Today's Headlines

Bloomberg:
- President Bush said he’s “pleased” with an agreement that requires North Korea to dismantle its nuclear program in exchange for energy assistance and his spokesman said the pact differs from a failed 1994 accord because it involves other nations in the region.
- Applebee’s Intl.(APPB) said it may sell the company after its third-biggest shareholder criticized management for failing to boost sales and cut costs.
- KB Home(KBH) reported a quarterly loss that was less than analysts’ estimates. KB said quarter-to-date cancellations were more normal and that is modestly good news. The stock is rising 3% on the report.
- CVS Corp.(CVS) raised its offer for Caremark Rx Inc(CMX) to $25.7 billion to stave off a hostile bid for the benefits manager from Express Scripts(ESRX).
- General Motors(GM) was upgraded at Merrill Lynch(MER) on optimism that an expected $17 billion pension surplus boosted prospects for a favorable labor agreement this year.
- Ceridian Corp.(CEN) hired advisors to help consider alternatives to boost its value for shareholders.
- France faces an “alarming” terrorist threat ahead of the presidential election this year, said Jean-Louis Bruguiere, the country’s leading anti-terrorist investigator.
- Ample rainfall will help boost soybean yield by 14% in Brazil, the world’s biggest grower of the oilseed after the US, according to an agricultural analyst at the Univ. of Sao Paulo.
- Crude oil is rising $1/bbl. after an IEA report said global demand growth for oil will reverse its recent downward trend.

Wall Street Journal:
- Bank of America(BAC) has started offering credit cards to customers without US Social Security numbers or a credit history, who are typically illegal immigrants.
- Crocs(CROX), which makes the colored plastic clogs that became fashionable last summer, plans to diversify into clothes and women’s fashion footwear, to avoid the danger of being a one-hit wonder.
- Jewelry made from palladium, a rare silver-white metal of the platinum group, is increasing in popularity, compared with the more expensive platinum, citing jewelry makers.

NY Times:
- US governors and state legislators are taking action to reduce the increasing number of people without health insurance, now at 47 million, by tapping into the Fed budget, while President Bush’s latest plans present an obstacle.

Washington Post:
- A blogger who worked on Democrat John Edwards’ presidential campaign resigned over complaints that her writings were anti-Catholic. Edwards chose not to fire Amanda Marcotte or Melissa McEwan last week after Bill Donohoe, president of the Catholic League for Religious and Civil Rights, criticized his campaign for hiring “two anti-Catholic vulgar trash-talking bigots.” McEwan is still working for Edwards.

USA Today:
- Fatal overdoses in the US involving the pain killer methadone rose faster from 1999 to 2004 than for any other narcotic, citing a National Center for Health Statistics study.

AP:
- Air America, the liberal talk radio station, was given bankruptcy court approval to sell its assets at an auction on Feb. 16, starting with a $4.25 million bid from a group of purchasers formed by the chairman of SL Green Realty(SLG).

Reuters:
- BHP Billiton(BHP) denied a report in The Times of London that it plans to bid for Alcoa Inc.(AA).

NY Post:
- Firefighters and paramedics are among thousands of World Trade Center rescue workers who will get free prescription medicines, citing NYC Fire Dept. officials.

El Watan:
- OPEC wants to keep crude oil prices between $50 and $60/bbl. OPEC will meet March 15 at its Vienna headquarters to discuss second-quarter production.

Trade Deficit Widens Slightly More Than Estimates

- The Trade Deficit for December widened to -$61.2 billion versus estimates of -$59.7 billion in November.

BOTTOM LINE: The US trade deficit increased more than forecast in December as the price of imported petroleum rose and purchases of foreign cars and consumer goods reached records, Bloomberg said. Oil has since declined 7%. The trade deficit with China shrank to $19 billion versus $22.9 billion in November. I expect the trade deficit to only improve modestly over the intermediate-term as commodities fall further, the dollar firms and US growth remains relatively strong versus other developed economies.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- 3M(MMM) will buy back up to $7 billion of its shares over the next two years.
- Japan’s producer prices rose at the slowest pace in more than a year in January as oil costs fell, easing pressure on companies to pass expenses on to consumers.
- Goldman Sachs(GS) and Kelso & Co. plan to sell up to $300 million of shares in CVR Energy, a Kansas oil refiner.
- Scientists, aiming to spur the search for new therapies for diabetes, finished a map of differences in human genes related to the most common form of the disease.
- Copper futures in Shanghai fell as global inventories of the metal remain near their highest since June 2004, fueling concern that supplies are still outpacing demand.
- A Palestinian unity government formed by the Hamas and Fatah organizations must recognize Israel and commit itself to non-violence, said UN Secretary-General Ban Ki-moon.

Wall Street Journal:
- Liberty Media Corp. is close to buying the Atlanta Braves baseball team from Time Warner(TWX).

Financial Times:
- Investors such as KBC Alpha Asset Management are shunning China-focused hedge funds over concerns they may be engaged in unlicensed trading in the country. KBC and Tokyo-based Sparx Asset Management have decided not to invest in several top-performing “Greater China” funds based on their in-house analysis and external legal advice.

