Monday Watch

Weekend Headlines
Bloomberg:
- Two-thirds of US company executives surveyed said they intend to increase capital spending over the next 12 months, according to Baruch College’s Zicklin School of Business. The average increase is expected to be 9%.
- Microsoft released its Xbox 360 game console in Japan today, about three months ahead of Sony’s PlayStation 3.
- Wal-Mart Stores said December same-store sales at its US stores are rising within its forecast.
- Saudi Arabia joined other members from OPEC in saying the group should maintain current production to meet demand during the Northern Hemisphere winter.
- The Fed may say monetary policy is no longer stimulating the economy after it raises interest rates for the 13th time, according to more than half of Wall Street’s biggest bond trading firms.
- Viacom’s Paramount Pictures agreed to buy DreamWorks SKG for $1.6 billion in cash and debt, wresting the movie studio away from NBC Universal and securing the talents of Steven Spielberg.
- Walt Disney’s “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe” opened as the No. 1 film in the US and Canadian theaters with an estimated $67.1 million in ticket sales, the second-best December debut ever.
- Louisiana is among three US states interested in being the site of a joint venture refinery with Kuwait.

Wall Street Journal:
- Delphi Corp. CEO Miller said he’s putting together a new contract proposal for UAW at the No. 1 US auto-parts maker.
- ConocoPhilliops is in advanced discussions to acquire Burlington Resources, an oil and gas producer, for more than $30 billion.

Barron’s:
- US stocks will rise 5% to 25% next year as the economy expands, corporate profits mount and the Fed ends its string of short-term rate increases, Wall Street strategists said.

NY Times:
- Senator Joe Lieberman, a Democrat from Connecticut, has angered many Democratic activists and alienated some from his party in Congress over his support for the US liberation of Iraq.
- US courts have become less cooperative with prosecutors seeking the right to gain cellular-phone tracking information from wireless companies without showing “probable cause.”
- California’s $3 billion stem-cell institute, beset by lawsuits, criticism and bureaucracy since its formation more than a year ago, has yet to spend a single dollar on research.
- The campaigning for candidates and parties in Iraq’s parliamentary elections next week has been sophisticated with text messages being sent to cell phones, and chaotic with gunfire and murders.
- FEMA will extend its deadline for paying for hotel rooms for most survivors of Hurricane Katrina.
- Sirius Satellite Radio and XM Satellite Radio Holdings are about to leap forward, as Howard Stern joins Sirius and both companies introduce portable receivers.
- About 6,000 subway and bus workers voted yesterday to authorize the union to strike if an agreement isn’t reached with New York’s Metropolitan Transportation Authority on a new contract by Dec. 15.

NY Post:
- The board of Albertson’s, the second-biggest US supermarket chain, is meeting this weekend to evaluate final bids from a number of investment firms.

Washington Post:
- Clerics from Iraq’s majority Shiite and minority Sunni sects of Islam are using their pulpits in the country’s mosques to urge voters to back their respective blocs in the Dec. 15 parliamentary elections.
- American Online co-founder Steve Case wrote that parent company Time Warner should be split into four independent companies.

Financial Times:
- Richard Branson, the UK billionaire who owns a majority stake in Virgin Mobile Holdings Plc, may have to accept a lower price for his stake to push through a takeover offer from NTL Inc.

Canadian Press:
- Canada plans to allow government departments to cancel contracts with US companies if they pass data about Canadian citizens to US anti-terrorism investigators.

Iran Daily:
- Iran has started construction work on a 360-megawatt nuclear power plant in Khuzestan province, citing the head of Iran’s Atomic Energy Organization.

Korea Economic Daily:
- Hynix Semiconductor of South Korea plans to increase production of NAND flash memory to 40% of total output next year from 30% now on rising demand from consumer electronics makers.

Weekend Recommendations
Barron's:
- Had positive comments on WMT.

Goldman Sachs:
- Reiterated Outperform on CRL and PKG.

Night Trading
Asian indices are unch. to +1.25% on average.
S&P 500 indicated +.28%.
NASDAQ 100 indicated +.29%.

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US AM Market Call
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Earnings of Note
Company/Estimate
JJZ/.10
TDS/.29
USM/.37

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JOYG 3-for-2
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Economic Releases
10:00 am EST
- The Monthly Budget Deficit for November is estimated to widen to -$80.0 billion versus -$57.9 billion in October.

