DJIA Makes Another All-Time High, Boosted by Merger Activity and Positive Economic Data

Indices
S&P 500 1,396.57 +.24%
DJIA 12,251.71 +.28%
NASDAQ 2,442.75 +.50%
Russell 2000 791.96 +.88%
Wilshire 5000 14,020.10 +.35%
S&P Barra Growth 648.75 +.41%
S&P Barra Value 745.58 +.08%
Morgan Stanley Consumer 674.63 +.47%
Morgan Stanley Cyclical 874.59 +.33%
Morgan Stanley Technology 576.50 +.08%
Transports 4,830.43 +1.38%
Utilities 448.39 -.39%
Put/Call .80 -2.44%
NYSE Arms .79 -17.24%
Volatility(VIX) 10.31 -1.81%
ISE Sentiment 145.0 +7.41%
US Dollar 85.32 +.02%
CRB 310.85 +.78%

Futures Spot Prices
Crude Oil 58.75 +.81%
Unleaded Gasoline 157.95 +2.25%
Natural Gas 8.17 +2.46%
Heating Oil 169.30 +1.79%
Gold 623.30 -.08%
Base Metals 229.46 -3.05%
Copper 312.40 -.03
10-year US Treasury Yield 4.61% +1.12%

Leading Sectors
Airlines +5.24%
Oil Service +1.68%
Defense +1.31%

Lagging Sectors
Utilities -.39%
Papers -.63%
Telecom -1.19%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Google(GOOG) will replace HCA(HCA) in the S&P 100. Peabody Energy(BTU) will replace HCA(HCA) in the S&P 500. Dick’s Sporting Goods(DKS) will replace Peabody Energy(BTU) in the S&P MidCap 400.
- Suncor Energy, the world’s largest oil-sands producer, said estimated annual capital spending on oil-sands projects will rise 43% as it proceeds with an expansion approved by Alberta’s regulators.
- AES Corp.(AES) challenged rival NRG Energy(NRG) in bidding to build a clean-coal power plant sought by NY Governor Pataki.
- Disgraced lobbyist Jack Abramoff told investigators that incoming Senate Majority Leader Harry Reid requested campaign donations from clients and agreed to help on Indian gambling issues. Some of Abramoff’s biggest clients before his downfall were casino-owning Indian tribes trying to prevent other tribes from opening new casinos with Congress’s help.
- The US warned citizens to “exercise caution” when traveling throughout Mexico, citing an increased risk of political violence before the country’s new president takes office Dec. 1.
- Applied Materials(AMAT) said fourth-quarter profit almost doubled on sales to memory-chip manufactures.
- GM(GM), seeking $10 billion this year from the sale of a stake in its finance unit, received an approval from federal regulators, avoiding a delay.
- The Washington Post will cut newsroom jobs for the first time in 25 years, illustrating the depth of the impact that declining ad sales and circulation is having on the newspaper industry.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Semi longs, Medical longs and Retail 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, most sectors rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was bullish. Hedgefund.net is reporting that despite losses at Amaranth, the fall in oil prices and the fact that the average energy hedge fund fell 3.2% during the third quarter, total assets in energy hedge funds rose 4.3% to $73.8 billion. Moreover, recent filings show many hedge funds loaded up on energy-related equities as oil broke below $60. I sense that it is just assumed by most investors that oil can't head meaningfully lower from current levels. I continue to believe energy investors remain extraordinarily complacent and that energy prices anywhere near current levels are a function of historic speculation by investment funds and do not represent the underlying fundamentals. Oil continues to trade very poorly despite perceived bullish catalysts.

Stocks Higher into Final Hour on Positive Economic Data and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs and Internet longs. 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 rising and volume is above average. Last night, the Chinese-language Commercial Times reported that Hon Hai Precision Industry (HNHPF.PK) will be manufacturing 12 million Apple (AAPL) iPhones for delivery during the first half of next year. In a research note today, Bear Stearns (BSC) said that it expects the new product could add about $0.70 per share and $6 billion in revenue to Apple's calendar year 2007 estimates, even assuming 30% cannibalization of total existing iPod unit sales. These numbers are still not in the official estimates, and I suspect that BSC is being conservative. AAPL remains my second largest long position behind Google (GOOG), and I still see significant upside in the stock from current levels. I expect US stocks to trade modestly higher into the close from current levels on short-covering, performance anxiety, more optimism and buyout speculation.

