Tuesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling .40/bbl. in NY on signs Iran may step back from a confrontation with the UK over its detention of British naval personnel.
- Research published in the Journal of Clinical Oncology found that deaths caused by estrogen-fueled breast cancer, the most common and treatable form, fell 38% among women younger than 70 since 1990. For older women, the decrease was 14% over that period.
- Fremont General(FMT) said Grant Thornton LLP is resigning as its auditor.
- China is planning to order $12.5 billion of US-made goods before a visit by Chinese trade officials to Washington next month. China may buy $10 billion of machinery and electronics, $2 billion of soy beans and $500 million of cotton from US companies.
- Devon Energy Corp.(DVN) plans to drill seven new well at the Panyu field in the western South China Sea this year.
- The University of Florida beat Ohio State 84-75 to become the first school in 15 years to repeat as college basketball’s national champion.

Wall Street Journal:
- Marshall & Ilsley Corp.(MI), a Milwaukee bank, and private-equity firm Warburg Pincus LLC are considering a $4 billion spin-off of the bank’s Metavante payment processing

London-based Times:
- Google Inc.(GOOG) will say it has signed an advertising agreement with EchoStar Communications(DISH). Television advertisers will be allowed to bid for ad slots online and track the campaign’s performance in real time.

Economic Times:
- India is asking hedge funds seeking to invest in the country to lock in their investments fro two years to avoid a sudden outflow of capital under adverse conditions.

Yomiuri:
- China plans to develop the ability to destroy US, Indian and Japanese satellites orbiting above its territory by 2020.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AIZ), target $62.

Morgan Stanley:
- Reiterated Underweight on (PTEN), target $23.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
- (ISCA)/.74
- (OXM)/.66
- (SHFL)/.07

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Pending Home Sales for February are estimated to fall -.5% versus a -4.1% decline in January.

Afternoon:
- Total Vehicle Sales for March are estimated at 16.5M versus 16.6M in February.
- Domestic Vehicle Sales for March are estimated at 12.7M versus 12.8M in February.

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

Stocks Finish Mostly Higher as Iran Tensions Ease

Indices
S&P 500 1,424.55 +.26%
DJIA 12,382.30 +.23%
NASDAQ 2,422.26 +.03%
Russell 2000 803.22 +.31%
Wilshire 5000 14,394.26 +.28%
Russell 1000 Growth 560.49 +.34%
Russell 1000 Value 824.57 +.19%
Morgan Stanley Consumer 704.62 +.35%
Morgan Stanley Cyclical 956.86 +.14%
Morgan Stanley Technology 561.64 +.94%
Transports 4,816.83 +.13%
Utilities 510.20 +2.0%
MSCI Emerging Markets 117.04 -1.08%

Sentiment/Internals
Total Put/Call .83 -30.25%
NYSE Arms .95 -34.69%
Volatility(VIX) 14.59 -.34%
ISE Sentiment 129.0 +37.23%

Futures Spot Prices
Crude Oil 66.00 +.20%
Reformulated Gasoline 204.71 -.53%
Natural Gas 7.66 -.88%
Heating Oil 186.57 -.60%
Gold 669.90 +.13%
Base Metals 249.63 +.03%
Copper 318.35 +1.19%

Economy
10-year US Treasury Yield 4.64% unch.
US Dollar 82.87 -.07%
CRB Index 315.07 -.57%

Leading Sectors
Computer Services +2.61%
Utilities +2.0%
Gold +1.80%

Lagging Sectors
Homebuilders -.65%
Disk Drives -1.34%
Banks -1.50%

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Afternoon Recommendations
None of note:

Afternoon/Evening Headlines
Bloomberg:
- Solengo Capital Advisors, a new commodity investment fund founded by Canadian trader Brian Hunter, sued the DealBreaker Web site for copyright infringement for posting Solengo’s confidential prospectus. Hunter caused the biggest hedge fund collapse ever as an Amaranth Advisors LLC energy trader when his bet on natural gas prices last year led to $6.6 billion in losses.
- Corn prices in Chicago fell the most in seven months today and are now down 21% from their highs after US farmers indicated they plan to sow the most acres in 63 years.
- Brazil’s ethanol exports surged 21% in March from a year ago and corn exports soared 100%.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Retail longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline line finished about even, sector performance was mostly positive and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was neutral. Banks remained under pressure throughout the day. I-banks trimmed morning losses and finished just slightly lower. I sat on my hands most of the day. I still expect stocks to finish the week modestly higher. The Nikkei is indicated 160 points higher on the open in Japan tonight.

Stocks Mixed into Final Hour

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs and Retail longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mostly positive and volume is above average. The Fed's Poole spoke in New York. Here is a summary via Bloomberg:

• The U.S. economy is "sound" despite housing slowdown.
• Inflation is retreating as energy costs stabilize.
• Forecasters are predicting 3% growth during next two years.
• U.S. growth is about the same as potential rate.
• He favors 1.5% core price inflation goal.

Overall, these comments are constructive. I suspect that the next catalyst for higher stock prices will be the upcoming earnings season as investor expectations are low and fears over lower forward guidance are high. I expect companies and investors to gain more confidence in the sustainability of the current expansion as the year progresses. Reuters is reporting that Iran's Larijani, Secretary of the Supreme National Security Council, said that the sailor issue can be resolved without a trial. Oil is falling 0.50 from session highs on the news, which seems to be stabilizing the broad market. I expect US stocks to trade mixed-to-higher into the close on short-covering, buyout speculation, more optimism over the Iranian/UK situation and bargain-hunting.

Today's Headlines

Bloomberg:
- EMI Group Plc, the world’s third-largest music label, will sell songs without copyright protection software through Apple Inc.’s(AAPL) iTunes online store.
- New Century Financial(NEWC) filed for bankruptcy in Delaware today.
- Xerox(XRX) agreed to buy Global Imaging(GISX) for about $1.5 billion to gain more small companies as customers.
- Kohlberg Kravis Roberts agreed to buy First Data Corp.(FDC), the world’s biggest processor of credit-card payments, for about $29 billion in the second-biggest leveraged buyout so far this year.
- The US economy is slowing. Mortgage defaults are rising. And stocks are the cheapest in 20 years, a “buy” signal for some of the world’s biggest money managers.
- Bear Sterns(BSC), the biggest US underwriter of bonds backed by mortgages, set up a team to help homeowners stave off foreclosures as defaults by the riskiest borrowers surge.
- Oil rose above $66/bbl. in NY as a standoff between the UK and Iran over the capture of British naval personnel entered a ninth day.
- Corn is falling the maximum daily limit of 5% for the second day in a row after US farmers indicated they play to sow the most acres in 63 years to take advantage of high prices.
- Wheat futures are falling to a six-month low in Chicago on speculation livestock producers will abandon plans to feed wheat to cattle as corn prices fall.
- Egypt plans to increase sugarcane production to capture a share of the growing US market for biofuels and offset the cost of rising foods imports.

Wall Street Journal:
- DoubleClick’s(DCLK) potential buyers now include Google Inc.(GOOG), intensifying a growing battle for the profitable online advertising brokering business.
- Policies at Exxon Mobil(XOM), Chevron(CVX), ConocoPhillips(COP) and other oil companies make it harder for motorists to find ethanol readily at gasoline stations. Exxon’s standard contract with stations bars them from buying fuel from anybody else and the company doesn’t sell E85, ConocoPhillips doesn’t allow E85 sales under the covered canopy where gasoline is sold, while Chevron’s agreement with franchisees appears to discourage selling E85 on the main station island.
- US Democrats are under increased pressure to show they can achieve change after dozens of initiatives didn’t make much headway.
- American Intl. Group(AIG) CEO Sullivan plans to retain the entrepreneurial spirit fostered at the company by Maurice “Hank” Greenberg while improving oversight.
- Tribune Co.(TRB), owner of the Chicago Tribune and LA Times, accepted a takeover offer from billionaire investor Sam Zell.

NY Times:
- Genetic tests that reveal if people share common ancestors are attracting customers interested in tracing their family genealogy.
- Darfur immigrants in the US are choosing to live in Indiana and other Midwestern states instead of metropolitan areas.
- More than 1,000 potential contestants have expressed interest in vying for an award of more than $10 million to build a commercially viable car that can travel 100 miles on a gallon of gasoline.

Forbes.com:
- After a seven-year run "value" stocks are pricier than ever. When Jeremy Grantham, chairman of GMO, says that, it’s time to think about buying "growth" stocks instead.

Financial Times:
- Over 20 US fund managers overseeing more than $55 billion in investments want more transparency in US corporate political spending ahead of the 2008 presidential election.
- Saudi Arabian billionaire Prince Alwaleed bin Talal said the US is blocking Arab investment in its transportation industries because it’s “obsessed” with the Sept. 11 terrorist attacks.

Frankfurter Allgemeine Zeitung:
- German Chancellor Angela Merkel urged Iran and Syria to avoid pursuing paths of isolation in the Middle East and said that a nuclear-armed Iran would be “unaccecptable.”

Al-Rai Al-Aam:
- Kuwait’s budget for this fiscal year forecasts revenue of $28.8 billion based on an average oil price of $36 a barrel.

ISM Manufacturing Still Shows Expansion, Prices Paid Above Estimates

- ISM Manufacturing for March fell to 50.9 versus estimates of 51.4 and a reading of 52.3 in February.
- ISM Prices Paid for March rose to 65.5 versus estimates of 58.5 and 59.0 in February.

BOTTOM LINE: Manufacturing growth in the US slowed in March and an index of costs rose, Bloomberg reported. However, readings above 50.0 indicate expansion. The New Orders component of the index fell to 51.6 versus 54.9 the prior month. In a sign that inventory de-stocking may be subsiding, the March Chicago PMI, released on Friday, rose the most in 39 years and the New Orders component soared the most in US history. I continue to believe the manufacturing downturn has run its course and that overall activity is now improving. Inventory rebuilding should begin adding to economic growth next quarter.

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