Consumer Confidence Near 5-Year High

- Consumer Confidence for January rose to 110.3 versus estimates of 110.0 and an upwardly revised 110.0 in December.

BOTTOM LINE: Confidence among US consumers approached the highest level since May 2002 this month as an expanding job market, rising wages, a strong stock market and falling energy prices gave Americans more money to spend, Bloomberg reported. The Present Situation Component of the index rose to 133.9 versus 130.5 the prior month. The Jobs Are Plentiful component rose to 29.9% versus 27.6% the prior month. The proportion of consumers planning to buy a car rose to 6.2% versus 5.4% the prior month. Those planning to buy a home rose to 3.3%, the highest since August, versus 2.9% the prior month. Gasoline prices fell to $2.23/gallon nationwide during January from $2.29/gallon in December. Sentiment in the central northeast remains depressed at 79.1. Sentiment in the south atlantic, central southwest, mountain and pacific regions remains robust at 120.2, 128.0, 132.8 and 128.3, respectively. I continue to believe both main measures of consumer confidence will make new cycle highs over the coming months as stocks rise further, housing continues to improve, wages continue to outpace inflation as unemployment remains low and gas prices fall further.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- US airline pilots could fly to age 65 as long as the other person in the cockpit is under age 60, according to a rule aviation regulators may propose.
- Air America Radio, the bankrupt liberal talk-radio network, agreed to be sold to New York real estate investor Stephen L. Green for an undisclosed price. Green, 69, is chairman of SL Green Realty(SLG), the biggest owner of Manhattan office buildings.
- McDonald’s Corp.(MCD) has chosen the trans fat-free cooking oil it will use for frying at its 13,000 US stores, allowing the company to comply with laws aimed at improving health while maintaining the taste of its French fries.
- Baoshan Iron & Steel, the listed unit of China’s largest steelmaker, expects output of steel products to rise 10% to 23 million tons in 2007 from a year earlier.
- Korea Electric Power, the country’s dominant power supplier, and two other domestic companies will increase their investment in renewable energy 15% by 2008.

Gulf News:
- South Korean refiners plan to cut crude oil use by 20,000 barrels a day in February. The refiners are cutting fuel output because of profits from processing oil aren’t high enough to justify increased output.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GLW), target $29. We think that the fiber-to-the-home trends at Verizon(VZ) suggests that 2007 should be a solid year of fiber/equipment spending, which will benefit Corning.

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Company/EPS Estimate
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- (APOL)/.62
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- (BKC)/.26
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10:00 am EST
- Consumer Confidence for January is estimated to rise to 110.0 versus 109.0 in December.

BOTTOM LINE: Asian indices are mixed as weakness in energy stocks is being offset by strength in automaker shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Higher on Another Fall in Energy Prices and More Buyout Activity

Indices
S&P 500 1,420.63 -.11%
DJIA 12,490.78 +.03%
NASDAQ 2,441.09 +.23%
Russell 2000 793.09 +.63%
Wilshire 5000 14,296.03 +.01%
Russell 1000 Growth 560.91 +.02%
Russell 1000 Value 816.46 -.14%
Morgan Stanley Consumer 705.06 +.12%
Morgan Stanley Cyclical 917.27 -.04%
Morgan Stanley Technology 560.97 +.13%
Transports 4,763.82 +1.08%
Utilities 451.20 -.11%
Put/Call .91 -4.21%
NYSE Arms 1.26 +3.22%
Volatility(VIX) 11.49 +3.23%
ISE Sentiment 156.0 +6.12%
US Dollar 85.12 -.13%
CRB 290.92 -1.67%

Futures Spot Prices
Crude Oil 53.96 -2.63%
Reformulated Gasoline 144.0 -2.93%
Natural Gas 6.92 -3.60%
Heating Oil 155.03 -2.58%
Gold 648.50 -.46%
Base Metals 227.11 -1.83%
Copper 253.50 -4.0%
10-year US Treasury Yield 4.89% +.30%

Leading Sectors
Foods +2.71%
Airlines +2.13%
Alternative Energy +1.51%

Lagging Sectors
Oil Service -.77%
I-Banks -1.16%
Gold & Silver -1.82%

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Afternoon Recommendations
- None of note:

Afternoon/Evening Headlines
Bloomberg:
- Crude oil fell more than a $1.40/bbl. back to $53.91 after Saudi Arabia made comments that they are happy with $50/bbl. oil.
- Corn prices fell to a two-week low in Chicago on speculation that President Bush will propose incentives for farmers to increase crop production to ensure adequate supplies for food and energy demand.
- US coal production will reach 1.17 billion tons in 2007, the third consecutive year of record output, the National Mining Assoc. said.
- Copper fell 4% in NY on worries over inventories in London approaching a three-year high.

