Today's Headlines

Bloomberg:
- Golfers will be allowed to hone the accuracy of their shots by using laser-guided distance-measuring devices in competitions next year.
- Byron Wien, Morgan Stanley’s senior stock market strategist, is leaving to join hedge fund Pequot Capital Management.
- Oil refineries near Port Arthur, Texas, and Lake Charles, Louisiana, hit head-on by Hurricane Rita may be shut for a month, heightening the threat of shortages in an industry that has yet to recover from Katrina.
- Google is charging advertisers more for the ability to maintain their ads in prominent positions.
- The US dollar is rising to a two-month high against the euro and yen after Fed Reserve Bank of Kansas City President Hoenig added to speculation the central bank will keep raising interest rates.
- US Treasuries were little changed before a speech by Alan Greenspan in which the Federal Reserve chairman may reiterate that the economy is resilient and inflation remains a threat.
- Intel won its first ever order for a new mobile-phone processor in a contract to sell chips for Research in Motion’s Blackberry devices.

Wall Street Journal:
- Home Depot, Time Warner, Wal-Mart Stores and other big-name US stocks may be in the “bargain bin,” or trading at earnings multiples lower than they have in several years.
- DreamWorks SKG ended talks over a sale to General Electric’s NBC Universal studios.
- Wal-Mart has begun selling digital-photo prints for 15 cents at its retail stores and 13 cents at its members-only Sam’s Club stores.

NY Times:
- WellPoint, the largest US health-insurance provider, is close to an agreement to buy WellChoice, the biggest NY state health insurer, for about $6.5 billion.
- Genentech’s Avastin, which is approved to treat colorectal cancer, is being used by many specialists to treat age-related macular degeneration.

NY Post:
- The NYSE got a bid from private equity groups Bain Capital LLC and Blackstone Group for 30% of the exchange in late June.

Rocky Mountain News:
- EchoStar Communications will begin selling portable video players next month.

Financial Times Deutschland:
- Royal Philips Electronics NV, Europe’s biggest maker of televisions, expects the price decline for flat-panel televisions to end because of higher demand.

New Home Sales Fall, Consumer Confidence Plunges on Katrina Worries

- New Home Sales for August fell to 1237K versus estimates of 1350K and 1373K in July.
- Consumer Confidence for September fell to 86.6 versus estimates of 95.0 and a reading of 105.5 in August.

BOTTOM LINE: US new home sales last month fell by the most since November, Bloomberg reported. The average price of a new home rose last month to $220,300 from $215,000 the prior month. Today’s report puts new home sales for the year on pace to beat last year’s all-time record. The supply of new homes for sale at the current pace rose to 4.7 months from 4.1 months in July. New Home Sales in August declined 2.2% in the South, 18% in the West, 11% in the Midwest and 22% in the Northeast. New home sales will fall again next month as the full brunt of Katrina and Rita is felt.

Consumer confidence in the US dropped by the most in 15 years in September after Hurricane Katrina devastated the Gulf Coast and pushed gas prices to a record, Bloomberg said. The percentage of consumers that saw jobs as hard to get rose to 25.4% from 23.1%. The expectations component of the index fell to 71.7 from 93.3. Consumer Confidence will likely bounce back sharply in the fourth quarter.

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The No. 2 al-Qaeda leader in Iraq, Abu Azzam, an adie to Abu Musab al Zarqawi, was fatally shot Sunday night, a Pentagon official said.
- Microsoft and Intel have thrown their support behind Toshiba’s HD DVD format, marking a setback for Sony’s Blu-ray standard.
- The US dollar is gaining versus the yen and euro after a Federal Reserve official fueled speculation the US central bank won’t pause in raising interest rates.

Wall Street Journal:
- Republican leaders in Congress are introducing bills aimed at expanding US capacity for refining crude oil and domestic natural-gas production.

Asian Wall Street Journal:
- Starbucks Corp. is releasing a new chilled coffee in plastic cups in Japan’s convenience stores.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SYMC and EBAY.
- Rated BOW Underperform.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
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PAYX/.28

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Economic Releases
10:00 am EST
- New Home Sales for August are estimated to fall to 1350K versus 1410K in July.
- Consumer Confidence for September is estimated to fall to 95.0 versus a reading of 105.6 in August.

