Today's Headlines

Bloomberg:
- Susan Bies, Federal Reserve Chairman Ben Bernanke’s point person on banking, resigned after five years.
- Crude oil rose above $60/bbl. briefly for the first time in five weeks after an explosion shut down a California field owned by Occidental Petroleum boosted speculation by investment funds on the commodity.
- Natural gas is falling in NY as speculators said record inventories were adequate to handle a bout of below-average temperatures across the northern US.
- European bio-fuels production is expanding fast enough to absorb the continent’s grains and sugar surpluses, softening the impact on farmers of declining subsides, the European Union said.

- Shares of Fortress Investment Group LLC, the first US manager of private-equity and hedge funds to go public, soared almost 70% in their initial day of trading.
- Micron Technology(MU) said a fall in the price of its products has created a “horrible situation” for the company. The shares are falling .37 to $12.53.
- The UN nuclear agency is set to suspend up to 40% of the projects it’s sponsoring in Iran after deciding that the work may violate a Security Council resolution to stop assistance that may help the Islamic Republic develop atomic weapons.
- US Treasuries fell as a Federal Reserve official reinforced expectations the central bank won’t lower interest rates during the first half of the year.
- General Motors(GM) and Ford Motor(F) shares surged after Deutsche Bank AG upgraded the two biggest US carmakers on optimism they will reach a union agreement to reduce health-care costs.
- The perceived risk of owning US corporate bonds fell to a record low today as a survey showed economists are more optimistic about US growth, according to an index of credit-default swaps.
- Hedge funds charge too much in fees for performance that frequently mimics major stock indexes, said Russell Read, chief investment officer of the $225 billion California Public Employees Retirement System.
- China’s economy may expand at a slower 8% rate this year, according to the Chinese central bank’s quarterly monetary policy report, issued today.
- The US Dollar strengthened against the euro, snapping a three-day slide, on speculation Asian investors will increase buying of US Treasuries.

Wall Street Journal:
- Goldman Sachs Group(GS) may have raised as much as $19 billion for its new private-equity fund, the biggest such sum raised by a Wall Street investment bank.
- AutoNation Inc. CEO Jackson, head of the largest US auto retailer, has called on US automakers to build cars that suit consumer preferences rather than their own.
- American Greetings(AM) plans to make over the Care Bears designs that have been the company’s most successful licensing property.
- Exchange Traded Funds have been a bonanza for fund managers who get about $950 million in annual fees and less so for investors who foot the bill in commissions and bid-asked spreads every time ETF shares trade, John Bogle wrote.
- Blackstone Group LP(BLK) is close to a $6.5 billion agreement with Beacon Capital Partners to sell office building in Seattle and Washington, DC.

NY Times:
- Sadr City, Iraq, the once volatile and slum-filled area half the geographic size of Manhattan, has begun to thrive. The Shiite dominated area owes its recovery to both $41 million in funds from the Shiite-led government, and from protection from the Mahdi Army. The militia may even disarm if the US army attempts to secure Baghdad, citing Sadr officials.
- NYC will become an experimental location where the US Dept. of Homeland Security will test detection devices for nuclear explosions and so-called dirty bombs.

Independent:
- One of Iraq’s main Sunni insurgent groups set out for the first time terms for a ceasefire that would enable US and British troops to leave the country.

Die Welt:
- Almost 10% of Germany’s citizens are so deep in debt that they can no longer pay their bills, citing a study by Creditform, a credit-risk assessing company.
- The Russian ruble would not weaken much if oil prices fall in world markets, Russian Finance Minister Alexei Kudrin said in an interview.

Economic Releases

- None of note

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- The yen, near a four-year low against the dollar, will decline further as the G-7 nations meeting this weekend may stop short of criticizing the Japanese currency’s weakness, according to Lehman Brothers Holdings(LEH).
- Princeton University, Brown University and the University of Pennsylvania each had record applications for admission, while Ivy League rival Yale University’s applications declined by 9.7%.
- The Palestinian Hamas and Fatah movements agreed to form a national unity government in a move aimed at ending internecine fighting and easing international financial sanctions.
- Fortress Investment Group LLC raised $634.3 million in the first initial offering by a manager of US hedge funds and buyout funds.
- The UN is trying to block the execution of a co-defendant of former Iraqi dictator Saddam Hussein for crimes against humanity, saying his death sentence breaches international law.
- Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, and Korea National Oil Corp. agreed to start exploring for oil off South Korea’s east coast this year.
- Japan’s machinery orders fell in December, signaling economic growth may slow this year as companies scale back spending on factories and equipment.

Wall Street Journal:
- Economists said the US government should place additional taxes on gasoline to promote the use of alternative energy, according to a survey.

South China Morning Post:
- China’s propaganda department has set up a points system for the nation’s newspapers in efforts to tighten its control over the media, citing sources from the Communist Party.

Late Buy/Sell Recommendations
Business Week:
- Cell Genesys Inc.(CEGE) has clinical trials under way for vaccines for prostate and pancreatic cancer that could reverse a stock downturn since September, citing Pamela Bassett, an analyst with Cantor Fitzgerald.
- Hartford Financial Services Group Inc.(HIG) could see its stock price increase 57% in the next year, citing Greenhaven Assoc. Pres. Edgar Wachenheim.

Morgan Stanley:
- Reiterated Overweight on (GILD).

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated -.04%.

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Earnings of Note
Company/EPS Estimate
- (AG)/.31
- (CVH)/.97
- (HAS)/.67
- (MA)/.17
- (STN)/.45
- (WY)/.75

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial 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 Slightly Lower on Bounce in Oil, Subprime Lending Worries

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In Play

Stocks Slightly Lower into Final Hour on Bounce in Oil and Subprime Lending Worries

BOTTOM LINE: The Portfolio is about even into the final hour as losses in my Telecom longs and Energy shorts are being offset by gains in my Retail longs and Networking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is above-average. After the hurricanes in the fourth quarter of 2005, I surmised that stocks deserved a higher multiple given the U.S. economy's bulletproof disposition. At that time U.S. economic growth was in the middle of the longest streak of 3%+ GDP quarters since 1986. This occurred during a time of terrorism fears, war, multiple natural disasters, soaring commodity prices, pandemic worries, numerous Fed rate hikes, corporate scandals, historically bitter politics and many hangover effects from the bubble years. Last year, many of these same concerns were still present and some intensified. Oil almost hit $80/bbl. as calls for $100/bbl. crude were commonplace, U.S. dollar collapse calls were numerous as the dollar weakened, inflation fears soared with commodities, housing saw one of the sharpest downturns in history and auto manufacturers drastically cut production. All of these potential downside economic catalysts and the U.S. economy never grew below 2%. In fact, growth was an above-average 3.4% for the year. Moreover, U.S. corporate profit growth extended its historic string of double-digit increases throughout the year. The S&P 500 P/E has contracted for three consecutive years despite the amazing performance of the U.S. economy and most companies. It has only contracted 4 consecutive years twice since 1905. I continue to believe that the U.S. economy will grow around 3% for the year, notwithstanding the many perceived headwinds. More than ever before, U.S. stocks deserve higher multiples. I still expect stocks to return a total of around 17% for the year due to earnings growth still exceeding average levels and P/E multiple expansion. I expect US stocks to trade modestly higher into the close from current levels on stable long-term rates, bargain hunting and short-covering.