Wednesday Watch

Late-Night Headlines
Bloomberg:
- US ethanol output could rise as much as 60% by year-end as more plants start operating, hurting prices and profits, according to analysts from UBS AG and Friedman, Billings, Ramsey.
- Google Inc.(GOOG) shares may rise at least another 30% by the end of the year as the most popular Internet search engine company reports a jump in first-quarter revenue and earnings, according to Goldman Sachs(GS).
- India’s economic growth will slow “significantly” this year and higher interest rates will reduce inflation, according to the Asian Development Bank’s top economist.
- Motorola(MOT) CEO Zander is “well-supported” by directors as sales slump and billionaire shareholder Carl Icahn battles for a board seat, said Miles White, a company board member.
- Nasdaq Stock Market(NDAQ) will introduce an index tracking Chinese companies traded in the US as part of an effort to lure more international listings.
- Toyota Motor Corp.(TM) and Honda Motor(HMC) posted US sales gains of more than 10% and Mazda Motor Corp. had its biggest increase in 26 years to lead Asian carmakers to another month of rising market share in the US. Higher gas prices last month aided demand for fuel-efficient vehicles such as Toyota’s Prius gasoline-electric car and Yaris subcompact, Honda’s Fit and Mazda’s Mazda3.
- Indian car sales may slow to below 10% in the year that began April 1, from 24% last year, because of higher interest rates, citing analysts, dealers and bankers.
- The yen will slump 5% this quarter, the worst start to a fiscal year since 1989, as Japanese free up more capital for investment overseas, said Toru Umemoto, chief foreign-exchange strategist at Barclays Capital.
- New Century Financial(NEWC) can borrow up to $150 million to fund operations while it auctions off its assets, a judge ruled.
- OPEC’s daily production is running about 465,000 barrels above the group’s informal target of 25.8 million barrels a day, a Bloomberg news survey showed.
- Japan’s electricity prices may surge 58% because safety cover-ups could prompt the government to order the closure of more nuclear reactors, cutting power supply, Mizuho Investors Securities says.

CNBC:
- Goldman Sachs(GS) is advising private equity firm Apollo Management on an IPO.

Financial Times:
- Global solar equipment sector revenue will increase 400% within 3 years to $90 billion, from $20 billion last year, citing a report by German research group Photon Consulting. The report forecasts profit will increase even more quickly, with control of costs raising margins to almost 60%. Demand for the silicon, used to make solar cells, will increase to 400,000 tons in 2015, compared with 41,000 metric tons in 2006. By 2015, 7.6% of all electricity used in homes throughout the world’s 30 richest nations could be generated by solar power.
- NYSE Euronext Inc., the newly merged exchange group, may consider a deal with a US derivatives exchange, citing CEO Thain.

London-based Times:
- The SEC is looking at trading activity which took place before the April 2 announcement that KKR was buying First Data Corp.(FDC).

Guardian:
- NYSE Group(NYX) CEO Thain said he is concerned about “the quality” of corporate governance, transparency and adequate protection of minority shareholders at Russian companies.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (COCO) to Buy, target $19.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.10%.

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Earnings of Note
Company/EPS Estimate
- (AYI)/.50
- (AES)/.11
- (BBY)/1.52
- (CC)/.63
- (GBX)/.54
- (BLUD)/.19
- (MU)/.02
- (MON)/.93
- (MSM)/.61
- (RVI)/.24

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for February are estimated to rise 1.8% versus a -5.6% decline in January.
- ISM Non-Manufacturing for March is estimated to rise to 55.0 versus 54.3 in February.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 500,000 barrels versus a -846,000 barrel drawdown the prior week. Gasoline supplies are estimated to fall by -150,000 barrels versus a -258,000 barrel decline the prior week. Distillate supplies are expected to fall by -1,000,000 barrels versus a -700,000 barrel decline the prior week. Refinery Utilization is expected to rise .6% versus a .7% increase the prior week.

BOTTOM LINE: Asian indices are higher, boosted by automaker 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 100% net long heading into the day.

