Stocks Slightly Lower Mid-day on Rising Energy Prices and Worries Over Slowdown in Housing

Indices
S&P 500 1,229.10 unch.
DJIA 10,657.95 -.27%
NASDAQ 2,182.68 -.19%
Russell 2000 652.00 -.64%
DJ Wilshire 5000 12,257.54 -.08%
S&P Barra Growth 590.15 +.15%
S&P Barra Value 634.27 -.19%
Morgan Stanley Consumer 588.59 -.40%
Morgan Stanley Cyclical 745.03 -.35%
Morgan Stanley Technology 513.21 +.01%
Transports 3,986.30 -.50%
Utilities 391.43 +.84%
Put/Call .83 +1.22%
NYSE Arms .80 -7.86%
Volatility(VIX) 12.53 +2.37%
ISE Sentiment 159.00 -3.05%
US Dollar 92.33 +.26%
CRB 315.67 +.96%

Futures Spot Prices
Crude Oil 58.05 +2.0%
Unleaded Gasoline 149.20 +2.44%
Natural Gas 12.37 +7.07%
Heating Oil 174.00 +3.52%
Gold 479.20 +2.17%
Base Metals 138.82 -.20%
Copper 193.50 +.16%
10-year US Treasury Yield 4.48% -1.51%

Leading Sectors
Gold & Silver +5.51%
Oil Service +2.22%
Energy +1.95%

Lagging Sectors
I-Banks -1.20%
Networking -1.36%
Broadcasting -1.38%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Medical longs, Medical Information System longs and Energy-related shorts. I covered some of my IWM and QQQQ shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is average. Measures of investor anxiety are mostly higher. Overall, today’s market action is slightly negative considering the fall in long-term rates, the rise in energy prices, recent gains and positive economic data. Yahoo! (YHOO) is rising 5.4% today on above-average volume and is within .15 of levels last seen during 2000. This bodes well for Google (GOOG), which is preparing an assault on $400. Google remains my largest long position. I expect US stocks to trade mixed-to-higher from current levels into the close as lower long-term rates more than offsets profit-taking.

Today's Headlines

Bloomberg:
- American Express CEO Chenault said fourth-quarter earnings won’t be as high as some analysts estimate.
- Tyco International CEO Breen said the conglomerate’s board is considering splitting up the company, unraveling the acquisition strategy of his predecessor, Dennis Kozlowski.
- The US Senate Banking Committee approved Ben Bernanke’s nomination as Federal Reserve chairman and sent it to the full Senate, clearing the way for his confirmation before Alan Greenspan retires Jan. 31.
- US Treasuries are rising, pushing the yield on the 10-year note to the lowest this month, after a government report showed consumer prices increased in October at the slowest pace since June.

Wall Street Journal:
- Some Nasdaq stocks will soon be listed with one-, two- or three-letter symbols compared with the current four.
- The US’s largest broadcasters will appear at a news conference in NY today in an attempt to persuade advertisers that digital video recorders, which allow viewers to skip commercial breaks, may not be the threat many think they are.
- Web sites, such as Yahoo!, are increasingly barring new customers from their most popular pages and raising advertising rates.
- US school vouchers that allow use of public money to pay for private education are gaining support in Louisiana after parochial schools began accepting students while public schools stay closed.
- Rising prices of copper, iron ore and other basic commodities have meant two lucrative years for mining companies, but as they open new mines to meet demand, they’re facing cost pressures.
- The UN war crimes tribunal today acquitted the former chief of staff of the Muslim-led Bosnian army over his alleged involvement in the killings of dozens of Bosnian Croat civilians in 1993.

NY Times:
- The NFL is looking for a partner to create an all-sports network that would show regular-season games and help increase viewers for the NFL Network.
- Some US celebrities might be putting themselves in legal jeopardy by signing endorsement deals with online casinos.

Consumer Prices Subdued, Inventories at Record Lows, International Investors' Appetite for US Assets at Record High Levels

- The Consumer Price Index for October rose .2% versus estimates of an unchanged reading and a 1.2% gain in September.
- The CPI Ex Food & Energy for October rose .2% versus estimates of a .2% increase and a .1% gain in September.
- Business Inventories for September rose .5% versus estimates of a .3% increase and a .4% gain in August.
- Net Foreign Security Purchases for September rose to $101.9B versus estimates of $75.0B and $89.0B in August.

BOTTOM LINE: Prices paid by US consumers in October rose at the slowest pace in four months as energy prices receded from records a month earlier, Bloomberg said. Core prices are now rising at a 2.1% annual rate versus a 2.2% gain at this time last year. The cost of all goods including cars, apparel and food fell .5% last month after rising 2.4% in September. Gas prices fell 4.5%, computer prices fell .8% and the cost of clothing fell .4%. I continue to believe inflation fears have peaked, with gauges decelerating over the intermediate-term.

