms 1.04 +38.37%
Volatility(VIX) 12.14 +8.20%
ISE Sentiment 194.00 +79.63%
US Dollar 88.51 +.51%
CRB 327.41 +3.81%

Futures Spot Prices
Crude Oil 67.02 -.55%
Unleaded Gasoline 204.50 +.11%
Natural Gas 12.70 +.30%
Heating Oil 203.80 -.02%
Gold 467.50 -.62%
Base Metals 124.20 -.89%
Copper 165.25 -.12%
10-year US Treasury Yield 4.24% -.64%

Leading Sectors
Oil Service +3.20%
Energy +2.61%
Oil Tankers +1.81%

Lagging Sectors
Restaurants -1.67%
Retail -1.71%
Airlines -3.39%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on TYC, NKE and WAG.

Afternoon/Evening Headlines
Bloomberg:
- Neiman Marcus Group’s credit ratings will be cut to junk when the company’s buyout by Texas Pacific Group and Warburg Pincus LLC is completed, S&P said.
- Homebuilders in the US were less optimistic for the third straight month in September as the costs of energy and lumber rose in the aftermath of Katrina, a survey showed.
- Toyota Motor plans a US ad campaign to promote its hybrid power system as the company brings out more of the fuel-efficient vehicles.
- The euro touched a seven-week low against the dollar after Germany’s election ended in a stalemate, raising concern the government will fail to enact policy changes to bolster faltering economic growth.
- Crude oil traded near $67/bbl. after jumping 7% today on forecasts Tropical Storm Rita will strengthen into a hurricane before crossing the Gulf of Mexico and striking Texas near the refining center of Houston.

Nikkei English News:
- Honda Motor will double the number of North American auto parts manufacturers it works with to 40, and work with them on all of its models.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Energy-related shorts and Retail longs. I did not trade in the afternoon, thus leaving the Portfolio market neutral. The tone of the market was negative today as the advance/decline line finished substantially lower, most sectors declined and volume was below average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was slightly negative. Currently, TradeSports.com is showing a 51% chance that Tropical Storm Rita makes first landfall as a Category 1 or higher in Texas. There is a 34% chance for Louisiana. I would expect to see more of a negative reaction from investors if it becomes apparent that Rita will definitely hit Texas or Louisiana.

Stocks Sharply Lower Mid-day on Spiking Energy Prices and Fears Over Tropical Storm Rita

Indices
S&P 500 1,228.85 -.73%
DJIA 10,536.14 -.99%
NASDAQ 2,140.55 -.92%
Russell 2000 666.71 -.78%
DJ Wilshire 5000 12,271.00 -.68%
S&P Barra Growth 585.71 -.74%
S&P Barra Value 638.89 -.74%
Morgan Stanley Consumer 581.85 -1.08%
Morgan Stanley Cyclical 726.72 -1.30%
Morgan Stanley Technology 499.59 -.97%
Transports 3,587.45 -1.33%
Utilities 428.97 +.03%
Put/Call .81 unch.
NYSE Arms 1.01 +34.59%
Volatility(VIX) 12.40 +10.62%
ISE Sentiment 194.00 +79.63%
US Dollar 88.47 +.47%
CRB 327.18 +3.74%

Futures Spot Prices
Crude Oil 67.30 +6.83%
Unleaded Gasoline 202.70 +13.55%
Natural Gas 12.62 +13.24%
Heating Oil 203.60 +10.91%
Gold 469.20 +1.27%
Base Metals 124.20 -.89%
Copper 165.50 +3.89%
10-year US Treasury Yield 4.23% -.82%

Leading Sectors %
Oil Service +3.22%
Energy +2.82%
Coal +1.40%

Lagging Sectors
Wireless -1.71%
Retail -1.75%
Airlines -3.30%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Energy-related shorts and Retail longs. I exited a few shorts this morning as they hit stop-losses and added substantially to my TLT long and IWM/QQQQ shorts, thus leaving the Portfolio market neutral. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is slightly negative given the spike in energy prices. Today's action is tough to gauge, but complacency seems rather high given the potential risks to the economy from another hurricane. Rising expectations of a Fed "pause" are likely the reason. I expect US stocks to trade mixed-to-lower from current levels into the close on increasing worries over high energy prices and Tropical Storm Rita.

Today's Headlines

- North Korea agreed to give up its nuclear arsenal and rejoin a global treaty to halt the spread of weapons of mass destruction in return for US guarantees of security and energy assistance.
- Grape growers in California’s Napa Valley said they are expecting their biggest harvest in four years.
- Norsk Hydro ASA, Norway’s second-largest oil company, agreed to buy Spinnaker Exploration of the US for $2.45 billion to gain fields in the Gulf of Mexico.
- Iran agreed to allow stepped-up inspections by UN atomic experts, as US and European delegates began negotiations to avoid the escalation of a dispute over the Islamic Republic’s nuclear ambitions.
- L. Dennis Kozlowski was sentenced to 8 1/3 to 25 years in prison for looting Tyco International Ltd.
- Crude oil and gasoline are rising, as natural gas surged to an all-time high, on forecasts that Tropical Storm Rita will strengthen into a major hurricane and make landfall in Texas or Louisiana.

