Wednesday Watch

Late-Night Headlines
Bloomberg:
- China’s yuan had the biggest gain since a decade-old peg to the dollar ended in July, after Premier Wen Jiabao called for the market to play a greater role in setting exchange rates.
- China, the world’s largest steelmaker, won’t accept a rise in iron ore prices in talks under way between suppliers such as BHP Billiton and Chinese steel mills and will take action to protect its interests.

Financial Times:
- The European Union’s economic growth strategy for jobs and growth, which was revamped last year and dubbed the “Lisbon 2 agenda,” is poised to fail unless it is reformed, citing a report by Bruegel, a Brussels-based think tank on international economics.

Commerical Times:
- Taiwan Semiconductor Manufacturing’s second-quarter orders may rise 10% compared with the previous three-month period. The company is the world’s largest made-to-order chip supplier.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
- (AES)/.19
- (ANT)/.55
- (BEV)/.27
- (CHRS)/.14
- (CMVT)/.18
- (DISH)/.35
- (GYMB)/.53
- (LEAP)/.05
- (LEH)/3.16
- (MRX)/.27
- (NAV)/3.06
- (ROST)/.49
- (SHLD)/3.62

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for February is estimated to fall .6% versus a 1.3% rise in January.
- Empire Manufacturing for March is estimated to fall to 18.9 versus a reading of 20.3 in February.

9:00 am EST
- Net Foreign Security Purchases for January are estimated to rise to $62.4 billion versus $56.6 billion in December.

10:00 am EST
- Bloomberg consensus estimates call for a weekly crude build of 2,500,000 barrels. Gasoline inventories are estimated to fall 1,200,000 barrels, and distillate supplies are expected to decrease by 1,800,000 barrels. Refinery utilization is expected to rise .18%. I expect crude prices to weaken on this report.

1:00 pm EST
- The NAHB Housing Market Index for March is estimated to fall to 56 versus a reading of 57 in February.

2:00 pm EST
- The Fed’s Beige Book

BOTTOM LINE: Asian indices are higher, boosted by technology shares in the region. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs on Decline in Long-term Rates and Earnings Optimism

Indices
S&P 500 1,297.48 +1.04%
DJIA 11,151.34 +.68%
NASDAQ 2,295.90 +1.27%
Russell 2000 736.10 +1.11%
Wilshire 5000 13,047.74 +1.03%
S&P Barra Growth 612.51 +.94%
S&P Barra Value 681.57 +1.14%
Morgan Stanley Consumer 613.62 +.32%
Morgan Stanley Cyclical 793.32 +1.58%
Morgan Stanley Technology 538.22 +1.58%
Transports 4,494.70 +.91%
Utilities 405.60 +1.20%
Put/Call .72 -15.29%
NYSE Arms .59 -21.35%
Volatility(VIX) 10.74 -5.54%
ISE Sentiment 136.00 +15.25%
US Dollar 90.02 -.59%
CRB 326.97 +1.23%

Futures Spot Prices
Crude Oil 62.89 -.33%
Unleaded Gasoline 185.00 -.86%
Natural Gas 7.13 -.45%
Heating Oil 181.05 -.59%
Gold 552.60 -.07%
Base Metals 167.75 +1.21%
Copper 225.10 -.13%
10-year US Treasury Yield 4.68% -1.69%

Leading Sectors
+3.58%
Airlines +2.87%
I-Banks +2.41%

Lagging Sectors
Hospitals +.16%
Gaming -.16%
Broadcasting -.44%

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Afternoon Recommendations
CSFB:
- Rated LRCX Outperform.
- Rated FEIC Underperform.

Afternoon/Evening Headlines
Bloomberg:
- Acquicor Technology, led by Apple Computer’s(AAPL) former CEO Gilbert Amelio and co-founder Steve Wozniak, raised $150 million today to shop for a technology company.
- A rally in US Treasuries drove 10-year notes to their biggest gain since December.
- Google(GOOG) may be forced to help the Dept. of Justice crack down on child pornography, a federal judge said.
- Crude oil surged on forecasts that US inventories of gasoline fell as refiners prepare for the summer driving season.
- CBS Sports and Apple Computer(AAPL) announced they will bring the 2006 NCAA men’s basketball championship to the iTunes Music Store.