US business inventories rose more than expected in September, as auto dealers rebuilt stocks depleted by discounting earlier this year, Bloomberg reported. Inventories are at record lows relative to sales. I continue to believe inventory rebuilding will boost economic growth over the next few months.

International investors added to their net holdings of US assets by a record $101.9 billion in September as the world’s largest economy outpaced other developed nations, Bloomberg reported. The US dollar is approaching a two-year high as the report led traders to believe the US has no problems attracting capital to cover the current account deficit. International investors added $24.6 billion to net stock holdings, the largest increase in almost 5 years. Caribbean holdings, which are linked to hedge funds in the region, fell by $500 million. As I predicted a few months ago, international investors’ demand for US assets is increasing and will continue to remain strong over the intermediate-term.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Oracle said the US Justice Department approved its proposed $5.85 billion acquisition of Siebel Systems, which will make the company the world’s largest maker of customer-service software.
- Liu Qibing, the deputy head of imports and exports at a Chinese government agency, was placed on leave in October, people who know him said, amid speculation he made losing bets on copper prices.

Financial Times:
- French Employment Minister Gerard Larcher said multiple marriages may be one factor behind more than two weeks of riots in French cities.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on AMT.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/EPS Estimate
AMAT/.14
CHRS/.08
DHI/1.63
INTU/-.30
HP/.71
NTAP/.18
MDT/.54
PETM/.19
CRM/.04
TYC/.46

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Consumer Price Index for October is estimated to rise 0.0% versus a 1.2% increase in September.
- The CPI Ex Food & Energy for October is estimated to rise .2% versus a .1% gain in September.
- Business Inventories for September are estimated to rise .3% versus a .4% gain in August.

9:00 am EST
- Net Foreign Security Purchases for September are estimated to fall to $70.0B versus $91.3B in August.

1:00 pm EST
- The NAHB Housing Market Index for November is estimated to fall to 66 versus a reading of 67 in October.

BOTTOM LINE: Asian indices are mostly higher, boosted by exporters in the region after oil prices fell again. I expect US equities to open mixed and to trade modestly lower later in the day on further profit-taking. The Portfolio is 50% net long heading into the day.

Stocks Finish Lower on Profit-taking

Indices
S&P 500 1,229.01 -.39%
DJIA 10,686.44 -.10%
NASDAQ 2,186.74 -.65%
Russell 2000 656.23 -1.16%
DJ Wilshire 5000 12,267.12 -.46%
S&P Barra Growth 589.26 -.13%
S&P Barra Value 635.46 -.63%
Morgan Stanley Consumer 590.94 -.16%
Morgan Stanley Cyclical 747.59 -.49%
Morgan Stanley Technology 513.21 -.48%
Transports 4,006.16 -1.31%
Utilities 388.18 +.44%
Put/Call .82 -9.89%
NYSE Arms .86 +11.24%
Volatility(VIX) 12.23 +.41%
ISE Sentiment 178.00 -3.26%
US Dollar 92.00 -.14%
CRB 312.73 -.75%

Futures Spot Prices
Crude Oil 56.98 -1.23%
Unleaded Gasoline 146.55 -2.05%
Natural Gas 11.51 -.79%
Heating Oil 168.50 -2.62%
Gold 469.00 -.02%
Base Metals 139.10 -.66%
Copper 193.00 +.86%
10-year US Treasury Yield 4.55% -1.03%

Leading Sectors
Hospitals +1.25%
HMOs +.75%
Utilities +.44%

Lagging Sectors
Airlines -2.52%
Retail -2.61%
Oil Tankers -3.40%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AIG.

Afternoon/Evening Headlines
Bloomberg:
- The US Senate Finance Committee dropped provisions that would have extended the 2004 tax cuts on capital gains and dividends from its tax-cut package, in an effort to get the legislation before the full chamber where Republicans plan to attach the tax breaks.
- Cisco Systems plans to sell a wireless fidelity, or Wi-Fi, product to take advantage of rising demand from cities for high-speed wireless networks.

AP:
- Jordan’s national security adviser and 10 other top officials resigned today following last week’s bombings in the capital Amman.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Retail longs, Software longs and Medical Information Systems longs. I took some profits in longs and added to my IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, most sectors fell and volume was average. Measures of investor anxiety were mostly higher into the close. Overall, today's market action was negative. The CRB Index fell again today to 312.73. This is down about 7% since Sept. 1. The index is approaching its 200-day moving-average at around 311. It has not touched this level since January. Moreover, the long-term uptrend that began in the fourth quarter of 2001 would be broken at around 300. I expect both these key technical levels to give way before year-end, which bodes very well for decelerating inflation readings and lower long-term rates going forward.