Stocks Finish Mixed as Oil Prices Fall Most in 3 Months

Indices
S&P 500 1,444.61 +.06%
DJIA 12,569.14 +.07%
NASDAQ 2,469.18 -.09%
Russell 2000 811.64 -.21%
Wilshire 5000 14,593.18 +.06%
Russell 1000 Growth 570.09 +.05%
Russell 1000 Value 834.26 +.12%
Morgan Stanley Consumer 712.71 +.19%
Morgan Stanley Cyclical 974.94 +.60%
Morgan Stanley Technology 571.05 -.30%
Transports 5,010.10 +1.89%
Utilities 513.60 +.64%
MSCI Emerging Markets 120.35 +.49%

Sentiment/Internals
Total Put/Call .76 +1.33%
NYSE Arms .74 -9.01%
Volatility(VIX) 13.14 -.68%
ISE Sentiment 109.0 -13.49%

Futures Spot Prices
Crude Oil 61.71 -4.0%
Reformulated Gasoline 210.0 -1.35%
Natural Gas 7.56 -.57%
Heating Oil 182.50 -1.93%
Gold 675.90 -.52%
Base Metals 265.88 unch.
Copper 350.50 +3.79%

Economy
10-year US Treasury Yield 4.74% -1 basis point
US Dollar 83.10 +.13%
CRB Index 314.54 -.96%

Leading Sectors
Road&Rail +3.7%
Coal +2.91%
Steel +1.20%

Lagging Sectors
Banks -.36%
Computer Services -.37%
Tobacco -.60%

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Afternoon Recommendations
CIBC:
- Rated (ESRX) Sector Outperformer.

Afternoon/Evening Headlines
Bloomberg:
- Crude oil plunged $2.77 a barrel in NY, the biggest decline in three months on speculation US crude oil inventories jumped again last week.
- The Dow Chemical Co.(DOW) board of directors said it has held no discussions about a leveraged buyout of the company and reiterated support for CEO Andrew Liveris’s strategy for the company.
- President Vladimir Putin has already brought Russian newspapers and television to heel. Now he’s turning his attention to the Internet.
- Citigroup(C) is in talks to buy NY hedge-fund manage Old Lane LP in an effort to land Vikram Pandit as head of so-called alternative investments such as private equity and real estate.
- Tribune Co.(TRB) received commitments for $12.2 billion in debt financing to fund billionaire investor Sam Zell’s plan to take the company private, according to a regulatory filing.
- Take-Two Interactive(TTWO) said CFO Karl Winters resigned, less than two weeks after shareholders took control of the video-game maker and ousted its CEO.
- DivX Inc.(DIVX) today announced that, based on preliminary information, it currently expects that revenue and pre-tax earnings for the quarter ended March 31, 2007 will be higher than previous guidance. The shares surged 11.2% after-hours.
- Cotton in NY fell the most in three months on speculation US supplies will rise further as exports lag behind last year.
- Starbucks Corp.(SBUX) will build a new roasting plant in South Carolina to better distribute coffee in the US southeast.
- Orange-juice futures in NY fell to the lowest in almost six months on speculation demand is declining.
- Seagate Technology(STX) said preliminary fiscal third-quarter revenue was $2.8 billion, less than its forecasted range of $2.9-$3.0 billion. The stock fell .14 to $23.32 in after hours trading.

BOTTOM LINE: The Portfolio finished about even today as gains in my Telecom longs and Retail longs offset losses in my Medical 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 mixed today as the advance/decline line finished slightly lower, most sectors gained and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was neutral. While buyout speculation and a sharp decline in oil failed to lift stocks meaningfully, a pause after last week's strong gains shouldn't be too concerning for the bulls. Moreover, despite the muted performance in the major averages, a number of stocks rose meaningfully once again. The underlying tone of the broad market remains very constructive. The NYSE cumulative advance/decline line made another all-time high last week. Moody's (MCO) reported today that the global default rate on junk bonds fell to 1.4% in March, the lowest in a decade, according to Bloomberg. Moreover, the firm is forecasting default rates to only rise to 3.5% by 2009 vs. the long-term average of 5.1%. I still expect stocks to rise modestly later this week.