Today's Headlines

Bloomberg:
- US Airways made an unsolicited $8 billion offer for bankrupt Delta Air to create the world’s largest airline.
- US Treasuries fell the most in a week after manufacturing in NY state unexpectedly surged.
- DreamWorks Animation(DWA) investors including Paul Allen and Viacom(VIA) plan to sell $330 million shares in an offering that will unwind the partnership that controls the movie studio.
- Senate Republicans chose Mitch McConnell to be minority leader and picked Trent Lott to be whip.
- Touradji Capital Management LP, founded by Paul Touradji, a former commodities trader at Julian Robertson’s Tiger Management, sold all holdings in iron and steel mining companies in the third quarter.
- Al Jazeera, the Arabic television news channel, begins airing its 24-hour English-language service today in a bid to compete with CNN and the BBC.
- Gold is falling for a fourth straight session as the prospect of better returns from US equities, a rising US dollar and declining inflation eroded appeal for the metal.
- Chile’s peso fell to its lowest in a month on a plunge in copper prices, the country’s top export, and expectations that slowing growth will discourage policy makers from lifting interest rates.
- Gold demand fell 3% in the third quarter as price volatility discouraged purchases by investors and jewelers, the producer-funded World Gold Council said.
- KKR and Carlyle Group, the manager of the biggest US buyout fund, are among 13 private equity firms accused in a class-action lawsuit of rigging the market to take companies private.

Wall Street Journal:
- The US may today file a revised World Trade Organization complaint against subsidies that it says European governments pay to Airbus SAS.
- Boeing(BA) may receive orders worth more than $10 billion in the next few weeks as airlines hurry to take up the dwindling number of early delivery slots in the company’s production schedule.
- The number of Wikipedia users in China has surged after the government lifted a ban on the Web site.
- Cuba’s armed force, headed by Defense Minister Raul Castro, have a crucial role in the island’s economy and may follow a “Chinese model” of economic changes.
- Cingular Wireless LLC plans to offer a service that allows cell-phone users to check bank account balances, transfer money and pay bills over the phones.
- Internet ad sales this year will probably exceed 2005 after spending for the first nine months of 2006 almost matched the amount for all of 2005, citing the Interactive Ad Bureau.
- Wal-Mart Stores critics backed by labor unions are planning an ad campaign that attacks the company. The campaign is being coordinated by a group that’s funded by the United Food and Commercial Workers Union.

NY Times:
- US Democrats who want a troop withdrawal from Iraq face opposition from a number of military officers, experts and former generals, including some of the most vehement critics of US tactics in Iraq. Anthony Zinni, a retired general who had called for the resignation of Defense Secretary Rumsfeld, said any substantial force reduction would send Iraq into civil war.
- OJ Simpson, who was acquitted of killing his wife, Nicole Brown Simpson, sand her friend Ronald L. Goldman, has written a book on how he would have committed the murders had he been involved. The book, using the working title “OJ Simpson: If I Did It, Here’s How it Happened,” is scheduled to be released Nov. 30 by ReganBooks.
- General Mills(GIS), McDonald’s(MCD), Coca-Cola(KO) and seven other food and beverage companies plan to cut back junk-food advertising to children under 12.

Washington Post:
- Iran, Syria and Lebanon’s Hezbollah militia are providing arms, training and financing to Islamic militants in the east African state of Somalia, citing a UN report.

Financial Times:
- UK inflation may be so much better than the Bank of England expected that it’s receding as a concern.

Financial Times Deutschland:
- Nvidia Corp.(NVDA) “prefers” to stay independent, CEO Huang said after speculation about a takeover of his company.

Arab News:
- Saudi Arabia has settled border problems with all its Gulf neighbors, citing the Saudi Minister of Defense and Deputy Premier Crown Prince Sultan.

