Friday, January 13, 2006

Today's Headlines

Bloomberg:
- Tyco International(TYC) says it’s splitting into three public companies to jumpstart a sluggish recovery from an accounting and larceny scandal.
- General Motors(GM) expects “improved” results this year and next as new products boost revenue and cost-cutting measures take hold.
- US Treasuries are rising after a government report showed producer prices excluding food and energy rose less than forecast.
- S&P reduced its rating on Verizon Communications’ debt and may lower five more phone companies as competition from the cable industry increases.
- President Bush urged the UN Security Council to deal with the diplomatic standoff over Iran’s nuclear ambitions, saying a nuclear-armed Iran is “unacceptable.”
- Boston Scientific(BSX) raised its offer for cardiac device maker Guidant(GDT) to $25.3 billion, topping Johnson & Johnson’s(JNJ) bid and promising to pay more for any delay in completing the purchase.

Wall Street Journal:
- American International Group(AIG) is likely to pay more than $1 billion to settle state and federal civil fraud charges.
- GlaxoSmithKline Plc(GSK) hopes to be allowed to sell its Xenical weight-loss drug in the US without prescription.
- US soldiers in Iraq are strengthening vehicles’ armor-plating and using electronic devices to prevent concealed explosives from detonating.
- AutoNation, the largest US car dealer, backed GM’s new price-cut strategy, even as other dealers expressed worries about profit margins.
- Citadel Investment Group LLC, a Chicago-based hedge fund, is among an increasing number of funds imposing penalties on investors that try to withdraw their money.
- Sony Pictures Entertainment and other Hollywood film producers are reconsidering giving top stars part of movie revenue, to help maintain profit as cinema attendance slides.
- Richard Barton, formerly the head of Expedia Inc., said his new business, Zillow.com, will in the next six months unveil a test version of a set of Internet tools to help people to buy and sell homes.
- The US and state governments should reduce their role in health care and encourage a free-market approach to provide more insurance options at lower cost.

Washington Post:
- The US government has sent almost 600 auditors and investigators to the Gulf Coast region to monitor $8.3 billion in contracts awarded to aid victims of last year’s hurricanes.

NY Times:
- St. Jude Medical(STJ) has benefited in the past year from Guidant’s(GDT) recent missteps in recalling faulty pacemakers and failing to warn doctors quickly about the problems.

LA Times:
- Dave Marash, a reporter for the “Nightline” news program on Walt Disney’s(DIS) ABC, will become a co-anchor for the Arab network Al Jazeera.

Another Measure of Inflation Tame, Retail Sales Healthy, Business Inventories Rise

- The Producer Price Index for December rose .9% versus estimates of a .4% increase and a .7% decline in November.
- The PPI Ex Food & Energy for December rose .1% versus estimates of a .2% gain and a .1% increase in November.
- Advance Retail Sales for December rose .7% versus estimates of a .9% increase and an upwardly revised .8% gain in November.
- Retail Sales Less Autos for December rose .2% versus estimates of a .4% increase and a .4% decline in November.
- Business Inventories for November rose .5% versus estimates of a .4% increase and a .4% rise in October.
BOTTOM LINE: Core US producer prices rose less than forecast in December, a sign of tame inflation as companies had little success in passing along higher energy costs, Bloomberg said. The core index gained 1.7% in 2005, less than the 2.3% increase in 2004 as global competition continues to restrict the ability of companies to raise prices. Prices of material used at the beginning of the production process, including timber and scrap steel, fell 2.3% in December after declining 1.2% the prior month. I continue to believe measures of inflation will decelerate again in 2006 as US growth slows to averages levels, Chinese growth decelerates, energy prices continue to fall, labor costs are held in check and the dollar remains firm.

US retail sale rose less than expected in December as consumers bought more cars and less of everything else, Bloomberg said. Vehicle sales rose to a five-month high of 17.2 million units. Retail sales for all of 2005 rose a strong 7.3% to $4.19 trillion, the most in US history. I continue to believe retail sales will remain healthy this year as interest rates remain historically low, the labor market remains healthy, consumer confidence improves, energy prices fall further and stock prices rise.

US business inventories rose for a fourth straight month in November, reflecting increases in stockpiles at auto dealers and retailers as companies prepared for the holiday shopping season, Bloomberg reported. The amount of goods on hand at the end of November increased to 1.26 months at the current sales pace, up from an all-time low in October. I continue to believe inventory rebuilding and healthy demand will add to economic growth as companies gain confidence in the durability of the current economic expansion.

Links of Interest

Market Snapshot
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Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
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Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Thursday, January 12, 2006

Friday Watch

Late-Night Headlines
Bloomberg:
- Thomas Suozzi, a former mayor of Glen Cover, NY, and the first Democrat in 40 years to be elected head of Long Island’s Nassau County, filed papers to challenge NY Attorney General Eliot Spitzer for the party’s gubernatorial nomination.
- Pfizer agreed to pay Sanofi-Aventis SA $1.3 billion to obtain worldwide marketing rights to the Exubera inhaled insulin treatment, ending their partnership on the medicine.
ABC News:
- FBI officials are investigating an increase in purchases of large batches of disposable mobile phones by Iraqis and Pakistanis in California and Texas to find a possible link to terror networks. Terrorists used such phones to explode bombs in the 2004 Madrid train attacks.

Shanghai Securities Journal:
- China has no plans to sell dollar assets, citing central bank Governor Zhou Xiaochuan.

