Wednesday Watch

Late-Night Headlines
Bloomberg:
- Mack-Cali Realty(CLI) is joining billionaire investor Carl Icahn and real estate developer Harry Macklowe in their $4.6 billion bid for rival Reckson Associates Realty(RA).
- China, the biggest maker of copper and aluminum, may produce 2.95 million metric tons of copper this year, the National Development and Reform Commission said.
- Fuel oil prices in Asia fell to a 10-day low in relation to benchmark Dubai crude on concern supplies may exceed demand in December as imports increase and purchases from China slow.
- Iran’s 10-day war games this month were aimed at intimidating US allies in the region and dissuading them from cooperating.
- The US Treasury Department discriminates against blind people by issuing same-size paper currency whose value is indistinguishable to those unable to see, a federal judge ruled.
- Walt Disney(DIS) will boost its annual dividend by 15% to .31 cents/share, the biggest jump in eight years.
- Sony Corp.(SNE) said it is “possible” that it will exceed its target to ship 6 million liquid crystal display televisions this fiscal year ending March 2007.
- China’s yuan rose to the highest since the government ended a decade-old link to the dollar after US Treasury Henry Paulson said a stronger currency will help resolve the “tension” in trade ties between the two nations.

Wall Street Journal:
- Nokia Oyj(NOK) plans to sell Internet-related services in an effort to maintain growth, citing CEO Kallasvuo.
- Venture capitalists, betting on new battery technologies, are funding companies developing energy-storage products.
- Citigroup(C) and Charles Schwab(SCHW) are among financial services companies that help administer charitable foundations for wealthy families looking to teach philanthropy to their children.

Fortune:
- Apple Computer(AAPL) is close to a deal to sell the Beatles’ catalog on its iTunes online music store.

AP:
- A federal judge ruled President Bush’s authority to block assets of suspected terrorist groups is unconstitutional. US District Judge Audrey Collins, who said in July she would uphold Bush’s executive order, ruled the US government can’t block the assets of the Liberation Tigers and Partiya Karkeran Kurdistan.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.15%.
NASDAQ 100 indicated +.21%.

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Earnings of Note
Company/EPS Estimate
- (ARO)/.61
- (BEAS)/.13
- (DSW)/.27
- (JLG)/.33
- (PRGS)/.36
- (SNPS)/.19
- (TIF)/.16
- (TIVO)/-.14
- (VRNT)/.29

Upcoming Splits
- (EAT) 3-for-2
- (NT) 1-for-10

Economic Releases
8:30 am EST
- Preliminary 3Q GDP is estimated to rise 1.8% versus prior estimates of a 1.6% increase.
- Preliminary 3Q GDP Price Index is estimated to rise 1.8% versus prior estimates of a 1.8% increase.
- Preliminary 3Q Personal Consumption is estimated to rise 2.8% versus a 3.1% prior estimate.
- Preliminary 3Q Core PCE is estimated to rise 2.3% versus prior estimates of a 2.3% increase.

10:00 am EST
- New Home Sales for October are estimated to fall to 1049K versus 1075K in September.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of 350,000 barrels versus a 5,161,000 build the prior week. Gasoline supplies are expected to rise by 450,000 barrels versus a 1,406,000 barrel build the prior week. Distillate supplies are expected to rise by 500,000 barrels versus a 1,198,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise .63% versus a .22% decline the prior week.

2:00 pm EST
- Fed’s Beige Book

BOTTOM LINE: Asian indices are higher, boosted by automaker and technology 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.

Stocks Finish Near Session Highs on Surge After Positive Bernanke Comments

Indices
S&P 500 1,386.72 +.35%
DJIA 12,136.45 +.12%
NASDAQ 2,412.61 +.28%
Russell 2000 774.82 +.35%
Wilshire 5000 13,913.86 +.32%
S&P Barra Growth 644.89 +.46%
S&P Barra Value 739.51 +.24%
Morgan Stanley Consumer 670.41 +.48%
Morgan Stanley Cyclical 872.26 -.29%
Morgan Stanley Technology 570.61 +.55%
Transports 4,753.62 -.74%
Utilities 449.33 +.56%
Put/Call .93 -27.34%
NYSE Arms 1.06 -39.66%
Volatility(VIX) 11.62 -5.53%
ISE Sentiment 135.0 +13.45%
US Dollar 83.12 -.46%
CRB 314.97 +.63%