NY Times:
- Mike Wallace, a “60 Minutes” correspondent since 1968, will retire at the end of the current television season.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Computer longs, Semi longs, Retail longs, Biotech 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 rose and volume was about average. Measures of investor anxiety were lower into the close. Overall, today's market performance was bullish. I would like to see higher volume on a confirmation move higher in the next few days. Decelerating inflation readings or lower energy prices should provide the catalysts.

Stocks Sharply Higher into Final Hour on Fall in Long-term Rates and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Retail longs, Biotech longs and Networking longs. I covered the remainder of my (IWM) and (QQQQ) shorts, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is positive and volume is about average. Based on Google's (GOOG) reaction to the preliminary ruling in the Department of Justice case, it appears to me that much of the uncertainty regarding this issue is lifting. This is a big positive for the stock. I am still long Google. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Junk bonds, the worst part of the US debt market, are offering the best returns, forcing analysts to revise forecasts for what was supposed to be a disappointing year.
- Goldman Sachs Group(GS) reported Wall Street’s highest-ever quarterly profit and revenue, powered by record trading and money-management fees.
- A rally in US Treasuries drove 10-year notes to their biggest gain since December after a government report showed retail sales fell last month.
- Chinese and Russian envoys to the UN said they can’s support Security Council action on Iran’s nuclear program that would go beyond backing for the world body’s nuclear watchdog agency.
- Crude oil is rising as Iran may review contracts with foreign oil and gas companies if the UN imposes sanctions because of its nuclear program.

Wall Street Journal:
- A bill pending in the US Congress would make it easier to organize mergers and acquisitions so as to avoid taxes.
- Mexico today plans to announce the discovery of an offshore oil field with reserves that may exceed those at Cantarell, the country’s largest tract, citing an interview with Mexican President Vicente Fox.
- Gobi Partners, one of the first technology venture-capital funds buying in China, faces competition form other firms, raising concerns about a glut of overseas money chasing Chinese companies.
- France is considering a law that would force Apple Computer’s(AAPL) iTunes online music service to permit songs to be downloaded to digital music players other than the iPod.
- The US energy industry is boosting investments in facilities for the importation of liquefied natural gas, amid forecasts that demand will exceed growth estimates.

Arab News:
- Saudi politicians in the kingdom’s Shoura Council called on the government of the Middle East’s No. 1 economy to halt a slide on the country’s benchmark Tadawul All Shares Index.

Nikkei English News:
- Sony Corp.(SNE) will delay the release of its new PlayStation 3 video-game console until early November to ensure the copy protection technology for the Blu-ray disc works.

Current Account Gap Widens, Retail Sales Fall on Colder Weather, Inventories Rise

- The Current Account Deficit for 4Q widened to -$224.9 billion versus estimates of -$218.0 billion and -$185.4 billion in 3Q.
- Advance Retail Sales for February fell 1.3% versus estimates of a .8% decline and an upwardly revised 2.9% increase in January.
- Retail Sales Less Autos for February fell .4% versus estimates of a .5% fall and an upwardly revised 2.6% increase in January.
- Business Inventories for January rose .4% versus estimates of a .3% increase and a .8% gain in December.

BOTTOM LINE: The US current account deficit widened more than forecast to $224.9 billion, driven by the US economy’s relative strength versus other industrialized nations, Bloomberg reported. The trade deficit, which accounts for 88% of the total current account deficit, rose last quarter on soaring imported oil costs and Americans’ appetite for goods made in Asian countries. I expect the current account deficit to only improve modestly over the intermediate-term as commodity price declines more than offset the continuing relative strength of the US economy.

Retail sales in the US fell last month after the biggest gain in more than four years as auto purchases declined and the return of cold weather discouraged shoppers, Bloomberg said. A healthy job market, falling energy prices and low borrowing costs over the intermediate-term should more than offset a housing market that is slowing to more sustainable levels.

Sales at US businesses rose 1.3% in January, more than three times the increase in inventories, suggesting gains in production in coming months, Bloomberg said. Inventory rebuilding added 1.62 percentage points to economic growth last quarter, the most since 1Q 2002. I continue to expect inventory rebuilding to add to economic growth over the intermediate-term as corporate spending accelerates and businesses gain confidence in the durability of the current expansion.

Links of Interest

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