Stocks Finish Slightly Higher Ahead of Tomorrow's FOMC Meeting

Indices
S&P 500 1,413.04 +.23%
DJIA 12,328.48 +.17%
NASDAQ 2,442.86 +.23%
Russell 2000 793.07 +.06%
Wilshire 5000 14,199.42 +.19%
S&P Barra Growth 652.97 +.11%
S&P Barra Value 758.26 +.34%
Morgan Stanley Consumer 686.32 -.01%
Morgan Stanley Cyclical 892.80 -.05%
Morgan Stanley Technology 571.62 +.17%
Transports 4,740.93 +.44%
Utilities 457.38 +.32%
Put/Call .74 -5.13%
NYSE Arms 1.21 +43.56%
Volatility(VIX) 10.71 -11.27%
ISE Sentiment 162.0 +9.46%
US Dollar 83.18 -.13%
CRB 312.08 -.10%

Futures Spot Prices
Crude Oil 61.29 -1.19%
Reformulated Gasoline 160.10 -1.0%
Natural Gas 7.45 -1.44%
Heating Oil 172.95 -1.58%
Gold 634.60 +.57%
Base Metals 243.12 -.14%
Copper 313.70 +.80%
10-year US Treasury Yield 4.51% -.69%

Leading Sectors
Airlines +1.86%
Telecom +.76%
Banks +.70%

Lagging Sectors
Papers -.60%
Steel -.61%
Coal -.95%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Exercise may lower the risk of developing breast cancer after menopause, while also helping maintain bone density, according to two separate studies published in the Archives of Internal Medicine today.
- New Jersey Transit’s new double-decker trains cars, which carry more passengers and eliminate the three-person seat that is the bane of many riders, started running today on the system’s busiest commuter route.
- Texas Instruments(TXN) cut its forecast for fourth-quarter sales and profit because of lower chip revenues. Analysts had expected the shortfall. The shares are trading down .19 in after-hours trading.
- Adam Geiger, Chief Investment Officer of Ivy Asset Management, is leaving the $16.4 billion fund of hedge funds, according to a letter sent to investors today.
- Robert Kraft, the owner of the New England Patriots and Paul Tudor Jones, a billionaire hedge fund manager, are joining other investors to back cable-tv programming for resort communities.
- The SEC meeting on raising the requirements for hedge fund investors has been rescheduled for this Wed.
- US gasoline at the pump fell during the past week to $2.29/gallon.
- Anadarko Petroleum expects capital spending of as much as $4.3 billion next year. 5-year annual production growth is predicted to be 5-9%.
- Devon Energy(DVN) today announced an oil discovery with the Mission Deep well on Green Canyon block 955.
- Crude oil fell almost $1/bbl. today as forecasts of milder weather reduced speculation by investment funds.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Telecom 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 slightly positive today as the advance/decline line finished about even, most sectors gained and volume was above average. Measures of investor anxiety were mixed into the close. I would classify today's overall market action as another healthy consolidation of recent gains. While analysts, managers and pundits continue to overwhelmingly love all energy-related stocks, the underlying commodity trades poorly in the face of potential upside catalysts. As well, the despised 10-year T-note finished near session highs and continues to trade well.

Stocks Modestly Higher into Final Hour on Falling Energy Prices and Buyout Speculation

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Retail longs and Telecom longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is modestly higher, most sectors are rising and volume is above average. A recent Piper Jaffray survey of 20 Apple (AAPL) specialist retailers shows about 25% of Mac purchasers are new to the Apple platform. Piper thinks the number will continue to grow due to the "halo effect" from iPods and the Boot Camp software. I continue to believe that Apple's full-year 2007 consensus earnings estimates are way too low as the Mac gains much more market share than most expect and new products gain significant traction. I suspect the stock will have another banner year next year as the multiple expands, demand for high-quality U.S. growth stocks increases globally and earnings meaningfully exceed estimates. Apple remains my second-largest long position, after Google (GOOG), due to substantial gains since adding to my long earlier in the year. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, buyout speculation, lower energy prices, declining long rates and portfolio manager performance anxiety.

