Tuesday Watch

Weekend Headlines
Bloomberg:
- The United Arab Emirates reassured US senators that Dubai’s takeover of the US port assets of Peninsula & Oriental Steam Navigation Co. is not a threat to national security.
- NBC Universal, the no. 3 US network, may be forced to give advertisers free or discounted air time to make up for low viewership after its Olympic coverage twice failed to gain top ratings this week.
- Abu Dhabi’s Mubadala Development Co. will partner with Dubai Aluminum Co. Ltd. to build the world’s largest aluminum plan for $6 billion.
- Pakistani cleric Mohammed Yousaf Qureshi offered a $1 million bounty to 1,000 people for killing the Denmark cartoonist who drew caricatures of the prophet Mohammad.
- Harvard University President Lawrence Summers may be on the way out, as the governing board considers calls for his resignation.
- The virus that causes bird flu hasn’t become more easily transmissible to humans as the disease spreads in birds across Europe, the World Health Organization said.
- President Bush said the US needs to reduce crude oil imports and diversify its energy consumption so the world’s largest economy isn’t “held hostage” by oil-rich countries that may not be allies.
- Oil rose the most in 4 weeks in NY as Nigerian rebels threatened more attacks after cutting output from Africa’s largest producer by about 20%.

Wall Street Journal:
- McDonald’s(MCD) more expensive items such as the $4.50 California Cobb salad have been helping the company’s earnings by increasing customers’ average bill.
- McDonald’s(MCD) had at least three lawsuits filed against it after it disclosed last week its French fires contain wheat and milk ingredients that may cause problems for people sensitive to these substances.
- Coca-Cola(KO) is headed for a legal battle with 54 of its bottlers over a new distribution system at Wal-Mart(WMT).
- Fidelity Investments and a hedge fund group last week offered to buy any shares in USG’s(USG) proposed $1.8 billion stock offering not purchased by current shareholders, underbidding Warren Buffett’s Berkshire Hathaway.

Barron’s:
- Retail investor assets rose 18% to $678 billion last year in separately managed accounts, customized investment vehicles that permit direct ownership of a bundle of securities.

Institutional Investor.com:
- Here is a list of America’s most shareholder-friendly companies for 2006.

NY Times:
- Temporary diabetes among pregnant women, known as gestational diabetes, has increased almost 50% in the past decade in New York.
- The newfound wealth coming to the African nation of Chad from a $2.4 billion oil pipeline, backed by the World Bank to fight poverty, is being diverted by the government in part to the army.
- American Indians are becoming increasingly involved in trafficking high-potency marijuana, Ecstasy, cocaine and methamphetamine on US reservations, citing court records, federal and local prosecutors and tribal members.
- Day-trading, the fad that contributed to the bubble in the 1990s, is becoming popular in Japan, embraced by students, and housewives.
- US suburban homeowners doubled their expenditure on garage organizing products to $800 million last year compared with 2000.

LA Times:
- The FDIC’s boost in insurance coverage may help make bank accounts an attractive choice for retirement funds.

AP:
- Nigerian protests over caricatures of the prophet Mohammad erupted into violence that killed 15 people and resulted in at least 15 Christian churches being burned.
- Louisiana Governor Kathleen Blanco laid out a $7.5 billion plan to fund rebuilding, moving or buying out residents whose homes were destroyed or remain damaged by hurricanes Katrina or Rita.

Seattle Times:
- Microsoft’s executive in charge of its MSN online division is taking a leave of absence and may or may not return to the company.

Financial Times:
- Sony Corp.(SNE) may have to delay the introduction of its new PlayStation 3 video game console by six to 12 months, citing Merrill Lynch analysts.
- The European Union will introduce anti-dumping tax duties of around 20% on shoe imports from China and Vietnam.
- US companies have so far borrowed $98.5 billion with investment grade bonds this year to fund an increase in mergers and acquisitions.
- National Grid Plc, manager of the UK power grid, may buy KeySpan Corp.(KSE), the biggest natural-gas seller in the US north east.

