Today's Headlines

Bloomberg:
- Crude oil may fall on signs that higher refinery output and near-record imports will meet gasoline demand during the US summer driving season, a Bloomberg News survey shows.
- Las Vegas Sands(LVS) beat three rival bids to build Singapore’s first casino-resort with an offer valued at more than $3.2 billion.
- US Capitol Police are investigating a report that gunshots were heard in the garage of the Rayburn House Office Building near the Capitol.
- Shares of Navistar Intl.(NAV) rose as much as 17% after MAN AG, Europe’s third-largest truckmaker, said it was interested in acquiring a stake in its US competitor while expanding across the Atlantic.
- The US dollar is rising against the euro and the yen after a government report reinforced expectations the Fed will lift interest rates next month.
- US Treasuries rose on signs the economy may cool and curb demand for risky assets.

Wall Street Journal:
- Keefe, Bruyette & Woods, which is planning an IPO, will sell about 25% of itself to raise as much as $150 million.
- International funds, which spread their investments across a broad geographical spectrum, may have put more of their money in emerging markets than investors might have expected. Last week, investors withdrew a record $1.9 billion from such funds. The poor performance of international funds is aggravating for investors who may have thought their investment risk to emerging markets was less than it actually is.

NY Times:
- Grief still afflicts many people directly affected by the Sept. 11 terrorist attacks more than four years ago, citing a study by the American Red Cross.

NY Post:
- Microsoft’s(MSFT) negotiations to buy Internet auction site EBay Inc.(EBAY) are waning as the two companies are weighing antitrust concerns.

Interfax:
- Russia will deliver anti-aircraft missiles to Iran as agreed, citing Defense Minister Ivanov.

Incomes Rise, Spending Strong, Inflation Muted

- Personal Income for April rose .5% versus estimates of a .7% gain and a .5% increase in March.
- Personal Spending for April rose .6% versus estimates of a .6% increase and a .5% gain in March.
- The PCE Core for April rose .2% versus estimates of a .2% gain and a .3% increase in March.
- Final Univ. of Mich. Consumer Confidence for May rose to 79.1 versus estimates of 79.0 and a prior estimate of 79.0.

BOTTOM LINE: Consumer spending in the US rose .6% in April, mainly reflecting an increase in prices that suggests inflation is taking a toll on Americans’ buying power, Bloomberg said. The Core PCE, the Fed's favorite inflation gauge, rose 2.1% from year-ago levels. Incomes rose 5.4% in April from the same month last year, almost twice the rate of most inflation measures. Economists expect consumer spending to slow to 2.5% this quarter. I continue to believe spending will slow to average rates through year-end, while incomes will remain relatively healthy and inflation measures decelerate from current levels.

Consumer confidence in the US fell to its lowest in seven months in May as near-record gas prices eroded purchasing power, Bloomberg said. The current conditions index fell to 96.1 from 109.2. The expectations index fell to 68.2 from 73.4 in April. The average price of regular gasoline was $2.88/gallon on May 22 versus $2.14/gallon in May 2005. I continue to believe consumer sentiment is irrationally low and will make cycle highs later this year as stocks rise sharply from current levels, interest rates fall modestly, inflation decelerates, gas prices fall, the job market remains relatively healthy and Iraq improves.

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- An employee of San Jose-based Data Physics was indicted on charges he exported to China equipment used to design and manufacture missiles, federal prosecutors said.
- Nielsen/NetRatings, a global leader in Internet media and market research, today announced that Google(GOOG) accounted for 50% of all searches conducted in April, followed by Yahoo! and MSN, with 22% and 11%, respectively. Year-over-year, Google gained three percentage points in market share, while Yahoo! remained flat and MSN dipped slightly.
- The yen fell, reversing a gain, after Japanese Finance Minister Sadakazu Tanigaki said there still wasn’t enough evidence that seven years of deflation in the world’s second-largest economy has ended.

Financial Times:
- The top two highest paid hedge fund managers in a list of 26 earned around $1.5 billion each last year, citing the Institutional Investor’s Alpha magazine list. Renaissance Technologies Chairman James Simons earned $1.5 billion in 2005, while T. Boone Pickens, chairman of BP Capital LLC, earned $1.4 billion speculating mainly on the rise in energy prices.

Commercial Times:
- AU Optronics(AUO) urged liquid-crystal displays makers to cut production to help clear excess inventory that has caused prices to fall.

Xinhua News Agency:
- China won’t buy crude oil from the international market to fill its strategic reserves because of high prices, citing a senior Chinese government official.

