Today's Headlines

Bloomberg:
- Japan’s government extended the deployment of its troops in Iraq for one year, Transport Minister Kitagawa said.
- Donald Trump is planning to build a $1 billion seaside resort complex in Israel, Yediot Aharonat said, citing Israel’s consul-general in Miami.
- Bill Gross, who manages the world’s biggest bond fun, told CNBC that the Fed will drop the word “accommodation” from its statement next week when it raises its benchmark interest rate.
- Crude oil is rising and natural gas surged to a record as cold weather in the northern US bolsters heating-fuel demand and refiners try to increase production.
- The US dollar is falling the most in eight days against the yen and the euro after Japanese and European policy makers suggested they will raise borrowing costs.
- US Treasuries are rising amid optimism that the Fed may stop raising interest rates early next year.
- Qualcomm raised its forecast after a surge in holiday sales of phones that surf the Internet and download music.
- Chevron plans to increase capital spending next year by 35% to $14.8 billion to boost production.

Wall Street Journal:
- Cisco Systems is seeking to benefit by supplying equipment that moves video from the Internet to the home, citing CEO Chambers.
- US physicians are taking part in a growing debate over whether the increased use of feeding tubes for elderly patients and the terminally ill should be curtailed.
- Merrill Lynch intends to remove its name from mutual funds and other money-management items offered to small US investors, to encourage rival brokers to start selling the products.
- New satellite-radio receivers that mimic Apple Computer iPods in their ability to store and organize hundreds of songs may threaten the music industry’s attempts to protect copyrights and royalties.
- The US Congress and the Bush administration should make cutting or eliminating the 15% maximum tax on savings their top priority among changes to the tax code, Martin Feldstein wrote. Feldstein, chairman of the Council of Economic Advisors under President Reagan, said taxing income from savings is unfair because it charges people twice if they postpone spending.

USA Today:
- More African Americans in the US are participating in a migration toward southern states as they retire, spurred by increasing wealth and rising home ownership.

NY Times:
- Anthony D. Romero, the executive director of the ACLU, has been accused of ignoring the group’s principles such as dissent and free speech, as he increased fund raising efforts. An “unusual” number of board members have resigned since Romero took over 4 days before 9/11.

Guardian:
- Harold Pinter, the winner of the 2005 Nobel Prize for literature, devoted the bulk of his Nobel lecture to a denunciation of the United State’s role in the world for the past 50 years.

Initial Jobless Claims Rise Modestly

- Initial Jobless Claims for last week rose to 327K versus estimates of 318K and 321K the prior week.
- Continuing Claims fell to 2603K versus estimates of 2745K and 2740K prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly rose last week as delayed filing from the Thanksgiving week inflated the tally, Bloomberg said. The total number of people collecting benefits dropped by the most in almost a year. The four-week moving average of jobless claims fell to 322,500 from 322,750. The unemployment rate among those able to receive benefits, which follows the US unemployment rate, fell to 2.0% from 2.1%. I continue to believe the labor market will remain healthy, but fail to tighten to the extent as to boost unit labor costs, the largest component of inflation, substantially.

Links of Interest

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Sony Corp. had its debt rating cut one level to A2 by Moody’s Inventors Service.

Chicago Tribune:
- Chicago’s city council today approved an ordinance that will ban smoking in all public places in the city, including restaurants, bars and sports venues, within three years.

Reuters:
- Worldwide DVD movie sales are probably nearing their peak as customer interest in downloads and video-on-demand rises.

Kyodo News:
- Japan’s government will today announce a one-year extension of the deployment of its troops in Iraq.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on KO.
- Reiterated Underperform on TXN.

Smith Barney:
- Upgraded PLAY to Buy, target $36.

Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 indicated -.21%.
NASDAQ 100 indicated -.26%.

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Earnings of Note
Company/EPS Estimate
CIEN/-.03
COST/.45
FLE/.00
CMOS/-.02
ESL/.56
NSM/.28
TOL/.65

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CDIS 2-for-1
TXU 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 318K versus 320K the prior week.
- Continuing Claims are estimated to fall to 2745K versus 2767K prior.

BOTTOM LINE: Asian indices are lower, dragged down by Financial shares in the region. I expect US equities to open lower and to rally modestly into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Close Modestly Lower After Late-day Rally

Indices
S&P 500 1,257.37 -.50%
DJIA 10,810.91 -.42%
NASDAQ 2,252.01 -.39%
Russell 2000 683.01 -.66%
DJ Wilshire 5000 12,581.10 -.50%
S&P Barra Growth 602.42 -.41%
S&P Barra Value 650.57 -.59%
Morgan Stanley Consumer 591.36 -.30%
Morgan Stanley Cyclical 778.57 -.73%
Morgan Stanley Technology 532.00 -.35%
Transports 4,110.25 -.44%
Utilities 401.09 -.74%
Put/Call .78 unch.
NYSE Arms 1.03 +26.08%
Volatility(VIX) 12.18 +5.73%
ISE Sentiment 195.00 +4.28%
US Dollar 91.89 +.49%
CRB 324.66 +.11%

