Today's Headlines

Bloomberg:
- China’s government said it plans to nurture up to 50 state-owned enterprises to become globally competitive companies to shield them from overseas rivals under the World Trade Organization.
- Delta Air Lines rejected a hostile $8.38 billion merger proposal from US Airways Group and said it plans to exit bankruptcy on its own with a value of as much as $12 billion.
- Common drugstore painkillers would have to carry warnings about risks of liver damage and stomach bleeding under a proposal from US regulators.
- The Fed’s Fisher said the risk of inflation is greater than slower US economic growth and reiterated his belief that he is comfortable with current Fed policy stance.
- Securities-industry employees in NYC will receive $23.9 billion in bonuses this year, surpassing last year’s record by 17%, NY State Comptroller Alan Hevesi forecast.
- Thai stocks may rebound from the biggest slump in 16 years after the government scrapped day-old currency controls on international equity investors.
- Iranian President Ahmadinejad’s opponents took a lead in municipal elections in Tehran, suggesting he may be challenged at the next presidential poll by politicians seeking a more liberal economy and a less confrontational approach to the US.

Wall Street Journal:
- US Democrats remain divided over free trade, balanced budgets and other economic issues they once promoted as the party comes under pressure from organized labor and populists.
- AT&T(T) which started television services in the Texas cities of San Antonio and Houston, will expand the offering to San Francisco, New Haven and Hartford, Connecticut, and add high-definition channels.
- Wal-Mart Stores(WMT) has allowed employees to install a Communist Party branch at its headquarters in Shenzhen, China, in keeping with Chinese government regulations.

AP:
- Anheuser-Busch(BUD) will end its title sponsorship of Nascar’s second-tier racing series after the 2007 season.

PPI Bounces After Recent Declines, Housing Starts Jump

- The Producer Price Index for November rose 2.0% versus estimates of a .5% gain and a -1.6% decline in October.
- The PPI Ex Food & Energy for November rose 1.3% versus estimates of a .2% gain and a -.9% decline in October.
- Housing Starts for November rose to 1588K versus estimates of 1540K and 1488K in October.
- Building Permits for November fell to 1506K versus estimates of 1540K and 1553K in October.

BOTTOM LINE: Prices paid to US producers bounced back in November, led by rebounds in the costs of energy and light trucks, Bloomberg reported. So far this year, producer prices are rising at a .3% annual rate versus a 5.3% increase at this time last year. Core prices are rising at a 2% annual rate versus a 1.6% increase at this time last year. The price of gasoline surged 17.9%, while natural gas prices rose 5.9% in November. Both have since declined. Prices for raw materials jumped 15.7%, but are down 8.5% over the last year. Excluding food and energy, intermediate goods prices declined .3% versus unch. the prior month. Costs for light trucks jumped a record 13.7% after falling a record 9.7% the prior month. The 10-year yield, the best predictor of long-term inflation is unch. on this report. I expect Producer Prices to continue their longer-term trend of deceleration next month.

Housing starts in the US rebounded in November, jumping 6.7% from October’s rate. The increase in housing starts was led by a 19% surge in the South and an 8.5% gain in the Northeast. Starts fell 8.1% in the West and 6.3% in the Midwest. I continue to believe the worst of the housing slowdown is over and it is stabilizing at relatively high levels. However, new home construction will likely remain subdued over the intermediate-term as builders continue to work down inventoriesP.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- The California Public Employees’ Retirement System, the largest US public pension, will for the first time let investment managers take short positions in US stocks. As well, Calper’s investment committee approved allowing stock investments in China, Colombia, Egypt, Morocco, Pakistan, Russia, and Venezuela, which had until now been prohibited under the fund’s permissible market policy. Last month, the fund agreed to speculate in commodities for the first time.
- China, the largest source of overseas children adopted in the US, plans to bar would-be parents who are obese, single or over 50, according to notices posted on the Web sites of three leading US adoption agencies. Under rules effective from May 1, applicants must be married for more than two years with a high school education. The measures also ban multiple divorcees, the blind and those taking depression medication from becoming parents.
- Dirty Wall Street Secret: Hedge Funds of Funds Pay T-Bill Rates.
- South Korea’s won “has peaked” and is poised to weaken versus the US dollar in 2007 as increased overseas investment fuels demand for foreign currencies, a senior central bank official said.
- The Thai baht had the biggest two-day decline since May 2004, resulting in a 9% plunge in the country's stock market, after regulators yesterday required banks to lock up 30% of new foreign currency deposits for a year to curb speculation.
- EBay(EBAY) will close its primary China Web site and form a partnership with Beijing-based Tom Online to boost traffic in the world’s second-biggest Internet market.
- Crude oil was little changed in NY after posting yesterday its biggest decline in more than a month on signs mild weather will curb demand with supplies in the US near 7-year highs.

