Stocks Slightly Higher Mid-day on Merger Activity and another Decline in Energy Prices

S&P 500 1,244.52 +.14%
DJIA 10,724.63 +.04%
NASDAQ 2,225.58 +.23%
Russell 2000 671.21 +.61%
DJ Wilshire 5000 12,434.39 +.15%
S&P Barra Growth 596.63 +.19%
S&P Barra Value 643.37 +.05%
Morgan Stanley Consumer 592.28 -.11%
Morgan Stanley Cyclical 761.60 +.50%
Morgan Stanley Technology 526.22 +.18%
Transports 4,133.85 +1.26%
Utilities 395.32 -.56%
Put/Call .62 -12.68%
NYSE Arms .84 +25.04%
Volatility(VIX) 11.48 +2.04%
ISE Sentiment 173.00 -4.95%
US Dollar 91.93 +.08%
CRB 311.96 -.38%

Futures Spot Prices
Crude Oil 55.50 -1.49%
Unleaded Gasoline 145.20 -.51%
Natural Gas 11.43 -4.29%
Heating Oil 169.00 -.14%
Gold 486.00 -.18%
Base Metals 141.21 +1.58%
Copper 191.30 +1.81%
10-year US Treasury Yield 4.47% +.52%

Leading Sectors
Semis +2.19%
Broadcasting +1.18%
Telecom +.89%

Lagging Sectors
Coal -.87%
Gold & Silver -1.13%
Airlines -1.60%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Semi longs, Computer longs, Steel shorts and Energy-related shorts. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Measures of investor anxiety are mostly higher. Overall, today’s market action is neutral considering the fall in energy prices and merger activity. Beazer Homes (BZH) is making an all-time high today. This is significant. Beazer has more ARMs exposure than any other major homebuilder, as well as significant exposure to many of the perceived "overheated" markets. This stock has been targeted by the shorts as the most exposed to the coming housing collapse they have been forecasting for a several years. 27.3% of the float is short. I continue to believe housing is slowing to more sustainable healthy levels, not collapsing. A slowing housing market is a big positive for U.S. stocks, in my opinion. I expect US stocks to trade modestly higher from current levels into the close on short-covering and falling energy prices.

Today's Headlines

Bloomberg:
- Swiss Reinsurance agreed to buy GE’s reinsurance business for $6.8 billion in cash and stock, in the company’s biggest acquisition ever.
- Liz Claiborne offered to buy women’s apparel retailer J. Jill Group for $365.9 million after an earlier offer was rejected and said it may consider a hostile bid.
- European Central Bank President Jean-Claude Trichet said the bank is ready to raise interest rates to stem inflation in the 12 nations sharing the euro.
- Cisco Systems agreed to buy Scientific-Atlanta for $6.9 billion, adding the second-largest US maker of set-top boxes for cable television and tapping into the growing market for Internet TV.
- Alltel, the fifth-largest US mobile-phone services company, agreed to buy Midwest Wireless for $1.08 billion, adding 400,000 customers in Minnesota, Iowa and Wisconsin.
- Crude oil is falling to a five-month low in NY on speculation that fuel stockpiles are adequate to meet global demand.
- The dollar is approaching its highest level against the euro and yen since 2003 on speculation the gap between US economic growth and other developed nations will widen further.

Wall Street Journal:
- US drugmakers are fining cholesterol-lowering drugs such as statins so effective that the companies are having trouble finding improved treatments for preventing heart attacks and strokes.
- The US Financial Accounting Standards Board may change guidelines to restrict companies from keeping lease costs out of financial statements.
- China is broadening its effort to win friends and influence people in the US to maintain its economic growth, reduce poverty, and become a global power.
- Global copper and aluminum prices are at or near the peaks of their current cycle and may fall next year, China’s top planning agency said.

Business Week:
- Intel co-founder Gordon E. Moore and his wife, Betty, are among the top US individual philanthropists.
- Billionaire investor Carl Icahn is forming a group of possible directors to replace Time Warner board members during a proxy fight that may include the ouster of CEO Parsons.
- Microsoft may begin shipments of its new Windows Vista software to manufacturers on Aug. 31.

USA Today:
- Some US states may cut taxes in 2006 as revenues have climbed 7.2% so far this year, the most since 1990, as economic growth surged past expectations.

NY Times:
- Some US hospitals are trying to get doctors to cut costs by sharing the savings with them.

NY Post:
- New Yorkers constitute one-fifth of the 157,252 Americans infected with the HIV virus in the last four years, citing a new federal Centers for Disease Control report.

The Deal:
- Goldman Sachs Group is in discussions to buy a stake in the Chicago Stock Exchange.