Late Buy/Sell Recommendations
Business Week:
- Anadys Pharmaceuticals(ANDS), a drug developer will see its share price rise later this year as favorable results from early trials of certain drugs come in, citing Eric Schmidt, an analyst with Cowen & Co.
- Sierra Health Services(SIE) may rise as much as 34% because of its earnings and possible acquisition interest from other companies.
- Signature Bank(SBNY), a commercial bank started by 100 former First Republic Bank employees, is growing by targeting the underserved market of smaller private companies, citing David Long of William Blair.

Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated +.08%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (APC) 2-for-1
- (IMO) 3-for-1
- (NICE) 2-for-1
- (TLM) 3-for-1
- (UMBF) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for April is estimated to rise .7% versus a .5% increase in March.
- Personal Spending for April is estimated to rise .6% versus a .6% gain in March.
- The PCE Core for April is estimated to rise .2% versus a .3% gain in March.

9:45 am EST
- The final Univ. of Mich. Consumer Confidence reading for May is estimated at 79.0 versus a prior estimate of 79.0.

BOTTOM LINE: Asian indices are higher, by technology and commodity stocks in the region. I expect US equities to open mixed and to rise into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Higher on Bargain Hunting and Short-covering

Indices
S&P 500 1,272.88 +1.14%
DJIA 11,211.05 +.84%
NASDAQ 2,198.24 +1.34%
Russell 2000 725.58 +2.01%
Wilshire 5000 12,818.76 +1.24%
S&P Barra Growth 591.12 +1.11%
S&P Barra Value 679.74 +1.16%
Morgan Stanley Consumer 606.95 +.63%
Morgan Stanley Cyclical 834.24 +1.57%
Morgan Stanley Technology 507.20 +1.08%
Transports 4,647.39 +1.05%
Utilities 399.36 +.94%
Put/Call .85 -37.50%
NYSE Arms .58 -46.28%
Volatility(VIX) 15.50 -10.71%
ISE Sentiment 165.00 +55.66%
US Dollar 84.68 -.04%
CRB 346.35 +1.12%

Futures Spot Prices
Crude Oil 71.45 +.18%
Unleaded Gasoline 210.20 -.11%
Natural Gas 6.01 +.59%
Heating Oil 199.25 -.09%
Gold 651.30 +.43%
Base Metals 234.85 +2.03%
Copper 368.00 -.74%
10-year US Treasury Yield 5.06% +.64%

Leading Sectors
Steel +5.49%
Gold & Silver +4.86%
Internet +3.81%

Lagging Sectors
Hospitals +.10%
Broadcasting +.07%
Semis -.44%

Evening Review
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In Play

Afternoon Recommendations
Bear Stearns:
- Upgraded (BT) to Outperform.

Deutsche Bank:
- Rated (TRMP) Buy, target $25.

Raymond James:
- Added (SKYW) to Aggressive Growth category of Focus List.

Oppenheimer:
- Rated (ODP) Buy, target $51.

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve Chairman Ben Bernanke said consumer price increases, excluding food and energy, have remained stable over the past year and that longer-term inflation expectations are “well contained.”
- Wage inflation may now be less of a concern to Fed policy makers following revised figures form the government today that showed smaller increases in labor costs.
- The Senate approved the most sweeping overhaul of immigration policy in 20 years, voting to create a new guest-worker program and give those illegally in the US a chance to gain legal status.
- Shares of (GM) rose for a second day because of reports that US union workers are taking the company’s buyout and early retirement offers.

New Haven Register:
- The Connecticut Interscholastic Athletic Conference, aiming to end lopsided high school football games, will suspend head coaches for one game if their team wins by more than 49 points.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Networking longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished substantially higher today, almost every sector rose and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bullish. I expect stocks to build on today's gains tomorrow. I still believe most stocks have seen their lows for the year, however another period of weakness is likely over the coming weeks as economic data come in below estimates, resulting in further selling in the most economically sensitive stocks.

Stocks Higher into Final Hour as Correction Loses Steam

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Networking longs, Computer longs and Medical longs. I covered some of my (IWM), (EEM) and (QQQQ) shorts today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is substantially higher, almost every sector is higher and volume is above average. Theflyonthewall.com is reporting that Apple Computer (AAPL) will redesign the iPod nano to include video playback. I continue to believe Apple is trading at very attractive levels for both short and longer-term investors. I expect the stock to challenge its high of $86.40 by year-end. I remain long Apple. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain hunting.