Today's Headlines

Bloomberg:
- The cost of leasing a container ship has dropped almost 20% since a peak in June, Lloyd’s List reported.
- E*Trade Financial agreed to buy BrownCo, JPMorgan Chase’s online brokerage, for $1.6 billion in cash.
- The US, which imports three-fifths of the world’s beluga caviar, will ban shipments of the eggs from the Caspian Sea region to protect falling sturgeon stocks.
- The human immunodeficiency virus that causes AIDS appears to have weakened since the start of the pandemic more than two decades ago, according to a Belgian study published today in the journal AIDS.
- GE agreed to buy IDX Systems, a healthcares information technology provider, for about $1.2 billion.
- Ford will eliminate half its suppliers and sign long-term contracts with the rest to reduce costs and revive profit.
- Caterpillar may add $1 billion in sales over the next two years as the Gulf Coast cleans up and rebuilds from Hurricane Katrina, analysts said.
- John G. Roberts, backed by united Republicans in the US Senate and half the Democrats, won confirmation to be the nation’s 17th chief justice and take his place as the first new member of the Supreme Court in 11 years.
- US Treasuries are falling after a government report showed weekly jobless claims fell more than forecast.
- Gasoline futures retreated from a four-week high as rising imports may help make up for output lost from refineries that were shut because of hurricane damage.

Wall Street Journal:
- Vonage Holdings, a closely held provider of internet-based calling, has chosen Citigroup, UBS, Deutsche Bank and Bear Stearns to manage its proposed IPO.
- Victims of Hurricane Katrina have expressed praise for relief provided by the Salvation Army.
- General Electric, Bechtel and American Electric Power may announce today that they will start planning engineering and design of the first US big coal-fired power plant that would use cleaner-burning technologies.
- Tracking devices supplied by Bulldog Technologies and SC-integrity are helping shippers cut down on a boom in cargo theft.
- Walt Disney may announce today that it plans to sell a $49 digital-audio player aimed at children between 6 and 12 years of age to tap into growing demand for electronics.

NY Times:
- Guidant’s handling of problems with its heart devices may be under a US criminal probe.
- Some US middle-class families are paying less for houses with the help of government agencies, private developers, not-for-profit groups and employers.

LA Timest:
- Spain is investing $100 million in a campaign to improve business ties with the US and overcome recent political tensions between the two countries.

US GDP Growth Streak Best Since 1986, Jobless Claims Starting to Fall Again

- Final 2Q GDP rose 3.3% versus estimates of 3.3% and a prior estimate of 3.3%.
- Final 2Q GDP Price Index rose 2.6% versus estimates of a 2.4% gain and prior estimates of a 2.4% gain.
- Final 2Q Personal Consumption rose 3.4% versus estimates of 3.0% and prior estimates of a 3.0% increase.
- Initial Jobless Claims for last week fell to 356K versus estimates of 418K and 435K the prior week.
- Continuing Claims rose to 2802K versus estimates of 2708K and 2658K prior.

BOTTOM LINE: The US economy grew at an above-average 3.3% annual rate in the second quarter, fueled by homebuilding and consumer spending, indicating the economy was strong entering the third quarter, before twin hurricanes slowed growth this month, Bloomberg reported. Growth in the US economy has now exceeded 3% for nine straight quarters, the longest streak since the 13 quarters that ended in March 1986. The core personal consumption expenditures index, Greenspan’s favorite inflation gauge, rose 1.7% versus a 2.4% over the first three months of the year. GDP will temporarily dip below average rates this quarter before rebounding back to more vigorous levels into year-end.

Workers dislocated by Hurricane Katrina pushed first-time claims for unemployment benefits to the highest in more than two years, Bloomberg said. About 103,000 claims last week were from people affected by the hurricanes. 214,000 people have now filed claims that were dislocated from the hurricanes. The four-week moving-average of claims rose to 376,250 from 347,250 the prior week. The insured employment rate, which tracks the unemployment rate, rose 2.1% from 2.0%. It appears as thought the worst is over for hurricane-related jobless claims. I expect claims to move modestly lower through year-end.

Links of Interest

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Japan’s retail sales rose almost twice as much as expected in August as consumers spent their higher wages and bonuses, adding to signs that the world’s second-largest economy will expand for a fourth quarter.
- GE will buy a 7% stake in China’s Shenzhen Development Bank valued at $100 million.
- Police in London are investigating a number of new potential terrorist suspects who may be planning further attacks.
- Samsung Electronics plans to invest $33 billion in the next seven years on factories to triple chip sales.

China Business News:
- Shanghai’s home supply jumped 50% this month, while prices dropped 17%, citing Shanghai Property Exchange Center.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MWV, HMA, DNA and MWV.
- Reiterated Underperform on EK.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
Company/EPS Estimate
FDO/.17
MU/-.08

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 2Q GDP is estimated to rise 3.3% versus a prior estimate of a 3.3% increase.
- Final 2Q GDP Price Index is estimated to rise 2.4% versus a prior estimate of a 2.4% increase.
- Final 2Q Personal Consumption is estimated to rise 3.0% versus a prior estimate of a 3.0% gain.
- Initial Jobless Claims for last week are estimated to fall to 418K versus 432K the prior week.
- Continuing Claims are estimated to rise to 2708K versus 2666K prior.