BOTTOM LINE: Asian Indices are higher, led by exporting shares in the region after oil fell below $60/bbl. and US consumer confidence exceeded estimates last Fri. I expect US stocks to open modestly higher and build on gains throughout the day. The Portfolio is 100% net long heading into the week.

Weekly Outlook

There are a number of important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Monthly Budget Statement
Tues. - Advance Retail Sales, Business Inventories, FOMC Rate Decision
Wed. - Trade Balance, Import Price Index
Thur. - Initial Jobless Claims, Consumer Price Index, Empire Manufacturing, Net Foreign Security Purchases, Industrial Production, Philly Fed
Fri. - Current Account Balance

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Jacuzzi Brands(JJZ), Telephone & Data Systems(TDS), US Cellular(USM)
Tues. - ADC Telecom(ADCT), CKE Restaurants(CKR), Cooper Companies(COO), Engineered Support(EASI), Lehman Brothers(LEH), Martek Biosciences(MATK)
Wed. - Freddie Mac(FRE), Mercury Interactive(MERQE)
Thur. - Apollo Group(APOL), Bear Stearns(BSC), Best Buy(BBY), Darden Restaurants(DRI), Goldman Sachs(GS), Herman Miller(MLHR), KB Home(KBH), Lennar Corp.(LEN), Oracle Corp.(ORCL), Pier 1 Imports(PIR), Rite Aid(RAD)
Fri. - Carnival Corp.(CCL), Cintas Corp.(CTAS), Family Dollar(FDO), GTECH Holdings(GTK), Quiksilver Inc.(ZQK), Steelcase(SCS), Take-Two Interactive(TTWO)

Other events that have market-moving potential this week include:

Mon. - UBS Server Technologies Conference
Tue. - None of note
Wed. - None of note
Thur. - RBC Silver Conference
Fri. - RBC Silver Conference

BOTTOM LINE: I expect US stocks to finish the week higher on increasing demand for US assets, less hawkish Fed comments, short-covering, moderating inflation fears and increasing inflows. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,265.08 -.45%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was just slightly negative considering recent gains, the rise in natural gas prices and disappointing comments from Toll Brothers(TOL) and Intel(INTC). The advance/decline line fell, sector performance was mixed and volume was above average on the week. Measures of investor anxiety were mostly lower. However, the AAII % Bulls fell again to 49.47%, slightly above average levels, which is a positive. The average 30-year mortgage rate rose for the first time in three weeks to 6.32%. This is 111 basis points above all-time lows set in June 2003. I continue to believe mortgage rates will head modestly lower over the intermediate-term as measures of inflation decelerate and economic growth slows to average rates. The benchmark 10-year T-note yield rose 1 basis point on the week as unit labor costs(the largest component of inflation) fell more-than-expected in 3Q, offsetting strong economic data.

Small-caps and cyclicals continued to outperform on increasing optimism over the unrelenting strength of the economy, falling only slightly on the week. Gold rose again on continuing international diversification into the precious metal. I still believe the rise in gold is not a result of increasing inflation fears as evidenced by the decline in unit labor costs this week. Unleaded Gas futures were basically unchanged and are 45% below September highs even as refinery utilization still remains below normal as a result of the hurricanes. Natural gas supplies decreased less-than-expected this week and are now 6.9% above the 5-year average for this time of year even as 29% of daily Gulf of Mexico production remains shut-in. I believe a significant top in natural gas occurred last week or will so shortly. Prices for many commodities are now being driven by fear and record capital inflows into commodity funds, rather than fundamentals. I still expect global energy demand destruction and a significant increase in supplies into 2006 to push energy prices substantially lower over the intermediate-term. The S&P 500 is still within striking distance of my mid-year prediction of a double-digit annual gain, but time is running out. The index is currently up 5.75% for the year.

