Wednesday Watch

Late-Night Headlines
Bloomberg:
- Ballard Power Systems, trying to find more users for its low-polluting automotive fuel cells, is talking to China about investing in its operations, Ballard’s CEO said.
- The US dollar reached a six-week high against the yen in Asia after the Fed raised interest rates for an 11th straight time and signaled further increases are likely.
- Hurricane Rita strengthened as it entered the Gulf of Mexico, prompting concern among forecasters that the storm could become more powerful than Hurricane Katrina, the most costly US disaster.
- Crude oil futures are rising in NY as oil producers in the Gulf of Mexico, including ConocoPhillips, Exxon Mobil, and Marathon Oil, evacuated staff and shut platforms in the path of Hurricane Rita.
- Japan’s economic recovery is “becoming sustainable” as rising corporate profits help spark business investment and consumer spending, Finance Minister Sadakazu Tanigaki said.

Wall Street Journal:
- Dartmouth’s Tuck School was ranked as the top national business school this year by recruiters, according to WSJ and Harris Interactive.

London-based Times:
- Goldman Sachs Group bankers will receive record pay after the investment bank reported its most profitable quarter ever.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on ALL, AIG and BC.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.13%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
AZO/2.83
BBBY/.46
BMET/.41
KMX/.37
CTAS/.48
CAG/.23
FDX/1.17
MWD/1.05

Upcoming Splits
None of note

Economic Releases
None of note

BOTTOM LINE: Asian indices are mostly lower as exporting shares in the region come under pressure from another jump in energy prices. I expect US equities to open modestly lower on rising apprehension over US growth and Hurricane Rita. The Portfolio is 50% net long heading into the day.

Stocks Finish at Session Lows After Fed Disappoints

Indices
S&P 500 1,221.34 -.79%
DJIA 10,481.52 -.72%
NASDAQ 2,131.33 -.65%
Russell 2000 660.63 -.96%
DJ Wilshire 5000 12,193.78 -.78%
S&P Barra Growth 583.03 -.70%
S&P Barra Value 634.12 -.87%
Morgan Stanley Consumer 578.76 -.67%
Morgan Stanley Cyclical 718.52 -1.33%
Morgan Stanley Technology 499.22 -.52%
Transports 3,581.45 -.23%
Utilities 427.27 -.63%
Put/Call 1.05 +14.13%
NYSE Arms 1.74 +67.31%
Volatility(VIX) 12.64 +4.12%
ISE Sentiment 194.00 unch.
US Dollar 88.60 +.18%
CRB 325.16 -.69%

Futures Spot Prices
Crude Oil 66.93 +1.10%
Unleaded Gasoline 201.45 +1.92%
Natural Gas 12.49 -.02%
Heating Oil 202.00 +.43%
Gold 467.60 -.47%
Base Metals 127.11 +2.34%
Copper 166.60 unch.
10-year US Treasury Yield 4.24% -.09%

Leading Sectors
Oil Tankers +.51%
Tobacco +.22%
Networking +.10%

Lagging Sectors
Gaming -2.24%
Steel -3.21%
Homebuilders -3.37%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on .

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve policy makers raised the benchmark interest rate for the 11th straight time and signaled they may do so again, saying the US economy faces only a “near-term” setback in employment, spending and production after Hurricane Katrina.
- GM will be the first company to average at least 20 miles per gallon in fuel efficiency with a large sport-utility vehicle.
- Microsoft realigned the company into three divisions and named presidents for each unit.
- Google, already facing complaints from publishers over its book-scanning program, was sued by the Authors Guild and three writers including a US Poet Laureate, who claim the company is violating copyrights.
- Hurricane Rita strengthened en route to the Gulf of Mexico, heading on a path that may threaten the Texas coast and parts of Louisiana devastated by Katrina three weeks earlier.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs and Steel shorts. I added to my TLT long and a few existing shorts in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, almost every sector declined and volume was slightly above average. Measures of investor anxiety were higher into the close. Overall, today’s market action was negative given the decline in energy prices and stabilizing long-term rates. Even though the Fed maintained its "measured" language, a "pause" is still likely before year-end.

***Alert***

I am unable to post the mid-day scoreboard due to trading. The Portfolio is higher today and I am 50% net long.

Today's Headlines

Bloomberg:
- The United Nations should rid itself of corruption or the US Congress may stop funding it, Senator Norm Coleman said.
- Japanese stocks climbed last night, with the Nikkei 225 closing above 13,000 for the first time in more than four years.
- OPEC plans to offer to pump as much oil as needed, seeking to prevent shortages as prices surge and a new storm threatens US rigs.
- Julian Robertson, who once ran the world’s largest hedge fund, put $25 million in a fund that targets insurance companies, now facing record losses from Katrina.
- Crude oil and gas are falling on speculation that the threat Hurricane Rita poses to Gulf of Mexico oil production and refining doesn’t justify yesterday’s surge.

Wall Street Journal:
- Europe’s Airbus and Boeing, the two leading manufacturers of airliners, are enjoying a boom in sales and orders, despite the fact that the global airline industry faces losses of as much as $8 billion this year.
- The FCC may recommend SBC Communications’ takeover of AT&T and Verizon’s merger with MCI as early as tomorrow.
- Acer Inc. has fought its way up to fourth place in worldwide PC shipments, and is now set to attack the US market.
- Sun Microsystems is introducing five server systems today with about twice as much performance of its existing machines at the same price.
- US companies and universities are adding paid-leave programs to let workers volunteer for Hurricane Katrina recovery efforts.

NY Times:
- Many US women working and studying at top colleges say they have decided to choose raising their children over their careers, citing interviews with more than a dozen faculty members and administrators.

NY Post:
- MBA graduates from Dartmouth College’s Tuck School of Business say they would rather buy stocks than invest in residential real estate.

Star-Ledger:
- US sales of generic drugs may rise to $28 billion this year, about 65% more than expected.

San Francisco Chronicle:
- Soaring prices in San Francisco for housing stems from low interest rates, strong income growth and low prices during the mid-1990s, rather than from a speculative frenzy, citing a new study.

Financial Times:
- GM doesn’t expect to make any money from hybrid petrol-electric vehicles for the time being, but is going ahead with them to help its environmental image.

International Herald Tribune:
- European regulators are considering whether to take new action against Microsoft in the wake of “informal” complaints filed by competitors.

AFP:
- China is producing oil or gas in disputed fields in the East China Sea in an area where Chinese warships have been seen, citing a Japanese government official.

Reuters:
- Google plans to offer its own high-speed wireless Internet service, citing the company’s Web site.

AP:
- Champion Enterprises and other mobile-home manufacturers are waiting for FEMA to respond to their bids to provide housing after Hurricane Katrina.

Housing Starts Slow on Wet Weather

- Housing Starts for August fell to 2009K versus estimates of 2025K and 2035K in July.
- Building Permits for August fell to 2124K versus estimates of 2130K and 2171K in July.

BOTTOM LINE: US housing starts fel 1.3% last month, keeping construction on pace to surpass last year’s total, which was the highest since 1978, Bloomberg reported. Weather may have held down starts to an extent. August was the ninth-wettest month on record in the South and the sixth-wetting in the Central US. Starts fell 5.2% in the Midwest, 4.1% in the Northeast and 6.6% in the South. Starts rose 13% in the West. Starts in September will be negatively impacted by Hurricane Katrina.

Links of Interest

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