- Microsoft’s(MSFT) latest marketing campaign is as large as life. The software maker will install a 250-foot wall of 70-inch plasma televisions in NY’s JFK Intl. Airport and a series of 10-foot-high laptop computers in German train stations.
- Latin stocks fell for a third day as a decline in oil prices raised concerns that profits will be less than expected at Petroleo Brasileiro SA and Mexican companies dependent on government oil revenue.

Wall Street Journal:
-

CNBC:
-

Cnet’s News.com:
-

Miami Herald:
-

Financial Times:
-

Nikkei English News:
- The Tokyo Stock Exchange will tomorrow announce a partnership with NYSE Group(NYX) to develop exchange-traded funds and simplify listing requirements.

Dow Jones:
-

AP:
-

Boersen-Zeitung:
-

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Retail longs, Medical longs and Commodity shorts. 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 modestly higher, most sectors rose and volume was about average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was neutral. The 10-year yield finished 1 basis points higher. I will closely monitor its reaction to likely more strong economic data this week. Oil and nat gas are near session lows, falling 2.6% and 3.6% respectively. Nat gas storage is over 80% of capacity, a record for this time of year. As well, liquefied nat gas imports to the U.S. are projected to soar this year. I suspect the massive investment fund speculation on the commodity will subside as the fundamentals continue to weaken substantially. Today's trading was choppy and mostly directionless in the broad market ahead of numerous potential market-moving events.

Stocks Slightly Higher into Final Hour on Another Decline in Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is about average. Over the weekend, the Financial Times reported that an overwhelming majority of citizens in the European Union believe the euro has damaged their economies. Global economic growth has boomed over the last few years and many Europeans are already this pessimistic on the euro's effects on their economies. I suspect during the next significant global economic downturn we will see a serious push in some prominent countries to leave the EU all together. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices and stable long-term rates.

Today's Headlines

Bloomberg:
- Oil is falling another $1.37/bbl. on comments from Saudi Arabia that they are happy with oil around $50/bbl.
- Copper prices are plunging 4% as LME inventories have surged 8% in the last week and are near 3 year highs.
- Corn prices in Chicago fell on speculation that commodity- and hedge-fund managers this week will reduce record net-long positions.
- Stainless-steel producers, which use about two-thirds of global nickel supplies, are reducing the amount of the metal in their products after prices soared to a record, an industry organization said.
- The yen declined to the lowest against the US dollar in more than four years after a Japanese government report showed a drop in retail sales last month.
- Microsoft Corp.(MSFT) expects to see a “bump” in sales from the release of its new Windows Vista program, CEO Ballmer said. Symantec Corp.(SYMC) agreed to buy Altiris Inc. for about $830 million in cash to gain programs that help companies manage software for their businesses.
- Merrill Lynch(MER) agreed to buy First Republic Bank for $1.8 billion in cash and stock.

Wall Street Journal:
- Russia’s OAO Gazprom, the world’s No. 2 oil company by reserves after Exxon Mobil(XOM), will double spending on development to $20 billion this year, said Alexander Medvedev, who heads Gazprom’s export effort.
- US utility companies are competing for the best locations for new nuclear power plants and more than $8 billion in federal subsidies.

NY Times:
- Iran plans to expand economic and military ties with Iraq, including opening a national bank in Baghdad and offering military training, citing an interview with Iran’s ambassador to Iraq.
- Nielsen Media Research will for the first time begin using the viewings of college students living away from home.

USA Today:
- House Speaker Nancy Pelosi and two other top Democrats violated a federal ethics law that requires disclosure of leadership roles at non-profit organizations, citing financial disclosure records.

Washington Post:
- President Bush’s new plan to stabilize Baghdad “corrects the problems that plagued previous efforts,” National Security Adviser Stephen Hadley wrote.

Independent:
- Mark Mobius, who manages the Templeton Emerging Markets Investment Trust, faces criticism from City of London Investment Group, the trust’s biggest investor with a 13% stake. In an open letter to the board, City said Mobius runs the trust like an index-tracking vehicle, without much active stock-selection, and thus fails to justify the fees charged by his company, Franklin Templeton Investments.

Boersen:
- AP Moeller-Maersk A/S, the world’s largest container-ship owner, expects oil production in the UK part of the North Sea to rise, citing a director. Production growth will stem from new finds and better exploitation of known fields with new technology.

La Gaceta de los Negocios:
- Actividades de Construccion & Servicios SA, a Spanish construction company, may acquire a company or an “attractive” asset in the US to reinforce its presence in that country.

La Lettre de L’Expansion:
- Sanofi-Aventis SA and Bristol-Myers Squibb(BMY) signed a preliminary agreement to combine last week.

Ma’ariv:
- Nice Systems Ltd. may announce the acquisition of rival Witness Systems(WITS) for $820 million this week.