Nihon Keizai:
- Japan’s economy will grow by 2.0% in the year that begins in April 2007 in real terms and 2.2% on a nominal basis, citing a forecast the Cabinet is to approve today.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CAG), raised target to $31.

CSFB:
- We maintain our view the US steel market is at risk of a prolonged de-stocking period characterized by low capacity utilization and continued high inventories. According to the Metals Service Center Institute, steel service center inventories totaled 3.8 months of supply at the end of November versus 3.6 months at the end of October and 2.8 months in November of last year. Absolute inventories are 33% above prior year levels. Shipments, an indication of demand, continued to slow. Total shipments of all steel products declined 6.3% sequentially and 3.3% year-over-year in November, marking the 3rd consecutive month of year-over-year declines in steel shipments(-1.1% on average during past three months following average year-over-year growth in shipments of 5.8% during the January-August period).

Night Trading
Asian Indices are -.75% to -.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated -.01%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CHAP)/1.26
- (CBK)/.24
- (CTAS)/.52
- (CC)/.05
- (DRI)/.40
- (FDS)/.46
- (MS)/1.77
- (PALM)/.15
- (SCHL)/1.71

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Producer Price Index for November is estimated to rise .5% versus a 1.6% decline in October.
- The PPI Ex Food & Energy for November is estimated to rise .2% versus a -.9% decline in October.
- Housing Starts for November are estimated to rise to 1540K versus 1486K in October.
- Building Permits for November are estimated to fall to 1540K versus 1553K in October.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and automaker shares in the region. I expect US equities to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Finish Lower on Year-end Profit-taking

Indices
S&P 500 1,422.48 -.32%
DJIA 12,441.27 -.03%
NASDAQ 2,435.57 -.88%
Russell 2000 782.02 -1.35%
Wilshire 5000 14,246.92 -.47%
S&P Barra Growth 656.05 -.53%
S&P Barra Value 764.74 -.13%
Morgan Stanley Consumer 692.57 +.10%
Morgan Stanley Cyclical 889.18 -.53%
Morgan Stanley Technology 573.23 -.56%
Transports 4,659.19 -.89%
Utilities 456.76 -.76%
Put/Call 1.12%
NYSE Arms .91 -3.23%
Volatility(VIX) 10.58 +5.27%
ISE Sentiment 184.0 +35.29%
US Dollar 83.97 -.08%
CRB 310.39 -.94%

Futures Spot Prices
Crude Oil 62.11 -2.08%
Reformulated Gasoline 167.30 -1.81%
Natural Gas 7.01 -5.28%
Heating Oil 172.15 -3.38%
Gold 618.50 -.10%
Base Metals 240.77 -1.45%
Copper 302.75 +.72%
10-year US Treasury Yield 4.59% -.13%

Leading Sectors
Gaming +.94%
Banks +.30%
Semis +.16%

Lagging Sectors
Steel -2.53%
Energy -2.81%
Oil Service -3.92%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Bank of America:
- Rated (MNST) Buy, target $57.

Afternoon/Evening Headlines
Bloomberg:
- Delphi Corp. will receive $3.4 billion from five investment firms to help it emerge from bankruptcy.
- Oracle Corp.(ORCL) said fiscal second-quarter profit rose 21% on higher sales of programs to manage business tasks such as payroll and inventory.
- Serious crime in New York fell 7.2% in the first six months of this year.
- Crude oil fell more than $1/bbl. as warmer-than-normal weather curbed heating-fuel consumption and investment funds’ near record speculation in the commodity subsided further.
- New US Defense Secretary Robert Gates said America “cannot afford to fail” in the Middle East and he will visit Iraq “quite soon” to consult with military leaders there.
- Marijuana is the largest US cash crop, eclipsing corn and wheat combined, a study in the Bulletin of Cannabis Reform said.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Retail longs, Computer longs and Biotech longs. I added to my EEM, IWM and QQQQ hedges in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, most sectors declined and volume was slightly above average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was bearish. Small caps and commodities underperformed throughout the day. Oil Service stocks were particularly weak as this over-owned group fell almost 4% for the day. Today's action appeared to be mainly a result of year-end profit-taking in the best performers this year. I added to my hedges into the close based on the likelihood that overseas markets will come under pressure tonight due to the weakness in commodities.

Stocks Lower into Final Hour on Year-end Profit Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Computer longs and Biotech longs. I added to my commodity shorts and added IWM, QQQQ and EEM hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Broadbased weakness in commodity-related stocks is weighing on the overall market, especially small caps. However, a number of sectors are positive outside of commodities. I still firmly believe overall sentiment towards U.S. stocks is extraordinarily bearish given recent gains, while many commodity investors remain very complacent given the ongoing deterioration in the underlying fundamentals. I suspect the record speculation that has been boosting most commodity prices to absurd levels will work against them next year as more funds jump the short side. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking.