Economic Releases

- None of note

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Norwegian billionaires John Fredriksen and Kjell Inge Roekke are racing to build some of the world’s largest oil rigs, with decks the size of soccer fields. The new rigs, costing as much as $600 million each, may turn the boom to bust, says Kristoffer Stensrud, chief investment officer at Stavanger Fondsforvaltning. “It resembles the situation we saw in the Internet industry,” says Stensrud, who oversees the equivalent of $4.8 billion in stocks and bonds, including shares of Fredriksen’s rig unit SeaDrill Ltd. “We are near a point where the market is entering an irresponsible phase. Some of the deals have maximum project, shipyard and organizational risk,” he says.
- Pakistan needs more help for relief and recovery after the biggest earthquake in a century in the north, Prime Minister Shaukat Aziz said. The official death toll from the 7.6 magnitude earthquake on Oct. 8 is 23,000 and 50,000 injured.

Wall Street Journal:
- Microsoft and Yahoo! will allow their customers using instant messaging and other services to communicate directly with each other.

AP:
- Ahmed Omar Abu Ali, a US citizen accused of plotting with al-Qaeda terrorists to assassinate President Bush, confessed in 2003 and said he was motivated by US support for Israel, citing a videotape.

Securities Times:
- China’s inflation rate probably slowed to less than 1% in September.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GOOG, YHOO, SAY and EBAY.
- Reiterated Underperform on CNA and BIDU.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.13%.
NASDAQ 100 indicated -.29%.

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Earnings of Note
Company/EPS Estimate
APOL/.65
FAST/.57
HDI/.90
LRCX/.30
MON/-.51

Upcoming Splits
BOOM 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian indices are mostly lower, spurred by losses in technology companies in the region. I expect US equities to open lower on weakness in technology shares. The Portfolio is 25% net long heading into the day.

Stocks Finish Near Session Lows on Interest Rate and Energy Concerns

Indices
S&P 500 1,184.87 -.21%
DJIA 10,253.17 +.14%
NASDAQ 2,061.09 -.86%
Russell 2000 630.08 -1.24%
DJ Wilshire 5000 11,816.31 -.32%
S&P Barra Growth 568.76 -.11%
S&P Barra Value 611.96 -.29%
Morgan Stanley Consumer 575.13 -.30%
Morgan Stanley Cyclical 689.72 -.22%
Morgan Stanley Technology 487.61 -.67%
Transports 3,687.73 +.60%
Utilities 408.29 +.56%
Put/Call 1.11 +9.90%
NYSE Arms 1.09 -31.46%
Volatility(VIX) 15.63 +.51%
ISE Sentiment 132.00 +1.54%
US Dollar 89.97 +.57%
CRB 330.36 +1.36%

Futures Spot Prices
Crude Oil 63.91 +.60%
Unleaded Gasoline 184.48 +.63%
Natural Gas 13.67 +.59%
Heating Oil 203.20 +.70%
Gold 478.70 -.23%
Base Metals 134.58 +.82%
Copper 183.30 -.11%
10-year US Treasury Yield 4.38% +.73%

Leading Sectors
Energy +2.25%
Oil Tankers +2.21%
Oil Service +1.38%

Lagging Sectors
Semis -1.67%
Biotech -1.88%
Alternative Energy -2.30%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GE.

Afternoon/Evening Headlines
Bloomberg:
- Exxon Mobil agreed today to cut pollution at seven refineries to settle cases with the US government.

AP:
- Refco Inc., the futures broker that yesterday removed Chairman and Chief Executive Officer Phillip R. Bennett after discovering that he owed the company $430 million, is the target of a SEC investigation.
- Advanced Micro Devices said third-quarter profit rose 73% because of sales of chips used in laptop and server computers.
- Apple Computer said fourth-quarter profit surged as sales of iPod music players rose to a record and back-to-school demand drove Macintosh computer shipments.
- Federal Reserve policy makers grew more concerned about inflation after Hurricane Katrina and said interest rates probably will have to move higher to restrain prices, minutes of the central bank’s Sept. 20 meeting showed.

- Iraqi negotiators reached an agreement to allow the next parliament to consider amendments to the constitution if voters approve the charter Oct. 15, a compromise that may bolster Sunni support.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Internet longs and Energy-related shorts more than offset gains in my ETF shorts. I did not trade in the afternoon, thus leaving the Portfolio 25% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, most sectors declined and volume was slightly above average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was negative. It was another weak showing for the bulls. It appears more work is necessary on the downside. Most news is still being interpreted negatively and my short-term indicators of investor sentiment are registering too much complacency given recent losses.

