Thursday Watch

Late-Night Headlines
Bloomberg:
- Nintendo Co., the world’s biggest maker of handheld game players, said last fiscal year’s sales rose 90%, more than the company previously estimated, helped by demand for DS handheld game players.
- UK government officials in Tehran were today arranging the return to Britain of the 15 military personnel taken hostage by Iran on March 23.
- Sales of semiconductor equipment by companies such as Applied Materials(AMAT) and Tokyo Electron Ltd. rose 23% last year as memory chipmakers boosted spending to meet demand, a researcher said.

AFP:
- The European Union, the US and Russia have agreed on joint measures to better tackle global terrorism.

China Business News:
- Metro-Goldwyn-Mayer(MGM) has signed an agreement with China’s Diaoyutai State Guesthouse to set up a venture to develop hotels and holiday resorts, citing officials

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MON), target raised to $67.
- Micron’s(MU) earnings underscore our positive view of the DRAM industry and notably industry fundamentals are turning faster than we had anticipated. Spot pricing for DRAM has been up for the past week, reflecting a work down in inventories from customers and their renewed willingness to build inventory ahead of the normal seasonal build in May. NAND pricing remains upward biased, with demand from a major US vendor recently driving ASP’s. Mircon’s peers in Korea have recently called for NAND undersupply in 2H07. We are increasing estimates for FY07 and FY08 to ($.14), $.22, from ($.17), $.13. We reiterate Buy, price target is raised to $17 from $15.50.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated -.07%.

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Company/EPS Estimate
- (STZ)/.34

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Economic Releases
10:00 am EST
- Initial Jobless Claims are estimated to rise to 315K versus 308K the prior week.
- Continuing Claims are estimated to fall to 2505K versus 2527K prior.

BOTTOM LINE: Asian indices are slightly lower, weighed down by commodity 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 Finish Slightly Higher, Building on Yesterday's Sharp Advance

Indices
S&P 500 1,439.37 +.11%
DJIA 12,530.05 +.16%
NASDAQ 2,458.69 +.34%
Russell 2000 810.79 -.12%
Wilshire 5000 14,539.49 +.10%
Russell 1000 Growth 567.70 +.26%
Russell 1000 Value 831.21 -.03%
Morgan Stanley Consumer 709.81 -.03%
Morgan Stanley Cyclical 966.35 -.04%
Morgan Stanley Technology 570.16 +.46%
Transports 4,891.77 -.20%
Utilities 508.23 -.37%
MSCI Emerging Markets 119.55 +.90%

Sentiment/Internals
Total Put/Call 1.02 -4.67%
NYSE Arms 1.01 +36.20%
Volatility(VIX) 13.24 -1.63%
ISE Sentiment 100.0 -5.66%

Futures Spot Prices
Crude Oil 64.39 -.39%
Reformulated Gasoline 210.60 +4.38%
Natural Gas 7.52 +1.25%
Heating Oil 186.57 +1.47%
Gold 679.30 +1.43%
Base Metals 261.10 +.90%
Copper 337.20 +1.73%

Economy
10-year US Treasury Yield 4.65% -1 basis point
US Dollar 82.95 -.24%
CRB Index 316.72 +.94%

Leading Sectors
Coal +5.72%
Gold +1.76%
Semis +1.03%

Lagging Sectors
Banks -.40%
REITs -.50%
Airlines -.57%

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Afternoon Recommendations
Oppenheimer:
- Rated (CHB) Buy, target $13.

