Today's Headlines

Bloomberg:
- Crude oil plunged over $2/bbl. after a government report showing gasoline supplies surged more than estimates curbed historic investment fund speculation.
- New US hedge fund raised less money in 2006 for the second year in a row because of a rout in emerging markets and the collapse of Amaranth Advisors LLC.
- Blackstone Group LP won the biggest leveraged buyout in history as Equity Office Properties Trust shareholders approved the $39 billion takeover of the real estate investment trust built by billionaire Sam Zell.
- Michael Fitzgerald, vp for energy risk management at Fimat USA, said for traders to sell oil at $60/bbl.
- Copper prices fell in NY, resuming a slump that began in May, as an increase in global stockpiles signaled demand is slowing.

Wall Street Journal:
- The US Senate Energy Committee is probing whether futures traders are influencing markets that establish natural-gas prices, citing letters sent by panel chairman Jeff Bingaman.
- A New Jersey jeweler has become the first to sell branded, natural emeralds to guarantee quality in a business where flaws in the stones often are disguised.
- San Francisco’s historic State Armory and Arsenal building has been turned into a pornography production plant, one of the few ways to preserve the building’s architectural integrity without violating zoning laws. The 200,000-square-foot building, listed on the National Register of Historic Places, was bought for $14.5 million by the Internet porn company Kink.com, which last week started shooting bondage films on location.
- Delta Air is likely to move closer to the end of insolvency protection at a US Bankruptcy Court hearing in NY today.

NY Times:
- Rural colleges and universities in the US are trying to build miniature cities to attract students who want the amenities of urban areas.
- General Electric(GE) is moving closer to business in clinical diagnoses as it continues to diversify by adding security, energy services and “green” products, among other areas.

Washington Post:
- General David Petraeus, the recently confirmed head of US forces in Iraq, spent time on Capitol Hill last week trying to convince senators to support President Bush’s plan to increase the number of troops.
- The 2008 US presidential election may become the first billion-dollar presidential campaign.
- A stuffed animal introduced by a family-owned wholesale gift company in Ontario, Canada is thought to be the first to marry a physical toy with a related social-networking virtual world. The Webkinz stuffed animal, created by Ganz, comes with an identification number that gives children access to the Webkinz Web site, where they can use virtual money to buy clothes for their pet’s online persona and invite other pets to come hang out.

Folha de S. Paulo:
- The US government is seeking a partnership with Brazil to increase the market for ethanol and reduce dependence on crude oil, citing Nicholas Burns of the US State Department. The research and development of biofuel such as ethanol may be a pillar for a new and stronger partnership between the US and Brazil, Burns said. A partnership between the US and Brazil on biofuel could be ready in less than 12 months.

MehrNews:
- The Islamic Development Bank, a Saudi Arabia-based lender owned by 56 mainly Muslim nations, agreed to lend $1.3 billion to Iran.

Today's Headlines

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Productivity Surges, Unit Labor Costs Decelerate

- Preliminary 4Q Non-farm Productivity rose 3.0% versus estimates of a 2.0% gain and a -.1% decline in 3Q.
- Preliminary 4Q Unit Labor Costs rose 1.7% versus estimates of a 2.1% gain and an upwardly revised 3.2% increase in 3Q.

BOTTOM LINE: US worker productivity grew at the fastest rate in almost a year last quarter and labor costs rose at a slower pace, suggesting less of an inflation threat. Productivity is now above long-term average levels, while unit labor costs are rising around average rates. Output rose at a 4.2% rate in 4Q versus a 1.9% increase during 3Q. Compensation for each hour worked rose an annual rate of 4.8% in the fourth quarter versus a 3.1% gain in 3Q. Productivity at non-financial corporations, a gauge closely monitored by the Fed, rose at a 5.7% rate in the third quarter versus a 4.3% decline the prior three months. Non-financial productivity has averaged a 4.2% gain over the last 3 quarters, substantially above the 20-year average of 2.4%. I continue to believe the job market will remain healthy without generating substantial unit labor cost increases over the intermediate-term.

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Saudi Arabia’s King Abdullah, hosting talks between Fatah and Hamas, told leaders of the movements to resolve disagreements over forming a unity government, saying their dispute threatens to destroy all Palestinian achievements.
- Natural rubber prices, which surged to records last year, may fall later this year as car production growth slows in China, the world’s biggest consumer of the commodity, Jingyi Futures Co. said. A government clampdown on vehicle production capacity and exports will slow rubber consumption growth. “The explosive growth in China’s appetite for rubber is over, and we will be in a period when supply slightly outstrips demand,” said Feng Zhengyu, rubber analyst at the firm.
- Jim Rogers, author of “Hot Commodities”, said he sees China’s water problem as a major risk to growth in the country.

AP:
- House Ways and Means Committee Chairman Charles Rangel said he would be willing to add some Senate-passed tax cuts for small business to legislation increasing the minimum wage.

Financial Times:
- The US may consider starting the process to remove North Korea from the list of sponsors of terrorism and ease restrictions on American companies dealing with the communist country should North Korea show progress on a broad agreement to dismantle its nuclear weapons program.