Futures Spot Prices
Crude Oil 59.08 -.22%
Unleaded Gasoline 156.53 -.15%
Natural Gas 13.78 +.58%
Heating Oil 173.40 -.15%
Gold 518.70 +.17%
Base Metals 152.89 +1.18%
Copper 202.80 -.17%
10-year US Treasury Yield 4.51% +.70%

Leading Sectors
Gold & Silver +1.91%
Airlines .43%
Retail +.21%

Lagging Sectors
Semis -1.19%
HMOs -1.55%
Homebuilders -2.33%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on NUE and FRNT.
- Reiterated Underperform on CR.

Afternoon/Evening Headlines
Bloomberg:
- Gold prices in NY rose to a 24-year high, climbing for the seventh time in eight sessions, as international fund managers seek to diversify from currencies, stocks and bonds.
- Gannett, the largest US newspaper company, predicted lackluster growth in advertising revenue next year, in line with other publishers.
- Resolution of the Israeli-Palestinian conflict has dropped to seventh place from second among concerns cited by Arabs in six countries, as domestic economic and social issues gain attention, according to a survey released today by the Arab American Institute.
- The US House of Representatives passed a measure that would spare 15 million households from a $30 billion alternative minimum tax increase next year.
- Guidant, which has an agreement to be acquired by Johnson & Johnson, said it is ready to negotiate with Boston Scientific on an unsolicited proposal to buy Guidant for $25 billion.
- Borrowing by US consumers unexpectedly fell in October as credit card debt and new car loans declined.
- A US air marshal fired at a passenger in a jetway outside American Airlines Flight 924 in Miami, after the passenger said a carry-on bag held a bomb.
- Texas Instruments said profit this quarter will be at the high end of its forecast on higher holiday demand.

Automotive News:
- GM has asked Jerome York, a representative of billionaire investor Kirk Kerkorian, to join the company’s board.

RPP:
- Peru and the US reached an agreement for a free-trade accord after 18 months of negotiations.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Airline longs, Medical longs and Retail longs offset losses in my Semi longs and Internet longs. I did not trade 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 fell and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's action was disappointing for the bulls. The major averages and breadth are finishing lower despite the fall in oil. Jitters over the housing market, increased terrorism fears and a bounce in long-term rates were the culprits. On the positive side, the bears were unable to gain substantial traction. Moreover, the retail index is actually positive on the day. It appears as though more choppy action is necessary before another push higher. I sense a lack of conviction in the bearish community as their main arguments become harder and harder to make.

Stocks Lower Mid-day as Long-term Rates Bounce and Housing Worries Persist

Indices
S&P 500 1,256.14 -.59%
DJIA 10,794.58 -.57%
NASDAQ 2,248.80 -.53%
Russell 2000 682.41 -.75%
DJ Wilshire 5000 12,574.46 -.55%
S&P Barra Growth 601.90 -.53%
S&P Barra Value 650.31 -.65%
Morgan Stanley Consumer 591.12 -.34%
Morgan Stanley Cyclical 778.71 -.72%
Morgan Stanley Technology 531.82 -.39%
Transports 4,116.81 -.27%
Utilities 402.17 -.46%
Put/Call .81 +3.85%
NYSE Arms .99 +20.46%
Volatility(VIX) 12.08 +4.86%
ISE Sentiment 202.00 +8.02%
US Dollar 91.94 +.55%
CRB 325.20 +.28%

Futures Spot Prices
Crude Oil 59.72 -.32%
Unleaded Gasoline 158.00 -.22%
Natural Gas 13.87 +2.75%
Heating Oil 174.50 -1.52%
Gold 518.10 +.84%
Base Metals 152.89 +1.18%
Copper 203.10 +2.21%
10-year US Treasury Yield 4.51% +.66%

Leading Sectors
Gold & Silver +1.48%
Airlines +.29%
Retail +.01%

Lagging Sectors
Banks -1.21%
HMOs -1.76%
Homebuilders -2.16%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Medical longs and Retail longs offset losses in my Computer longs and Internet longs. I covered a Steel short and added 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 lower and volume is about average. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering yesterday’s afternoon sell-off and a drop in the price of oil. The EIA reported crude inventories rose 2.72 million barrels vs. estimates of a 1.9 million barrel drawdown. Gasoline supplies rose 2.74 million barrels vs. estimates of a 1.05 million barrel rise. Distillate inventories rose 2.73 million barrels vs. estimates of a 1.75 million barrel rise. Finally, refinery utilization rose 1.31% vs. estimates of a 0.5% increase. These numbers are very bearish for oil considering the time of the year. I expect US stocks to trade mixed into the close as higher long-term rates and worries over the housing sector offset lower oil prices and short-covering.