Today's Headlines

Bloomberg:
- US spending for health care may double to $4 trillion by 2015, propelled by an aging population using more drugs, hospital care and technology.
- Borrowing costs for European and US utilities are at their lowest this year, helping companies including E.ON AG that aim to pay for acquisitions using debt.
- The Fed gave investors evidence to back up bets for two more rate hikes in coming months.
- Bill Miller, holder of the longest streak of beating the S&P 500 Index in mutual fund history, is calling on Tyco Intl.(TYC) to buy back shares as its stock trades near a two-year low.
- US Treasuries rose after a government report on consumer prices tempered speculation that inflation is poised to accelerate.
- Fed Vice Chairman Roger Ferguson, the last governor who wasn’t placed on the board by President Bush, resigned less than a month after Ben Bernanke succeeded Alan Greenspan as chairman.
- Shares of Intel(INTC) fell below $20 for the first time in more than a year after ThinkEquity Partners LLC’s Eric Ross said the company may miss profit estimates.
- The FCC plans sanctions against television stations or affiliates for violating decency standards, signaling a renewed effort to crack down on the broadcasting of material unfit for children.
- Energy futures are falling on speculation that a government report tomorrow will show that US inventories rose for an eighth straight week, indicating that supplies are sufficient to meet demand.

Wall Street Journal:
- James Gorman, who formerly ran Merrill Lynch’s(MER) private-client operations, has been assigned to boost profit and lower costs at Morgan Stanley’s(MWD) individual-investor brokerage business.
- Sales of cheap Canadian drugs to US citizens have fallen by as much as 30%, after elderly and disabled people became eligible for drugs through Medicare, citing the Canadian International Pharmacy Agency.
- US conservation banks that allow developers to expand construction in exchange for setting aside land for endangered species are increasing nationwide.
- Internet name snatchers are building a growing business by grabbing Web addresses that have expired and reselling them at a profit.

Washington Post:
- The Bush administration said the press can be tried under espionage laws for gathering and publishing classified information that could hurt national security.

San Jose Mercury News:
- Google(GOOG) and Earthlink(ELNK) combined to submit one of six bids to provide wireless Internet service to San Francisco.

NY Times:
- The controversy over the cartoons of the Prophet Muhammad, typically defined as a struggle between Islam and the West, has an intra-Muslim side too. Eleven Muslim journalists in five countries are facing prosecution for reprinting some of the cartoons originally published in a Danish newspaper.
- The amount of mail sent by Iraqis has risen 46% since the American-led liberation in 2003, offering evidence of recovery.
- Electronic Arts(ERTS) plans to sell its video game based on the “Godfather” movies and book for $39.95, which is 20% less than it usually retails new games.
- Silvercup Studios in Queens, NY, home to such television shows as “The Sopranos,” plans to build a $1 billion complex featuring soundstages, commercial space and housing.

London-based Times:
- The SEC may approve a merger between the NYSE and Archipelago Holdings within two days.

Iran Daily:
- Iran’s oil exports fell 3.9% to 2.46 million barrels a day in 2005.

Core Consumer Prices Remain Subdued

- The Consumer Price Index for January rose .7% versus estimates of a .5% increase and a .1% decline in December.
- The CPI Ex Food & Energy for January rose .2% versus estimates of a .2% increase and a downwardly revised .1% rise in December.

BOTTOM LINE: Overall, prices paid by US consumers rose in January by the most in four months, while core prices remained subdued, Bloomberg reported. Energy prices rose 5% in January, the most since September. However, energy has fallen substantially in February. Medical costs rose .1% in January versus a .2% increase in December. A record warm January prevented retailers from discounting as sales accelerated. I expect measures of inflation to decelerate throughout most of the remainder of the year. I also continue to believe we are experiencing a cyclical bout of modest inflation within a secular period of disinflation. This will become quite apparent the next time the U.S. enters recession. Commodity prices have had a significant impact on most inflation measures. I strongly disagree with those who think these prices will remain historically elevated during a recession. Thus, in my opinion, the bond market is looking forward, not back.

Links of Interest

Market Snapshot
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NYSE Unusual Volume
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Option Dragon
Real-time Intraday Chart/Quote

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
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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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)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
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.