Stocks Finish at Daily Highs on Light Volume

Indices
S&P 500 1,190.10 +.30%
DJIA 10,348.10 +.59
NASDAQ 2,070.30 +.26%
Russell 2000 633.37 +.03%
DJ Wilshire 5000 11,859.54 +.31%
S&P Barra Growth 572.79 +.21%
S&P Barra Value 613.10 +.38%
Morgan Stanley Consumer 582.87 +.62%
Morgan Stanley Cyclical 695.29 +.67%
Morgan Stanley Technology 493.37 +.76%
Transports 3,644.06 +.15%
Utilities 400.51 +1.64%
Put/Call .90 -14.29%
NYSE Arms .64 -4.46%
Volatility(VIX) 14.67 -1.34%
ISE Sentiment 144.00 -9.43%
US Dollar 89.94 +.54%
CRB 332.45 +1.47%

Futures Spot Prices
Crude Oil 64.05 -.48%
Unleaded Gasoline 179.90 -.90%
Natural Gas 13.74 -1.06%
Heating Oil 198.00 -.17%
Gold 476.40 -.04%
Base Metals 135.43 +2.85%
Copper 181.65 -.25%
10-year US Treasury Yield 4.49% unch.

Leading Sectors
Coal +2.99%
Gold & Silver +2.42%
Tobacco +2.06%

Lagging Sectors
Telecom -.79%
Drugs -.93%
Broadcasting -1.81%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BBY, YHOO and GOOG.
- Reiterated Underperform on FHN.

Afternoon/Evening Headlines
Bloomberg:
- New York City’s homicide rate has dropped about 5% so far in 2005, a trend that should it continue would bring the total by year’s end to 545 killings, least since 1962, Police Commissioner Raymond Kelly said.
- IBM said third-quarter net income fell 2.4% on costs to bring back profit earned overseas.

Financial Times:
- Saddam Hussein’s lawyers may say they have not been given enough time to review the prosecution’s evidence against the former Iraqi dictator, when his trial opens tomorrow, and will seek a six-month delay.

Economic Daily News:
- Intel may team up with Taiwan notebook-computer manufacturers and component makers such as Quanta Computer to standardize key laptop components.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Semiconductor longs and Internet longs were offset by losses in my Energy-related shorts. I covered some of my IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was neutral today as the advance/decline line finished almost unchanged, most sectors rose and volume was light. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was positive given the rise in energy prices and long-term rates. I will closely monitor the market's reaction to tomorrow's PPI report given a "bad" number should be priced into the market.

Stocks Slightly Higher Mid-day, Led by Energy Shares

Indices
S&P 500 1,185.40 -.09%
DJIA 10,299.51 +.13%
NASDAQ 2,059.12 -.28%
Russell 2000 628.32 -.75%
DJ Wilshire 5000 11,811.32 -.10%
S&P Barra Growth 570.71 -.13%
S&P Barra Value 610.92 +.04%
Morgan Stanley Consumer 580.99 +.32%
Morgan Stanley Cyclical 692.41 +.25%
Morgan Stanley Technology 491.47 +.38%
Transports 3,632.82 -.15%
Utilities 399.46 +1.38%
Put/Call .95 -9.52%
NYSE Arms .75 +11.76%
Volatility(VIX) 15.03 +1.01%
ISE Sentiment 143.00 -10.06%
US Dollar 89.80 +.37%
CRB 332.32 +1.43%

Futures Spot Prices
Crude Oil 64.05 +2.27%
Unleaded Gasoline 180.00 +2.94%
Natural Gas 13.82 +4.55%
Heating Oil 199.15 +2.13%
Gold 476.50 +1.0%
Base Metals 135.43 +2.85%
Copper 181.65 +3.44%
10-year US Treasury Yield 4.49% +.27%

Leading Sectors %
Gold & Silver +2.64%
Energy +1.35%
Utilities +1.35%

Lagging Sectors
Telecom -.95%
Drugs -1.16%
Broadcasting -1.46%

BOTTOM LINE: The Portfolio is unchanged mid-day as losses in my Energy-related shorts are offsetting gains in my Internet longs. I added to my IWM and QQQQ shorts this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is below average. Measures of investor anxiety are mostly higher. Today’s overall market action is slightly negative considering the possibility of another hurricane. Earth Satellite Corp., a private forecaster, is currently estimating that the chances of Tropical Storm Wilma becoming a threat to Gulf natural gas production are only 5%. They also estimate there is only a 65% chance that the storm becomes a hurricane. I expect US stocks to trade mixed from current levels into the close as short-covering offsets hurricane fears.