Sunday Telegraph:
- The UK should introduce Sharia law in some parts of the country, according to 40% of British Muslims surveyed.

Business:
- Microsoft(MSFT) has developed a Skype-style free Internet voice service that challenges operators such as Vodafone Group Plc(VOD), citing CEO Ballmer.

Xinhua News Agency:
- Coca-Cola’s(KO) sales in China expanded 22% last year as the company focused on non-carbonated drinks.

China Daily:
- China’s sales conducted over the Internet rose 58% last year to $69 billion.

Times of India:
- An official in the northern Indian state of Uttar Pradesh offered $11.4 million to anyone who beheads the Denmark cartoonist who drew caricatures of the prophet Muhammad.

El Moudjahid:
- OPEC may leave its quotas for crude-oil production unchanged because prices are high, citing Algeria’s oil minister.

Middle East Economic Digest:
- Saudi Arabia will invite international companies to bid for a contract in the second quarter to build production facilities to pump 100,000 barrels a day of oil from the Nuayyim oilfield.

Weekend Recommendations
Barron's:
- Had positive comments on (TOL), (ALSK) and (TXRH).

Goldman Sachs:
- Reiterated Outperform on (K) and (EBAY).
- Reiterated Underperform on (SIRI) and (MCCC).

Night Trading
Asian indices are -.25% to +.75% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.12%.

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US AM Market Call
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Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
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Top 20 Business Stories
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Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/Estimate
(ABGX)/-.44
(BIDU)/.08
(CBRL)/.59
(CEC)/.35
(CCU)/.35
(DPZ)/.42
(FD)/2.62
(FLS)/.26
(FOSL)/.39
(GPC)/.62
(HD)/.56
(LAMR)/.06
(MDT)/.55
(OII)/.68
(RRI)/-.32
(WMT)/.83

Upcoming Splits
(AET) 2-for-1
(BRCM) 3-for-2
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(IMGC) 3-for-2
(ITT) 2-for-1

Economic Releases
10:00 am EST
- Leading Indicators for January are estimated to rise .6% versus a .1% increase in December.

2:00 pm EST
- Minutes of Jan. 31 FOMC Meeting

BOTTOM LINE: Asian Indices are mostly higher, boosted by gains in financial shares in the region. I expect US stocks to open modestly lower and to rise later in the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

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

Economic reports for the week include:

Mon. - US Markets Closed
Tues. - Leading Indicators, FOMC Minutes
Wed. - Consumer Price Index
Thur. - Initial Jobless Claims
Fri. - Durable Goods Orders

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

Mon. - US Markets Closed
Tues. - Abgenix(ABGX), Baidu.com(BIDU), CBRL Group(CBRL), Clear Channel(CCU), Domino’s Pizza(DPZ), Federated Department Store(FD), Home Depot(HD), Lamar Advertising(LAMR), Medtronic(MDT), Reliant Energy(RRI), Wal-Mart Stores(WMT)
Wed. - Express Scripts(ESRX), Garmin Ltd.(GRMN), Harrah’s Entertainment(HET), Henry Schein(HSIC), Martha Stewart(MSO), Novell Inc.(NOVL), OfficeMax(OMX), Salesforce.com(CRM), Sprint Nextel(S), Teekay Shipping(TK), TJX Cos.(TJX), Viacom(VIA)
Thur. - BEA Systems(BEAS), Checkpoint Systems(CKP), ENSCO Intl.(ESV), Gap Inc.(GPS), GlobalSanteFe Co.(GSF), H&R Block(HRB), Kohl’s Corp.(KSS), Limited Brands(LTD), Marvel Entertainment(MVL), Marvell Technology(MRVL), MGM Mirage(MGM), Mohawk Industries(MHK), Netease.com(NTES), Nordstrom(JWN), Toll Brothers(TOL), Wynn Resorts(WYNN)
Fri. - American International Group(AIG), American Tower Corp.(AMT), Autozone Inc.(AZO), Pixar Corp.(PIXR)