Independent:
- Las Vegas Sands(LVS) plans to bid for the license to run Britain’s first super-casino in Manchester.

Financial News:
- China needs to step up monetary policy measures to curb inflation and ease imbalances in international payments, citing Xiang Junbo, vice governor of the People’s Bank of China.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (URBN), target $29.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated +.26%.

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Earnings of Note
Company/EPS Estimate
- (APKT)/.09
- (AFFX)/.04
- (AKAM)/.26
- (ACL)/1.03
- (ALKS)/.00
- (AN)/.34
- (CENT)/-.13
- (CI)/2.27
- (CGX)/1.02
- (DF)/.61
- (DVN)/1.36
- (EDS)/.36
- (ICE)/.74
- (MANH)/.30
- (MXIM)/.31
- (MEDI)/.53
- (MCO)/.59
- (NWS/A)/.25
- (RL)/.92
- (PRU)/1.52
- (RVBD)/.01
- (ROL)/.14
- (SLE)/.16
- (SKYW)/.46
- (SINA)/.22
- (DIS)/.39
- (WHR)/1.44

Upcoming Splits
- (LMC) 3-for-1
- (MDCI) 3-for-2

Economic Releases
8:30:
- Preliminary 4Q Non-farm Productivity is estimated to rise 2.0% versus a .2% increase in 3Q.
- Preliminary 4Q Unit Labor Costs are estimated to rise 2.1% versus a 2.3% gain in 3Q.

10:30:
- Bloomberg consensus estimates call for a weekly crude oil build of 2,000,000 barrels versus a 2,684,000 barrel increase the prior week. Gasoline supplies are estimated to rise by 1,750,000 barrels versus a 3,819,000 barrel increase the prior week. Distillate Inventories are expected to fall by -3,000,000 barrels versus a -2,648,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to remain unch. versus a -.32% decline the prior week.

3:00 pm EST:
- Consumer Credit for December is estimated to fall to $6.0 billion versus $12.3 billion in November.

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

Stocks Finish Slightly Higher as Long-term Rates Fall

Indices
S&P 500 1,448.0 +.07%
DJIA 12,666.31 +.04%
NASDAQ 2,471.49 +.04%
Russell 2000 810.03 +.41%
Wilshire 5000 14,589.26 +.13%
Russell 1000 Growth 570.57 +.08%
Russell 1000 Value 835.45 +.14%
Morgan Stanley Consumer 710.36 +.13%
Morgan Stanley Cyclical 944.97 +.20%
Morgan Stanley Technology 568.28 -.09%
Transports 4,963.84 +.02%
Utilities 469.64 +.77%
MSCI Emerging Markets 116.27 +.92%

Sentiment/Internals
Total Put/Call .85 +3.66%
NYSE Arms 1.27 +50.95%
Volatility(VIX) 10.65 +.95%
ISE Sentiment 141.0 -3.42%

Futures Spot Prices
Crude Oil 59.12 +.65%
Reformulated Gasoline 157.60 +1.03%
Natural Gas 7.72 +1.03%
Heating Oil 169.50 +1.16%
Gold 658.20 +.32%
Base Metals 220.23 -.60%
Copper 249.25 +3.15%

Economy
10-year US Treasury Yield 4.77% -4 basis points
US Dollar 84.77 -.35%
CRB Index 301.07 -.04%

Leading Sectors
Airlines +1.47%
REITs +1.35%
Alternative Energy +.95%

Lagging Sectors
Semis -.54%
Gaming -.77%
Computer Hardware -.90%

Evening Review
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Afternoon Recommendations
None of note:

Afternoon/Evening Headlines
Bloomberg:
- The ability of statins to raise so-called good cholesterol, even just a little bit, can help strip plaque out of heart arteries, a study says.
- Cisco Systems(CSCO), the world’s biggest maker of computer-networking equipment, said second-quarter profit rose 40% as customers upgraded their communications systems for video. The stock is rising 4.5% after-hours.
- Apple Inc.(AAPL) CEO Jobs asked the four largest music companies to license songs for distribution on iTunes without copy protection software.
- The Ocean Course in Kiawah Island, South Carolina, is the most difficult US golf course, according to a study by Golf Digest magazine.
- US Treasuries rose for a third straight day after demand for the government’s quarterly auction of three-year notes outpaced dealer expectations.

Arizona Republic:
- US Airways Group, rejected in a $9.75 billion takeover bid for Delta Air, isn’t seeking another merger target, citing CEO Parker.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet 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 modestly higher, most sectors rose and volume was above average. Measures of investor anxiety were higher into the close. Today's overall market action was modestly bullish as the major averages and breadth recouped morning losses to finish around even. Instead of two steps forward and one 1 step back, the indices are moving one step forward and consolidating. This just allows for more “market top” calls, profit-taking and short re-loading without doing any real technical damage. Oil is trading toppy again, despite potential upside catalysts. As well, the 10-year yield looks poised to go lower. Cisco’s(CSCO) positive earnings’ report after the close should boost tech stocks tomorrow.