San Francisco Chronicle:
- Home sales in the San Francisco Bay Area declined in October for a seventh straight month.

Denver Post:
- The Hyatt Regency Denver set a record for the hotel chain’s pre-opening sales with $100 million in business booked through 2012.

Economic Releases

- None of note

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Friday Watch

Late-Night Headlines
Bloomberg:
- Australia won’t withdraw its troops from Iraq prematurely, Australian Foreign Minister Alexander Downer said in response to a new terrorism threat against Australia in a videotape found in Indonesia.
- China may default on money-losing copper trades because the country doesn’t have enough of the metal to make good on delivery commitments next month, said Mark Topfer, the former No. 2 lawyer at the London Metal Exchange.
- Public approval of Congressional Democrats has fallen to 25% and Republicans to 27% in the most recent Harris Interactive poll.
- Shares of Toyota Motor, the world’s largest automaker by market value, surged to their highest level since being listed in 1949, making the company 14 times bigger than General Motors.

Business Week:
- Interpublic Group, the world’s third largest advertising company, may have to sell assets as part of a plan to reorganize the company.

AFP:
- The UN General Assembly adopted a resolution expressing concern over North Korea’s human rights record.

Daily Deal:
- Kohlberg Kravis Roberts is leading a group of private investors that may bid for General Motor’s residential mortgage finance unit.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on GILD.
- Reiterated Underperform on PSS and MESA.

Business Week:
- Shares of Laserscope(LSCP), the maker of lasers used to treat enlarged prostates, may rise because some investors sold too many shares.
- SBA Communications(SBAC) shares are worth as much as $27, citing William Harnisch, CEO of hedge fund Peconic Partners.

Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.12%.

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Earnings of Note
Company/EPS Estimate
ANN/.37
DDS/-.22
URI/.27

Upcoming Splits
TRID 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian indices are higher, boosted by exporters in the region after oil fell below $56/bbl. I expect US equities to open mixed and to trade modestly higher later in the day. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher on Falling Energy Prices, Lower Long-term Rates and Increasing Optimism

Indices
S&P 500 1,242.80 +.94%
DJIA 10,720.22 +.43%
NASDAQ 2,220.46 +1.49%
Russell 2000 667.14 +1.91%
DJ Wilshire 5000 12,415.41 +1.07%
S&P Barra Growth 595.45 +.72%
S&P Barra Value 643.02 +1.15%
Morgan Stanley Consumer 592.93 +.56%
Morgan Stanley Cyclical 757.79 +1.44%
Morgan Stanley Technology 525.30 +2.05%
Transports 4,082.39 +2.02%
Utilities 397.53 +1.55%
Put/Call .71 -7.79%
NYSE Arms .67 -21.11%
Volatility(VIX) 11.25 -8.24%
ISE Sentiment 182.00 +21.33%
US Dollar 91.88 -.49%
CRB 313.21 -.67%

Futures Spot Prices
Crude Oil 56.49 +.27%
Unleaded Gasoline 146.20 +.17%
Natural Gas 11.92 -.14%
Heating Oil 170.20 +.29%
Gold 486.70 -.04%
Base Metals 139.01 +.14%
Copper 187.60 -.16%
10-year US Treasury Yield 4.45% -.31%

Leading Sectors
Airlines +3.50%
Homebuilders +3.12%
Networking +2.75%

Lagging Sectors
Foods +.42%
Energy +.10%
Tobacco -.27%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GILD.

Afternoon/Evening Headlines
Bloomberg:
- DaimlerChrysler’s Chrysler will offer free gasoline and maintenance for two years and extended warranties on most new 2005 and 2006 models to win back buyers.
- Crude oil fell to a five-month low after an Energy Department report showing an increase in inventories of natural gas eased concern that heating-fuel supplies would be low this winter.
- Warren Buffett’s Berkshire Hathaway bought 20 million Wells Fargo shares in September.
- GM CEO Wagoner told employees that the automaker doesn’t intend to file for bankruptcy and has “a robust balance sheet.”
- Wal-Mart will be the first participant in a new Salvation Army holiday fund-raising program where companies and groups can put a virtual version of the charity’s red kettle on their Internet site.
- The Environmental Protection Agency will issue new rules next month to reduce parasites in the nation’s drinking water.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet longs, Retail longs, Medical longs, Medical Information Systems longs and Airline longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was above average. Measures of investor anxiety were lower into the close. Overall, today's market action was positive. The homebuilders and airlines, arguably the two most hated sectors, led all gainers, both rising over 3%. I especially like the way stocks ground higher throughout the day rather than gapping up on the open. Today's action bodes well for further gains over the near-term and a successful breakout to new highs for the year in the major averages.