PPI Rises, Consumer Confidence Moderates

- The PPI for January rose .3% versus estimates of a .2% gain and a downwardly revised .6% increase in December.
- The PPI Ex Food & Energy for January rose .4% versus estimates of a .2% gain and a .1% rise in December.
- Preliminary Univ. of Mich. Consumer Confidence for February fell to 87.4 versus estimates of 91.0 and a reading of 91.2 in January.

BOTTOM LINE: US wholesale prices rose .3% in January, led by higher costs for vehicles and machinery, Bloomberg said. Prices of raw materials actually fell .5%. I continue to believe measures of inflation will decelerate throughout most of the year as commodity prices fall, unit labor costs remain subdued and economic growth slows to average rates.

Confidence among US consumers slipped for a second month in February, Bloomberg reported. The expectations component of the index fell to 74.4 from 78.9 in January. The current conditions component of the index fell to 107.7 from 110.3 the prior month. I continue to believe consumer confidence makes new cycle highs later this year as the job market remains healthy, gas prices fall, inflation decelerates, stock prices rise, long-term interest rates remain low and housing stabilizes at relatively high levels.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Almost one in six children worldwide smoke or use tobacco in another form such as snuff, a study by the World Health Organization and US Centers for Disease Control Prevention found.
- Japanese bonds rose, pushing benchmark 10-year yields to a three-week low, after a government report on gross domestic product showed the country is struggling to end a more than seven-year bout of deflation.
- Nike Inc.(NKE) sued rival Adidas-Salomon AG, claiming a patent violation.
- Japan’s economy expanded at an annual 5.5% pace in the fourth quarter of last year, the Cabinet Office said.
- Dell Inc.(DELL) expects to overtake Hewlett-Packard(HPQ) and Lenovo Group Ltd., its two closet rivals in Asia, in the next few years, helped by demand for notebook computers.
- Oil prices may fall for a fifth week as gains in inventories indicate supplies are ample to meet demand, according to a Bloomberg survey of analysts.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (STZ), (NFP), (SYMC), (CG) and (DNA).
- Reiterated Underperform on (AEIS) and (PFG).

Business Week:
- Pozen Inc.(POZN) shares may gain as earnings rise on the company’s Trexima treatment for severe headaches, which is set for US regulatory approval by June, citing SG Cowen’s Joshua Schimmer.
- Shares of United Parcel Service(UPS) may increase more than 33% in the next two years because of growth in Asia, citing Stephen Leeb, head of Leeb Capital Management.
- The shares of PNC Financial Services Group(PNC) may rise after the company reduced its stake in BlackRock(BLK).

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
(BEC)/.73
(CPB)/.59
(SJM)/.73
(PCG)/.43
(RSH)/.67
(SIRI)/-.22
(TEX)/.96
(ZLC)/1.91

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for January is estimated to rise .2% versus a .6% gain in December.
- The PPI Ex Food & Energy for January is estimated to rise .2% versus a .1% increase in December.

9:45 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for February is estimated to fall to 91.0 versus a reading of 91.2 in January.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate firms in the region on speculation Japan would raise interest rates. I expect US equities to open mixed and to trade higher into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs on Positive Economic Outlook

Indices
S&P 500 1,289.38 +.73%
DJIA 11,120.68 +.56%
NASDAQ 2,294.63 +.80%
Russell 2000 731.92 +.94%
S&P Barra Growth 611.09 +.66%
S&P Barra Value 674.59 +.81%
Morgan Stanley Consumer 604.26 +.53%
Morgan Stanley Cyclical 800.67 +.45%
Morgan Stanley Technology 541.44 +1.34%
Transports 4,414.61 -.62%
Utilities 406.36 +.73%
Put/Call .71 +1.43%
NYSE Arms .60 -41.30%
Volatility(VIX) 11.48 -6.74%
ISE Sentiment 200.00 +58.73%
US Dollar 90.63 -.10%
CRB 322.60 +.58%

Futures Spot Prices
Crude Oil 58.88 +.72%
Unleaded Gasoline 143.45 +1.56%
Natural Gas 7.24 +1.49%
Heating Oil 163.90 +.84%
Gold 550.10 +.24%
Base Metals 161.13 -.26%
Copper 221.90 -.16%
10-year US Treasury Yield 4.58% -.30%

Leading Sectors
Steel +2.79%
Oil Service +2.57%
Computer Hardware +2.53%

Lagging Sectors
Gaming -.10%
Airlines -1.01%
HMOs -1.62%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (BHI).
- Reiterated Underperform on (CNA).

