Today's Headlines

Bloomberg:
- European Union leaders condemned Iranian President Mahmoud Ahmadinejad’s comment that Israel “must be wiped off the map,” adding to tensions over Iran’s nuclear program.
- Israel’s forces struck the Gaza Strip from the air and arrested Palestinian militants in the West Bank as Prime Minister Sharon ordered a military buildup in response to a bombing that killed five Israelis.
- Harriet Miers withdrew her nomination for the Supreme Court, saying “I am concerned that the confirmation process presents a burden for the White House and our staff that is not in the best interest of the country.”
- OPEC is scheduled to ship 2% more oil in the four weeks ending Nov. 12 than in the previous four weeks, consulting company Oil Movements said.
- Crude oil and heating oil are falling after an Energy Dept. report showed that US stockpiles of natural gas, a competing fuel, rose more than expected last week even though over 50% of Gulf of Mexico production remains shut-in.

Wall Street Journal:
- Altria Group is designing an inhaler to treat various ailments, including smoking-related lung disease.
- A group of investors that lost money when WorldCom collapsed has reached a $651 million litigation settlement, with most of the money to be paid by the company’s banks.
- Yahoo! and Microsoft’s instant-messaging services allow phone calls through the Internet, although some problems exist that can disrupt international connections.

NY Times:
- Mammograms have helped to reduce the number of deaths in the US caused by breast cancer, citing the National Cancer Institute.
- The United Nations oil-for-food program had the participation of 4,500 companies, of which more than half illegally gave money to Saddam Hussein to build weapons stockpiles, citing an investigation into the program. Hussein and companies from 60 countries benefited from the $64 billion UN program that was introduced to help feed the Iraqi people.
- Intel co-founder Andrew Grove donated $26 million to City College of NY, the school’s biggest cash gift.

NY Post:
- JPMorgan Chase is introducing a new credit card that will allow users to instantly pay for transactions by touching the card to a checkout scanner.
- Google said it’s considering ways to expand its advertising business to add buying and selling television ad time.

AP:
- Yahoo! said it will double the price of its music-service subscription starting Nov. 1.

INA:
- Iranian President Mahmoud Ahmadinejad called Israel’s withdrawal from Gaza a “trick” and said the Islamic world would “wipe Israel away.”

Durables and Jobless Claims Fall, New Home Sales Rise

- Durable Goods Orders for September fell 2.1% versus estimates of a 1.5% decline and an upwardly revised 3.8% gain in August.
- Durables Ex Transportation for September fell 1.0% versus estimates of an .8% gain and an upwardly revised 5.1% increase in August.
- Initial Jobless Claims for last week fell to 328K versus estimates of 340K and 356K the prior week.
- Continuing Claims rose to 2904K versus 2862K prior.
- New Home Sales for September rose to 1222K versus estimates of 1250K and a downwardly revised 1197K in August.

BOTTOM LINE: US durable orders fell more than forecast in September, a sign that rising energy prices may have made companies more wary about purchasing new aircraft, computers and communications equipment, Bloomberg said. A machinist strike at Boeing contributed to a 42% plunge in aircraft orders. Bookings for non-defense capital goods excluding aircraft, an indication of future business investment, fell 1.2% in September after rising 4% the prior month. I expect Durable Goods Orders to rebound through year-end on lower energy prices and hurricane rebuilding.

The number of American filing first-time claims for unemployment benefits declined for a second week as filing waned from workers displaced by the Gulf Coast hurricanes, Bloomberg said. The four-week moving average of jobless claims fell to 366,500 from 376,500 the prior week. The insured employment rate, which tracks the US unemployment rate, rose to 2.3% from 2.2%. The labor market should continue improving from the effects of the hurricanes through year-end.

US new home sales rose in September from the second-lowest level of the year, suggesting that rising energy costs and mortgage rates have yet to damp the housing market, Bloomberg said. The median price of a new home fell to $215,700 from $228,800 in August. New homes sales are still on pace to set another annual record. The supply of new homes for sale at the current pace was unchanged from August at 4.9 months. New home sales rose 24.9% in the Midwest and 5.6% in the South. Sales fell 20% in the Northeast and 11.8% in the West. I continue to believe the housing market is slowing to more healthy sustainable levels.

Links of Interest

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Roche Holding AG is halting sales of the influenza drug Tamiflu in the US to ensure the medicine is available during the flu season.
- The US House passed legislation that would create a stricter federal regulator for Fannie Mae and Freddie Mac in response to more than $15 billion of accounting errors at the government-chartered mortgage finance companies.
- The US Senate Budget Committee approved a package of $39 billion in spending cuts, as part of a Republican-lead effort to reduce the budget deficit.
- Crude oil is little changed in NY after falling 2.9% yesterday when a report showed US oil stockpiles rose twice as much as expected last week.
- The US dollar is rising to the highest in more than two years against the yen amid speculation the US economy will remain strong and the Fed will keep raising rates.
- Jermaine Dye drove in the winning run with an eight-inning single as the Chicago White Sox beat the Houston Astros 1-0 to win their first World Series title in 88 years.