AFP:
- Iran will “resist to the end” to defend its nuclear program, citing Iranian President Ahmadinejad.

Al-Alam al-Yom:
- Egypt, the world’s largest wheat importer, bought 1.2 million metric tons of US wheat worth $250 million since the beginning of the marketing year in July.

China Oil, Gas & Petrochemicals:
- China Petroleum & Chemical, or Sinopec, is increasing production at two oilfields, including the nation’s second largest.

Empire Manufacturing Surges, Employment Component Best on Record

- The Empire Manufacturing Index rose to 26.7 versus estimates of 15.0 and a reading of 22.9 in October.

BOTTOM LINE: Manufacturing in New York state unexpectedly surged in November to the fastest pace in five months, Bloomberg reported. Business spending on new equipment kept factories humming. The index measuring the outlook for the next six months jumped to 37.8 from 30.2 the prior month. The new orders component of the index rose to 22.4 from 11.8 the prior month, the largest increase in more than a year. The prices paid index rose to 34.9 from 30.8 in October. The employment component of the index surged to 24.5, the highest since record keeping began in 1997, from 19.4 the prior month. I expect overall manufacturing to strengthen over the intermediate-term as auto production cuts subside and companies gain confidence in the sustainability of the current expansion.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Middle East benchmark crude oil prices may drop below $50 a barrel over the next few years as Saudi Arabia and other nations boost output to supply expanded refining capacity, Nippon Oil said. A possible slowdown in demand growth led by China may contribute to lower Oman and Dubai oil prices, said Naoaki Tsuchiya, general manager of the overseas business division at Nippon Oil, Japan biggest refiner.
- China’s industrial output rose at the slowest pace in almost two years in October as the government restricted lending for investment projects.
- China’s production of crude steel rose 18% in October from a year earlier, according to the National Bureau of Statistics.
- Google Inc.(GOOG) set aside more than $200 million to protect against lawsuits over YouTube.

Financial Times:
- Sony Corp.(SNE) CEO Stringer sees the company’s battery and PlayStation 3 problems as an opportunity accelerate management changes that began 18 months ago.

Independent:
- BMW AG, the world’s largest luxury carmaker, has developed a model than can run on hydrogen gas as well as conventional petrol and diesel. BMW is the only car manufacturer to promote the use of hydrogen gas as a fuel for existing internal combustion engines.

Guardian:
- Microsoft Corp.(MSFT) has been set a Nov. 23 deadline by the European Union to provide its rivals with the remaining details of its software systems or face new fines.

Shanghai Securities News:
- A 5% gain in China’s yuan against the dollar will trim $50 billion off the nation’s $1 trillion foreign-exchange reserves.

Commerical Times:
- Hon Hai Precision Industry Co. won an order for 12 million cellular phones with iPod functions from Apple Computer(AAPL).

Hindu Business Line:
- A group led by India’s ONGC Videsh Ltd., a unit of the country’s biggest oil producer, has found oil in the Farsi block in Iran.

Late Buy/Sell Recommendations
HSBC:
- Rated (MT) Underweight, target $35.

Citigroup:
- Reiterated Buy on (LZ), target $53.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated +.01%.

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Earnings of Note
Company/EPS Estimate
- (AMAT)/.31
- (RMK)/.50
- (BEAS)/.14
- (CHRS)/.13
- (DAKT)/.14
- (GYMB)/.67
- (HOTT)/.16
- (LTD)/.07
- (MW)/.54
- (NTAP)/.25
- (OSI)/.32
- (PEIX)/-.03
- (PETM)/.21
- (CRM)/.05
- (TLB)/.15
- (TYC)/.49

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Empire Manufacturing for November is estimated to fall to 15.0 versus a reading of 22.9 in October.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 275,000 barrels versus a 435,000 barrel build the prior week. Gasoline supplies are expected to fall 100,000 barrels versus a 584,000 barrel decline the prior week. Distillate inventories are estimated to fall 725,000 barrels versus a 2,675,000 barrel fall the prior week. Finally, Refinery Utilization is expected to increase .9% versus a .81% decline the prior week.

2:00 pm EST
- Minutes of Oct. 24 FOMC Meeting

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.