Afternoon/Evening Headlines
Bloomberg:
- Micron Technology(MU), the largest maker of computer memory chips, reported a second-quarter loss of $52 million. Micron said DRAM dynamics shifted in January and that DRAM and flash prices have stabilized in the last week. The company also said demand strength for flash memory is catching supply. The shares are surging 4% after-hours.
- Crude oil fell .26/bbl. today after Iran’s president said he will release the 15 British hostages and gasoline inventories fell more than estimates.
- Gasoline prices surged 4.4%, the largest increase in two months, as refiners have been very slow to come back online after recent outages, thus leaving utilization at a low 87% and causing gas supplies to fall.
- The US Energy Dept. has rejected the initial bids it received, saying they were too high, in response to a request for as much as 4 million barrels of crude oil for the nation’s Strategic Petroleum Reserve.
- Australian oil companies have been accused of collusion over the raising of petrol prices before Easter. Victorian Treasurer John Brumby says the Australian Competition & Consumer Commission has repeatedly scrutinized the practice and there is definitely collusion.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Medical longs and Telecom longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished slightly lower, most sectors gained and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was mildly bullish. As has been the case for most of this year, select stocks substantially outperformed the broad market today with gains of 2%-4%. Most of these stocks fall into the mid-cap growth category. The odds of a U.S. recession this year continue to plunge on Intrade.com. There is now only about an 18% chance of one beginning this year, down from a 35% chance in January. Recent action in the 10-year seems to correspond with this. Options traders remain bearish into the recent rally in stocks. Overwhelming skepticism by investors over recent stock advances likely means more short-term gains are in the offing. Given concerns about the economy, I suspect anything but a really bad jobs report on Friday will produce a positive reaction by investors. I expect non-farm payrolls to come in just slightly below estimates of 133,000. Gasoline crack spreads soared 20% today back to very high levels seen during the hurricanes in 2005. This is a short-term positive for refiners and a longer-term negative, in my opinion. Moreover, it is likely just a matter of time before government investigations are launched looking into the circumstances that have produced this situation.

Stocks Slightly Higher, Led by Tech, Healthcare and Commodities

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs, Medical longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are gaining and volume is above average. The Fed's Fisher spoke in Austin, Texas today. Here is a summary of his comments:

1. The damage from the subprime market is mostly contained.
2. The U.S. economy is strong enough to weather this storm.
3. Consumption continues to pump the economic engine.
4. Alt-A mortgages may also have imprudent loans.
5. Subprime problems may be a blessing in disguise.
6. Mortgage market discipline will reassert itself.
7. Pending home sales data may be a sign that lower prices are spurring purchases.
8. The Fed is treading very carefully in response to housing.
9. Regulatory agencies are working hard to avoid overreaction with credit standards.
10. Problems are mainly in the ARM segment of the subprime market, which is only 8.5% of total mortgages outstanding.

Overall, these comments are constructive. I seriously doubt the Fed is even contemplating raising rates at this time. The 10-year yield, the best predictor of longer-term inflation, is still low and nowhere near problematic levels, notwithstanding the recent tick higher in inflation readings. As well, the Fed seems very aware of all the housing issues. I continue to believe that the Fed will stand pat this year but that a cut is way more likely than a hike. I expect US stocks to trade mixed-to-higher into the close on short-covering, buyout speculation, lessoned geopolitical tensions and bargain-hunting.

Today's Headlines

Bloomberg:
- Iran’s president said 15 British sailors and marines in captivity in Iran will be released. Oil is falling .60/bbl. on the report.
- Best Buy(BBY), the largest US consumer electronics retailer, said fourth-quarter profit rose 18% on gift-card redemptions and strong sales of flat-panel televisions. Best Buy’s 21% jump in revenue was the most in three years.
- Illinois Senator Barack Obama raised at least $25 billion in the first quarter of his presidential campaign, just below the total of Democratic rival and top fundraiser Hillary Clinton.
- House Speaker Nancy Pelosi met with Syrian President Bashar al-Assad in Damascus in defiance of President Bush, who called the visit “counterproductive.”
- Microsoft Corp.(MSFT) had its third-quarter profit and revenue estimates raised by Citigroup Inc. on the outlook for the Windows Vista operating system.
- WJ Bradley Company Merchant Partners LLC, a Denver-based firm that’s bought almost a dozen home lenders and brokers, agreed to purchase MortgageTree Lending of Modesto, California.
- Brazil’s soybean and corn harvests will be even bigger than the records previously forecast after abundant rainfall over the past three months boosted yields.

