Wednesday Watch

Late-Night Headlines
Bloomberg:
- Hong Kong’s economy grew last year at the second-fastest pace since 2000, powered by rising exports and consumer spending.

Wall Street Journal:
- Boeing Co.(BA) is working on a verbal agreement to sell 80 of its 737 planes to China, which agreed to buy 70 of the jetliners in November.

Fox News:
- The Organization of the Islamic Conference rejected calls in Pakistan for the death of the Danish cartoonist who depicted the prophet Muhammad.

Tex Report:
- Posco, a South Korean steelmaker, may revise its domestic steel prices lower in March amid competition from cheaper Chinese imports.

Digitimes:
- Sony Corp.(SNE) pushed back the debut of its PlayStation 3 game console until August because of high component prices and inadequate levels of copy protection.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (WEC), (TYC), (MRVL) and (HRZ).
- Reiterated Underperform on (SAH), (FSS) and (MRK).

Night Trading
Asian Indices are -1.50% to unch. on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.03%.

Morning Preview
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
- (ARW)/.58
- (ESRX)/.75
- (GRMN)/.70
- (HET)/.56
- (HSIC)/.58
- (JLG)/.48
- (MSO)/.15
- (OMX)/.07
- (RHD)/.86
- (CRM)/.05
- (SINA)/.22
- (S)/.34
- (TK)/1.80
- (TJX)/.44
- (UNT)/1.61
- (VIA)/.47

Upcoming Splits
- (CCJ) 2-for-1
- (BTU) 2-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for January is estimated to rise .5% versus a .1% decline in December.
- The CPI Ex Food & Energy for January is estimated to rise .2% versus a .1% gain in December.

BOTTOM LINE: Asian indices are mostly lower, weighed down by exporters in the region after the US Fed minutes led traders to conclude more rate hikes were forthcoming. I expect US equities to open modestly lower and to trade modestly higher into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower as Fed Signals More Rate Increases Necessary

Indices
S&P 500 1,283.03 -.33%
DJIA 11,069.06 -.42%
NASDAQ 2,262.49 -.87%
Russell 2000 726.78 -.57%
S&P Barra Growth 606.97 -.42%
S&P Barra Value 672.52 -.23%
Morgan Stanley Consumer 601.91 -.40%
Morgan Stanley Cyclical 798.84 -.43%
Morgan Stanley Technology 528.31 -1.40%
Transports 4,395.22 -.21%
Utilities 411.14 +.36%
Put/Call .90 +11.11%
NYSE Arms 1.07 -11.24%
Volatility(VIX) 12.41 +3.33%
ISE Sentiment 146.00 -15.61%
US Dollar 90.60 +.20%
CRB 330.26 +1.09%

Futures Spot Prices
Crude Oil 62.50 -.38%
Unleaded Gasoline 147.00 -.39%
Natural Gas 7.77 +.50%
Heating Oil 166.10 -.32%
Gold 556.30 -.05%
Base Metals 167.79 +1.65%
Copper 226.95 -.18%
10-year US Treasury Yield 4.56% +.61%

Leading Sectors
Oil Service +3.77%
Oil Tankers +1.81%
Coal +1.80%

Lagging Sectors
Networking -1.55%
Computer Hardware -1.99%
Semis -2.17%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
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GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (HD), (TRI) and (FD).

Afternoon/Evening Headlines
Bloomberg:
- Level 3 Communications(LVLT) bonds are trading at their highest price in more than two years on prospects its cash flow will increase, two months after the long-distance phone operator defaulted on debt.
- Medtronic(MDT) said fiscal third-quarter profit rose 23% on sales of defibrillators as its biggest competitor struggled to shake off the effects of product recalls.


San Francisco Chronicle:
- California officials are working with Norcal Waste Systems, chemists and farmers to examine ways that animal waste can be transformed into methane energy.

Nikkei English News:
- Honda Motor may start selling a hybrid model of its Fit subcompact car around the world by fiscal 2007.

BOTTOM LINE: The Portfolio finished lower today on losses in my Biotech longs, Semi longs, Networking longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was below average. Measures of investor anxiety were mostly higher into the close. Overall, today's performance was moderately bearish. However, it was a positive that the bears were unable to gain traction on the downside. As well, the homebuilders (HGX), which have been the source of recent angst, finished near session highs, rising .23% for the day. I will closely watch the market's reaction to tomorrow's CPI report before further shifting market exposure.

