Friday Watch

Late-Night Headlines
Bloomberg:
- Mattel Inc.(MAT) is giving Ken the surfer look to woo back Barbie and help revive sales of its biggest line.
- Japan is preparing for a possible eruption of Mount Fuji 60 miles from Tokyo, the world’s biggest city, after increased seismic activity.
- Oil prices may fall again next week amid speculation that US inventories are sufficient to meet demand in the months ahead, a Bloomberg News survey shows.
- A three-year rally in Australia’s S&P/ASX 200 Index may slow as strategists trim expectations for resources stocks’ earnings growth this reporting season.

Financial Times:
- Apple Computer(AAPL) started a new free service that will let colleges publish lectures on the Internet.

Mercury News of San Jose:
- Craigslist, a provider of free Internet ad listings, is being sued by a Chicago civil rights group that says the closely held company violates fair housing laws.

Xinhua News Agency:
- China will complete construction of all major Olympic venues for the 2008 games by the end of this year, one year ahead of its revised schedule, citing the organizing committee.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (RDEN), (TAP), (ENH), (CL), (NRG) and (MAR).
- Reiterated Underperform on (MHX).

Business Week:
- The shares of Medallion Financial(TAXI), which provides loans to taxicab owners for license medallions, may rise as prices for such medallions increase.
- STMicroelectronics NV(STM), the French-Italian semiconductor maker that lost 6.8% in 2005, will see its stock rise under new management and after cost cuts.
- Illumina Inc.(ILMN), which develops tools for use in genetic analysis, may rise as drug companies attempt to improve treatments by using genetic data.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.09%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
(ACI)/.29
(CVH)/.80
(ODP)/.32
(PIXR)/.18
(RBK)/.58

Upcoming Splits
(EME) 2-for-1

Economic Releases
8:30 am EST
- The Trade Deficit for December is estimated to widen to -$65.0 billion versus -$64.2 billion in November.

2:00 pm EST
- The Monthly Budget surplus for November is estimated at $8.0 billion versus $8.6 billion in December.

BOTTOM LINE: Asian indices are lower, pressured by technology and exporting stocks in the region. I expect US equities to open mixed and to trade modestly lower into the afternoon. The Portfolio is 50% net long heading into the day.

***Alert***

Due to a scheduling conflict I am unable to post the Thursday Close. I will post the Friday Watch later this evening. I finished the day 50% net long.

Stocks Mixed into Final Hour as More Weakness in Commodity Stocks Offsets Positives

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Semi longs and Energy-related shorts. I added back (IWM) and (QQQQ) shorts, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, most sectors are higher and volume is heavy. I expect US stocks to trade mixed-to-lower into the close from current levels as losses in commodity stocks and other momentum favorites more than offset lower energy prices and long-term rates.

Today's Headlines

Bloomberg:
- US cancer deaths fell in 2003, the first annual decline since record-keeping began in 1930.
- Consumers who flocked to auto dealers and shopping malls after the holidays helped the US economy grow 4% this quarter, snapping back from a slowdown during the fourth quarter, a Bloomberg survey shows.
- Google(GOOG) is offering a new version of its desktop software that lets users seek files on several personal computers and share Web content.
- Research In Motion(RIMM) has started testing new software that would run its BlackBerry e-mail devices without using contested patents, allowing the service to keep running if the company loses a legal battle.
- Best Buy(BBY) raised its fourth-quarter and annual earnings forecasts after strong holiday sales of flat-panel televisions and iPods extended into January.
- UN Secretary-General Kofi Annan said he will ask President Bush to contribute troops and equipment to a planned UN peacekeeping mission in the Darfur region of Sudan when they meet at the White House on Feb. 13.
- President Bush said in the months after the Sept. 11 terrorist attacks the US disrupted a plot to hijack a commercial jet and fly it into a skyscraper in LA.
- Oprah Winfrey signed a $55 million contract to start a channel on XM Satellite Radio(XMSR).
- US 30-year Treasuries surged after bidders including pension funds flocked to the government’s first sale of the securities since 2001.
- Microsoft(MSFT) plans a $1 billion expansion to its main campus, adding 14 new buildings in Redmond, Washington.
- Crude oil in NY was unchanged, close to a five-week low, amid higher US gasoline inventories and reduced refinery operating rates.

Wall Street Journal:
- Univision(UVN), which has put itself up for sale, is likely to seek a price of more than $40 a share.

NY Times:
- NYU plans to build a $200 million pediatric mental health center to treat thousands of children and train thousands of doctors.

Hollywood Reporter:
- Sony Corp.(SNE) said new movie DVDs using the Blu-ray format will sell for $23.45, as much as 20% more expensive that the first generation of DVDs when they were introduced.

AP:
- About 2,000 Muslims rallied today in the Bangladeshi capital, Dhaka, and burned a Danish flag.

Washington Post:
- Cell phones and Internet Web logs helped turn cartoons published in Denmark into a uniting cause for Islamic protesters worldwide in days or even hours.

Jobless Claims Fall Again, Wholesale Inventories Rise on Increased Confidence

- Initial Jobless Claims for last week rose to 277K versus estimates of 285K and 273K the prior week.
- Continuing Claims rose to 2557K versus estimates of 2518K and 2497K prior.
- Wholesale Inventories for December rose 1.0% versus estimates of a .5% gain and a .5% rise in November.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits rose less than forecast last week, more evidence of strength in the labor market, Bloomberg reported. The four-week moving average of 276,500 is the lowest since right after the stock market bubble burst in April 2000. The unemployment rate among those available to receive benefits, which tracks the US unemployment rate, rose to 2% from 1.9% the prior week. The labor market, while very healthy, is likely not quite as strong as recent data suggest. I continue to believe it will remain healthy over the intermediate-term without generating substantial unit labor costs increases.

Inventories at US wholesalers increased more than forecast in December as companies geared up for improving sales, Bloomberg said. Sales rose 1.0%, the most since September. The inventory-to-sales ratio remained at 1.15 months. I continue to believe inventory rebuilding will boost economic growth over the intermediate-term as executives gain more confidence in the durability of the current expansion and demand remains healthy.

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