Thursday Watch

Late-Night Headlines
Bloomberg:
- The US Senate took a step toward authorizing the administration to negotiate lower drug prices under the Medicare health program for the elderly and disabled.
- The US economy is heading toward a “highly desirable” path, with inflation likely to stay in check and the country close to full employment, San Francisco Federal Reserve Bank President Janet Yellen said.
- Goldman Sachs Group(GS) ended a 10-year alliance with its Indian partner to set up its own subsidiary, seeking to tap “tremendous growth” in Asia’s fourth-largest economy.

Financial Times:
- Google Inc.(GOOG) plans to provide European retailers a base from which to market and sell products on the Internet.
- Afghanistan may have more oil and gas than previously thought, citing a survey by the US Geological Survey and the Afghan Ministry of Mining and Industry.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.20%.

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Earnings of Note
Company/EPS Estimate
- (ADRX)/.20
- (BKS)/1.75
- (BSC)/2.95
- (BGP)/1.76
- (CTAS)/.46
- (DRC)/.38
- (PTEN)/.73
- (PETC)/.45
- (PDE)/.29
- (TEK)/.33
- (TIE)/.40
- (USM)/.38

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Consumer Price Index for February is estimated to rise .1% versus a .7% increase in January.
- The CPI Ex Food & Energy for February is estimated to rise .2% versus a .2% increase in January.
- Housing Starts for February are estimated to fall to 2030K versus 2276K in January.
- Building Permits for February are estimated to fall to 2110K versus 2216K in January.
- Initial Jobless Claims for last week are estimated to fall to 298K versus 303K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2506K prior.

12:00 pm EST
- Philly Fed. for March is estimated to fall to 13.5 versus a reading of 15.4 in February.

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

Stocks Finish Near Session Highs on Positive Beige Book Comments, Lower Energy Prices and Stable Long-term Rates

Indices
S&P 500 1,303.02 +.43%
DJIA 11,209.77 +.52%
NASDAQ 2,311.84 +.69%
Russell 2000 742.94 +.93%
Wilshire 5000 13,112.24 +.49%
S&P Barra Growth 614.56 +.34%
S&P Barra Value 685.12 +.52%
Morgan Stanley Consumer 613.33 -.05%
Morgan Stanley Cyclical 807.61 +1.80%
Morgan Stanley Technology 541.91 +.69%
Transports 4,591.76 +2.16%
Utilities 407.19 +.39%
Put/Call .70 -2.78%
NYSE Arms .88 +48.12%
Volatility(VIX) 11.35 +5.68%
ISE Sentiment 132.00 -2.94%
US Dollar 89.70 -.33%
CRB 325.63 -.41%

Futures Spot Prices
Crude Oil 61.82 -.56%
Unleaded Gasoline 181.15 -.96%
Natural Gas 7.09 -.67%
Heating Oil 177.03 -.64%
Gold 553.70 -.13%
Base Metals 168.20 +.27%
Copper 224.75 -.13%
10-year US Treasury Yield 4.72% +.73%

Leading Sectors
Disk Drives +2.54%
Networking +2.03%
Airlines +1.93%

Lagging Sectors
Drugs -.12%
Oil Tankers -.38%
Tobacco -1.23%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Bill Gross, manager of the world’s biggest bond fund, said the Fed may stop raising interest rates at 4.75% or 5%, depending on inflation and the housing market.
- Exxon Mobil(XOM) and Chevron(CVX) are increasing exploration in Asia to lift production.
- President Bush nominated Andrew von Eschenbach to be permanent commissioner of the US FDA.
- Google Inc.(GOOG) hired a lobbying team that includes US House Speaker Dennis Hastert’s son as the company takes on an increasing number of battles in Washington.
- Crude oil fell for a second day in NY after the EIA reported that stockpiles rose a fifth straight week to their highest in almost 7 years.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Semi longs and Biotech 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 above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bullish. Today's economic data spurred cyclicals to substantial outperformance without sending long-rates significantly higher, which is a big positive. The Networking sub-sector of tech was very strong today and remains my favorite through year-end.

Stocks Higher into Final Hour, Spurred by Positive Beige Book Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Semi longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are positive and volume is above average. Ciena (CIEN) is making another 52-week high on strong volume. While the shares are extended near term, I expect the stock to rise substantially from current levels through year-end. I will look to add to my long position on any profit-taking. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower energy prices and stable long-term rates.

