Today's Headlines

Bloomberg:
- NBC Universal’s Olympics television coverage isn’t only losing out to “American Idol” and “Desperate Housewives.” The No. 3 US network, owned by GE(GE), is getting beaten by its own Web site.
- The UK has placed a $58 million order with Baxter International(BAX) and Chiron Corp.(CHIR) for 3.5 million doses of avian influenza vaccine.
- New Jersey may become the second US state to allow gay marriage, and the first to allow homosexuals living outside the state to wed, because of a case heard this month by the state’s highest court.
- Time Warner(TWX) said Ted Turner and Carla Hills will step down from the board of directors after the company’s annual shareholders meeting.
- The IRS found a “disturbing” amount of political activity before the 2004 elections among non-profit organizations in violation of rules on tax-exempt entities.
- Chicago had the biggest surge in hotel acquisitions among US cities last year, pushing it ahead of Washington and Miami as investors headed for a market where demand outpaced construction.
- Crude oil is jumping more than $2/bbl. after Saudi Arabian forces repelled a suicide attack on the Abqaiq processing center, which handles about 7% of world supply.
- A judge considering a halt in US BlackBerry e-mail service criticized both sides in the case for not settling their patent dispute and said he will rule later on a shutdown.

Wall Street Journal:
- National Grid Plc has offered to acquire NY utility and natural-gas distributor KeySpan Corp.(KSE) for about $7.3 billion in an effort to increase business in the northeastern part of the US.
- Hard Rock Hotel’s $1.2 billion plan to add condominiums and hotel rooms to its Las Vegas property has been postponed because of offers to buy the site.
- Chicago Mercantile Holdings is seeking to start trading of products in the credit derivatives field.
- Goldman Sachs(GS), Bank of America(BAC) and Bear Stearns(BSC) may buy a minority stake in the Chicago Stock Exchange.
- More and more mutual funds classified as US stocks funds are investing in companies abroad, which complicates portfolio planning for investors.

Business Week:
- Advance Publications’ GQ magazine plans to encourage readers of the mean’s monthly to subscribe to a text messaging service that may transmit notes about events, private sales and giveaways to cell phones.

LA Times:
- The Univ. of Southern California announced yesterday it received a $25 million donation from billionaire Eli Broad’s Broad Foundation to construct a stem cell research facility.

NY Times:
- The US’s largest companies expect a $4 billion subsidy for their retiree health plans over the next four years under Medicare’s new prescription drug benefit, citing a study by Credit Suisse First Boston.

Durable Goods Orders Fall on Volatile Airplane Orders

- Durable Goods Orders for January fell 10.2% versus an upwardly revised 2.5% increase in December.
- Durables Ex Transportation for January rose .6% versus an upwardly revised 1.9% gain in December.

BOTTOM LINE: A decline in commercial aircraft demand last month caused a large drop in Durable Goods Orders, even as factories reported stronger sales of business equipment. The third straight gain in orders excluding autos and commercial planes was the best stretch since July through Sept. 2004. Orders for non-defense capital goods excluding aircraft, a gauge of future business spending, fell .4% versus a .5% increase the prior month. However, unfilled orders of business equipment rose .6% and communications equipment orders soared 16.7% in January. Orders for appliances and electrical equipment increased 2.7% in January. Economists expect the US economy to grow 4% this quarter versus a historical average of 3.1%. The headline Durable Goods number was due for a fall after airline production soared last quarter. I expect a nice rebound this month. Overall, it appears business spending is accelerating and should add meaningfully to US growth this year helping to offset a slowing housing market.

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- Japan’s two-year notes tumbled, pushing yields to the highest since 2001, after the Yomiuri newspaper said the central bank may shift its five-year deflation-fighting policy as early as next month.
- Oil prices may fall as rising US inventories temper concern about unrest in Nigeria and a possible disruption of Iranian exports, a Bloomberg survey shows.

Wall Street Journal:
- China may allow appreciation of the yuan to accelerate rather than implementing a sudden revaluation, citing foreign-exchange traders including Shanghai-based Kenneth Poon at ABN Amro Holding NV.