Stocks Finish Sharply Higher on Decline in Energy Prices and Greater Economic Optimism

Indices
S&P 500 1,437.77 +.93%
DJIA 12,510.30 +1.03%
NASDAQ 2,450.33 +1.16%
Russell 2000 811.76 +1.06%
Wilshire 5000 14,525.03 +.91%
Russell 1000 Growth 566.19 +1.02%
Russell 1000 Value 831.43 +.83%
Morgan Stanley Consumer 710.01 +.76%
Morgan Stanley Cyclical 966.71 +1.03%
Morgan Stanley Technology 567.54 +1.05%
Transports 4,901.78 +1.76%
Utilities 510.10 -.02%
MSCI Emerging Markets 118.44 +1.15%

Sentiment/Internals
Total Put/Call 1.07 +28.92%
NYSE Arms .77 -17.87%
Volatility(VIX) 13.51 -7.02%
ISE Sentiment 106.0 -19.08%

Futures Spot Prices
Crude Oil 64.60 -2.03%
Reformulated Gasoline 201.55 -1.34%
Natural Gas 7.45 -2.88%
Heating Oil 183.82 -1.30%
Gold 670.10 -.21%
Base Metals 258.79 +3.67%
Copper 330.80 +4.06%

Economy
10-year US Treasury Yield 4.66% +2 basis points
US Dollar 83.18 +.39%
CRB Index 313.78 -.41%

Leading Sectors
Airlines +3.39%
Internet +1.95%
Homebuilders +1.74%

Lagging Sectors
Oil Service +.20%
Utilities -.02%
Coal -.42%

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Afternoon Recommendations
Merrill Lynch:
- Reiterated Buy on Google(GOOG).

Afternoon/Evening Headlines
Bloomberg:
- Falling oil prices and an unexpected rise in pending home sales ignited a stock-market rally that carried the DJIA to a five-week high.
- Crude oil(-$1.30/bbl.) fell the most in more than three weeks after Prime Minister Tony Blair said the UK will try to negotiate with Iran over the release of 15 hostage British naval personnel.
- Boeing Co.(BA) won an order for five of its 787 Dreamliner jets from Japan Airlines Corp., bringing the total to 514 and extending its lead over Airbus SAS.
- The shutdown of a Valero Energy Corp.(VLO) refinery in Texas has caused some Colorado filling stations to run out of gasoline over the past two weeks, a spokesman for AAA Colorado said.
- US buyers may have imported as much as 2.8 billion cubic feet a day of liquefied natural gas, a record, as sellers sought to capitalize on high prices.
- Goldman Sachs Group’s(GS) Global Alpha hedge fund lost 5.7% in February, hurt by wrong-way bets on stocks, global bonds and currencies including the Japanese yen. The decline left the $10 billion fund down 2% for the year.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Computer longs, Internet longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was very bullish. The I-Banking, Internet, Paper, Airline, Homebuilder and HMO sectors all substantially outperformed the major averages. Corn fell another 2.4% today and is down 21% from its highs as some are now saying it has entered a bear market, which would have positive implications for future inflation readings. So far, the addition of more Google (GOOG) shares last month is paying off as the stock has busted through its 50-day moving-average on volume today. Google remains my largest long position. I sense many traders are in disbelief of recent stock strength. I suspect we will build on today's gains before week's end. Johnson Redbook weekly retail sales surged 4.1% last week vs. a 3.9% gain the prior week and a 1.7% gain during this week last year. This is well above the long-term average and the highest weekly increase since early May of last year. Weekly retail sales have gained 3.4%, 3.7%, 3.9% and 4.1% over the last four weeks vs. weekly gains of around 2.75% the prior 3 months. Retail sales are clearly trending higher even as the record number of U.S. stock market bears say sales should be falling off a cliff right now. I continue to believe retail sales are bouncing back sharply into the spring, notwithstanding the drag from housing and higher gas prices. This is likely the result of the facts that wage growth is almost double the recent CPI reading, interest rates are still very low, unemployment is historically low and Americans' net worth is at record high levels. These large positives continue to be ignored.

Stocks Sharply Higher into Final Hour on Falling Energy Prices, More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Computer longs, Internet longs and Retail longs. I added to my (BRCM) long and covered my remaining (QQQQ)/(IWM) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is higher and volume is above average. The ISE Sentiment Index plunged to a depressed 90.0 today. The CBOE total put/call is an above-average 96.0. Moreover, options traders, especially retail, remain very skeptical of the current rally in stocks as evidenced by longer-term readings. With short interest at an all-time record and many bulls underinvested, I suspect severe performance anxiety will set in much sooner than would otherwise be the case. I believe the many bears need a substantial pullback very soon to keep the wide-held belief of an imminent recession alive. The average stock continues to outpace the major averages. The Value Line Geometric index, the best gauge of the broad market, is 4.5% higher year to date. Moreover, mid-cap stocks are up about 6.0% for the year. As I have said several times of late, this is one of the better stock-picking enviornments I have seen. Many stocks are already soaring this year, despite modest gains in the major averages. I expect US stocks to trade mixed-to-higher into the close on short-covering, buyout speculation, lower energy prices, more economic optimism and bargain-hunting.

