Wednesday Watch

Late-Night Headlines
Bloomberg:
- A US campaign to rid the United Nations of corruption and inefficiencies has stalled, raising the prospect that Washington lawmakers will exact a financial penalty on the world body.

Wall Street Journal:
- The European Union says there is increasing evidence of illegal pricing among Chinese and Vietnamese shoemakers, citing EU officials it didn’t identify.

NY Times:
- World Cup champion Bode Miller might be thrown off the US ski team if he doesn’t apologize for comments about drinking alcohol before racing.

Congressional Quarterly:
- The Senate may vote Jan. 31 on Ben Bernanke’s nomination to succeed Alan Greenspan as head of the Federal Reserve, the last day of the departing chairman’s tenure.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Underperform on (HRB).

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.09%.
NASDAQ 100 indicated -.09%.

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Earnings of Note
Company/EPS Estimate
(AEIS).06
(MTB)1.75

Upcoming Splits
(HITK) 3-for-2

Economic Releases
- None of note

BOTTOM LINE: Asian indices are mostly higher, led by semiconductor companies in the region. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed After Late-day Rebound

Indices
S&P 500 1,289.69 -.04%
DJIA 11,011.58 unch.
NASDAQ 2,320.32 +.07%
Russell 2000 710.99 +.67%
DJ Wilshire 5000 n/a
S&P Barra Growth 617.09 -.07%
S&P Barra Value 668.13 unch.
Morgan Stanley Consumer 602.50 -.39%
Morgan Stanley Cyclical 808.31 -.75%
Morgan Stanley Technology 552.62 -.09%
Transports 4,218.69 -.46%
Utilities 413.80 +.14%
Put/Call .60 -11.76%
NYSE Arms 1.16 +7.73%
Volatility(VIX) 10.86 -2.43%
ISE Sentiment 160.00 -15.79%
US Dollar 89.33 +.09%
CRB 336.45 -.26%

Futures Spot Prices
Crude Oil 63.39 +.03%
Unleaded Gasoline 173.70 -.01%
Natural Gas 9.33 unch.
Heating Oil 173.79 unch.
Gold 543.90 -.33%
Base Metals 158.06 +.29%
Copper 210.50 -.09%
10-year US Treasury Yield 4.42% +1.35%

Leading Sectors
Oil Service +2.10%
Disk Drives +1.89%
Computer Hardware +1.33%

Lagging Sectors
Airlines -1.32%
Broadcasting -1.88%
Hospitals -2.55%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (ALL), (DNA), (HD) and (CRL).

Afternoon/Evening Headlines
Bloomberg:
- Biogen Idex(BIIB) said its Tysabri multiple sclerosis medicine, suspended in 2005 after being linked to an often fatal nervous system disease, may return to the market this year.
- Genentech(DNA) said quarterly profit jumped 64% on higher cancer-drug sales.

CNBC:
- Gannett Co.(GCI) made a bid for Knight Ridder(KRI) and then withdrew it.

Chronicle of Higher Education:
- A Florida International University professor and his wife were accused in a US government indictment of spying for Cuba.

Hollywood Reporter:
- Walt Disney’s(DIS) ABC television is charging a record $2.5 million on average for each 30-second advertisement during Super Bowl XL.

Sun Herald:
- Harrah’s Entertainment(HET) will spend more than $1 billion to build two casinos in Biloxi, Mississippi, citing Mayor AJ Holloway.

Seoul Economic Daily:
- Japan isn’t considering diversifying its foreign exchange reserves.

Handelsblatt:
- BMW AG may expand further at its plant in Spartanburg, South Carolina, citing CEO Panke.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Semi longs, Medical longs and Retail longs. I did not trade today, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished higher, sector performance was mixed and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today’s action was bullish considering long-term rates bounced, oil held steady, fears over Iran’s nuclear program rose and the DJIA closed above 11,000 again after a morning decline of 60 points. Ituran Location (ITRN), one of my recent small long additions, broke to a new high today on 4x average volume. This Israeli stock's performance is even more impressive considering recent Middle Eastern news events. I expect the stock to trade in the low $20s in a fairly short period of time as this recent IPO gets discovered.