Financial Times:
- Time Warner’s board may meet today to discuss a possible partnership with its AOL division and Google or Microsoft.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on AMLN, PSSI, EPD, ACLS, CAH, BXP, SYMC, AHC, EPE, SII and DO.
- Reiterated Underperform on ESRX, JNY, RAI and CR.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.35%.
NASDAQ 100 indicated -.32%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
AET/1.17
APA/2.31
AVID/.46
ABX/.13
BEBE/.16
BDK/1.67
CMI/2.60
DOW/.75
XOM/1.38
IMCL/.29
KLAC/.39
MSO/-.30
MXIM/.39
MSFT/.30
PD/4.01
TDW/.59
VZ/.64
WDC/.29
WMI/.33
WEN/.57
XMSR/-.66

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durable Goods Orders for September are estimated to decline 1.5% versus a 3.4% gain in August.
- Durables Ex Transportation for September are estimated to rise .8% versus a 4.2% increase in August.
- Initial Jobless Claims for last week are estimated to fall to 340K versus 355K the prior week.

10:00 am EST
- New Home Sales for September are estimated to rise to 1250K versus 1237K in August.

BOTTOM LINE: Asian indices are mostly lower, dragged down by losses in Taiwan and Korea. I expect US equities to open modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows as Long-term Rates Rise

Indices
S&P 500 1,191.38 -.43%
DJIA 10,344.98 -.32%
NASDAQ 2,100.05 -.45%
Russell 2000 638.41 -.67%
DJ Wilshire 5000 11,889.46 -.47%
S&P Barra Growth 571.52 -.56%
S&P Barra Value 615.69 -.31%
Morgan Stanley Consumer 582.39 -.19%
Morgan Stanley Cyclical 705.00 +.52%
Morgan Stanley Technology 494.77 -1.23%
Transports 3,735.29 -.04%
Utilities 392.11 -1.33%
Put/Call .91 +3.41%
NYSE Arms .91 -7.45%
Volatility(VIX) 14.59 +.41%
ISE Sentiment 136.00 -27.66%
US Dollar 89.54 +.34%
CRB 324.23 -1.51%

Futures Spot Prices
Crude Oil 60.92 +.43%
Unleaded Gasoline 159.00 +.35%
Natural Gas 14.03 -.11%
Heating Oil 186.00 +.21%
Gold 472.60 -.08%
Base Metals 133.08 -.46%
Copper 181.45 -.19%
10-year US Treasury Yield 4.59% +1.25%

Leading Sectors
Airlines +.93%
Oil Tankers +.92%
Computer Services +.91%

Lagging Sectors
Gold & Silver -2.57%
HMOs -2.71%
Gaming -3.29%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on MNST, ADP, AMLN and PAYX.

Afternoon/Evening Headlines
Bloomberg:
- Research in Motion lost a US Supreme Court bid to block proceedings that might result in a nationwide shutdown of its BlackBerry e-mail service.
- EnCana, Canada’s largest natural-gas producer, said third-quarter profit slid 32% because of hedging contracts that locked in fuel sales before prices surged to a record.
- US Treasuries fell, pushing the 10-year note’s yield to the highest since its peak this year in March.

span style="font-weight:bold;">BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Medical longs and Airline longs. I added IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors declined and volume was slightly above average. Measures of investor anxiety were mixed into the close. Oil closed floor trading at session lows, down $1.78. I expect the contango in the crude futures market to dissipate over the next few weeks, further pressuring demand for the commodity.

Stocks Mixed Mid-day as Energy Prices Fall and Long-term Rates Rise

Indices
S&P 500 1,197.46 +.11%
DJIA 10,398.21 +.20%
NASDAQ 2,107.83 -.08%
Russell 2000 641.32 -.22%
DJ Wilshire 5000 11,948.69 +.02%
S&P Barra Growth 574.57 -.02%
S&P Barra Value 619.10 +.26%
Morgan Stanley Consumer 585.33 +.35%
Morgan Stanley Cyclical 708.62 +1.05%
Morgan Stanley Technology 497.54 -.67%
Transports 3,751.08 +.38%
Utilities 396.01 -.35%
Put/Call .91 +3.41%
NYSE Arms .77 -21.83%
Volatility(VIX) 14.24 -2.0%
ISE Sentiment 146.00 -22.34%
US Dollar 89.52 +.31%
CRB 325.47 -1.10%

Futures Spot Prices
Crude Oil 61.65 -1.35%
Unleaded Gasoline 161.25 -2.65%
Natural Gas 14.14 -1.35%
Heating Oil 188.00 -.52%
Gold 473.00 -.36%
Base Metals 133.08 -.46%
Copper 181.80 -.36%
10-year US Treasury Yield 4.57% +1.03%

Leading Sectors %
I-Banks +1.29%
Oil Tankers +1.12%
Papers +.98%

Lagging Sectors
Networking -1.78%
HMOs -2.28%
Gaming -2.69%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet longs, Medical longs and Computer longs. I added PLAY long this morning and took profits in an existing long, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is slightly above average. Measures of investor anxiety are mixed. Today’s overall market action is neutral considering the rise in long-term rates and fall in energy prices. Trim Tabs is now estimating international funds will take in $87.5 billion this year, the most since they began keeping track in 1985. I continue to believe the mania for international stocks will end badly in the coming months. It will likely coincide with the accelerated downward move in commodity prices that I envision. I expect US stocks to trade modestly higher from current levels into the close on falling energy prices.