Today's Headlines

Bloomberg:
- Iran today gave the floor to deniers of the Holocaust, criticizing the West for not giving them the opportunity to perform “independent research” into accounts of the killing of 6 million Jews during World War II.
- The worst of the US housing slump is over, according to the National Assoc. of Realtors.
- SAC Capital Advisers LLC, the $10 billion hedge-fund firm run by Steven Cohen, more than doubled its stake in copper miner Phelps Dodge(PD) and will oppose its takeover by Freeport-McMoRan Copper & Gold.
- Orange juice prices in NY fell the most in sixteen months after the government unexpectedly boosted its estimate for the orange crop in Florida.
- US consumers’ Internet spending for the holidays rose 25% from a year earlier as more people turned to the Web and stepped up spending with the approach of the busiest selling days of the year.
- London house prices rose in the past month at the fastest annual pace in at least four years, fueled by demand from bankers as the bonus season approaches, according to Rightmove Plc, the UK’s biggest property Web site.
- French industrial production unexpectedly fell in October for a second month as manufacturers struggled with a stronger euro and rising borrowing costs.
- Natural gas fell to the lowest in six weeks in NY as forecasters predicted above-normal temperatures form the Rocky Mountains to the East Coast the next two weeks.
- BioFuel Energy, a Denver-based company that’s building two ethanol distilleries, plans an IPO some time next year to raise $300 million to fund construction of three additional plants and to reduce debt.
- Crude steel production in the Middle East is set to soar almost 100% to 26 million tpy by 2010.
- US cotton exports will be 1.2% less than forecast last month because of weaker demand from China, the world’s biggest consumer of the fiber.

Wall Street Journal:
- Researchers from IBM(IBM), Qimonda AG and Macronix Intl. will present research today on memory chips that may become competitive with hard drives.
- The board of Harrah’s Entertainment(HET) plans to meet Wednesday to review all buyout offers for the company.
- The US electric power grid can supply enough energy to power as many as 180 million electric cars, citing an Energy Department study.
- Five US economic myths that constitute conventional wisdom don’t necessarily hold up under scrutiny. The five myths include the theory that monetary policy causes booms and busts, gross domestic product growth was extraordinary in the 90s, Americans don’t save, US government debt is big, and government debt will be a burden on our grandchildren, says the senior monetary adviser at the Federal Reserve Bank of Minneapolis and professor of economics at the WP Carey School of Business at Arizona State University.
- The SEC is considering a regulation that would accelerate approval of new ETFs.

NY Times:
- Three teams of private equity bidders are seeking to buy Sabre Holdings(TSG) and the company is in advanced talks to be sold for more than $4 billion.
- The FDA may increase its oversight of produce after recent E. coli outbreaks.

Svenska Dagbladet:
- Nokia Oyj(NOK) will begin designing mobile phones directly aimed at the US in a push to overtake Motorola(MOT) as the market leader there.

Handelsblatt:
- The Group of Eight leading industrialized nations are moving closer to endorsing stricter control of hedge funds as the US and UK governments support a German initiative to that end.

AFP:
- Iran pledged about $250 million to the Palestinian Authority’s Hamas-led government, citing Palestinian Authority Prime Minister Ismael Hania.

Wholesale Inventories Rise

- Wholesale Inventories for October rose .8% versus estimates of a .6% gain and a downwardly revised .7% increase in September.

BOTTOM LINE: Inventories at US wholesalers rose at a faster pace in October as sales fell modestly, Bloomberg reported. The inventory-to-sales-ratio increased to 1.2 months in October versus 1.18 months the prior month. Lower oil prices limited the increases in sales as the average price of crude fell to $59.41/bbl. from $63.90/bbl. the prior month. I expect inventories to begin falling again over the intermediate-term as housing stabilizes at relatively high levels, auto production cutbacks subside and consumer spending remains healthy.

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Monday Watch

Weekend Headlines
Bloomberg:
- The euro had its biggest weekly decline in three months as traders speculated the European Central Bank will slow the pace of its interest-rate increases, after lifting borrowing costs last week for the sixth time in a year.
- OPEC is considering its second production cut in three months to prevent a price drop early next year. “They are stuck between the price, which is pretty good, and this issue about stockpiles, which they find too high and are still building,” said Frederic Lasserre, head of commodities economic research at Societe Generale SA in Paris. Global oil consumption will decline 2 million bpd in the second quarter from the first, according to the IEA.
- The UK government will introduce new standards in computer games to help protect children from Internet pedophiles, Home Secretary John Reid said.
- BHP Billiton(BHP) may accept a 13% cut in hard coking coal prices form April as supplies increase and steelmakers slow the pace of capacity expansion.
- Libya’s oil reserves, the largest in Africa, will increase by 7.6 billion barrels, or about 20%, in five years, as a result of stepped up exploration and better maintenance of existing oilfields, a Libyan oil official said.

