Today's Headlines

Bloomberg:
- Iran is ready to hold talks with the US on Iraq, the country’s top nuclear negotiator Ali Larijani said, signaling a shift in Iran’s policy toward the US.
- Shares of Qualcomm(QCOM) were raised to “buy” at Merrill Lynch(MER) on expectations the company will win sales form market leader Texas Instruments(TXN).
- More Americans, especially gay men, are getting syphilis, a potentially deadly infection, US data show.
- Microsoft(MSFT) plans to spend $500 million on a new ad campaign and sales strategy to help win corporate customers from IBM(IBM).
- Oil is rising after the US and Iraqi forces launched the largest air assault in Iraq since the March 2003 liberation that ousted Saddam Hussein.
- US Treasuries are rallying, pushing 10-year notes to their biggest gain since December, as a report showing consumer prices rose less than forecast bolstered optimism that the Fed has inflation under control.

Wall Street Journal:
- Google(GOOG) plans to increase the number of retailers who can receive payment through Google Base, the company’s online payment-processing service.
- The tv business, which in the past relied upon a network of invisible fences and geographical limitations to protect its income, is losing out to the Internet as viewers use the web to access for free content that they would normally have to pay for.

NY Times:
- The National Collegiate Athletic Association men’s basketball tournament is a bigger draw for advertisers than the Super Bowl or World Series, citing TNS Media Intelligence.

News in Ghana:
- Ghana may have at least 2 billion barrels of oil reserves, based on prospects identified by nine energy companies.

Al-Hayat:
-.Saudi Arabia may split the par value of stocks listed on its bourse to lure more investors after the benchmark index fell to a five-month low this week.

WAM:
- The United Arab Emirates central bank and bourse officials raised the amount banks can lend investors to buy shares and ordered companies to repay share sale surpluses to counter declining stock prices.

Reuters:
- McAfee(MFE) will provide security software to mobile phone makers and wireless carriers under five new contracts.

Inflation Decelerates, Housing Starts Slow, Jobless Claims Steady, Philly Manufacturing Healthy

- The Consumer Price Index for February rose .1% versus estimates of a .1% increase and a .7% increase in January.
- The CPI Ex Food & Energy for February rose .1% versus estimates of a .2% increase and a .2% gain in January.
- Housing Starts for February fell to 2120K versus estimates of 2030K and 2303K in January.
- Building Permits for February fell to 2145K versus estimates of 2110K and 2216K in January.
- Initial Jobless Claims for last week rose to 309K versus estimates of 298K and 304K the prior week.
- Continuing Claims fell to 2445K versus estimates of 2498K and 2494K prior.
- Philly Fed for March fell to 12.3 versus estimates of 13.5 and a reading of 15.4 in February.

BOTTOM LINE: US consumer prices rose in February at a slower pace than the previous month as Americans paid less for fuel and the cost of clothing declined, Bloomberg said. The cost of all goods including cars, apparel and food fell .1% last month. Computer prices fell .9% in February and are now down 14.8% over the last 12 months. I continue to believe inflation measures will decelerate throughout most of the year as commodity prices weaken further, unit labor costs remain subdued and US growth slows to average levels.

The pace of US housing starts fell less than expected last month, suggesting housing demand is holding up in the face of higher mortgage rates, Bloomberg reported. Starts fell 24% in the Northeast, 11% in the South and 10% in the Midwest. Starts rose 7.9% in the West. I expect starts to continue to decelerate throughout most of the year as the housing market slows to more healthy sustainable levels.

First-time claims for US unemployment benefits unexpectedly rose last week to a level that still signals strength in the labor market, Bloomberg said. The labor market is poised to create another 2 million jobs this year. The four-week moving-average of initial claims increased to 296,500 from 293,750 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at 1.9%. The US job market is off to its best start since the heights of the bubble in 1999. I continue to believe the job market will remain healthy without generating substantial unit labor costs increases, the main component of inflation.

Manufacturing in the Philly region expanded at a slower pace in March, Bloomberg said. Only 23% of companies reported price increases versus 53% in January. The prices paid component of the index fell 12 points and has plunged 74.2% in five months. This is the largest percentage decline since 2000-2001, when the bubble burst. I continue to believe manufacturing will add to US growth over the intermediate-term. Almost all of the prices paid indices are in the middle of significant declines.

Links of Interest

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Real-time Intraday Chart/Quote

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%.

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
European Indices
Top 20 Business Stories
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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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In Play

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.