Today's Headlines

Bloomberg:
- Merck, turning to its public health roots, plans to introduce the first cervical cancer vaccine in an attempt to revive its sales.
- French industrial production fell by the most in more than six years in October as output of cars dropped, suggesting Europe’s third-largest economy may be faltering yet again.
- Intel’s sales forecast disappointed investors and signaled the world’s biggest chipmaker may be losing market share to AMD.
- Goldman Sachs, Morgan Stanley, Lehman Brothers Holdings and Bear Stearns may report combined fourth-quarter earnings of $4 billion, capping a record year fueled by trading and advising on takeovers.
- Eli Lilly, maker of the top-selling schizophrenia drug Zyprexa, forecast that 2006 earnings per share will rise 63% on expanding sales of its newest products.
- US Treasuries are falling after an industry report showed consumer confidence rose in December more than forecast, capping its biggest two-month gain since 2003.
- Crude oil is falling on signs supplies will be adequate to meet demand for winter as the first cold snap of the season moves through the northern US.

Wall Street Journal:
- The NYSE set a minimum price of almost $50,000 for the right to continue trading on its floor after the exchange concludes its acquisition of electronic-trading company Archipelago Holdings.
- Three Puerto Rican lenders, Doral Financial, R&G Financial, and First BanCorp may soon issue financial restatements, following scrutiny by the SEC.
- Anheuser-Busch has started a campaign to promote the health benefits of drinking beer.
- Virgin Atlantic founder Richard Branson and New Mexico plan to build a $200 million “spaceport” in the desert to prepare for commercial space travel.
- Viacom’s Paramount Pictures unit is preparing to bid for DreamWorks SKG, using mostly money put up by outside investors.
- US oil and drug companies may collide over House and Senate negotiations on the Republican party’s proposed $45 billion deficit-reduction bill.
- Deckers Outdoor, maker of Teva sandals and Ugg boots, will sell more different Ugg models in the hope of turning last year’s footwear fad into a permanent brand.

AP:
- Verizon Communications’ Verizon Wireless said that it has won two lawsuits against telemarketers who made unsolicited sales calls to its customers.

NY Times:
- Alltel has agreed to spin off its fixed-line unit and merge it with Valor Communications in a transaction worth $9.1 billion as it tries to focus on its cellular phone business.

Washington Post:
- French Prime Minister Dominique de Villepin says the timetable for withdrawal of international forces from Iraq should be determined by conditions in the country in order to avoid chaos.

Globe and Mail:
- Research In Motion can avoid losing access to the US market for its BlackBerry e-mail device with a single payment.

Interfax:
- Russia’s government today condemned Iranian President Mahmoud Ahmadinejad’s comments that Europe should host a state of Israel on its soil because of the genocide committed against Jews by the Nazis.

Boersen-Zeitung:
- JPMorgan Chase may make further acquisitions to strengthen its US retail business, citing an interview with the chief economist at JPMorgan.

Consumer Confidence Improves Again, Wholesale Inventory-to-Sales Ratio at Historic Low

- Preliminary Univ. of Mich. Consumer Confidence for December rose to 88.7 versus estimates of 85.0 and a reading of 81.6 in November.
- Wholesale Inventories for October rose .2% versus estimates of a .5% gain and a .6% increase in September.

BOTTOM LINE: US consumers grew more confident for a second month in December as lower gasoline prices left households with more money to spend during the holiday season. The avg. price gas fell to $2.19 last week from $3.12 right after the hurricanes hit. Moreover, hiring has rebounded back close to pre-hurricane levels and US economic growth has risen 3% or more for 10 straight quarters, the best streak since 1986. The current conditions component of the index, which is a gauge of whether or not consumers feel it is a good time to purchase big-ticket items, rose to 106.6 from 100.2 the prior month. I expect confidence to continue to improve as irrational pessimism lifts, energy prices fall and the US economy remains strong.

Sales at US wholesalers rose 1.2% in October, exceeding a gain in inventories that suggests increased production in coming months as companies try to meet demand, Bloomberg said. The inventory-to-sales ration fell to a historic low of 1.13 months versus a reading of 1.15 months in September. As companies continue to gain confidence in US economic resiliency, inventory rebuilding should help boost economic growth going forward.

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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.

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S&P 500 indicated +.04%.
NASDAQ 100 indicated unch.

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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%

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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.