Consumer Confidence Falls from 5-year Highs

- Consumer Confidence for March fell to 107.2 versus estimates of 108.5 and 111.2 the prior month.

BOTTOM LINE: Confidence among US consumers slid this month from a five-year high as fuel prices rose and concerns over housing rose, Bloomberg reported. However, more consumers said they saw jobs as plentiful than at any time in more than five years. The Jobs Are Plentiful component surged to 30.5% from 27.8% in February. Moreover, the present conditions component rose to 137.6, the highest since August 2001, versus 137.1 the prior month. The average price of regular gas rose to $2.58 as of March 25, the highest since last September. The Expectations component of the index fell to 86.9 from 93.8. The overall decline in consumer confidence was mostly a function of the decline in expectations, which isn’t surprising considering the media’s obsession with housing and the general lack of acknowledgment of the many positives in the current macro environment. As well, depressed Northeastern sentiment continues to skew the entire gauge, which is very interesting considering the states with the largest housing drags are not in the northeast. Here is a breakdown by region of the overall confidence readings:

Northeast Central 65.5
New England 90.6
Mid Atlantic 91.5
Northwest Central 105.80
South Atlantic 117.10
Pacific 121.50
Southeast Central 122.20
Southwest Central 130.0
Mountain 142.70

I continue to believe consumer confidence will break above recent cycle highs later this year as stocks continue to rise, housing sales stabilize at relatively high levels, interest rates remain low, inflation decelerates, gas prices fall and the job market remains healthy.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Bank of Chicago President Michael Moskow said the Fed’s next monetary policy actions depend on incoming data, dropping reference in speeches since August to “additional firming” in interest rates.
- Nanya Technology Co. and Realtek Semiconductor Corp. will supply parts for an Apple Inc.(AAPL) product that allows Internet downloads to be shown on televisions. Nanya will supply memory chips for the Apple TV, or iTV, scheduled for release last this year, while Realtek will supply audio-conversion and networking semiconductors.
- CBS Corp.(CBS) replaced Joel Hollander as CEO of CBS Radio, naming veteran executive Dan Mason to take his place.
- Republican presidential candidate Rudy Giuliani said he favors simplifying the US tax code by reducing rates and eliminating deductions, as well as getting rid of the death tax.
- MySpace.com, News Corp.’s(NWS/A) social-networking site, sued Sanford Wallace, who became known as the King of Spam in the 1990s, for setting up dummy profiles to direct MySpace users to Web sites such as Real-vegas-sins.com.
- BHP Billiton(BHP), the world’s largest miner, and rivals may spend more in 2007 on exploration than last year’s record $7.13 billion to search for metals in Asia and Africa. Miners will boost budgets again this year, after increasing expenditures 40% in 2006 from a year earlier, said Jason Goulden, director of corporate exploration at Metals Economics Group, a research company.
- Danny Bowman, vp for customer equipment at Sprint Nextel(S) says smart phones are Sprint’s fastest-growing business.
- Vinod Khosla, co-founder of Sun Microsystems and owner of venture capital firm Khosla Ventures, sees ethanol at a $1 a gallon within 10 years.

Wall Street Journal:
- New Century Financial Corp.(NEWC) may file for bankruptcy “imminently” after Barclays Plc and Morgan Stanley said they would take possession of loans previously used to secure financing, citing analysts.

AFP:
- Pakistani tribesmen in a region bordering Afghanistan signed an agreement with authorities to stop sheltering al-Qaeda and Taliban gunmen.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NT), target $35.

Banc of America:
- Rated (FSLR) and (SPWR) Buy.

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Asian Indices are -.25% to +.25% on average.
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Economic Releases
10:00 am EST
- Consumer Confidence for March is estimated to fall to 108.5 versus 112.5 in February.

BOTTOM LINE: Asian indices are mixed as slight gains in energy shares are offsetting slight losses in technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Rally into Close, Recoup Morning Losses

Indices
S&P 500 1,437.50 +.10%
DJIA 12,469.07 -.10%
NASDAQ 2,455.63 +.27%
Russell 2000 808.94 -.07%
Wilshire 5000 14,508.75 +.06%
Russell 1000 Growth 565.87 +.07%
Russell 1000 Value 830.65 +.06%
Morgan Stanley Consumer 709.06 +.17%
Morgan Stanley Cyclical 966.84 +.17%
Morgan Stanley Technology 564.77 +.72%
Transports 4,909.15 -1.29%
Utilities 502.81 +.65%
MSCI Emerging Markets 116.39 -.22%

Sentiment/Internals
Total Put/Call .99 +10.0%
NYSE Arms .96 +6.93%
Volatility(VIX) 13.16 +1.62%
ISE Sentiment 154.0 +36.28%