Business Week:
- Home Depot(HD) CEO Nardelli is using military-style management to centralize operations at the world’s third-largest retailer.

AP:
- DP World has offered to delay part of a $6.8 billion acquisition that would give it operational control of six US ports.

Chosun Ilbo:
- South Korea’s Kia Motors Corp. may build its US plant in Georgia.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (OXY), (MRVL) and (MYL).
- Reiterated Underperform on (NFS), (MCCC), (WGR) and (CBS).

Business Week:
- GlaxoSmithKline’s(GSK) revenue and earnings, plus its eight medicines in late-stage testing, may make it a better performer than other big drugmakers facing generic competitors.
- Zonagen Inc.(ZONA) may be bought by a larger drugmaker such as Pfizer Inc. or Wyeth, citing Mark Lappe of Efficacy Capital Ltd.
- Research in Motion’s(RIMM) shares may rise as much as 30% within the next year on a potential settlement with NTP Inc., which has a patent-infringement claim against the company’s BlackBerry device, citing Morgan Keegan’s Tavis McCourt.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/EPS Estimate
- (AMT)/-.03
- (CZN)/.14
- (HDL)/.93
- (KSE)/.70
- (NOV)/.62
- (PIXR)/.18
- (SNDA)/.27

Upcoming Splits
- (CELG) 2-for-1
- (EXP) 3-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for January are estimated to fall 2.0% versus a 1.8% increase in December.
- Durables Ex Transportation for January are estimated to rise .5% versus a 1.7% gain in December.

BOTTOM LINE: Asian indices are mostly higher, led by indsutrial shares in the region. I expect US equities to open modestly lower and to rise slightly into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Close Near Session Lows on Profit-taking

Indices
S&P 500 1,287.79 -.38%
DJIA 11,069.22 -.61%
NASDAQ 2,279.32 -.17%
Russell 2000 732.45 -.15%
Wilshire 5000 12,965.80 -.31%
S&P Barra Growth 609.10 -.33%
S&P Barra Value 675.15 -.42%
Morgan Stanley Consumer 605.57 +.03%
Morgan Stanley Cyclical 798.52 -.70%
Morgan Stanley Technology 530.58 -.61%
Transports 4,430.79 -.41%
Utilities 410.39 -.50%
Put/Call .83 +18.57%
NYSE Arms 1.27 +17.55%
Volatility(VIX) 11.87 -.08%
ISE Sentiment 182.00 +30.94%
US Dollar 90.39 -.31%
CRB 324.11 -.59%

Futures Spot Prices
Crude Oil 60.76 +.36%
Unleaded Gasoline 152.00 +.44%
Natural Gas 7.29 -2.21%
Heating Oil 166.50 +.14%
Gold 551.30 +.07%
Base Metals 164.80 -1.59%
Copper 219.60 -.41%
10-year US Treasury Yield 4.55% +.74%

Leading Sectors
Steel +1.81%
Hospitals +.78%
Internet +.39%

Lagging Sectors
Computer Hardware -1.07%
Semis -1.19%
Gold & Silver -3.32%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on (CYT).

Afternoon/Evening Headlines
Bloomberg:
- Apple Computer(AAPL) just sold its 1 billionth song.
- Nordstrom(JWN) said fourth-quarter profit rose 36%, exceeding analysts’ estimates, as demand for full-prices cosmetics and accessories drove holiday sales.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Software longs, Networking longs and Retail longs. I added (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, most sectors fell and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market action was slightly bearish. However, today's losses were relatively mild considering recent gains.

Stocks Mixed into Final Hour as Falling Energy Prices offset Rising Long-term Rates

BOTTOM LINE: The Portfolio is substantially higher into the final hour on gains in my Internet longs, Software longs, Networking longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is below average. The AAII % Bulls rose to 43.21% this week from 40.18% the prior week. This reading is now around average levels. The AAII % Bears fell to 28.40% this week from 35.71% the prior week. This reading is now also around average levels. I expect bullish sentiment to rise again next week. These numbers are still not near levels associated with short-term tops. Since the average stock is already up about 6.2% for the year, these numbers bode well for a continuation of recent strength. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and lower energy prices.