Futures Spot Prices
Crude Oil 60.90 +.96%
Unleaded Gasoline 161.40 +1.27%
Natural Gas 8.31 +4.0%
Heating Oil 172.75 +1.31%
Gold 645.80 +.33%
Base Metals 241.22 -.84%
Copper 317.0 unch.
10-year US Treasury Yield 4.50% -.61%

Leading Sectors
Energy +1.84%
Internet +1.23%
HMOs +1.12%

Lagging Sectors
Steel -.48%
Wireless -.50%
Oil Tankers -3.65%

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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Shares of Apple Computer(AAPL) rose to a record after analysts said faster Macintosh computers and low-priced iPod players will spur holiday sales, and that a new music phone may buoy revenue next year.
- Shares of Louisiana-Pacific Corp.(LPX), a US producer of wood panels and boards, soared the most in seven months on speculation the company may be a takeover target.
- Bank of America(BAC), whose shares have climbed 18% this year, surpassed Citigroup(C) for the first time to become the biggest US bank by market value.
- Wheeling-Pittsburgh(WPSC), a US steel producer, said its financial results for the fourth quarter will miss forecasts because of prices and shipments were less than expected.
- Copper prices declined in NY as US inventories climbed. Supplies have risen 400% from this year’s low of 6,756 tons on July 28.

CNBC:
- Dollar General Corp.(DG) may be a target of leveraged-buyout firms Bain Capital LLC and Cerberus Capital Management.

Reuters:
- Time Warner Inc.(TWX) plans to offer a service next year to allow consumers to download films online and copy them onto DVDs, citing CEO Parsons.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Retail longs, Telecom longs and Computer longs. I covered my (EEM), (IWM) and (QQQQ) hedges in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was above average. Measures of investor anxiety were lower into the close. Today's overall market action was bullish. Many market-leading stocks finished the day with nice gains. With short interest just off all-time highs, I suspect today's late surge was mainly the result of short-covering after the bears were unable to gain downside traction this morning, despite potential catalysts. Most bears continue to view every dip as the beginning of a major sell-off and remain stunningly complacent giving what has transpired since mid-year, in my opinion. The Association of American Railroads reported recently that intermodel volume of 250,512 trailers (RAILTOTL Index on Bloomberg) or containers rose 2% in the week ended November 18 vs. last year. Moreover, this is only down 3% from all-time highs set in late September of this year. As well, the Baltic Dry Index (BDIY Index on Bloomberg) has been trending higher for months. Finally, while truck tonnage (TRUKINDX Index on Bloomberg) has been falling modestly of late, it is mostly the result of record high rail use.

Stocks Slightly Higher into Final Hour on Positive Bernanke Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs, Medical longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is about even, sector performance is mixed and volume is above average. The latest data from the NYSE shows short interest fell only .7% from mid-October through mid-November, after reaching an all-time high the prior month, despite recent gains and bears' suggestions that they are a dying breed. To put that into perspective, NYSE short interest has risen 6.2% from June and 21% from January of this year. Moreover, since the stock market bubble burst in early 2000 and the negativity bubble began to fill with air, NYSE short interest has rocketed 148.2%. I suspect many shorts will be quick to cover on any signs of market stabilization. More record highs for the DJIA are likely before year-end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting.

Today's Headlines

Bloomberg:
- Fed Reserve Chairman Bernanke said the US economy will expand toward its full capacity in the coming year and that inflation should continue to slow.
- Currency options traders are the most bullish on the euro in three years, which could signal the currencies strength is near a peak.
- NYSE Group(NYX) and the NASD agreed to form a single regulator for the securities industry, ending a turf war in order to cut compliance costs for Wall Street firms and better police ever-more complex financial markets.
- Citadel Investment Group LLC plans to sell as much as $2 billion in notes in what may be the first-ever bond sale by a hedge fund, Fitch Ratings said.
- Vornado Realty Trust(VNO), the second-largest US real estate investment trust, agreed to buy the Manhattan Mall on Sixth Ave. for about $689 million, expanding in a neighborhood where it owns eight properties.
- Crude oil is rising to a two-week high on forecasts that most of the US will be colder than normal next week.