Wall Street Journal:
- Hispanic illegal immigrants in the Gulf region struck by Hurricane Katrina who are unable to benefit from federal and state assistance are migrating across the US.
- Teaching business has become big business in China with US private-equity firms such as Carlyle Group moving into the market.
- Exchange-traded funds that are actively managed, while retaining some of the main advantages of an ETF, are being prepared.
- IBM plans to continue its strategy of staying out of the applications business while partnering with applications vendors to sell its own products.

NY Times:
- The US and its allies are seeking a resolution from the UN nuclear monitoring agency that would declare Iran’s nuclear program non-compliant to rules.
- A coalition of 500 doctors, and hospitals, insurers and employers in NY’s Hudson Valley region are creating a Web-based central electronic patient-records database that is affordable for small doctors’ offices.

NY Post:
- Donald Trump, chairman of Trump Entertainment Resorts, has reached a deal with Warner Music Group to launch Trump Mobile, a product featuring audio and video ringtones and Trump wallpaper for cell phone screens.

Economic Releases

None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said September sales at its US stores open at least a year are rising within its forecast in the aftermath of Hurricane Katrina.
- OPEC should raise output quotas for the sixth time in 15 months as oil and gas prices stay near record highs, the ministers for Saudi Arabia and the United Arab Emirates said.
- Qatar is planning a $1.8 billion refinery to process heavy crude oil as gasoline and diesel demand rises and regulations stall construction of new plants in Europe and the US.
- Afghans voted today in the country’s first legislative elections since 1969.
- Kuwait is in talks with the Bush administration to build an oil refinery in the US, seeking to construct the nation’s first new plant in three decades.
- The euro is falling to a month’s low versus the US dollar in Asia after German opposition leader Angela Merkel and Chancellor Gerhard Schroeder each claimed the right to run the government after an inconclusive result in elections yesterday.

Wall Street Journal:
- Centennial Communications, which provides wireless-telephone services in the US and the Caribbean, is considering selling itself in a deal worth as much as $1.5 billion.
- Wal-Mart Stores has created a prototype store in a Dallas suburb with wider aisles, lower shelves and more displays of pricier products as it seeks to lure more wealthy shoppers.

TheDeal.com:
- After raising $4 billion in a 14.2 million-share secondary offering late last week, Google Inc. is sitting on a total of roughly $7 billion in cash.

Washington Post:
- The US is realigning its forces in the Pacific in reaction to China’s escalating power.
- The Washington, DC police dept. plans to deploy several hundred officers to counter an antiwar rally and march near the White House on Sept. 24.

NY Times:
- New Orleans residents including Barry Kern of Kern Studios are looking ahead to holding Mardi Gras next year as they recover from Hurricane Katrina.
- The Walt Disney Co. will release the first of four computer-animated films on Nov. 4 as it tries to match the success of rivals Pixar and DreamWorks Animation SKG.

Boston Globe:
- AES Corp. has proposed building a $500 million liquefied natural-gas plan on Outer Brewster Island in Boston Harbor.

Philadelphia Inquirer:
- Philadelphia and neighboring country health-care facilities are spending more than $4 billion to build and expand their properties after years of closings in the area.

AFP:
- Iraqi lawmakers approved amendments to the country’s draft constitution and sent the charter to the United Nations, which will print five million copies for the public before an Oct. 15 referendum.

Independent on Sunday:
- UK Prime Minister Tony Blair accused the British Broadcasting Corp. of “gloating” over the devastation to the southern US from Hurricane Katrina.

The Business:
- Tesco Plc, the biggest UK food retailer, is considering a purchase of Albertson’s Inc. that could value the second-largest US grocery chain at $7.6 billion.

Weekend Recommendations
Barron's:
- Had positive comments on APC, BP, COCO, COP, DUK, ETR, EXC, WYE, MO, HPQ, FD, EMR, DSX and PMCS.
- Had negative comments on HXM, BA and IP.

Goldman Sachs:
- Reiterated Outperform on EMC.
- Reiterated Underperform on EDS.

Night Trading
Asian indices are unch. to +.25% on average.
S&P 500 indicated -.12%.
NASDAQ 100 indicated -.12%.

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Earnings of Note
Company/Estimate
AES/.15
CCL/1.35
NKE/1.42

Upcoming Splits
None of note

Economic Releases
1:00 pm EST
- The NAHB Housing Market Index for September is estimated at 67 versus a reading of 67 in August.

BOTTOM LINE: Asian Indices are higher, spurred by gains in mining shares in the region. I expect US stocks to open modestly lower on higher energy prices and rising apprehension ahead of Tuesday’s Fed meeting. The Portfolio is 75% net long heading into the week.