Friday Watch

Late-Night Headlines
Bloomberg:
- Japan’s economy grew 1.0% in the third quarter, a slower pace than originally estimated, partly after the previous quarter’s figure was revised higher.
- OPEC, led by Saudi Arabia, is preparing to keep output close to a 25-year high as oil trades near $60 a barrel and demand peaks during the Northern Hemisphere winter.
- A NY appeals court ruled that marriage is a union between a man and a woman under the state’s Domestic Relations Law, overturning a judge’s decision in February that found the statute unconstitutional.

Financial Times:
- European investment in research and development is falling further behind the US and Japan, citing research by the European Commission and Eurostat.

Economic Daily:
- Google may choose Taiwan to base its mainframe system for its Asian markets.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on QCOM, DHR, CVS, DNA, CMX, MDT and MMM.
- Reiterated Underperform on CMOS.

Smith Barney:
- Reiterated Buy on GOOG, target $490.

Business Week:
- Shares of Expeditors International(EXPD) of Washington, a Seattle freight forwarder and customs broker, show strong momentum, rising from $50 in May to $71 on Dec. 7.
- Sonus Pharmaceuticals(SNUS) may be worth $12 a share in a year, Mark Lappe of Efficacy Capital said.

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated unch.

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Earnings of Note
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LGND/-.16
MATK/.10

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

Economic Releases
9:45 am EST
- Preliminary Univ. of Mich. Consumer Confidence for December is estimated to rise to 85.0 versus a reading of 81.6 in November.

10:00 am EST
- Wholesale Inventories for October are estimated to rise .5% versus a .6% increase in September.

BOTTOM LINE: Asian indices are higher, boosted by Financial shares in the region. I expect US equities to open mixed and to rally modestly into the afternoon, finishing mixed-to-higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Modestly Lower on Late-day Rebound

Indices
S&P 500 1,255.84 -.12%
DJIA 10,755.12 -.52%
NASDAQ 2,246.46 -.25%
Russell 2000 685.22 +.32%
DJ Wilshire 5000 12,579.40 -.01%
S&P Barra Growth 601.10 -.22%
S&P Barra Value 650.39 -.03%
Morgan Stanley Consumer 589.61 -.30%
Morgan Stanley Cyclical 777.47 -.14%
Morgan Stanley Technology 528.86 -.59%
Transports 4,082.59 -.69%
Utilities 406.58 +1.37%
Put/Call .99 +26.92%
NYSE Arms 1.16 +11.74%
Volatility(VIX) 12.21 +.25%
ISE Sentiment 196.00 +.51%
US Dollar 91.26 -.69%
CRB 330.44 +1.78%

Futures Spot Prices
Crude Oil 61.03 +.61%
Unleaded Gasoline 164.30 +1.01%
Natural Gas 15.42 +2.88%
Heating Oil 180.50 +1.22%
Gold 524.10 +.27%
Base Metals 152.95 +.04%
Copper 202.65 -.17%
10-year US Treasury Yield 4.46% -1.05%

Leading Sectors
Oil Service +3.44%
Energy +1.81%
Gold & Silver +1.80%

Lagging Sectors
Restaurants -1.16%
Steel -1.20%
Semis -1.71%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on PFE and WON.
- Upgraded MEH to Outperform.

Afternoon/Evening Headlines
Bloomberg:
- The US House passed a $56.6 billion budget measure that extends past 2008 a 15% tax rate on dividends and most capital gains.
- Intel said fourth-quarter sales will rise to a record $10.4 billion to $10.6 billion, within previous forecasts, as consumers buy laptops for holiday gifts.
- Commuters driving into Manhattan will be required to carry at least three passengers during certain hours and taxis will have to pick up multiple riders under New York City’s plan for handling a possible transit strike.
- Crude oil rose a second day and natural gas reached a record as cold weather in the northern US bolsters heating-fuel demand.
- Electronic Arts will buy Jamdat Mobile for $680 million to expand its share of the $1 billion market for cell-phone games.

Financial Times:
- BP Plc, Europe’s largest oil company, has been referred for “criminal action” in the US in connection with an explosion at its Texas City refinery.

AP:
- US life expectancy has reached 77.6 years, a record high, citing a National Center for Health Statistics report.

Chronicle of Higher Education:
- US universities awarded 3.4% more doctorates in 2004, the biggest one-year increase in 12 years.
- Former presidents Bill Clinton and George H.W. Bush said a relief fund they organized raised $90 million in education grants, and $30 million will go to colleges and universities that were devastated by Hurricane Katrina.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Retail longs and Semi longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was neutral today as the advance/decline line finished about unchanged, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, the bears get the win today, but they can't feel very good about the underlying action. The Russell 2000 closed higher, the S&P 500 was barely down, the A/D line was almost unchanged, Google (GOOG) traded 6 points higher and the homebuilders/retailers were both higher. This comes on a day when natural gas exceeded $15. If natural gas is in a final blow-off move higher, which I suspect, some more temporary weakness in equities is possible. However, I still expect any near-term weakness to be shallow and short-lived.

***Alert***

Due to a scheduling conflict I am unable to post the Mid-day Scoreboard. I am back to 100% net long and expect stocks to trade mixed-to-higher from current levels into the close.

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

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
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