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

Mon. - US Markets Closed
Tue. - Wachovia Consumer Growth Conference, Morgan Stanley Basic Materials Conference
Wed. - Morgan Stanley Basic Materials Conference, JPMorgan Airline Conference, Wachovia Consumer Growth Conference
Thur. - JPMorgan Airline Conference, Wachovia Consumer Growth Conference, Morgan Stanley Basic Materials Conference
Fri. - Wachovia Consumer Growth Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on positive economic data, good earnings reports and short-covering. My trading indicators are now giving mixed signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,287.24 +1.60%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very positive considering the mixed economic data, mostly hawkish statement’s from the Fed’s Bernanke and subdued investor sentiment. The advance/decline line was higher, most sectors gained and volume was about average on the week. Measures of investor anxiety were mostly higher. Moreover, the AAII % Bulls fell slightly to 40.18% and is still below average levels, which is a positive. The average 30-year mortgage rate rose to 6.28% which is still only 107 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield fell 5 basis points on the week as investors cheered Bernanke’s comments.

Unleaded Gasoline futures bounced slightly for the week, but have collapsed 48.2% from September highs even as refinery utilization remains below normal as a result of the hurricanes last year, 24% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories fell less than expected this week. Moreover, supplies are now 44.0% above the 5-year average, approaching an all-time record high for this time of year, even as 16% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 55% in 9 weeks. Gold was mostly unchanged on the week as a firm US dollar offset inflation data that exceeded estimates.

The mania for many commodities waned further this week. It still appears to me that the CRB Index has made a significant intermediate-term top. I still believe prices for many commodities have been driven higher by fear and record capital inflows into commodity funds, rather than fundamentals. I continue to expect global energy demand destruction, decelerating economic growth, a firm dollar and a significant increase in supplies later in the year to push oil prices substantially lower from current levels. If in fact commodity prices have peaked, international emerging growth economies will slow, thus leading to a substantial slowdown in the demand for emerging market stocks. While this may cause some more turbulence in US markets in the short-run, it is a huge positive for US stocks longer-term.

The Telecom sector(ITH) outperformed substantially and is close to breaking out of the trading range that has contained it since 2002. An upside breakout in this sector would be a big positive for tech stocks and help further boost the broad market. S&P 500 earnings growth for the fourth quarter is now on pace to rise 15.0% year-over-year, more than double the long-term average. This would be the 15th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. Moreover, companies have sufficiently lowered the bar as to allow for better-than-expected 1Q results. As of now, analysts are projecting 9.8% earnings growth for the first quarter, still very good by historic standards. I continue to believe the S&P 500’s forward p/e multiple, which is currently 15.4, will expand back to around 19 by year-end, thus helping to push the index about 15% higher for the year. The ECRI Weekly Leading Index fell and is forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,287.24 +1.60%
DJIA 11,115.32 +1.80%
NASDAQ 2,282.36 +.91%
Russell 2000 730.94 +1.93%
S&P Equity Long/Short Index 1,148.37 -.56%
S&P Barra Growth 609.52 +1.30%
S&P Barra Value 674.10 +1.91%
Morgan Stanley Consumer 604.33 +1.82%
Morgan Stanley Cyclical 802.25 +2.52%
Morgan Stanley Technology 535.82 +.76%
Transports 4,404.34 +1.91%
Utilities 409.66 +1.13%
S&P 500 Cum A/D Line 8,460 +7.0%
Bloomberg Crude Oil % Bulls 29.0 -14.53%
Put/Call .81 +19.12%
NYSE Arms 1.21 +7.08%
Volatility(VIX) 12.01 -6.68%
ISE Sentiment 173.00 -7.98%
AAII % Bulls 40.18 -.02%
AAII % Bears 35.71 +3.27%
US Dollar 90.64 +.05%
CRB 326.15 -1.64%
ECRI Weekly Leading Index 136.90 -.94%

