Tuesday Watch

Late-Night Headlines
Bloomberg:
- Rising fuel costs have “drained” consumers’ purchasing power and “will undoubtedly be a drag” for the global economy “from now on,” Federal Reserve Chairman Greenspan said. The Fed chairman said high oil prices are curtailing demand, spurring fuel efficiency research and reducing the energy intensity of total US output. US oil intensity, or the amount of oil it needs to produce $1 of gross domestic product, fell 53% between 1973 and 2004, according to calculations by Bloomberg. Greenspan also said “more rapid decreases in the intensity of energy use in the years ahead seem virtually inevitable.” Finally, Greenspan said “oil will be replaced by less expensive alternative energy before global reserves run out.”
- Refco said it signed a preliminary agreement to sell its futures units to a group led by buyout firm JC Flowers for $768M.

Financial Times:
- Bank of NY may this week offer to buy London-based fund manager Alcentra Group Ltd. for an undisclosed sum.

Standard:
- Suntech Power Ltd., a manufacturer of solar power equipment in China, plans to raise as much as $300 million in a US Nasdaq IPO this year.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on ACN.
- Reiterated Underperform on HMT.

Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.19%.

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Earnings of Note
Company/EPS Estimate
MMM/1.08
CDWC/.86
CAKE/.27
CYMI/.20
FITB/.71
FRX/.56
FCX/.85
GENZ/.58
GILD/.36
INTC/.33
JNJ/.86
KFT/.45
LLTC/.33
MER/1.18
MOT/.28
BTU/.85
RYL/2.29
STX/.53
STT/.67
TER/.00
WFC/1.15
YHOO/.14

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Producer Price Index for September is estimated to rise 1.2% versus a .6% gain in August.
- PPI Ex Food & Energy for September is estimated to rise .2% versus an unchanged reading in August.

9:00 am EST
- Net Foreign Securities Purchases for August are estimated to fall to $60.0B versus $87.4B in July.

1:00 pm EST
- NAHB Housing Market Index for October is estimated to fall to 64 from 65 in September.

BOTTOM LINE: Asian indices are higher, spurred by gains in commodity producing companies in the region. I expect US equities to open modestly higher on less hawkish Fed comments from Greenspan and optimism that Tropical Storm Wilma will not disrupt energy production in the Gulf. The Portfolio is 75% net long heading into the day.

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%

Evening Review
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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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