BOTTOM LINE: Asian indices are higher, boosted by cyclical companies in the region on strong economic reports from the US and Japan. I expect US equities to open modestly higher on gains in Asia and quarter-end window dressing. The Portfolio is 50% net long heading into the day.

Stocks Finished Mixed in Another Show of Resiliency

Indices
S&P 500 1,216.89 +.10%
DJIA 10,473.09 +.16%
NASDAQ 2,115.40 -.05%
Russell 2000 656.04 -.47%
DJ Wilshire 5000 12,143.63 +.03%
S&P Barra Growth 581.89 +.06%
S&P Barra Value 630.79 +.14%
Morgan Stanley Consumer 580.36 +.22%
Morgan Stanley Cyclical 721.82 +.01%
Morgan Stanley Technology 496.78 +.39%
Transports 3,656.23 +1.07%
Utilities 429.04 +1.03%
Put/Call .73 -7.59%
NYSE Arms .79 -16.27%
Volatility(VIX) 12.63 -1.02%
ISE Sentiment 143.00 -28.50%
US Dollar 89.47 -.15%
CRB 333.33 +1.93%

Futures Spot Prices
Crude Oil 66.28 -.11%
Unleaded Gasoline 230.00 -1.92%
Natural Gas 14.04 -.43%
Heating Oil 212.92 -.56%
Gold 472.50 -.13%
Base Metals 130.42 -.19%
Copper 174.50 -.17%
10-year US Treasury Yield 4.25% -.55%

Leading Sectors
Networking +2.18%
Gold & Silver +2.17%
Computer Services +1.43%

Lagging Sectors
Alternative Energy -.95%
REITs -.96%
Retail -1.32%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on EL.
- Reiterated Underperform on DE.

Afternoon/Evening Headlines
Bloomberg:
- Landry’s Restaurants, which yesterday completed the acquisition of two Golden Nugget Casino and Hotels in Nevada, may expand the operation to Gulf coast states such as Mississippi, CEO Fertitta said.
- A probe of Fannie Mae, the largest source of money for US home loans, turned up “new and pervasive accounting violations,” Dow Jones reported.
- Governor George Pataki said today he will direct development officials to drop plans for a museum of freedom at the World Trade Center site as officials said the center could be used for anti-US messages.
- A tropical storm system is developing in the Caribbean Sea and has the potential to develop into another hurricane.
- Television and radio indecency complaints to US regulators plummeted 98% in the second quarter after networks flagged racier programs.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Energy-related shorts and Internet longs. I covered some of my IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was slightly negative today as the advance/decline line finished lower, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was slightly positive given a 10% jump in natural gas prices and a 10% decline in Fannie Mae (FNM). Breadth, however, remained modestly negative throughout the day. I expect stocks to continue to trade mixed-to-lower over the next few weeks before a meaningful rally propels the major averages higher through year-end.

Stocks Slightly Higher Mid-day Even as Energy Prices Rise Again

Indices
S&P 500 1,218.73 +.25%
DJIA 10,482.36 +.25%
NASDAQ 2,120.98 +.17%
Russell 2000 656.44 -.41%
DJ Wilshire 5000 12,161.39 +.18%
S&P Barra Growth 582.81 +.21%
S&P Barra Value 631.99 +.33%
Morgan Stanley Consumer 581.55 +.43%
Morgan Stanley Cyclical 722.96 +.17%
Morgan Stanley Technology 497.68 +.56%
Transports 3,661.93 +1.22%
Utilities 428.90 +1.01%
Put/Call .74 -6.33%
NYSE Arms .73 -22.64%
Volatility(VIX) 12.50 -2.04%
ISE Sentiment 140.00 -30.0%
US Dollar 89.47 -.15%
CRB 333.45 +1.96%

Futures Spot Prices
Crude Oil 66.40 +2.04%
Unleaded Gasoline 232.50 +7.32%
Natural Gas 14.60 +15.36%
Heating Oil 215.00 +3.94%
Gold 472.90 +1.44%
Base Metals 130.42 -.19%
Copper 174.50 +.98%
10-year US Treasury Yield 4.25% -.64%

Leading Sectors %
Gold & Silver +2.18%
Networking +1.89%
Computer Services +1.54%

Lagging Sectors
Homebuilders -.98%
Retail -1.13%
REITs -1.15%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet longs and Energy-related shorts. I added back QQQQ/IWM shorts this morning and added back to my TLT long, thus leaving the Portfolio 25% net long. The tone of the market is neutral as the advance/decline line is lower, most sectors are higher and volume is average. Measures of investor anxiety are mostly lower. Today’s overall market action is slightly positive given the rise in energy prices and better-than-expected economic data. Given the spike in energy prices, measures of investor angst are relatively low. The 10-year T-note continues to rally. I expect US stocks to trade mixed-to-lower from current levels into the close on worries over higher energy prices.