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Housing Starts Exceed Estimates

- Housing Starts for May rose to 1957K versus estimates of 1867K and 1863K in April.
- Building Permits for May fell to 1932K versus estimates of 1932K and 1973K in April.

BOTTOM LINE: Home construction rebounded in May from a 13-month low as builders worked on backlogs and used incentives to win new business in a slowing market, Bloomberg reported. Starts rose 16% in the West, 1.7% in the Northeast and 8.5% in the South. Starts fell 16% in the Midwest. I expect housing starts to decelerate further over the intermediate-term as inventories remain high.

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Copper futures in Shanghai fell amid concern that rising global interest rates will hurt demand growth for the metal. Prices have plunged 33% since reaching a record on May 15.
- The European Commission is “generally supportive” of an agreement between Nokia Oyj(NOK) and Siemens AG to combine their telecommunications network-equipment units, the telecommunications commissioner said.
- Gold and silver in Asia fell as a declining oil price eased concern that inflation may accelerate.
- McDonald’s Corp.(MCD) said it will start a chain of drive-through fast-food outlets in China with oil refiner and gas station operator China Petroleum & Chemical Corp.
- South Korea may be preparing to launch a satellite rather than testing a missile, South Korea's ruling party said, citing Unification Minister Lee Jong Seok.

Financial Times:
- MySpace.com, the on-line social networking site purchased by News Corp.(NWS/A) last year, is targeting 11 countries for international expansion, including France and Germany.

Apple Daily:
- Quanta Computer and Asustek Computer will manufacture 2.3 million MacBook laptop computers for Apple Computer this year, citing an estimate by UBS AG.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.75% to -.50% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.10%.

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Earnings of Note
Company/EPS Estimate
- (ATU)/.78
- (APOL)/.74
- (CBK)/.37
- (CMC)/.70
- (DRI)/.60
- (FDS)/.39
- (SJM)/.58

Upcoming Splits
- None of note

Economic Releases
8:30 pm EST
- Housing Starts for May are estimated to rise to 1869K versus 1849K in April.

BOTTOM LINE: Asian indices are lower, weighed down by commodities and automaking stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Housing Concerns, Led by Commodity Shares

Indices
S&P 500 1,240.14 -.91%
DJIA 10,942.11 -.66%
NASDAQ 2,110.42 -.92%
Russell 2000 680.76 -1.78%
Wilshire 5000 12,436.92 -1.02%
S&P Barra Growth 575.56 -.89%
S&P Barra Value 662.65 -.93%
Morgan Stanley Consumer 599.78 -.70%
Morgan Stanley Cyclical 792.14 -1.37%
Morgan Stanley Technology 485.33 -.82%
Transports 4,611.33 -.54%
Utilities 404.49 -1.53%
Put/Call 1.06 -15.20%
NYSE Arms 1.44 +15.32%
Volatility(VIX) 17.83 +3.36%
ISE Sentiment 126.00 +63.64%
US Dollar 86.33 +.45%
CRB 333.57 -1.67%

Futures Spot Prices
Crude Oil 69.22 +.35%
Unleaded Gasoline 199.00 -.07%
Natural Gas 6.82 -1.04%
Heating Oil 189.80 +.17%
Gold 569.50 -.51%
Base Metals 201.99 -2.93%
Copper 303.50 -1.73%
10-year US Treasury Yield 5.13% +.20%

Leading Sectors
Airlines +1.03%
HMOs unch.
Software -.24%

Lagging Sectors
Steel -2.74%
Energy -3.43%
Oil Service -3.92%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Fed Governor Donald Kohn was confirmed as the central bank’s vice chairman by the US Senate, and Mark Olson was named to head the Public Company Accounting Oversight Board, opening a second Fed Board vacancy.

Television Week:
- “CBS Evening News” is getting a story ready for tonight to say goodbye to veteran anchor Dan Rather.

Variety:
- Apple Computer(AAPL) is negotiating with major film studios to add movies to its iTunes music store.

New York Magazine:
- NY Senator Hillary Rodham Clinton and her aides took rides on a Lockheed Martin(LMT)-owned private jet at least five times since 2001, according to a Center for Public Integrity report. During the same period, Clinton, a member of the Armed Services Committee, helped Lockheed get defense contracts, including a $1.7 billion deal.

BOTTOM LINE: The Portfolio finished lower today on losses in my Biotech longs, Networking longs and Medical longs. I added to my (EEM) short and added (IWM)/(QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bearish. There appeared to be forced selling again today. Significant declines were mainly confined to commodity stocks. I wouldn't be surprised to see some morning weakness tomorrow in the U.S. on emerging market losses. The energy sector saw the greatest amount of net insider selling in the S&P 500 again last week. Insiders sold $276,916,323 worth of stock and bought $53,392,250 worth. Insider selling in this sector has increased meaningfully over the last few months.

Stocks Lower into Final Hour on Housing Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Networking longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is lower and volume is below average. The Fed's Fisher just finished speaking on CNBC. He said he doesn't see any signs of stagflation. Stagflation is defined as negative or stagnate growth, accompanied by high unemployment and high prices. Growth in the first quarter was a booming 5.6%. Unemployment is 4.6%, low by historic standards. Inflation is modestly above long-term average levels, not high. As I said last week, the U.S .economy is nowhere near a stagflationary state. The fact that we are seriously discussing stagflation at this point is a direct by-product of the negativity bubble and the record number of market participants who perceive that they benefit from a declining or stagnate U.S. stock market. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Vonage Holding(VON), a pioneer of Internet phone service, was sued by Verizon Communications(VZ) for infringing seven patents related to its VoIP technology.
- Copper is falling, leading a slump in metal prices, on speculation that rising global interest rates will slow demand for commodities used in cars, appliances and homes.
- Confidence among US homebuilders fell this month to the lowest since 1995.
- Crude oil is falling on speculation that tensions between the US and Iran may ease as the Islamic republic shows signs of curbing its nuclear program.
- The US dollar rose to an eight-week high against the yen and climbed versus the euro on growing speculation that the Fed will raise rates at least twice more this year.

Wall Street Journal:
- US charitable donations rose about 6% last year to $260.3 billion, the biggest increase since 2000. Donations to humanitarian services rose 32% to $25.4 billion, marking the single biggest increase in any one category. Donations by corporations soared 22.5% to $13.8 billion.
- AT&T and EchoStar Communications(DISH) plan to start an Internet-based television service next month.
- US companies that have changed 401k retirement program providers in the past two years are more often choosing mutual-fund companies over banks and financial-planning firms.

NY Times:
- Nestle SA plans to announce today that it agreed to buy weight-loss company Jenny Craig(JCGI) for $600 million.
- Hasbro(HAS) plans to extend its Playskool toy brand into infant-care products as sales of action figures and board games fell.

NY Post:
- Revenue at the top 10 cable networks tripled in the last decade to an average of slightly less than $1.5 billion last year.

Albany Times:
- NY State my offer a $1.2 billion package of incentives to Advanced Micro Devices(AMD) to attract a computer chip plant.

Financial Times:
- AstraZeneca’s(AZN) Crestor cholesterol treatment is not as effective as Vytorin, produced by Merck(MRK) and Schering-Plough(SGP), citing a study presented yesterday at the Intl. Symposium on Atherosclerosis in Rome.
- Iran is ready to limit uranium enrichment provided a suspension of the work isn’t a condition for talks on a US-backed plan to resolve the dispute over the nuclear program.