London-based Times:
- BHP Billiton Ltd.(BHP) and Rio Tinto Plc(RTP) have each drawn up plans for a $40 billion takeover of Alcoa Inc.(AA), the world’s largest aluminum producer.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (QCOM), target $55.
- Upgraded (SPH) to Buy, raised target to $45.50.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.07%.

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Earnings of Note
Company/EPS Estimate
- (ACS)/.79
- (MDRX)/.13
- (ALTR)/.24
- (AMAT)/.28
- (CEN)/.33
- (CCE)/.16
- (EXPD)/.31
- (IVGN)/.74
- (KBH)/-1.01
- (MRD)/.58
- (MMC)/.36
- (MET)/1.18
- (NDAQ)/.25
- (NVDA)/.41
- (OMC)/1.61
- (WYN)/.41
- (XTO)/1.12

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for December is estimated to widen to -$59.7 billion versus -$58.2 billion in November.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial shares in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing modestly mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Lower on Profit-taking

Indices
S&P 500 1,433.37 -.33%
DJIA 12,552.55 -.22%
NASDAQ 2,450.38 -.38%
Russell 2000 805.79 -.16%
Wilshire 5000 14,447.69 -.36%
Russell 1000 Growth 564.78 -.40%
Russell 1000 Value 826.74 -.35%
Morgan Stanley Consumer 704.22 -.14%
Morgan Stanley Cyclical 937.36 -.09%
Morgan Stanley Technology 570.57 -.40%
Transports 4,937.93 -.40%
Utilities 473.12 -.09%
MSCI Emerging Markets 113.99 -1.09%

Sentiment/Internals
Total Put/Call 1.16 +24.73%
NYSE Arms 1.11 -7.09%
Volatility(VIX) 11.61 +4.59%
ISE Sentiment 126.0 +13.5%

Futures Spot Prices
Crude Oil 57.64 -3.76%
Reformulated Gasoline 154.65 -4.23%
Natural Gas 7.27 -7.19%
Heating Oil 164.10 -4.88%
Gold 666.30 -.89%
Base Metals 218.58 +.12%
Copper 248.10 -1.57%

Economy
10-year US Treasury Yield 4.80% +2 basis points
US Dollar 85.13 +.29%
CRB Index 299.69 -1.80%

Leading Sectors
Airlines +1.09%
HMOs +.67%
Computer Hardware +.42%

Lagging Sectors
Oil Service -1.38%
Gaming -1.41%
REITs -1.89%

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Afternoon Recommendations
RBC Capital Markets:
- Upgraded (CCI) to Sector Outperform, raised target to $40.

Afternoon/Evening Headlines
Bloomberg:
- Crude oil plunged below $58/bbl. in NY after Saudi Arabia told Asian refiners to expect more shipments next month and the nation’s oil minister said OPEC has no need to further rein in production.
- Latin American shares fell for a fourth session, led by Mexican cement-maker Cemex SAB, after Citigroup analysts said “euphoria” had driven prices to high.
- Gold prices in NY fell after the US dollar strengthened, reducing the metal’s appeal as an inflation hedge.
- Negotiators produced a draft accord early today aimed at ending North Korea’s nuclear-bomb program, the chief US negotiator, Christopher Hill, said in Beijing.
- Onyx Pharmaceuticals Inc.’s(ONXX) shares doubled after the company said its only drug, Nexavar, helped patients with liver cancer stay alive longer.
- Caremark RX(CMX) shareholders should vote against CVS Corp.’s(CVS) offer to buy the company for $23.1 billion, investor advisory firm Institutional Shareholder Services said.

Handelsblatt:
- Over a third of German companies plan to increase spending this year, compared with less than 7% which may cut investment, citing a survey by polling company Psephos.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Semi longs and Telecom longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was modestly negative today as the advance/decline line finished slightly lower, most sectors declined and volume was about average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was mildly bearish. However, breadth wasn't too bad and ten sectors I follow actually rose. Meaningful losses were mainly confined to the REIT, I-banking, Energy and Gaming sectors. Oil is down $2.08/bbl. and failed to mount any sort of rally throughout the day. I continue to believe that almost all investors, both market bulls and bears, believe oil will remain high indefinitely. I still suspect a fall in oil below $50/bbl. will be a seminal event with respect to investor psychology this year. The U.S. budget surplus widened again in January on a 13% year-over-year surge in revenues as a result of the "bulletproof US economy." The U.S. Dollar Index is very close to another technical breakout to the upside. A breakout in the dollar would be another negative for commodities.

Stocks Modestly Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs and Telecom longs. I added to my Google(GOOG) long and took some profits in another long today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above-average. Theflyonthewall.com is pointing to a post on AppleInsider, suggesting that Apple (AAPL) could see as much as $250-$300 for each subscriber it helps lure to Cingular's network. This would meaningfully boost margins and result in a substantial round of upward earnings estimate revisions for the stock. I remain long the stock. I expect US stocks to trade mixed into the close from current levels as falling energy prices offsets profit-taking.