Stocks Slightly Lower Mid-day on Profit-taking and Rising Energy Prices

Indices
S&P 500 1,264.03 -.05%
DJIA 10,881.59 -.28%
NASDAQ 2,267.33 +.01%
Russell 2000 687.71 -.37%
DJ Wilshire 5000 12,649.06 -.08%
S&P Barra Growth 605.56 +.07%
S&P Barra Value 654.01 -.16%
Morgan Stanley Consumer 593.92 +.09%
Morgan Stanley Cyclical 780.85 -.51%
Morgan Stanley Technology 536.32 -.31%
Transports 4,130.81 -.65%
Utilities 402.52 -.18%
Put/Call .75 -8.54%
NYSE Arms 1.05 +30.88%
Volatility(VIX) 11.07 -1.51%
ISE Sentiment 241.00 +55.48%
US Dollar 91.98 +.17%
CRB 323.21 +.77%

Futures Spot Prices
Crude Oil 59.45 +1.51%
Unleaded Gasoline 161.25 +3.19%
Natural Gas 13.71 +5.24%
Heating Oil 178.10 +2.43%
Gold 507.00 +.14%
Base Metals 149.28 +.19%
Copper 197.80 -1.08%
10-year US Treasury Yield 4.51% +.09%

Leading Sectors
Airlines +1.46%
Papers +.89%
Semis +.82%

Lagging Sectors
Gold & Silver -1.63%
Wireless -1.11%
Broadcasting -.94%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet longs, Semi longs, Airline longs and Medical longs. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is lower, sector performance is mixed and volume above average. Measures of investor anxiety are mixed. Overall, today’s market action is neutral considering the bounce in oil and yesterday’s gains. The Fed's Yellen is now saying that the Fed is discussing the wording of forward-looking language and is discussing "removing accommodation" language. She also said it is unlikely the end of tightening cycle is at hand and that the core pce is "essentially compatible" with Fed's goal. I would expect investors to cheer these statements as it shows recent strong data have not deterred the Fed from contemplating a "pause.” I expect US stocks to trade mixed-to-higher into the close as short-covering more than offsets the rise in energy prices.

Today's Headlines

Bloomberg:
- Russian oil exports rose in November at their fastest pace in eight months after this year’s surge in oil prices encouraged investments in drilling, helping lift crude output to a record.
- A UN human rights investigator said torture is still widespread in China and said officials had tried to obstruct his fact-finding mission, after it was officially sanctioned by the government.
- Boeing’s biggest engineers’ union voted to accept a new three-year labor agreement that boosts pay and preserves health-care benefits, helping the company avoid a strike and keep its 787 model aircraft program on schedule.
- Futures traders kept bets that the Fed will increase its benchmark interest rate to 4.75% by April after a government report showed US companies added more jobs than expected last month.
- Carl Icahn’s hedge funds plan to make a tender offer of $40 a share for as many as 29.6 million shares of Fairmont Hotels.
- The dollar rose for a second day against the euro after a government report showed the US economy in November added the most jobs in four months.
- Crude oil, heating oil and gas are rising for a third day on speculation that colder weather and a strong US economy will boost demand.
- GM, coming off a 7.4% decline in November sales, is raising rebates by $500 on mid-sized sport-utility vehicles such as the Chevy TrailBlazer.

Wall Street Journal:
- The US economy has created 3.5 million jobs and $750 billion in personal income during the past 16 months, facts that defy the gloomy assessments of “pouting pundits,” Brian Wesbury wrote.
- Ford Motor is likely to close three assembly plants in St. Louis, Atlanta, and St. Paul, Minnesota as well as an engine-parts factory and a truck-assembly center. Ford’s most popular model, the Explorer, has seen sales plunge 30% as gas prices surged.
- Banco Bilbao Vizcaya Argentaria SA, Spain’s second-largest bank by market value, is seeking to boost its North American business by generating fees helping Mexican immigrants in the US send money home to family.
- Schools in Charlotte, North Carolina used early intervention and monitoring to boost average reading scores, making it one of the few regions to show big gains in average reading tests.
- Investors, especially in Europe, have been buying a new product called structured notes, which are tied to mutual funds or hedge funds.
- President Bush is trying to bolster his relations with Democratic members of Congress to gain backing for his trade agenda.

Business Week:
- The shares of Spectranetics, a maker of devices used in coronary artery treatments, may gain as the number of laser-based procedures rise, citing Kornitzer Capital Management’s Elizabeth Jones.

Financial Times:
- Shareholder activist Carl Icahn is considering splitting Time Warner into four companies as part of a radical restructuring plan.
- Three groups of bidders are preparing offers for Albertson’s.

Tex Report:
- Posco may lower prices of hot-rolled coil steel in January for its domestic customers.

US Economy Creates Another 215,00 Jobs

- The Change in Non-farm Payrolls for November was 215K versus estimates of 210K and 44K in October.
- The Change in Manufacturing Payrolls for November was 11K versus estimates of 5K and 15K in October.
- The Unemployment Rate for November was 5.0% versus estimates of 5.0% and 5.0% in October.
- Average Hourly Earnings for November rose .2% versus estimates of a .2% increase and a .6% gain in Ocober.