Futures Spot Prices
Crude Oil 62.97 +1.11%
Reformulated Gasoline 206.88 +3.53%
Natural Gas 7.27 +.14%
Heating Oil 177.30 +3.62%
Gold 664.50 +1.10%
Base Metals 246.83 -.35%
Copper 314.15 +2.36%

Economy
10-year US Treasury Yield 4.60% -1 basis point
US Dollar 83.07 -.25%
CRB Index 312.27 +.43%

Leading Sectors
Internet +2.4%
Networking +1.24%
Computer Hardware +1.0%

Lagging Sectors
Coal -1.50%
Biotech -1.53%
Airlines -1.76%

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Afternoon Recommendations
CSFB:
- Rated (NCMI) Outperform.

Stifel:
- Upgraded (TIF) to Buy, target $54.

Afternoon/Evening Headlines
Bloomberg:
- Target Corp.(TGT), the second-largest US discount chain, said sales at stores open at least a year will rise as much as 13% in March. The last time Target posted a gain of 11% or greater was November 2001. Same-store sales at about 80 retailers tracked by the Intl. Council of Shopping Centers in New York last month gained 2.5% after the coldest February since 1979. Most retailers will report final March results on April 12.
- Women who take aspirin in low or moderate doses reduce their risk of dying from any cause, particularly heart disease, a study concluded.
- Corn prices in Chicago fell to a 10-week low on speculation drier weather starting in the US Midwest in April will allow farmers to plant the crop quickly, leading to a bigger harvest.
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, and Eni SpA, Europe’s fourth-largest oil company, may cooperate on ethanol projects in Africa, Italian Prime Minister Romano Prodi said.
- Fraser Armstrong says he’s discovered a renewable resource that’s all around us: microscopic organisms that create electricity from hydrogen in the air. Armstrong, a professor of chemistry at England’s Oxford University, unveiled a device at the American Chemistry Society’s spring meeting in Chicago today that harnesses the electricity produced by microbes when they consume hydrogen particles.
- US automakers’ CEOs urged President Bush to back incentives to bring ethanol and biodiesel to more pumps as the companies boost output of so-called flex-fuel vehicles. Half the vehicles made by GM(GM), Ford Motor(F) and DaimlerChrysler(DCX) could be able to run on biodiesel or E85, a blend of 85% ethanol and 15% gasoline, within 5 years, the CEOs said.
- Drugs are just as good as the medical devices called stents in helping patients with heart disease live longer and avoid heart attacks, a study found.

Barron’s:
- Shares of Telanetix Inc.(TNXI) rose as much as 44% after analyst Joe Noel of Dutton Assoc. said in Barron’s that the Internet-based video-conferencing company could become a takeover target.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical longs, Computer longs, Internet longs and Semi longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly negative today as the advance/decline line finished slightly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were slightly above-average into the close. Today's overall market action was bullish as the major averages and breadth recouped much of this morning's weakness. Considering there was little in the way of an upside catalyst, today's rebound was even more impressive. As well, the 10-year yield only finished 1 basis point lower despite today's new home sales report. It is interesting to note that corn trades very weak technically, falling another 3% today despite all the talk over the potential for a shortage related to increasing ethanol production. I suspect corn has at the very least made a meaningful intermediate-term top. Oil is about .67 higher today, which isn't too bad considering the Iranian situation has yet to improve. Internet stocks were today's best performing group, rising over 2%. I suspect Google (GOOG) is about to bust back above its 50-day moving average. Google is still my largest long position, however Apple (AAPL) is a close second due to recent appreciation. I expect tomorrow's consumer confidence report to come in below estimates due to the huge spike in anxiety surrounding the early March stock decline. Recent market gains will affect the April reading in a positive way. This will likely lead to some more early morning market weakness tomorrow.