Stocks Modestly Lower Into Final Hour as Long-term Rates Bounce and Iran Worries Increase

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Computer longs, Software longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is around average. Measures of investor anxiety are mixed. The S&P 500, already up 3.3%, is outperforming many foreign markets that posted stellar gains last year. With the Nasdaq up 5% for the year and high-profile consumer tech companies such as Google (GOOG) and Apple (AAPL) roaring, I would expect to see increasing interest in U.S. stocks as the mania for international equities and commodities wanes. I expect US stocks to trade mixed-to-higher from current levels into the close on strength in the technology sector and short-covering.

Today's Headlines

Bloomberg:
- One of the al-Qaeda cells arrested early today in Spain may have been planning an attack in Europe, Spanish Interior Minister Jose Antonio Alonso said.
- Whole Foods Market(WFMI) made the nation’s largest ever corporate purchase of renewable energy credits to promote use of non-polluting electricity sources.
- GM(GM) said it will cut the prices on about 80% of its cars and trucks.
- Alberto-Culver(ACV) will spin-off its chain of more than 3,200 beauty-supply stores and sell it to Regis Corp.(RGS) in a $2.6 billion transaction.
- Apple Computer’s(AAPL) first quarter revenue reached $5.7 billion, more than the company expected, as iPod sales tripled and Macintosh computer purchases topped 1 million units for the fifth straight period.
- The Bush administration warned Iran that its decision to resume research on uranium reprocessing may lead to action against the country at the UN Security Council.

Wall Street Journal:
- Proposed changes in executive-pay disclosure regulations by the SEC would lower the point at which companies need to disclose perquisites.
- DaimlerChrysler’s(DCX) Chrysler unit plans to reproduce the Dodge Challenger as part of a bid to attract buyers with new versions of favorite old cars.
- Ford Motor(F) and General Motors(GM) have begun marketing so-called flex-fuel vehicles that run on a mix of ethanol and gasoline.
- Growth of public and private US health-care expenditures rose 7.9% in 2004, the smallest increase since 2000.
- IBM(IBM), the top US patent holder for the past 13 years, will lead a group seeking to raise the quality of US patents by weeding out duplicate items.
- Toyota Motor(TM) may install a switch in its gasoline and electric-powered hybrid cars enabling drivers to select “green” or “power,” thus improving fuel-efficiency.

Deal.com:
- The US Dept. of Justice may sue to block Whirlpool’s planned $1.4 billion acquisition of Maytag.

NY Times:
- Many US companies are developing products to help customers with credit cards to reduce time spent paying highway tolls.
- Apple Computer(AAPL) plans to begin offering today a limited number of “Saturday Night Live” skits for download from its iTunes store for $1.99 each.
- News Corp.(NWS) Chairman Murdoch said his plan to make the Internet portal MySpace.com into a competitor for Yahoo!(YHOO) is aimed at increasing the time users spend on the site and at boosting advertising.

AP:
- New Jersey legislators halted executions until a 13-member commission evaluates the costs and fairness of the death penalty.

AFP:
- Iran said today it removed seals on its nuclear research centers to prepare for the resumption of work on the nuclear fuel cycle.

Reuters:
- China is unlikely to reduce the US dollar holdings its foreign-exchange reserves to increase the proportion of other assets, citing Tang Xu, head of the research bureau under the central bank.

Xinhua:
- China’s steel output rose to 348 million metric tons last year.

Il Sole/24:
- De Agostini SpA, an Italian publishing and insurance company, and its partners are seeking to buy Gtech Holdings(GTK), the world’s biggest seller of computerized lottery systems.

Wholesale Inventories Rise Less Than Estimates

- Wholesale Inventories for November rose .4% versus estimates of a .5% increase and a .2% gain in October.

BOTTOM LINE: Inventories at US wholesalers rose .4% in November as companies accelerated their restocking efforts after hurricane-related supply disruptions, Bloomberg reported. Sales feel .7% due mainly to a decline in the value of petroleum purchases. The inventory-to-sales ratio increased to 1.15 months from 1.14 the month before. I continue to believe inventory rebuilding will add to US growth over the intermediate-term on increasing business confidence and stable demand.

Links of Interest

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