Stocks Mixed Mid-day as Strength in Energy Shares Offsets Weakness in Tech

Indices
S&P 500 1,191.00 +.31%
DJIA 10,306.40 +.66%
NASDAQ 2,073.91 -.24%
Russell 2000 638.04 +.07%
DJ Wilshire 5000 11,881.76 +.21%
S&P Barra Growth 571.40 +.34%
S&P Barra Value 614.64 +.13%
Morgan Stanley Consumer 577.74 +.17%
Morgan Stanley Cyclical 693.83 +.37%
Morgan Stanley Technology 489.71 -.24%
Transports 3,699.74 +.93%
Utilities 409.20 +.79%
Put/Call 1.11 +9.90%
NYSE Arms 1.06 -33.32%
Volatility(VIX) 15.27 -1.93%
ISE Sentiment 153.00 +17.69%
US Dollar 89.87 +.46%
CRB 329.42 +1.06%

Futures Spot Prices
Crude Oil 63.15 +2.18%
Unleaded Gasoline 181.50 +.80%
Natural Gas 13.38 +3.12%
Heating Oil 200.25 +1.56%
Gold 479.80 +.38%
Base Metals 133.62 +.10%
Copper 183.50 +1.61%
10-year US Treasury Yield 4.38% +.59%

Leading Sectors %
Energy +2.69%
Oil Service +2.05%
Oil Tankers +2.02%

Lagging Sectors
Networking -1.23%
Telecom -1.40%
Alternative Energy -1.57%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my ETF shorts are offsetting losses in my Energy-related shorts and Semiconductor longs. I added to my IWM and QQQQ shorts and then exited some of them, thus leaving the Portfolio 25% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is slightly above average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral given recent market losses and the bounce in energy prices. The Johnson Redbook same-store sales index rose 3.2% year-over-year last week vs. a 3.2% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 23rd week in a row the index has risen 3% or more. The Morgan Stanley Retail Index has risen about 2% over the last 3 weeks versus a 2% loss for the S&P 500 over the same period. I expect US stocks to trade modestly higher from current levels into the close on short-covering.

Today's Headlines

Bloomberg:
- Apple Computer may introduce two new versions of its best-selling iPod digital music player tomorrow, according to ThinkSecret.com.
- Global oil consumption will average 83.4M barrels a day this year, 100,000 barrels a day less than forecast a month ago, the IEA said.
- The financial markets are poised to emerge a big winner from the recommendations of President Bush’s tax advisory panel, where a consensus is building to eliminate or reduce taxes on investment income.
- Inco Ltd. agreed to buy rival Canadian mining company Falconbridge Ltd. for as much as $10.9 billion to create the world’s largest producer of nickel.
- Billionaire investor Carl Icahn stepped up a campaign to force changes at Time Warner, calling for “bold action” to revive the company’s share price.
- Microsoft agreed to pay RealNetworks about $761 million as part of a settlement that removes one of the last major antitrust lawsuits brought by a Microsoft competitor.
- US Treasuries are falling and the dollar is rising on speculation today’s release of the Fed minutes will show policy makers are increasingly concerned about inflation.
- Japanese machinery orders rose more than expected in August as companies equipped new factories, adding to signs the world’s second-largest economy will expand for a fourth quarter.

Wall Street Journal:
- Drugmakers such as Bristol-Myers Squibb estimate that changes to the US Medicare system due to come into effect in January will probably have a negative effect on profit.
- The ad-fueled expansion of Google into free high-speed wireless Internet access in San Francisco may make it harder for cable and telephone companies to keep charging consumers for similar services.
- Sprint Nextel and other cellphone companies are rushing to tap growing demand for downloading videogames.
- Intel, Broadcom, Atheros Communications and Marvell Technology and 23 other companies plan to propose technological specifications to help speed up wireless data networks.

Washington Post:
- FEMA will reserve Gulf Coast reconstruction contracts for small, disadvantaged companies.

NY Post:
- TXU may spin off its electric delivery unit, possibly for more than $10 billion.

Lloyd’s List:
- Sudan will export about 500,000 barrels of crude oil a day from Port Sudan next year, 67% more than now.

Financial Times:
- Taiwan’s China Steel Corp. expects Chinese steel production to exceed domestic demand this year and next.

JANA:
- Libya is studying plans to increase oil production from fields operated by its own companies, citing Energy Secretary Fathi Ben Shatwan.

Xinhua:
- China exported 83% more steel products in the first nine months of this year, while imports of the metal fell 16.4%.

Al-Rai Al-Aam:
- Kuwait will offer companies $1.7 billion worth of contracts next year in its oil industry, almost 50% more than the average for the last six years.