Stocks Lower into Final Hour on Lingering Housing Concerns, Higher Oil Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs and Semiconductor longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mostly negative and volume is above average. Last week, a director of Bear Stearns (BSC) purchased 50,000 shares in three separate transactions at an average price of $148.32 per share. This brings his total holdings to 175,000 shares, a 40% increase. This is especially interesting considering investors' concerns over the company's subprime exposure. Last week, the NYSE cumulative advance/decline line made a new all-time high. As I said recently, this has been one of the better markets I can remember for stockpickers. Many individual stocks are posting huge gains for the year already. As well, the broad stock market is outperforming the major averages this year as the Value Line Geometric Index is 3.7% higher. Stocks have pared this morning's losses substantially as many market leaders are gaining upside traction. Tech shares are leading the major averages higher. I expect US stocks to trade mixed-to-higher into the close on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Chinese President Hu Jintao and his Russian counterpart Vladimir Putin said an impasse over Iran’s nuclear program must be resolved by peaceful means. The leaders called on Iran to “take the necessary and constructive steps to fulfill the resolutions of the UN Security Council.”
- Crude oil is rising .56/bbl. on increased speculation from investment funds as global tensions with Iran rise despite commercials increasing their net short position into the latest increase in oil prices.
- The Financial Services Authority, the UK’s markets regulator, plans to tighten monitoring of commodity markets as trading of oil, metals and agricultural produce increases.
- Dell Inc.(DELL) was raised to “buy” at Goldman Sachs(GS) as the firm recommended investors purchase the shares ahead of a turnaround at the company.
- Iranian officials are interrogating 15 members of the UK military accused by the Islamic Republic of violating the country’s territorial waters, the government in Tehran said.
- Alcatel-Lucent(ALU) won a three-year contract worth about $6 billion from Verizon Communications(VZ) to expand the US company’s mobile-phone network.
- Ginnie Mae and the Federal Housing Administration, created by the US government to boost mortgage financing, say the subprime lending shakeout will help end their more than four-year decline in market share.
- Corn prices in Chicago fell for a third straight session, dropping another 2.6%, on speculation drier weather starting in the US Midwest in April will allow farmers to plant the crop quickly, leading to a bigger harvest.
- Copper is rising in 2.0% NY as global stockpiles declined, signaling stronger demand for the metal.
- Mitsubishi Corp., Japan’s largest trading company, signed a 30-year ethanol supply agreement with Sao Martinho SA and will buy a stake in a Brazilian mill.
- World stainless steel production jumped 17% last year after Chinese producers increased output, surpassing Japan as Asia’s largest producer of the metal for the first time, the International Stainless Steel Forum said.
- Saudi Arabia’s Tadawul stock index plunged 6.1% last night despite the recent rise in oil prices.

Wall Street Journal:
- Boeing Co.(BA) is increasing production gradually, despite two years of record orders, to avoid fracturing its supply chain.
- Austin, Texas Mayor Will Wynn is promoting plug-in electric cars as part of a system to generate cleaner energy for Texas’ capital city.
- President Bush’s second meeting with executives of Detroit’s Big Three automakers will likely focus on alternative fuels. Chief executives Rick Wagoner of General Motors(GM), Alan Mulally of Ford Motor(F), and Tom LaSorda of DaimlerChrysler AG(DCX) are scheduled to meet with Bush for about 30 minutes in the Oval Office today before they each show the president one of their flex-fuel vehicles, capable of using conventional and alternative fuels.

NY Times:
- Gameloft, a maker of games for cell phones, will announce today that it is producing a line of games for the BlackBerry.

Chronicle of Higher Education:
- Midlevel college administrators got an average 3.8% pay raise this year, citing a survey by the College and University Professional Assoc. for Human Resources. Workers at public institutions received the highest average increase of 4% while those at private schools received 3.6%.

NY Post:
- Morgan Stanley(MS) will auction $2.48 billion in mortgages from subprime lender New Century Financial(NEWC).

Detroit News:
- General Motors’(GM) bid for Chrysler, which included less than 10% in GM stock and a $1 billion payment from parent DaimlerChrysler AG(DCX), was rejected for being too low.

USA Today:
- Democratic Senate Majority Leader Harry Reid added a provision to the recent war spending bill that would help billboard advertisers, an industry that donated tens of thousands of dollars to candidates in the 2006 election. The addition to the emergency spending bill for military operations and Hurricane Katrina victims would exempt some billboards in 13 southern states from the 1965 Highway Beautification Act regulations.

Washington Post:
- NYC Mayor Michael Bloomberg may be considering a self-financed, third-party candidacy for president.

Reuters:
- Federal Reserve Bank of Chicago President Michael Moskow said US inflation will slow at the end of the year and in 2008. Moscow also said that US subprime mortgage problems are not spilling over and that the housing market is in the process of stabilizing.

Financial Times:
- Hedge funds do best for their first two years, and usually produce lower yet more consistent returns as they grow larger, citing a Pertrac Financial Solutions study.

Interfax:
- A unit of China Petrochemical will sign an agreement to buy about 60,000 barrels a day of crude oil from Russia’s state-run OAO Rosneft.

Globo:
- Petroleo Brasileiro SA(PBR), Brazil’s state-controlled oil company, is close to confirming the discovery of a “gigantic” field of light-grade crude under the Campos Basin. The field, if confirmed, would be one of the largest of its type in the world.