Today's Headlines

Bloomberg:
- Bain Capital LLC is seeking $10 billion for its biggest takeover fund.
- Microsoft CEO Ballmer said the company needs more than new search advertising products to crack Google’s(GOOG) hold on customers.
- SBA Communications(SBAC), an operator of mobile-phone towers in the eastern US, agreed to buy cable pioneer Jerald Kent’s AAT Communications for $1 billion in cash and stock to expand its business nationwide.
- Copper and zinc are rising as a gain in US industrial production signaled more demand from manufacturers.
- The American Red Cross, which for more than a decade has supported a lifetime ban on accepting blood from gay men, now believes those men should be able to donate if they go a year without having gay sex.

Wall Street Journal:
- A US District Court judge has dismissed a lawsuit brought by an Internet publisher that accused Google(GOOG) of copyright infringement and defamation.
- Industrial & Commercial Bank of China plans to announce today a strategic partnership with Goldman Sachs(GS) through which the US securities firm will offer management expertise to the Chinese bank.
- China can’t enforce environmental protection rules because the agency responsible doesn’t have the authority to close factories that pollute.

NY Times:
- The position of CEO is separate form that of chairman or chairwomen at an increasing number of US companies.
- An investment fund owned by George Soros is close to buying the 59-film library of DreamWorks Animation SKG(DWA) for $900 million.
- Verizon Communications(VZ) filed an application to compete with Cablevision Systems(CVC) to provide cable-tv service to residents of Hempstead, the biggest town on NY’s Long Island.

Financial Times:
- Chicago Mercantile Exchange(CME) CEO Donohue ruled out buying a stock exchange as part of the US futures market’s expansion plans.

Industrial Production Healthy, Capacity Utilization Near Average Levels, Consumer Sentiment Irrationally Low

- Industrial Production for February rose .7% versus estimates of a .8% increase and a -.3% decline in January.
- Capacity Utilization for February rose to 81.2% versus estimates of 81.4% and 80.8% in January.
- The Preliminary Univ. of Mich. Consumer Confidence reading for March remained at 86.7 versus estimates of 88.0 and a reading of 86.7 in February.

BOTTOM LINE: Industrial production in the US rebounded last month due to record utility output, Bloomberg said. Capacity utilization is only around average levels, which is a big positive this deep into an expansion. Businesses now have enough goods on hand to meet 1.24 months’ demand at the current pace, an all-time record low. Industrial production should continue adding to US economic growth over the intermediate-term on inventory rebuilding as companies gain confidence in the durability of the current expansion.

US consumer confidence was unchanged in early March and Americans were restrained in their spending plans as gasoline prices and mortgage rates rose, Bloomberg reported. The current conditions component of the index, which measures Americans’ perceptions of their financial situation and whether it’s a good time to purchase large items such as automobiles, rose to 106.2 from 105.6 the prior month. I expect consumer sentiment to begin to rebound next month and reach cycle highs later this year as the labor market remains healthy, long-term rates remain relatively low, energy prices decline further, irrational pessimism lifts and stocks rise.

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- General Motors(GM) increased its 2005 loss by $2 billion and restated earnings for the four previous years on accounting errors after delaying an annual filing to US regulators because of financial reporting problems at a mortgage unit.

Wall Street Journal:
- H&R Block(HRB) CEO Mark Ernst called NY Attorney General Eliot Spitzer’s $250 million lawsuit an “unfair attack” against the company.
- St. Paul Travelers(STA) is in talks to acquire Zurich Financial Services of Switzerland, the country’s biggest insurer.

China Oil News:
- China is creating a system for disclosing information on the oil market to help it manage energy trading in the country.

Late Buy/Sell Recommendations
Business Week:
- Vodafone Group’s(VOD) ADRs are undervalued and may rise, citing Gary Stroik of investment firm Wealth Builders.
- Hershey(HSY) could put itself up for sale, citing Michael Metz of Oppenheimer Funds.
- Cortex Pharmaceuticals(COR), which is developing a hyperactivity drug, could rise as the company seeks to attract a major drugmaker as a partner, citing analyst Elemer Piros of Rodman & Renshaw.

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

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Earnings of Note
Company/EPS Estimate
- (TKLC)/.19
- (TEX)/.86
- (TRY)/.06

Upcoming Splits
- (WBSN) 2-for-1

Economic Releases
9:15 am EST
- Industrial Production for February is estimated to rise .8% versus a .2% decline in January.
- Capacity Utilization for February is estimated to rise to 81.4% versus 80.9% in January.
- The Preliminary Univ. of Mich. Consumer Confidence Index for March is estimated to rise to 88.0 versus a reading of 86.7 in February.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish Mixed as Gains in Energy and Homebuilders Offset Losses in Tech

Indices
S&P 500 1,305.33 +.18%
DJIA 11,253.24 +.39%
NASDAQ 2,299.56 -.53%
Russell 2000 743.79 +.11%
Wilshire 5000 13,131.50 +.15%
S&P Barra Growth 615.19 +.10%
S&P Barra Value 686.85 +.25%
Morgan Stanley Consumer 613.50 +.03%
Morgan Stanley Cyclical 810.43 +.35%
Morgan Stanley Technology 535.70 -1.15%
Transports 4,553.10 -.84%
Utilities 410.07 +.71%
Put/Call .29 -58.57%
NYSE Arms 1.30 +48.85%
Volatility(VIX) 11.98 +5.55%
ISE Sentiment 120.00 -9.09%
US Dollar 89.07 -.70%
CRB 327.55 +.59%

Futures Spot Prices
Crude Oil 63.58 unch.
Unleaded Gasoline 186.10 -.71%
Natural Gas 7.27 +.04%
Heating Oil 181.25 unch.
Gold 556.30 +.16%
Base Metals 168.61 +.25%
Copper 226.40 -.07%
10-year US Treasury Yield 4.64% -1.82%

Leading Sectors
Homebuilders +1.57%
Energy +1.50%
Oil Service +1.41%

Lagging Sectors
Computer Hardware -.88%
Disk Drives -1.56%
Semis -3.23%

Evening Review
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In Play

Afternoon Recommendations
Cowen:
- Upgraded (VZ) to Outperform.

Merrill Lynch:
- Cut (MATK) to Sell.

Afternoon/Evening Headlines
Bloomberg:
- The US dollar declined for a fourth day against the euro and yen after a report showing slower-than-expected inflation eased speculation the Fed will raise interest rates more than twice this year.
- Yahoo!(YHOO) said it granted CEO Terry Semel the option to buy 1.3 million shares in lieu of a cash bonus for 2005.
- A proposed condominium and hotel tower that would be the tallest building in North America won approval from the Chicago City Council’s planning Commission today, putting it a step closer to the start of construction later this year.
- US Treasuries rallied, 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.

BOTTOM LINE: The Portfolio finished lower today on losses in my Networking longs, Semi longs and Energy-related shorts. I added to my (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was slightly negative today as the advance/decline line modestly lower, sector performance was mixed and volume was heavy. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was mildly bearish. The rise in oil and fall in the U.S.-dollar weighed on the averages today. As well, the action in technology stocks remains a concern. I suspect the next bear argument will be that the economy is slowing too much and that companies will lose pricing power. These fears will likely generate the last good long entry point in stocks for the year.

Stocks Mixed into Final Hour as Lower Long-term Rates Offset Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Semi longs and Energy-related shorts. I added (IWM)/(QQQQ) shorts and added to my existing (EEM) short, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is slightly lower, sector performance is mixed and volume is heavy. The AAII percentage Bulls rose to 46.55% this week from 41.21% the prior week. This reading is still around average levels. The AAII percentage of Bears rose to 32.76% this week from 30.77% the prior week. This reading is now at above average levels. Considering the major averages are near five-year highs, these numbers remain bullish for US stocks. I expect bullish sentiment to rise modestly next week. I expect US stocks to trade mixed into the close from current levels as lower long-term rates offset higher energy prices.