Today's Headlines

Bloomberg:
- H&R Block(HRB) duped clients into investing tax refunds in retirement accounts that usually cost more in fees than they generate in interest, NY Attorney General Spitzer said.
- The US economy expanded at a “moderate” pace across most parts of the country in January and February, while higher costs of raw materials and energy persisted, the Fed’s Beige Book said.
- Crude oil fell after the EIA reported that US inventories rose for a fifth straight week.

Wall Street Journal:
- Nasdaq Stock Market(NDAQ) executives may hold meetings as early as this week with large shareholders of London Stock Exchange Plc to discuss Nasdaq’s informal $16.46/share offer for the London exchange.
- Johnson & Johnson(JNJ) revealed that federal investigations into the company’s sales of its Risperdal antipsychotic treatment are widening.
- A group led by Kohlberg Kravis Roberts and some banks offered as much as $13 billion to buy a majority stake in GMAC.
- The generic drug amantadine is being considered as a possible alternative to Tamiflu if bird flu sets off a global pandemic.
- Equifax(EFX), Experian and TransUnion are marketing new services to consumers in a bid to boost revenue.
- US farm groups and environmentalists are teaming up to gain federal incentives for forms of renewable energy such as wind-generated power or fuel produced from agricultural waste.

NY Post:
- Lexar Media(LEXR) shareholders, including hedge funds controlled by billionaire Carl Icahn, are pressuring management to seek a better offer than Micron’s(MU) $680 million bid.

Denver Post:
- Colorado’s aerospace economy moved ahead of Florida’s to become the US’s third-largest, after gaining 15,000 jobs in the industry since 2004.

Daily Telegraph:
- DB Zwirn, a NY hedge fund firm, is recruiting Sandy Berger, former national security advisor during the Clinton administration. Last year, Berger was fined $50,000 and ordered to do community service for stealing classified documents on the Clinton administration’s anti-terrorism efforts from the National Archive and destroying some of them.

Import Prices Fall, NY Manufacturing Soars, International Purchase of US Securities Healthy, Builder Outlook Muted

- The Import Price Index for February fell .5% versus estimates of a .6% decline and a 1.4% rise in January.
- Empire Manufacturing for February rose to 31.2 versus estimates of 18.9 and a reading of 21.0 in January.
- Net Foreign Security Purchases for January rose to $66.0 billion versus estimates of $64.8 billion and $53.8 billion in December.
- The NAHB Housing Market Index for March fell to 55 versus estimates of 56 and a reading of 56 in February.

BOTTOM LINE: Prices of goods imported to the US fell in February, reflecting declines in costs of petroleum and chemicals and the biggest drop in imported food costs in four years, Bloomberg said. Moreover, the price of industrial supplies excluding petroleum declined 2.2%, the largest fall since April 2003. Import prices should decelerate through year-end as commodity prices weaken further.

Manufacturing in NY state unexpectedly accelerated this month to the highest level since July 2004, encouraging factories to step up the pace of hiring as the US economy strengthens, Bloomberg said. The employment component of the index rose to 21.8, the highest level since May 2004. The new orders component increased to 29.2, the best since August of last year. Finally, the prices paid component of the index fell to 40.2 and has plunged 47% from Sept. 2005 highs. I continue to believe manufacturing will add to US growth over the intermediate-term as companies gain confidence in the durability of this expansion.

International investors increased their holdings of US assets by $66 billion in January, Bloomberg reported. January’s net gain is above the five-year average of $56 billion. Caribbean banking centers, which represents many hedge funds, decreased their Treasury holdings by $13.3 billion. Foreigners’ holdings of US stocks rose by $21.2 billion. I expect international investors’ appetite for US assets to rise further over the intermediate-term as commodity prices fall, the dollar remains firm, US stocks rise and the US economy remains relatively strong versus other industrialized nations.

Optimism among US homebuilders fell in March to a three-year low in response to rising long-term mortgage rates, Bloomberg said. Readings greater than 50 indicate builders think the outlook for sales is bright. I continue to believe housing is slowing to more healthy sustainable levels.

Links of Interest

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