Futures Spot Prices
Crude Oil 59.88 -3.18%
Unleaded Gasoline 150.26 +2.22%
Natural Gas 7.18 -1.75%
Heating Oil 165.74 +.33%
Gold 555.20 +.18%
Base Metals 161.18 -3.69%
Copper 219.20 -1.70%
10-year US Treasury Yield 4.53% -1.31%
Average 30-year Mortgage Rate 6.28% +.64%

Leading Sectors
Telecom +4.43%
Biotech +3.85%
Hospitals +3.83%
I-Banks 3.64%
Disk Drives +3.39%

Lagging Sectors
Tobacco -.40%
Restaurants -.40%
Software -.80%
Semis -.92%
Oil Service -3.65%

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

*5-Day % Change

Stocks Modestly Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Internet longs and Networking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is above average. The ECRI Weekly Leading Index fell to 136.90 this week from 138.20 the prior week. This is off of cycle highs of 138.50 set the third week of January, but is still solidly higher from a reading of 132.00 during the last week of May 2005. This gauge of future economic activity is forecasting healthy, but decelerating, U.S. growth. I expect US stocks to trade modestly higher into the close from current levels on short-covering and lower long-term rates.

Today's Headlines

Bloomberg:
- US Steel Corp.(X) CEO Surma said rival Arcelor, which is fighting a $22.4 billion hostile takeover from Mittal Steel, is unlikely to seek to acquire US Steel.
- London’s most expensive homes posted their biggest monthly increase in value in at least 20 years in January as bankers and traders started spending record bonuses, according to UK real-estate agent Knight Frank LLC.
- Sirius Satellite Radio(SIRI) posted a wider fourth-quarter loss after spending more on promotions during the holiday season.
- A campaign button depicting the embrace of President Bush and Democratic Senator Joe Lieberman is circulating among a group of Democrats attempting to organize a primary challenge to the 63-year-old Lieberman.
- Delphi Corp. set a new deadline of March 31 for asking a bankruptcy judge to void its labor contracts, union officials said.
- City officials in Volgograd, Russia, closed their own newspaper for printing a cartoon portraying Muhammad and other prophets amid violent protests in some Islamic countries over Muhammad cartoons in European publications.
- Penthouse Media Group plans to start its own television porn channel this year and may go public to help finance an expansion beyond magazines.
- Crude oil is rising after a report that Nigerian militants would declare war on oil companies.

Wall Street Journal:
- Merger and acquisitions funds, despite an increase in transactions, are showing “uninspiring” returns, citing S&P.
- Wilmer Cutler Pickering Hale & Dorr and other US law firms are gaining business defending companies from China in trade disputes.
- The FDA is seeking user fees from generic-drug markers to help fund reviews, in the same way major branded-pharmaceuticals and device makers do.
- If Mexico’s Grupo Televisa SA is to acquire Univision Communications(UVN) it must overcome some legal and social difficulties.

NY Times:
- KeySpan Corp.(KSE), the fifth-largest US natural gas distributor, is trying to sell itself and has attracted bids of more than $6.5 billion.
- Quadrangle Group LLC, a media and communications investment firm, will announce today that it is starting a head fund for which it eventually expects to raise $1 billion.
- New Orleans, much of which was destroyed by Hurricane Katrina last year, will hold its first Mardi Gras carnival since the destruction later this month.

Chicago Tribune:
- Chicago will seek proposals from technology companies this spring on how to build and offer wireless Internet access throughout the city.

Sky News:
- Eva Green, a French actress best known for her role in Ridley Scott’s drama Kingdom of Heaven, has been cast as the female lead in the new James Bond movie.

China Daily:
- China’s sales of personal computers will rise 50% to 30 million by 2008 from 20 million last year.

Al-Hayat:
- Yemen’s auction of oil-exploration rights has attracted 63 companies from 25 nations, citing Oil Minister Khaled Mahfodh Ba-Haj.