US economic growth has now exceeded 3% for 10 straight quarters, the best streak since March 1986. Moreover, corporate profit growth has reached double-digit rates for 14 quarters in a row, the best run since at least 1936. I want to reiterated the point that quite possibly there has never before in US history been a greater disconnect between economic perception and reality. This disconnect is fueled by the record number of market participants that perceive that they benefit, both politically and financially, from the demise of the US economy. This, in turn, leads to an overwhelmingly negative spin on almost any positive event. Irrational pessimism is pervasive as a recent poll by American Research Group found 43% of Americans believe the US economy is in a recession. The common definition of a recession is 2 consecutive quarters of economic contraction. As this pessimism lifts and optimism comes to the fore, price/earnings multiples for US stocks should expand, thus leading to significant price appreciation over the intermediate-term.

Weekly Scoreboard*

Indices
S&P 500 1,265.08 -.45%
DJIA 10,877.51 -.91%
NASDAQ 2,256.73 -.73%
Russell 2000 688.77 -.26%
DJ Wilshire 5000 12,615.39 -.40%
S&P Equity Long/Short Index 1,099.76 +1.31%
S&P Barra Growth 602.11 -.64%
S&P Barra Value 652.91 -.27%
Morgan Stanley Consumer 590.77 -.69%
Morgan Stanley Cyclical 780.68 -.08%
Morgan Stanley Technology 532.54 -.84%
Transports 4,102.34 -.87%
Utilities 409.82 +1.68%
S&P 500 Cum A/D Line 8,222.00 -5.0%
Bloomberg Crude Oil % Bulls 52.0 +22.09%
Put/Call .80 -5.88%
NYSE Arms 1.02 -17.07%
Volatility(VIX) 11.69 +6.18%
ISE Sentiment 196.00 +26.45%
AAII % Bulls 49.47 -5.72%
US Dollar 91.30 -.70%
CRB 327.81 +1.37%

Futures Spot Prices
Crude Oil 59.39 +.15%
Unleaded Gasoline 160.49 +.06%
Natural Gas 14.31 +2.82%
Heating Oil 173.18 -2.16%
Gold 529.50 +3.20%
Base Metals 154.13 +3.25%
Copper 202.90 +1.05%
10-year US Treasury Yield 4.52% +.22%
Average 30-year Mortgage Rate 6.32% +.96%

Leading Sectors
Gold & Silver +5.77%
Oil Service +2.86%
Disk Drives +2.17%

Lagging Sectors
Computer Services +1.93%
Homebuilders -2.12%
Oil Tankers -2.76%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Higher Mid-day as Energy Prices Reverse Lower and Consumer Sentiment Improves

Indices
S&P 500 1,262.24 +.51%
DJIA 10,797.55 +.39%
NASDAQ 2,257.97 +.52%
Russell 2000 689.08 +.56%
DJ Wilshire 5000 12,640.89 +.49%
S&P Barra Growth 603.17 +.34%
S&P Barra Value 654.92 +.70%
Morgan Stanley Consumer 592.04 +.41%
Morgan Stanley Cyclical 782.78 +.68%
Morgan Stanley Technology 533.33 +.85%
Transports 4,109.82 +.68%
Utilities 410.57 +.98%
Put/Call .81 -18.18%
NYSE Arms 1.05 -9.53%
Volatility(VIX) 11.59 -5.08%
ISE Sentiment 197.00 unch.
US Dollar 91.23 -.03%
CRB 327.39 -.92%

Futures Spot Prices
Crude Oil 59.20 -2.41%
Unleaded Gasoline 160.70 -1.08%
Natural Gas 14.34 -4.30%
Heating Oil 172.20 -3.43%
Gold 529.10 +1.22%
Base Metals 154.13 +.77%
Copper 203.00 unch.
10-year US Treasury Yield 4.53% +1.45%

Leading Sectors
Semis +1.71%
HMOs +1.54%
Banks +1.45%

Lagging Sectors
Gold & Silver -1.21%
Airlines -1.30%
Energy -1.37%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Medical longs, Internet longs, Semi longs, Energy-related shorts and Retail longs. I have not traded this today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is about average. Measures of investor anxiety are mostly lower. Overall, today’s market action is positive considering the bounce in long-term rates and declines in energy-related stocks. The ECRI Weekly Leading Index rose to 135.70 this week from 135.50 the prior week. This is still near cycle highs of 135.80 and up from 132.00 during the last week of May. This gauge of future economic activity is forecasting healthy U.S. growth. I expect US stocks to trade mixed-to-higher into the close on falling energy prices and rising optimism.

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.