Today's Headlines

Bloomberg:
- Colorado State is predicting 9 hurricanes for the upcoming season, 3 more than the long-term average.
- Hedge funds, private-equity and venture-capital companies almost tripled investments in North American oil and natural gas in 2006.
- The shares of Humana Inc.(HUM) and other managed-care providers rose after the US issued higher reimbursement rates for Medicare Advantage plans for the elderly than some analysts expected.
- President Bush said it’s “irresponsible” for the Democratic-controlled Congress to delay money for the Iraq war and failure to fund US troops would force extended tours and cuts in training.
- Job growth in NYC, propelled by private businesses, will help bring down the financial capital’s unemployment rate this year, according to a forecast by the Federal Reserve Bank of NY.
- Winton Capital Management LLC, a hedge fund manager with $8 billion in assets, abandoned plans to sell shares in a $200 million fund to the public on concerns about potential conflicts between investors.
- Shares of Accredited Home Lenders Holding(LEND) jumped as much as 26% after the subprime mortgage company got financing commitments totaling $1.1 billion from two lenders.
- Gasoline futures fell for a third straight day, following crude oil(-$1.30/bbl.), on signs that the UK may be able to resolve the dispute over Iran’s detention of 15 British military personnel and expectations inventories will rise.
- Wind, solar and green-fuel companies received 58% more funding globally in the first three months of 2007 than a year earlier, led by “large” venture capital and private-equity deals.
- Sony Computer Entertainment America said Tuesday it has reduced the price for the PlayStation Portable game console by around 15% from $199.99 to $169.99, effective immediately.
- Corn, the worst-performing commodity during the past month, is in a bear market that may persist as US farmers prepare to plant their biggest crop since WWII, according to Barclays Capital.
- Global Crossing Ltd(GLBC) may be attractive to private equity firms as it wins more customers for its fiber-optic network, CEO Legere said.
- Copper is rising to a five-month high on speculation demand from China is accelerating.
- Wheat prices fell in Chicago and Kansas City for the third straight session as favorable weather in the US, India and other grain-growing countries benefits crops.

Wall Street Journal:
- Auction house Sotheby’s(BID) has seen its shares rise 48%, to almost $46, so far this year, as investors bet that prosperous art-buyers will be spending lavishly.
- News Corp.(NWS/A) plans to insert short portions of programs into television ads to retain the attention of viewers who would otherwise be distracted by the commercials.

NY Times:
- Illinois Senator Barack Obama raised over $20 million in the first three months of the presidential campaign.
- US charitable foundations gave a record $40 billion in 2006, beating the previous best of $36.4 billion in 2005, citing estimates by the Foundation Center.

Financial Times:
- Kohlberg Kravis Roberts’ offer for First Data Corp.(FDC) may show that the leveraged-buyout boom is entering a new phase where firms buy companies with support from investment bankers rather than private-equity firms.

AFP:
- Nigeria plans to sell rights to 45 oil exploration blocs on May 3, citing Energy Minister Edmund Daukoru. Production-sharing agreements will be signed two weeks later.

RIA Novosti:
- OAO Gazprom, Russia’s natural-gas monopoly, plans to become the world’s largest energy company through diversification, citing Deputy CEO Medvedev. Gazprom will only be able to achieve the goal by expanding into oil, refining and electricity, he said.

International Oil Daily:
- BP Plc(BP) restarted its 50,000 barrels a day Mad Dog oil field in the Gulf of Mexico last weekend. The oil field had been shut since Feb. 28 because of an “equipment failure.”

Valor Economico:
- Brazilian engineering company Sucral and venture-capital fund Greentech will lead $221 million of investments in two new ethanol mills to meet rising demand for crop-based fuels.

Pending Home Sales Unexpectedly Rise

- Pending Home Sales for February rose .7% versus estimates of a -.5% decline and a -4.2% fall in January.

BOTTOM LINE: More Americans signed contracts to buy previously owned homes in February, easing concern the real-estate market will worsen, Bloomberg said. Strong wage growth and lower prices are making homes more affordable. This index is considered a leading indicator because it tracks contract signings. Sales rose despite one of the coldest Februarys in US history. Sales rose 4.5% in the South and 2.9% in the Midwest. They fell 6% in the west and 1.3% in the Northeast. I continue to believe home sales are stabilizing at relatively high levels.

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