Afternoon/Evening Headlines
Bloomberg:
- Legislation to renew the USA Patriot Act cleared a key procedural hurdle in the Senate today, easing way for passage by Congress.
- MasterCard Inc. delayed its IPO because CEO Selander has prostate cancer.
- Intuit(INTU) said second-quarter profit jumped 26%, aided by the sale of a unit and early revenue from TurboTax software.
- Dell Inc.(DELL) said fourth-quarter profit rose 52% as PC shipments reached a record during the holidays.

Washington Post:
- Mirant Corp.(MIR) is seeking approval to build a barge terminal on the Potomac River to supply a coal-fueled power plant in Maryland.

Wall Street Journal:
- Billionaire investor Carl Icahn abandoned his plan to take control of Time Warner(TWX).

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Internet longs, Computer longs, Semi longs and Networking longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector gained and volume was above average. Measures of investor anxiety were mostly lower into the close. The AAII % Bulls fell to 40.18% this week from 40.19% the prior week. This reading is still below average levels. The AAII % Bears rose to 35.71% this week from 34.58% the prior week. This reading is still above average levels. I expect bullish sentiment to fall again next week. Considering the DJIA is above 11,000, the Russell 2000 is almost 9% higher for the year and a number of sectors are near all-time highs, these numbers bode very well for future gains in U.S. stocks.

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Computer longs, Semi longs, Networking longs and Internet longs. I have not traded 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. The Fed's Poole is now saying that markets are correctly interpreting the Fed's intentions and that the economy is balanced. He is also saying that there is no danger of inflation suddenly accelerating and that the FOMC is highly likely to discuss inflation targeting. I continue to believe the 10-year T-note yield will top for the year some time during the first half, likely around the time that 1Q GDP is released. I expect US stocks to trade modestly higher into the close from current levels on short-covering, stable long-term rates and bargain hunting.

Today's Headlines

Bloomberg:
- German Chancellor Angela Merkel said she’s “very optimistic” the international standoff over Iran’s nuclear ambitions can be resolved by negotiation.
- Manufacturing in the Philly area accelerated more than expected this month, another sign the economy is gaining momentum, a Federal Reserve survey showed.
- Federal Reserve Chairman Bernanke said the US economy will show a “significant” recovery from the fourth quarter.

Wall Street Journal:
- A Washington State bill that would force large companies such as Wal-Mart Stores(WMT) to spend more on health-care insurance for employees may be dead after it didn’t advance out of committee for a vote.
- The world’s ability to contain the spread of avian flu has improved markedly in the last six months, citing Anthony Fauci, director of the National Institute of Allergy and Infectious Disease.
- A group led by Cerberus Capital Management LP is the head bidder for a majority stake in General Motors’(GM) GMAC finance unit.
- Helio, a mobile phone venture owned by EarthLink Inc. and South Korea’s SK Telecom, will announce today a partnership with News Corp.’s(NWS) MySpace.com networking site.

NY Post:
- Utah and Connecticut state securities regulators investigating alleged naked short-selling have subpoenaed records of Wall Street’s largest firms.

Washington Post:
- US Attorney General Alberto Gonzales announced new initiatives aimed at fighting against housing discrimination, child exploitation and gang violence.

NY Times:
- Some US venture capitalists are investing in educational reform by donating money to so-called charter schools and then overseeing the school’s business operations.
- Billionaire investor Carl Icahn will propose a group of executives and corporate-governance experts today as candidates for Time Warner’s(TWX) board.
- The Bush administration said it would ask Congress for $4.2 billion more to help Louisiana residents whose homes were damaged by last year’s hurricanes.
- BlackRock(BLK) CEO Fink, who yesterday engineered the money-management industry’s biggest acquisition ever, said more takeovers were inevitable as firms seek to expand globally.

Guardian:
- US companies seem likely to get the bulk of a $87 billion nuclear clean-up program in the UK.

AFP:
- Iran’s nuclear program is a “clandestine, military project,” French Foreign Minister Philippe Douste-Blazy said on France 2 television.