Wall Street Journal:
- Nokia Oyj(NOK) is under pressure to introduce slimmer handsets to match those of rivals Motorola(MOT) and Samsung Electronics.
- Morgan Stanley(MS), Merrill Lynch(MER), Bear Stearns(BSC) and other investment banks are buying US subprime-mortgage lenders as that industry is troubled with defaulted payments.
- Intel Corp.(INTC) will invest more than $1 billion in venture capital projects for the first time since 2000.
- Microsoft’s(MSFT) 30-gigabyte Zune digital player failed to make Amazon.com’s Top 10 selling list for electronics yesterday.
- Telephone-equipment makers that have for years dominated the Chinese market may be in for a disappointment. China is likely to begin supporting its own equipment makers, Huawei technologies and ZTE Corp., by starting its 3G networks with its own technology standard, called TD-SCDMA.

Market News Intl.:
- Fed Reserve Bank of St. Louis President William Poole said US inflation is still too high yet may decline further if expectations keep falling.

NY Times:
- The US Agriculture Dept. is trying to decide how to label fish as organic.
- Boeing Co.(BA) is trying to avoid mistakes it made almost a decade ago by not over-producing planes and keeping demand high.
- Members of the Mahdi Army, an Iraqi Shiite militia, are being trained by the Iranian-backed group Hezbollah.
- Latinos are moving in and blacks are leaving the once predominately black neighborhoods of Los Angeles.

AP:
- Alaska plans to take away ExxonMobil Corp.’s(XOM) leases at the Point Thomson oil and gas field in the North Slope after the company failed to develop the site, citing Governor Frank Murkowski.

Handelsblatt:
- Federal Reserve Bank of Dallas President Richard Fisher said he’s “content” with the level of interest rates in the US, adding that the key lending rate of 5.25% is “just about right.”

Sueddeutsche Zeitung:
- German families’ net average income has declined 2% since 1991 dented by accords between unions and employers, as well as rising costs for pensions, health and unemployment insurance.

Durable Goods Orders Fall, Consumer Confidence Declines, Existing Home Sales Rise

- Durable Goods Orders for October fell 8.3% versus estimates of a 5.0% decline and an upwardly revised 8.7% increase in September.
- Durables Ex Transports for October fell 1.7% versus estimates of a .2% increase and an upwardly revised .5% gain in September.
- Consumer Confidence for November fell to 102.9 versus estimates of 106.0 and 105.1 in October.
- Existing Home Sales for October rose to 6.24M versus estimates of 6.14M and 6.21M in September.

BOTTOM LINE: Orders for durable goods fell last month after a surge the prior month, Bloomberg reported. Bookings for non-defense capital goods excluding aircraft, a gauge of future corporate spending, fell 5.1%. However, a survey released earlier in the month from Blue Chip Economic Indicators said business spending will rise 7.8% this year, up from 6.8% last year. Orders for commercial aircraft declined 45% after soaring 198% the prior month. I expect durable goods to bounce back sharply next month.

Confidence among US consumers unexpectedly fell this month, Bloomberg reported. The present situation component of the index declined to 123.6 versus 125.1 in October. The expectations component fell to 89.2 versus a reading of 91.9 in October. The percentage that said jobs are plentiful rose to 25.8% from 25.6% the prior month. I continue to expect consumer sentiment to make new cycle highs over the intermediate-term as housing stabilizes at relatively high levels, energy prices fall further, inflation decelerates, the job market remains healthy and the stock market rises further.

US previously owned home sales unexpectedly rose in October as lower prices and borrowing costs brought more buyers into the market. The median selling price fell 3.5% from a year earlier to $221,000. The number of homes for sale at the existing pace rose to 7.4 months’ worth from 7.3 months in September. Purchases rose 6.4% in the West and were unch. in the Mid-west. They fell 2.9% in the Northeast and 1.2% in the South. I continue to expect the housing market to stabilize at a relatively high level. I expect US economic growth to bounce back to more average levels over the intermediate-term as auto production cutbacks subside and housing subtracts less.

Links of Interest

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