Today's Headlines

Bloomberg:
- The record price increase in copper this year is prompting substitution as plumbers and electricians worldwide are switching to aluminum and plastic replacement products.
- Tropical Storm Wilma formed today over the Caribbean Sea, tying a 1933 record for the busiest Atlantic hurricane season.
- President Bush said Iraq’s Oct. 15 constitutional vote is a milestone for democracy in the region and the US is making “progress toward peace.”
- Newell Rubbermaid CEO Galli resigned after sales fell for 10 consecutive quarters, abandoning his three-year plan to turn around the struggling maker of plastic storage containers.
- Research in Motion said its BlackBerry software will be used in Palm’s new Treo telephone, a boon for the company as it fights a patent challenge that could end the sale of BlackBerry devices in the US.
- The US Supreme Court refused to revive a Justice Department bid for $280 billion from the tobacco industry, leaving the Bush administration with a scaled-back version of its lawsuit.
- Oil and gasoline are rising on concern a tropical storm may enter the Gulf of Mexico, disrupting oil output that’s already 67% below normal following Hurricanes Katrina and Rita.
- GM said it agreed with the UAW on a plan to reduce health-care expenses and may sell control of its consumer credit unit as it posted a $1.6 billion quarterly loss.
- Refco Inc., the futures broker facing insolvency because of a bad-debt scandal, is in talks to sell part of the company to a group led by NY buyout firm JC Flowers.

Wall Street Journal:
- International Lease Finance Corp., an aircraft leasing unit of American International Group, will buy 20 of Boeing’s new 787 aircraft, known as “Dreamliners”, for $2.4 billion.
- Sharebuilder Securities, a Bellevue, Washington-based online broker, has started an Internet service for small companies to set up 401K US retirement plans consisting entirely of exchange-traded funds.
- Computer outsourcing contracts fell for the third consecutive quarter and will drop 10 to 15% in value this year, citing a consulting company.
- Carmike Cinemas is drawing interest from hedge funds because they figure its stock may have bottomed out.
- The New York Mercantile Exchange, the largest energy and metals futures exchange in the US, is losing customers and trading at its London open-outcry trading floor.
- US consumers, more interested in getting the latest product rather than owning it, are shifting to renting in favor of buying merchandise.
- The US Senate Commerce Committee this week plans to review legislation that would set a firm date for switching all television broadcasts to digital mode.
- Apple Computer’s version of the iPod digital music player that also shows videos and television may undermine a decades-old system for distributing TV programming to viewers.

AP:
- Mattel’s American Girl dolls and children’s books may be boycotted by conservative groups in protest of the company’s support of the non-profit organization Girls Inc., which supports extensive abortion rights, easy access to contraception and advice for girls who are dealing with issues of sexual orientation.

NY Times:
- GE’s NBC Universal has revised its offer for closely held DreamWorks SKG, whiel Viacom’s Paramount Pictures is also considering bidding for the company.
- Some US utilities and Internet service providers are now offering high-speed connections over regular power lines.

Irish Independent:
- Ryanair Holdings Plc, Europe’s largest low-fare airline, will introduce an online casino as part of its new in-flight entertainment service.

Financial Times:
- Apax Partners Worldwide LLP, Texas Pacific Group and Kohlberg Kravis Roberts are leading buyout firms that paid a record $8.2 billion in fees to investment banks in the first nine months of 2005.

AFP:
- Six Shiite Muslim-dominated provinces in southern Iraq voted by more than 90% in favor of a new constitution, citing initial figures provided by the country’s independent electoral commission.

NY Manufacturing Slows, New Orders Soar

- Empire Manufacturing for October fell to 12.1 versus estimates of 19.0 and a reading of 15.6 in September.

BOTTOM LINE: Manufacturing in NY state expanded at a slower pace in October and factories were less optimistic about the future in the face of higher energy costs, Bloomberg said. The optimism component of the index fell to 32.6 from 38.1 in September. However, the new orders component of the index soared to 24.9 from 11.6 in September. The component of the index measuring the average workweek rose to 13.5 from 10.4 in September. Finally, the prices paid component of the index rose to 57.3 from 53.9 the prior month. Manufacturing, which was improving before the hurricanes and has continued improving after should boost US economic growth through year-end.