Stocks Mixed into Final Hour as Falling Oil Prices Offset Profit-taking

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Retail longs and Telecom longs are offsetting losses in my Semi longs and Medical longs. I added to my (LVLT) long and added to an existing energy-related short today, thus leaving the Portfolio 100% 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 below average. Transports are breaking 2.0% higher today after news that Warren Buffett has acquired a large stake in Burlington Northern Santa Fe (BNI). Besides BNI, Alexander & Baldwin (ALEX), Con-Way (CNW), CSX Corp. (CSX), Norfolk Southern (NSC), Union Pacific (UNP) and YRC Worldwide (YRCW) are powering the Transportation Index higher. While there is no way to know the exact rationale behind Buffett's actions, I seriously doubt he would make such a move if he thought that there was a high probability of an imminent U.S. recession. Over the last hour, oil's decline has accelerated, with the commodity now down $2.71 per barrel, to $61.57 per barrel. Many energy-related stocks that had been up over 1% this morning are now at session lows, falling 0.1%-0.3%. This seems to be pressuring the broad market a bit. The decline in oil is coming despite more optimism over U.S. economic growth, more noise from Iran over its nuclear program, another big jump in crude oil large speculative longs last week, a 4% gain in copper and another huge surge in crack spreads. The underlying tone of trading in oil has completely changed since the end of the Iranian/U.K. hostage tensions, and the commodity is now back below its 200-day moving-average. Any weakness in the broad market related to a decline in oil is likely just temporary. I expect US stocks to trade mixed-to-higher into the close on short-covering, buyout speculation, falling energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Crude oil is falling $1.80/bbl. to $62.48/bbl. today despite rising speculation in the commodity by investment funds, unconstructive comments from Iran regarding their nuclear program and more optimism for US economic growth.
- The US dollar traded near a six-week high against the yen after a government report on Friday showed the US economy created more jobs than expected, suggesting the Fed is less likely to cut interest rates over the coming months.
- Mirant Corp.(MIR), a US electricity producer that emerged from bankruptcy last year, said it is exploring strategic alternatives including a possible sale of the company.
- Farallon Capital Management(FAN), the fifth largest US hedge-fund manager, is negotiating to buy the manufactured home community business of Affordable Residential Communities(ARC), for approximately $1.8 billion.
- Iran’s president said Iran has begun enriching uranium on an industrial scale, stepping up the Islamic Republic’s defiance of the UN and risking an escalation of tensions over its nuclear program.
- Advanced Micro Devices(AMD) said revenue declined 8% in the first quarter amid a pricing battle with larger rival Intel Corp.(INTC). AMD is surging 5.1% on the report.
- Shares of Burlington Northern(BNI) and other US railroads rose after Warren Buffett’s Berkshire Hathaway(BRK/A) invested in three North American carriers even as the stocks hovered near all-time highs and many worried over the possibility of a US recession.
- Kohlberg Kravis Roberts received commitments for $5.6 billion in debt financing for its purchase of discount retailer Dollar General(DG), according to a regulatory filing.
- Copper prices in NY rose to a five-month high on expectations that demand in the US, the world’s second-biggest user of the metal behind China, will strengthen.

Wall Street Journal:
- Yahoo! Inc.(YHOO) has introduced a digital music player intended to rival Apple Inc.’s(AAPL) best-selling iPod.
- Private-equity financiers are increasingly looking to acquire companies that have lost the confidence of public shareholders and are being sold at a discount.
- The Pentagon has partnered with private investors, Intelsat Ltd. and Cisco Systems(CSCO) to provide high-speed Internet for moving military units.