Wall Street Journal:
- The US Air Force says it can save $1.7 billion over six years if it is allowed to be the central purchaser of flying combat drones, citing Bruce Nelson, the service’s technical adviser for intelligence, surveillance and reconnaissance.
- Many illegal immigrants in the US are paying income taxes in a bid to adhere to US laws. Immigrants, even if they are in the US illegally, are still required to pay taxes, citing IRS Commissioner Mark Everson.
- General Mills(GIS) has hired celebrity chef Mario Batali to produce a new line of frozen Italian pasta meals.
- SEC officials are taking a closer look at regular sales of company stock by top executives as part of insider-trading scrutiny.

NY Times:
- New Jersey redirected billions of dollars from its workers’ pension fund for other purposes in the past 15 years and overstated what it actually contributed by hundreds of millions. State officials say the $79 billion public fund, the nation’s ninth-largest, faces a serious deficit and could collapse without large contributions.
- The Robert Wood Johnson Foundation, established in 1968 in the US by one of the founders of Johnson & Johnson(JNJ), will spend at least $500 million to fight childhood obesity over the next five years.
- US authorities are planning to spend about $2.5 billion on water projects in four states with areas scorched by prolonged drought, the biggest expansion in the West’s water infrastructure in decades.
- Vermont’s lucrative tax breaks have made the state a viable alternative to the Cayman Islands and Bermuda as the “offshore” insurance destination of choice for US companies.

Detroit News:
- Blackstone Group LP, Cerberus Capital Management LP, and Magna International have made formal bids to DaimlerChryler AG(DCX) to buy its Chrysler Group unit.

NY Post:
- Billionaires Ron Burkle and Eli Broad may increase their bid for Tribune(TRB) to top the $8.2 billion agreement reached by Sam Zell and the newspaper.

Financial Times:
- Accredited Home Lenders Holding(LEND), a San Diego-based subprime mortgage company, may have bought itself some breathing room as it secured a loan from a hedge fund. The company can now make new loans, and it can keep them, instead of selling them into a slumping secondary market.

Lloyd’s List:
- Shipping markets are unsustainable and the value of vessels will fall because too many carriers are being built, citing DVB Bank and Nordea Bank. There will be a “pretty heavy” oversupply of oil tankers in one or two years’ time, quoting the CEO of DVB Bank.

Military.com:
- The US Army plans to equip soldiers in Iraq and Afghanistan with better body-armor vests. The Army said the Improved Outer Tactical Vest is lighter, more comfortable and offers more protection.

Factory Orders Rise, ISM Non-Manufacturing Expands at Slower Pace

- Factory Orders for February rose 1.0% versus estimates of a 1.8% gain and a -5.7% decline in January.
- ISM Non-Manufacturing for March fell to 52.4 versus estimates of 55.0 and a reading of 54.3 in February.

BOTTOM LINE: Orders placed with US factories rose in February, paced by a jump in aircraft, Bloomberg reported. Excluding transportation equipment, bookings fell .4%. Civilian aircraft orders soared 88.0%. Metals orders dropped 3.8%, the most since October 2004. Orders for computers and electronic products rose 4.5%. Auto bookings rose 1.1%. Orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, declined 2.4%. I expect Durable Goods Orders to rise again next month as companies gain more confidence in the sustainability of the current expansion.

Service industries expanded at a slower pace last month, Bloomberg reported. The Prices Paid component of the index rose to 63.3 from 53.8 the prior month. The New Orders component fell to 53.8 from 54.8 the prior month. The employment component of the index fell to 50.8 versus 52.2 the prior month. However, the Backlogs component of the index surged to 52.5 from 47 the prior month. I expect Service activity to strengthen as spring progresses and the ISM Non-manufacturing index to bounce back to more average levels.

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