BOTTOM LINE: The US economy added 215,000 jobs in November, bouncing back from two months of weak job growth triggered by Hurricanes Katrina and Rita, Bloomberg reported. The largest percentage of industries are now hiring since July 2004. With the US economy in the middle of the best streak of 3%+ growth quarters since 1986 and double-digit corporate earnings gains in the middle of the best streak since 1936, I expect the US labor market to continue to improve at a modest rate over the intermediate-term. The deceleration in Average Hourly Earnings is a positive as unit labor cost increases, the largest component of inflation, remain subdued.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Asian stocks rose to the highest in more than five years, after US reports bolstered confidence the world’s largest economy is growing enough to sustain demand without generating inflation.
- Matsushita Electric Industrial will increase plasma panel production capacity 44% by July 2006 to meet demand for its Panasonic brand televisions.
- The yen traded near a record low against the euro and a 31-month low against the dollar in Asia as the Bank of Japan holds borrowing costs close to zero percent while central banks in the US and Europe raise them.
- Adobe Systems said its has been notified it will receive approval from international regulators for its proposed $3.4 billion acquisition of Macromedia.

Business Week:
- Liberty Media, the cable-television broadcaster controlled by billionaire John Malone, may be worth $14 a share if it strikes a deal with Rupert Murdoch, who controls News Corp., Steve Roge of Roge Partners Fund told Business Week.

AP:
- US Representative John Murtha, Democrat from Pennsylvania, who two weeks ago called for the immediate withdrawal of US troops from Iraq, predicted most soldiers will return within a year because they are “broken, worn out.”

Financial Times:
- Blackstone Group LOP plans to build a “flagship fund” as part of a move into hedge funds which may lead to $10 billion under management, citing company President Tony James.

Shanghai Daily:
- China’s 200 million cell-phone owners who use prepaid cards will have to register with telecom providers by mid-2006 or face a cutoff in service. China is trying to verify every telephone subscriber in the country as the government attempts to stem telephonic fraud and unauthorized transmissions, including pornographic or politically charged content.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SYMC, SBUX, AMGN and FORM.
- Reiterated Underperform on ABC.

Business Week:
- Sohu.com Inc. will benefit from growth in China’s online advertising market, citing CE Unterberg Towbin analyst Tian Hou.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated unch.

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Company/EPS Estimate
ATW/.25
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DDS/-.20
NX/1.48

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Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for November is estimated to rise to 210K versus 56K in October.
- The Change in Manufacturing Payrolls for November is estimated to fall to 5K versus 12K in October.
- The Unemployment Rate for November is estimated to remain at 5.0% versus 5.0% in October.
- Average Hourly Earnings for November are estimated to rise .2% versus a .5% gain in October.

BOTTOM LINE: Asian indices are higher on strength in tech stocks in the region after more positive US economic reports. I expect US equities open modestly higher and to build on gains later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher on Increasing Optimism, Strong Economic Growth, Decelerating Inflation

Indices
S&P 500 1,264.67 +1.22%
DJIA 10,912.57 +.99%
NASDAQ 2,267.17 +1.54%
Russell 2000 690.21 +1.91%
DJ Wilshire 5000 12,659.74 +1.31%
S&P Barra Growth 605.16 +1.14%
S&P Barra Value 655.12 +1.29%
Morgan Stanley Consumer 593.37 +.90%
Morgan Stanley Cyclical 784.87 +1.38%
Morgan Stanley Technology 538.00 +1.71%
Transports 4,157.93 +1.07%
Utilities 403.27 +.78%
Put/Call .82 -2.38%
NYSE Arms .81 -50.99%
Volatility(VIX) 11.24 -6.80%
ISE Sentiment 155.00 -6.06%
US Dollar 91.82 +.27%
CRB 320.71 +2.05%

Futures Spot Prices
Crude Oil 58.56 +.15%
Unleaded Gasoline 156.91 +.42%
Natural Gas 13.04 +.11%
Heating Oil 173.85 -.01%
Gold 507.70 +.28%
Base Metals 148.99 +2.45%
Copper 199.80 -.08%
10-year US Treasury Yield 4.51% +.70%

Leading Sectors
Steel +4.23%
Semis +4.21%
Oil Service +3.36%

Lagging Sectors
Banks +.70%
Biotech +.70%
Defense +.62%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on PFGC and UTX.

Afternoon/Evening Headlines
Bloomberg:
- The US economy will grow an above-average 3.5% this year and 3.4% next year, according to estimates by the Bush administration’s top economists.
- Goldman Sachs Group, the Carlyle Group and Riverstone Holdings are putting up $500 million to back a new oil and natural-gas explorer led by the former president of Unocal Corp.
- Former President Clinton said the US should restructure how its troops are deployed in Iraq without setting a firm timetable for a withdrawal.
- Shares of US Steel and AK Steel rose on speculation they may be targets for takeover by the loser in the bidding for Canadian steelmaker Dofasco.
- Crude oil, heating oil and gas rose for a second day on speculation that colder weather would boost demand.

Globe and Mail:
- The elderly of New Orleans and its suburbs were at greatest risk after Hurricane Katrina; about 60% of the 623 victims identified so far were older than 60, citing census and state data.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet longs, Semi longs, Retail longs, Computer longs and Medical 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, every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was very positive as the major averages finished sharply higher with strong breadth and volume. Every sector I follow was positive. Moreover, the 10-year Treasury note yield finished only slightly higher, notwithstanding good economic data, stock gains and the rise in energy prices. Today’s action looked very much like a function of p/e multiple expansion as the irrational pessimism that has enveloped the US stock market since the bursting of the bubble in 2000 continues to lift. I expect DJIA 11,000 to give way within the next 10 days.