NY Times:
- Hewlett-Packard’s(HPQ) printing division, which generated 30% of the company’s revenue last year, is trying to make it easier for people to print material from the Internet.
- Jimmy Wales, the creator of online encyclopedia Wikipedia, is working with Tim O’Reilly, a publisher credited with starting the term Web 2.0, to create guidelines for debate on the Internet. Wales and O’Reilly envisage bloggers agreeing to a code of conduct that would have accompanying seals of approval with specific logos carried on their Web sites.

Washington Post:
- President Bush is expected to announce a proposal today that would make more green cards available to skilled workers.

CNBC:
- Berkshire Hathaway Inc.(BRK/A) has bought “major” stakes in two North American railroad companies other than Burlington Northern(BNI), citing CEO Buffett.

Shanghai Securities:
- Electronic Arts(ERTS) may buy a stake in The9 Ltd. to expand in China’s online game market.

Economic Times:
- Genpact, an Indian computer services company part owned by General Electric(GE), and Sutherland Global Services plan to sell shares in the US this year.

Xinhua News Agency:
- China will boost imports of equipment with more advanced technology to help ease the country’s expanding trade surplus, citing Vice Commerce Minister Wei Jianguo. The government will simplify import procedures and issue policies to support imports of machinery and technology that makes integrated circuits, advanced chemical fibers and digitally controlled machine tools, said Wang Qinhua, a director from the commerce ministry.

Gulf News:
- Qatar plans to invest more than $75 billion in the country’s oil and gas sector in the next five years.

Gulf Times:
- Indonesia may sign production agreements in the next two months with Royal Dutch Shell Plc and other international companies to extract gas from coal seams that could double the nation’s output of gas, citing Energy Minister Purnomo Yusgiantoro.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- US stock index futures rose on Friday after employers added 180,000 jobs last month and the jobless rate unexpectedly fell, bolstering speculation that consumer spending will keep the economy growing. Moreover, sales at US wholesalers increased faster than inventories during February, which may set the stage for a rebound in manufacturing in coming months. The US Dollar Index rose .4% and the 10-year yield gained 7 basis points on Friday’s reports.
- The US war in Iraq is showing signs of progress and the Bush administration’s new strategy should be given a chance to succeed, Republican presidential contender Senator John McCain said.
- Senate Armed Services Committee Chairman Carl Levin said Democrats may be ready to compromise in the showdown with President Bush over linking funding for US troops in Iraq with a deadline for withdrawal.
- Mitsui & Co., Japan’s second-largest trading company, and Norwegian utility Statkraft AS are considering building hydropower plants in Russia as the country prepares a law to support alternative energy.
- Achuthan, of the Economic Cycle Research Institute(ECRI) says the US economy is turning up. (video)
- Emerging-market investors, anticipating the smallest gains in stocks of developing nations since 2003, are snapping up shares that pay dividends.
- A federal judge barred Vonage Holdings(VG) from signing up new customers while it appeals a ruling that it infringed three Verizon Communications(VZ) patents.
- Google Inc.(GOOG) settled a lawsuit filed by Agence France-Presse and signed an agreement to post content from the news service on its site.
- Russia, the world’s biggest energy supplier, will back an Iranian plan to improve cooperation among gas producers at an industry meeting in Qatar next week, Energy Minister Viktor Khristenko said. Russia won’t, though, sign an accord creating a cartel or “gas OPEC,” Khristenko said.
- The US may file a complaint at the World Trade Organization as early as next week over what it calls China’s piracy of copyrighted movies and books, according to four people briefed by the Bush administration.
- Sir Richard Branson’s plans to launch a space-tourism venture in rural New Mexico has won the thumbs-up from voters in Dona Ana Country, who approved a $130 million tax to help pay for a futuristic local “spaceport.”
- The 15 UK sailors and marines who were held hostage in Iran for 13 days said today they were kept in solitary confinement for much of the time. While they were subjected to “psychological pressure” and “mind games,” none of them were physically harmed, said Captain Christopher Air of the Royal Marines.
- Lockheed Martin Corp.(LMT) and three others will split US Navy awards together valued at as much as $500 million to provide antiterrorism equipment that will protect naval bases.
- Warren Buffett’s Berkshire Hathaway(BRK/A) has acquired a 10.9% stake in Burlington Northern(BNI), according to SEC filings, making the billionaire’s company the largest holder in the railroad.
- Zach Johnson shot a 3-under-par 69 in the final round to win golf’s Masters Tournament.
- Drugs that treat Parkinson’s disease may slow or stop deadly brain tumors, according to a genetic study of stem cells that fuel the cancer's growth.