Wall Street Journal:
- News Corp.’s(NWS) Fox, Viacom Inc.(VIA), CBS Corp.(CBS) and General Electric’s(GE) NBC Universal are in talks to create a video Web site to compete with Google’s(GOOG) YouTube.
- Goldman Sachs Group(GS) plans to hire 17 traders from Amaranth Advisors, the hedge fund that collapsed in September with more than $6.6 billion of losses.
- Exxon Mobil(XOM) gained approval to join Vietnam Oil & Gas, known as PetroVietnam, to explore for oil and gas in three offshore areas.

NY Times:
- Iraqi officials are close to a deal on a national oil law that would give the central government the power to distribute current and future oil reserves to regions based on their population. The measure could help solve a highly divisive issue that has consistently blocked efforts to reconcile the country’s feuding ethnic and sectarian factions.
- United Parcel Service(UPS) Chairman and CEO Michael Eskew said the delivery service may enjoy its biggest Christmas season ever, because Thanksgiving was early, leading to more shopping days before the holiday.
- Microsoft(MSFT) has turned its attention to new online services to boost the unit after failing to attract consumers with such software “wizardry” as the company’s three-dimensional map service.
- Hundreds of Iraqis have lobbied Prime Minister Nuri al-Malifi’s office to be the executioner for former dictator Saddam Hussein, whose death sentence is still being reviewed.
- To regain ground in an intensifying turf war, Verizon Communications(VZ) is spending $20 billion nationwide to build a state-of-the-art fiber optic network that can carry not just four phone lines and speedy broadband connections, but also hundreds of television channels per household.
- The SEC will propose Sarbanes-Oxley revisions for small businesses on Dec. 13.

Philadelphia Inquirer:
- Pinnacle Entertainment(PNK) is talking to Colony Capital about buying one of its Atlantic City resorts.

Star-Ledger of Newark:
- About 88% of New Jersey businesses expect to report profit increases of at least 5% in 2007, citing its own poll of 60 companies in the state.

Washington Post:
- Congress passed an overhaul of the rules governing the US fishing industry designed to prevent depletion of ocean fisheries.

San Francisco Chronicle:
- Incoming US House Speaker Nancy Pelosi said her top priority is to immediately end the war in Iraq.

AP:
- US Representative William Jefferson of Louisiana, the target of a federal bribery probe, defeated his Democratic opponent in a run-off election yesterday. The FBI earlier this year found $90,000 in what it called bribe money in Jefferson’s freezer.

Investment Dealer’s Digest:
- The new Goldman Sachs(GS) index, Absolute Return Tracker, or ART, is a beta product. It uses an algorithm and simulates investments in five assets classes: equities, debt, commodities, fixed income and volatility. The index will have 6% volatility.

Times:
- More than 20 hedge funds a year will probably collapse after the demise of Amaranth Advisors LLC in September. The number of failures, equating to an estimated .3% of the 8,000 hedge funds worldwide, is quite small and investors still have confidence in hedge funds.

Sunday Telegraph:
- Smith & Nephew Plc, Europe’s biggest maker of orthopedic products, will this week offer to buy US competitor Biomet(BMET) for more than $9.8 billion.

Sunday Morning Post:
- China has banned a biography of Yao Lifa, who supports grass-roots democracy, two months after it was published, citing Xia Bei, the editor of the book.

Yomiuri:
- Japan will extend by two years tax reductions for purchases of new gasoline-electric hybrid cars, citing a decision by the ruling Liberal Democratic Party’s tax panel.

Asahi:
- Hitachi Ltd., Japan’s second-biggest plasma television maker, may double its forecast for plasma TV shipments to 1.6 million units for the year ending March 31, 2008.

Xinhua News Agency:
- China will give priority to reining in investment growth and to boosting domestic consumption next year. The Chinese government also plans to adjust the economic structure by cutting energy consumption and pollution.

Weekend Recommendations
Barron's:
- Made positive comments on (MEL), (MDT), (NT), (ACL) and (INTU).
- Made negative comments on (GHS).

Citigroup:
- Intel(INTC) is positioned to meet the mid-point of their guidance with inventories lower.

Night Trading
Asian indices are unch. to +.75% on average.
S&P 500 indicated +.06%
NASDAQ 100 indicated +.11%.

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- Wholesale Inventories for October are estimated to rise .6% versus a .9% gain in September.

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