Stocks Lower into Final Hour, Pressured by Tech Shares

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs, Semi longs, Networking longs and Energy-related shorts. I added IWM and QQQQ shorts today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is average. The CFO of Boston Scientific (BSX) and two directors recently purchased 215,000 shares at around $22.40/share. The stock is down about 45% since its high in April 2004. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Time Warner’s(TWX) agreement to increase its share buyback to $20 billion as part of a settlement with billionaire Carl Icahn may help boost the shares of the world’s largest media company.
- The LAPD will become the first department in the US to adopt a GPS device to track fleeing drivers. The gadget, manufactured by StarChase LLC, will be fired onto a suspect car, then will transmit location information to officers who can stay a safe distance behind.
- Dubai’s royal family sent a delegation to the US today to meet officials to allay concerns about the emirate’s control of US ports as part of its $6.8 billion buyout of the UK’s Peninsula & Oriental Steam Navigation Co.
- Blackstone Group LP, which is raising the world’s biggest buyout fund, agreed to acquire hotel owner MeriStar Hospitality Corp. for about $2.6 billion.
- Citigroup Global Markets, which a month ago predicted the Fed would be done raising rates at this point, and Bear Stearns increased their forecasts for how high the central bank will lift interest rates.
- Harvard Univ. President and former Treasury Secretary during the Clinton administration Lawrence Summers resigned as head of the oldest higher-education institution in the US after a five-year tenure marked by clashes with professors.
- Crude oil is rising in NY after rebel attacks on Nigeria’s oil facilities halted almost 20% of the output from the country.

Wall Street Journal:
- Overall revenue from US digital video recorder sales will rise to $5.5 billion in the next few years from $1.01 billion in 1999.
- A startup company backed by Time Warner’s(TWX) AOL and Barry Diller, chairman and CEO of IAC/InteractiveCorp.(IACI), is trying to become a middleman in distributing Web videos.
- Julius Baer Holding AG’s GAM, Allianz Global Investors and Alliance Capital Management’s AllianceBerstein are among mutual funds that are asking shareholders for permission to use tactics often found in hedge funds.

- CEOs are increasingly having strings attached to their remuneration packages amid rising complaints about excessive pay.
- Warnaco Group’s(WRNC) Speedo body-length swimsuits are being worn by US Olympic bobsled and skeleton competitors.

CNBC:
- Triarc Cos.(TRY) CEO Peltz may be considering a takeover of HJ Heinz(HNZ).

Advertising Age:
- Wal-Mart Stores(WMT) will expand its marketing department by as much as 30% as it seeks to compete more effectively with Target Corp.(TGT) and other retailers.

NY Daily News:
- Ron Insana, who anchors financial news network CNBC’s “Street Signs” program, plans to leave the network after almost 15 years to start a monthly financial newsletter and his own business.

NY Times:
- The American Medical Association agreed with US Congress to develop about 140 specific performance measures by the end of the year to help the US create pay standards for Medicare.
- US college e-mail, designed to make professors more accessible, is erasing healthy boundaries between students and their lecturers, breaking down the prudent conventions of student/professor communication, citing professors from across the US.
- US hedge funds are getting into the business of small loans, attracted by the prospect of being able to charge sky-high interest rates.
- The Port Authority of NY and New Jersey is spending $73 million on turnstile scanners and vending machines that will allow Path train riders to use fare cards with embedded computer chips.

USA Today:
- Some affluent US communities, including Aspen, Colorado, and Arlington County, Virginia, are passing laws limiting the size of new houses.

Iran Daily:
- Ayatollah Ali Khamenei, Iran’s Supreme Leader, encouraged Palestinian group Hamas to continue not to recognize the state of Israel and refuse negotiations with its government.

Leading Indicators Forecast Strong US Economic Growth

- Leading Indicators for January rose 1.1% versus estimates of a .6% increase and a .3% rise in December.

BOTTOM LINE: An index of US leading indicators rose for a fourth straight month as the labor market improved further and manufacturing strengthened, pointing to faster economic growth, Bloomberg reported. The fall in jobless claims contributed the most to the increase in the index. Morgan Stanley raised its estimate for 1Q US growth to 5.9% from a prior estimate of 5.5% growth. I expect very strong US economic growth in the first quarter of around 4.5-5.0%. However, growth should decelerate back to average levels of around 3.0% for the remainder of the year.

Links of Interest

Market Snapshot
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