BOTTOM LINE: Asian indices are mostly higher, boosted by Energy-related companies in the region. I expect US equities to open modestly lower on weaker economic reports and hawkish Fed comments. However, stocks may rally later in the afternoon on short-covering ahead of quarter’s end. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Higher Even as Energy Prices Rebound

Indices
S&P 500 1,215.63 +.03%
DJIA 10,443.63 +.23%
NASDAQ 2,121.46 +.22%
Russell 2000 660.20 +.72%
DJ Wilshire 5000 12,142.40 +.15%
S&P Barra Growth 580.71 -.07%
S&P Barra Value 630.73 +.12%
Morgan Stanley Consumer 576.62 -.10%
Morgan Stanley Cyclical 721.78 -.11%
Morgan Stanley Technology 497.16 +.18%
Transports 3,615.81 -.20%
Utilities 422.92 +.90%
Put/Call 1.23 +30.85%
NYSE Arms .99 +20.91%
Volatility(VIX) 13.04 +.62%
ISE Sentiment 164.00 -23.0%
US Dollar 89.11 -.20%
CRB 326.93 +1.18%

Futures Spot Prices
Crude Oil 65.95 +.20%
Unleaded Gasoline 214.00 +.51%
Natural Gas 12.59 +1.20%
Heating Oil 207.00 +.55%
Gold 470.10 +.13%
Base Metals 131.18 +.90%
Copper 173.70 +.03%
10-year US Treasury Yield 4.29% +1.06%

Leading Sectors
Oil Service +2.45%
Gold & Silver +2.07%
Energy +1.84%

Lagging Sectors
Papers -.44%
Banks -.51%
Gaming -.55%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DIS.

Afternoon/Evening Headlines
Bloomberg:
- Difficulties securing regulatory approval to expand refinery capacity are a greater barrier to increasing the US supply of gasoline and other fuels than the availability of crude oil, Exxon Mobil CEO Raymond said.
- Left-wing anti-war protester Cindy Sheehan was arrested today trying to enter the gate at the northwest end of the White House.
- Chevron reported “severe” damage to an oil and natural gas platform, and drilling companies said eight rigs were missing, scattered or damaged as a result of Hurricane Rita.

NY Times:
- Sun Microsystems will introduce a new version of its StarOffice business software tomorrow, with features designed to make it more compatible with Microsoft’s Office software.
- JC Penney back-to-school circulars have drawn criticism from alcohol industry watchdogs for featuring beer-and liquor-branded T-shirts.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs and Oil Tanker shorts. I covered a few shorts in the afternoon and added NTES long, thus leaving the Portfolio 75% net long. I am using a stop-loss of $82 on this new long. The tone of the market was positive today as the advance/decline line finished higher, most sectors gained and volume was below average. Measures of investor anxiety were higher into the close. Overall, today’s market action was slightly positive. During the week ended Sept. 23, the information technology industry saw the greatest net insider selling in the S&P 500. Insiders sold $45,328,379 worth of stock and bought $134,257. Overall, insider selling in the S&P dropped considerably last week.

Stocks Mixed Mid-day as Rising Energy Prices Offset Relief Over Hurricane Rita

Indices
S&P 500 1,213.06 -.18%
DJIA 10,418.15 -.01%
NASDAQ 2,114.85 -.09%
Russell 2000 657.27 +.28%
DJ Wilshire 5000 12,113.18 -.08%
S&P Barra Growth 579.21 -.33%
S&P Barra Value 629.53 -.07%
Morgan Stanley Consumer 575.27 -.34%
Morgan Stanley Cyclical 719.67 -.40%
Morgan Stanley Technology 495.04 -.30%
Transports 3,606.18 -.48%
Utilities 423.05 +.94%
Put/Call 1.15 +22.34%
NYSE Arms 1.07 +30.99%
Volatility(VIX) 13.36 +3.09%
ISE Sentiment 162.00 -23.94%
US Dollar 89.17 -.13%
CRB 326.91 +1.18%

Futures Spot Prices
Crude Oil 65.70 +2.27%
Unleaded Gasoline 211.25 +1.29%
Natural Gas 12.29 -.28%
Heating Oil 204.00 +4.67%
Gold 470.10 +.62%
Base Metals 131.18 +.90%
Copper 173.75 +2.30%
10-year US Treasury Yield 4.29% +1.06%

Leading Sectors %
Gold & Silver +2.23%
Oil Service +1.88%
Energy +1.51%

Lagging Sectors
Telecom -.60%
Papers -.75%
Gaming -1.46%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Oil Tanker shorts are offsetting losses in my Energy shorts. I added back QQQQ and IWM shorts this morning, thus leaving the Portfolio 50% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are higher and volume is below average. Measures of investor anxiety are higher. Today’s overall market action is neutral given the rise in energy prices/long-term rates and better-than-expected economic data. The Baker Hughes U.S. Oil & Gas Rig Count rose to 1,451 active rigs last week, the highest level since December 1985. This is up 194% since April 1999. This is bearish for crude. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering.