Today's Headlines

Bloomberg:
- Wal-Mart Stores(WMT) said April same-store sales in the US rose 6.8%, the largest gain in almost three years, as rising incomes more than offset surging gasoline prices.
- Zacarias Moussaoui said “God save Osama bin Laden” as a US judge sentenced him to life in prison for conspiring in the Sept.11 terrorist attacks.
- The US budget deficit will be “well below” the government’s original prediction for the year because of surging tax revenue due to a robust economy, a senior Treasury official said.
- Crude oil is falling below $70/bbl., down more than $2/bbl., as US oil inventories approach a 9-year high and US demand for gasoline falters.


Wall Street Journal:
- Lehman Brothers(LH) has told some of its analysts to stop writing reports and switch to discussing stock choices and investment approaches directly with the firms’ traders and with clients such as hedge funds.
- US universities increasingly view research as a way to obtain extra financing and are holding staff accountable if they fail to produce findings that can attract grants or contracts.
- Fred’s(FRED) plans to build a third distribution warehouse to serve new shops it plans to open as sales rebound.
- PepsiCo(PEP) is planning a marketing campaign across the US after changing the recipe of its Lay’s potato chips to reduce saturated fat.
- The US and European Union are aligning more of their policies over trade with China, adding to pressure on the Asian nation to modify its commercial practices and disclose more of its military plans.
- Debt from emerging market countries may fall this year as rising yields on Treasuries attract investors to the higher-rate US government debt.
- Hedge funds that buy debt after corporate bankruptcies are increasingly starting to clash over revival plans with the private-equity firms that own the bankrupt companies.
- Visto Corp., a wireless e-mail technology company, has sued seven rivals, including BlackBerry maker Research In Motion(RIMM), for patent infringement.

AP:
- Beginning Oct. 1 the SEC will reduce fees for registration and issuance of securities by 71.3%, and fees on transactions by 50%, as part of a plan to cut red tape.

NY Times:
- Valerie Plame, the CIA officer whose name was allegedly leaked three years ago, has submitted a book proposal to at least two publishers.

Platts:
- Southern Copper(PCU) is in talks with Anglo American, Rio Tinto, Xstrata and Phelps Dodge as the company seeks to expand production.

Kuwait News Agency:
- Algeria generated $16 billion of oil sales in the first-quarter on record prices and higher production, the country’s Oil Minister said.

Productivity High, Unit Labor Costs Decelerate, Labor Market Healthy

- Preliminary 1Q Non-farm Productivity rose 3.2% versus estimates of a 3.0% rise and a .3% decline in 4Q.
- Preliminary 1Q Unit Labor Costs rose 2.5% versus estimates of a 1.2% increase and a 3.0% increase in 4Q.
- Initial Jobless Claims for last week rose to 322K versus estimates of 310K and 317K the prior week.
- Continuing Claims rose to 2462K versus estimates of 2450K and 2441K prior.

BOTTOM LINE: Productivity gains failed to keep pace with rising wages and benefits in the first quarter, Bloomberg reported. Unit labor costs have risen 1.4% over the past 12 months versus a 2.5% increase in all of 2005. Productivity growth has averaged 3.5% since the expansion started in November 2001 versus a 2.1% increase during the 90s expansion. I continue to believe productivity will remain at elevated levels and unit labor costs, which account for two-thirds of inflation, will remain subdued over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits edged higher last week to a level that’s still consistent with an improving job market, Bloomberg said. This was the first time jobless claims exceeded 320,000 since the effects of the hurricanes in late 2005. However, the timing of spring break for schools this year may have led to the up-tick. Companies are expected to have added 200,000 jobs in April, capping the best six months of hiring since the peak of the stock market bubble in 2000. I still expect the labor market to remain healthy over the intermediate-term, but hiring will likely slow from recent rates as economic growth recedes to more average levels.

Links of Interest

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Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY after US supplies approached 9 year highs and gasoline demand stagnated.
- Harrah’s Entertainment(HET), one of four bidders for Singapore’s first casino, said it’s betting on “star” partners such as director James Cameron in its proposal to help bring more than 10,000 visitors a day to the project.

South China Morning Post:
- About 60% of newly constructed houses in Beijing remained unsold at the end of April.

Late Buy/Sell Recommendations
span style="font-style:italic;">Goldman Sachs:
- Rated THI Outperform.

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

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (ATVI)/-.08
- (AEE)/.53
- (ADRX)/.20
- (AOC)/.63
- (AVID)/.39
- (BRL)/.74
- (CNO)/.46
- (CVS)/.38
- (EK)/.05
- (EL)/.39
- (GT)/.24
- (JAH)/.04
- (KMG)/2.11
- (KSE)/1.39
- (LVS)/.34
- (MVL)/.12
- (MCK)/.68
- (NWS/A)/.20
- (OII)/.72
- (PPL)/.58
- (PWR)/.03
- (STN)/.69
- (STRA)/1.03
- (SFY)/1.05
- (TEX)/.81
- (RIG)/.48
- (TYC)/.42
- (UVN)/.15
- (WMB)/.26

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Preliminary 1Q Non-farm Productivity is estimated to rise 3.0% versus a .5% decline in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 1.2% versus a 3.3% gain in 4Q.
- Initial Jobless Claims for last week are estimated to fall to 310K versus 315K the prior week.
- Continuing Claims are estimated to rise to 2450K versus 2449K prior.

BOTTOM LINE: Asian indices are mixed as strength in technology stock is being offset by weakness in commodity stocks in the region. I expect US equities to open mixed and to trade modestly higher into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Slightly Lower on Weakness in Commodity Shares

Indices
S&P 500 1,307.85 -.41%
DJIA 11,400.28 -.14%
NASDAQ 2,303.97 -.25%
Russell 2000 767.73 +.02%
Wilshire 5000 13,234.29 -.33%
S&P Barra Growth 605.79 -.55%
S&P Barra Value 700.19 -.27%
Morgan Stanley Consumer 609.25 -.25%
Morgan Stanley Cyclical 866.94 +.50%
Morgan Stanley Technology 545.51 +.40%
Transports 4,749.73 +.44%
Utilities 402.07 -.34%
Put/Call .89 +3.49%
NYSE Arms 1.16 +48.19%
Volatility(VIX) 11.99 unch.
ISE Sentiment 218.00 41.56%
US Dollar 85.84 unch.
CRB 352.20 -1.35%

Futures Spot Prices
Crude Oil 72.14 -.19%
Unleaded Gasoline 208.05 -.25%
Natural Gas 6.59 -.18%
Heating Oil 200.25 -.03%
Gold 667.80 -.10%
Base Metals 216.61 -.99%
Copper 328.60 -.57%
10-year US Treasury Yield 5.14% +.66%

Leading Sectors
Disk Drives +2.67%
Airlines +1.59%
Semis +1.24%

Lagging Sectors
Energy -1.50%
Oil Service -2.22%
HMOs -5.40%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- NY’s health dept. plans to distribute nicotine patches to residents as part of its campaign against smoking.
- Venezuela, where President Chavez is raising royalties and taxes on international oil companies, need foreign investment to develop its energy resources, Foreign Minister Rodriquez said.
- Starbucks(SBUX) said fiscal second-quarter profit rose 27% on demand for espresso-based drinks and breakfast and lunch items.
- Whole Foods Market(WFMI) said fiscal second-quarter profit rose 27%, lifted by new store openings and sales of prepared foods.
- The US, UK and France gave member governments of the UN Security Council a draft resolution demanding that Iran cease uranium enrichment, and said they would seek sanctions should the government in Tehran fail to comply. China and Russia oppose the measure.
- Oil fell more than $2/bbl. in NY today as inventories surged to more than 8-year highs and demand for gasoline stagnated as prices rose.

Handelsblatt:
- The Minneapolis Federal Reserve Bank expects the US economy to continue to grow between 3% and 4% this year and through 2007, citing bank President Gary Stern.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Semi longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was mixed today as the advance/decline line finished about unchanged, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was neutral. Considering the fall in energy prices and the muted reaction in the bond market to more very positive economic data, today's slight losses were a bit disappointing. The major averages and breadth, however, finished near session highs. Significant losses were mainly confined to commodity-related and HMO stocks. The tech sector outperformed throughout the day. I want to see further positive technical action in techs and more weakness in long-rates before shifting market exposure further.

Stocks Slightly Lower into Close on Late Afternoon Rally

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Semi longs and Energy-related shorts. I covered some of my (IWM) and (QQQQ) shorts and added to my (BRCM) and (RACK) longs today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is above average. I expect US stocks to trade higher into the close from current levels on falling energy prices, short-covering and stabilizing long-term rates.