South China Morning Post:
- North Korean dictator Kim Jong Il is in China’s southern city of Guangzhou and will visit Shenzhen on the border of Hong Kong today.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (CSCO), (GOOG), (YHOO), (EBAY), (BSX), (FD) and (RE).
- Upgraded (STX) and (HPQ) to Outperform.
- Reiterated Underperform on (ZLC).

Business Week:
- Roy Disney’s investment company Shamrock Capital Advisors bought an 11% stake in IPass Inc.(IPAS).
- Outback Steakhouse(OSI) may rise about 50% within the next year because of an increase in assets from acquisitions of small, start-up units, citing Friedman Billings Ramsey’s Howard Penney.
- Perficient Inc.(PRFT) may be worth $12 a share in a year, Collins Gills of Canaccord Adams said.

Night Trading
Asian Indices are -.25% to unch. on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated unch.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
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Top 20 Business Stories
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Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
(NRPH) 2-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for December is estimated to rise .4% versus a .7% fall in November.
- The PPI Ex Food & Energy for December is estimated to rise .2% versus a .1% gain in November.
- Advance Retail Sales for December are estimated to rise .9% versus a .4% increase in November.
- Retail Sales Less Autos for December are estimated to rise .4% versus a .3% decline in November.

10:00 am EST
- Business Inventories for November are estimated to rise .4% versus a .3% increase in October.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity producing companies in the region. I expect US equities to open lower and to rally later in the day, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Close Near Session Lows on Profit-taking, Energy Stock Reversal and Iran Worries

Indices
S&P 500 1,286.06 -.63%
DJIA 10,962.36 -.73%
NASDAQ 2,316.69 -.63%
Russell 2000 706.79 -.62%
DJ Wilshire 5000 n/a
S&P Barra Growth 615.60 -.62%
S&P Barra Value 665.97 -.63%
Morgan Stanley Consumer 600.14 -.37%
Morgan Stanley Cyclical 794.06 -1.56%
Morgan Stanley Technology 553.57 -.50%
Transports 4,148.38 -1.21%
Utilities 412.81 +.07%
Put/Call .72 +14.29%
NYSE Arms 1.25 +60.33%
Volatility(VIX) 11.20 +2.38%
ISE Sentiment 144.00 -25.0%
US Dollar 89.47 +.54%
CRB 334.71 -.30%

Futures Spot Prices
Crude Oil 63.90 -.06%
Unleaded Gasoline 171.85 -.84%
Natural Gas 8.98 +.50%
Heating Oil 171.45 +.19%
Gold 547.50 -.33%
Base Metals 158.96 +.24%
Copper 208.95 +.10%
10-year US Treasury Yield 4.40% -1.06%

Leading Sectors
Disk Drives +.32%
Hospitals +.31%
Foods +.29%

Lagging Sectors
Oil Service -1.85%
Airlines -1.92%
Homebuilders -2.24%

Evening Review
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Style Performance
Market Wrap CNBC Video(bottom right)
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GuruFocus.com
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Afternoon Recommendations
Goldman Sachs:
- None of note

Afternoon/Evening Headlines
Bloomberg:
- The euro fell the most against the dollar in three weeks after European Central Bank President Jean-Claude Trichet said there are risks to economic growth in Europe.
- Ted Koppel, former host of ABC’s “Nightline,” will begin writing for the NY Times as a contributing columnist this month and will join the NPR radio network as a senior news analyst in June.
- Federated Dept. Stores(FD) plans to sell the Lord & Taylor division it acquired in its $11 billion purchase of May Dept. Stores(MAY) as it focuses on the Macy’s chain.
- California regulators approved a $2.5 billion solar-power subsidy, the largest ever in the US, offering more business to solar-panel makers such as SunPower and Evergreen Solar(ESLR) that are already struggling to meet demand.
- The US reported an $11 billion budget surplus in December as tax receipts soared 12.1% to $241.9 billion, an all-time record.
- Toyota Motor(TM) said it expects a US sales increase this year of as much as 10%, doubling a forecast it made last week.
- International Business Machines(IBM) said the SEC escalated a probe into the company’s first-quarter earnings report.
- Natural gas fell below $9, plunging 44% in about a month, as US supplies are set to reach records.
BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet longs, Semi longs, Medical Information longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was above-average. Measures of investor anxiety were higher into the close. Overall, today's market performance was negative considering the fall in long-term rates/natural gas, positive economic data and comments from Iran. The major averages and breadth finished near session lows, led by a sharp reversal in energy-related equities. However, breadth wasn't too bad and volume was only slightly above average. The 10-year T-note yield also finished near session lows, down 5 basis points. Today's action looked like healthy profit-taking to me. However, I would expect to see stocks trade mixed-to-lower in the near-term after an exceptional start to the year.

Stocks Lower Heading into Final Hour on Profit-taking and Iran Worries

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet longs, Software longs, Biotech longs and Semi longs. I took profits in some existing longs and added IWM and QQQQ shorts, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is above average. Measures of investor anxiety are higher. The average 30-year mortgage rate fell to 6.15% this week from 6.21% the prior week. This is the fifth consecutive weekly decline. Mortgage rates are now only 94 basis points away from record lows set in June 2003. The yield on the 10-year Treasury note has fallen 22 basis points in about nine weeks. I continue to expect mortgage rates to remain relatively low by historic standards this year as U.S. growth slows to average levels, demand for U.S. assets increases, inflation readings decelerate and the dollar remains stable. I expect US stocks to trade mixed-to-lower from current levels into the close on profit-taking and worries over Iran.