Links of Interest

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Monday Watch

Weekend Headlines
Bloomberg:
- US Secretary of State Condoleezza Rice said as many as two-thirds of Iraqis turned out to vote on a new constitution and probably approved the document that is intended to be the basis for a new democratic government.
- President Bush said Iraq’s national referendum on a draft constitution shows the country is making progress toward peace and will stand as an example of democracy.
- Russia continues to oppose referral of Iran’s nuclear program to the UN Security Council, Russian Foreign Minister Sergei Lavrov said in Moscow after meeting US Secretary of State Condoleezza Rice.
- Wal-Mart Stores said October sales are rising within its forecast range, led by increased sales of food.
- Cipla Ltd., India’s second-biggest drugmaker, plans to become the first company to sell a generic version of Tamiflu, the antiviral treatment for bird flu, by the end of the year.
- The US dollar may advance for a sixth week against the yen, the longest rally in 17 months, and gain versus the euro as US economic growth outpaces Europe and Japan.
- St. Jude Medical agreed to buy Advanced Neuromodulation Systems for $1.3 billion, to expand into the field of treating chronic pain and nervous disorders with electric pulses.
- Crude oil is rising for the first day in three on concern a tropical depression in the Caribbean may strengthen and further disrupt production in the Gulf of Mexico.

Wall Street Journal:
- US fitness companies are recruiting veterans of the wars in Iraq and Afghanistan to run workouts patterned on the “boot camps” the military puts new members through.

NY Times:
- Walt Disney units ABC and ESPN are expected to acquire television rights for the second half of Nascar’s season that have been shared by GE’s NBC Universal and Time Warner’s TNT cable network.
- Sales of Pfizer’s cholesterol fighting medicine Lipitor, and Zocor, a less costly version of the drug made by Merck, may tumble in June after Zocor’s patent runs out and health-care services switch to cheaper generic forms of treatment.
- The US, Germany and the UK all share declines in manufacturing jobs since 1993.
- Chinese-language classes in the US have tripled in a decade, fueled by China’s growing economy and military.
- Shares of Wal-Mart Stores may start to attract “value-oriented” investors, citing the president of Al Frank Asset Management.
- Anheuser-Busch is promoting tournaments in 47 college-town markets of a drinking game it released this summer called “Bud Pong.”
- Southwest Airlines may be hurt as hedging contracts that protected it from higher oil prices expire in January and as low-fare competitors become more aggressive.
- Public universities in the US are losing taxpayer support, with private donations and higher tuition helping to make up the difference.

Detroit News:
- GM will today begin offering $500 gas cards to buyers of mid- or full-size 2006 sports utility vehicles to lure new customers.

Middle East Economic Digest:
- The state-owned Saudi Aramco will invite companies to bid by December for contracts worth $11 billion to build facilities for its 1.2 million barrel a day Khurais oilfield project.

Financial Times:
- Man Group Plc is among companies that have held talks with Goldman Sachs Group Plc to possibly buy parts of Refco Inc.

Independent on Sunday:
- Banks and securities firms are reducing their loans to hedge funds on concern that some lending has been reckless.

Sunday Times:
- Kohlberg Kravis Roberts and Providence Equity Partners have joined a team of buyout firms that want to acquire NTL Inc. when it completes its takeover of Telewest Global.
- The US government is considering allowing foreign companies to control US airlines for the first time as part of a new round of “Open Skies” trade talks with the European Union.

Weekend Recommendations
Barron's:
- Had negative comments on GM.

Goldman Sachs:
- Reiterated Outperform on BSX.
- Reiterated Underperform on FGP.

Night Trading
Asian indices are -.75% to +.25% on average.
S&P 500 indicated -.19%.
NASDAQ 100 indicated -.10%.

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Earnings of Note
Company/Estimate
SCH/.15
C/.99
CBH/.45
ETN/1.33
GM/-.87
HAS/.51
IBM/1.13
MAT/.61
NVLS/.21
OMM/.44
RMBS/.02
WB/1.07

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Economic Releases
8:30 am EST
- Empire Manufacturing for October is estimated to rise to 19.0 versus a reading of 17.0 in September.

BOTTOM LINE: Asian Indices are mixed as gains in Australia are offsetting losses in Taiwan. I expect US stocks to open weaker and to rally modestly later in the day. The Portfolio is 75% net long heading into the week.