Wall Street Journal:
- Private equity firms are interested in Kroger Co.(KR), the biggest US supermarket chain
- Illinois Tool Works(ITW) has turned managers of its business units into acquisition specialists to help counter a takeover slump.
- China’s government disclosed new rules regulating organ transplants that say such donations must be voluntary and approved by physicians.

NY Times:
- Florida’s clemency board will allow most non-violent felons to automatically regain their right to vote after being released from prison.

LA Times:
- Californian authorities have seized more than $100 million worth of marijuana grown indoors in the past year, with plants increasingly being found in middle- and upper-class suburban homes.

Forbes:
- Akamai(AKAM) seemed destined to become another casualty of the dot-com calamity. But six years later it has made and audacious comeback.

AP:
- The US Federal Trade Commission’s Do Not Call registry grew by 25 million phone numbers in the fiscal year ending in September, a 23% increase over the previous 12 months.
- Walt Disney Co.(DIS), the world’s largest theme-park operator, will allow gay couples to hold marriage ceremonies at its theme parks and on its cruise-line ships. Disney had previously only allowed couples with valid marriage licenses to participate in its Fairy Tale Wedding program.

Inside MBS & ABS:
- Fannie Mae(FNM) and Freddie Mac(FRE), the largest packagers of home loans into securities, last quarter hard their greatest share of US mortgage-backed bond issuance since 2004.

Sunday Express:
- US buyout firms and Middle Eastern investors are preparing a bid of at least $50 billion for Dow Chemical(DOW) that may be made by the end of this week. The offer may be made between $52 and $58 a share.

London-based Times:
- Lee Iacocca, the former chairman of DaimlerChrysler AG’s(DCX) Chrysler unit, is backing Kirk Kerkorian’s $4.5 billion bid for the carmaker.

Daily Telegraph:
- Royal Dutch Shell Plc may risk angering the US government and the UK public after the British sailors’ hostage standoff should it continue with a study on potential investment in Iran.

Frankfurter Allgemeine Sonntagszeitung:
- Germany’s renewable energy sector will generate more sales and employ more people than the automotive and machine building industries in the future, citing a study by consultant company Roland Berger.

Bild-Zeitung:
- Car dealers in German will have to show customers a “climate pass” that indicates the environmental friendliness of the vehicles they sell, citing Transport Minister Wolfgang Tiefensee.

Financial Times Deutschland:
- The International Monetary Fund will lower its 2007 forecast for US economic growth this year to 2.2% from 2.9%, citing a draft version of the fund’s semiannual World Economic Outlook. The IMF expects global growth to fall to 4.9% this year from 5.3% last year.

Commercial Times:
- Intel Corp.(INTC) will license its chipset technology to Taiwanese chipmaker Via Technologies Inc.

Yomiuri:
- China will express its intention to participate actively in negotiations to reduce greenhouse gas emissions from 2013 in a joint statement after the Japan-China summit next week.

Tehran Times:
- Trade between Iran and China will rise 14% to $16 billion this year, citing the chairman of the Iran-China Chamber of Commerce.

Gulf Daily News:
- Japan may provide a $700 million loan to Iraq for the reconstruction of the country's crude oil production and power transmission facilities.

Weekend Recommendations
Barron's:
- Made positive comments on (PETM), (SCUR) and (GCI).

Citigroup:
- Reiterated Buy on (WMB), target $35.

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated +.35%.
NASDAQ 100 indicated +.55%.

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BOTTOM LINE: Asian Indices are mostly higher, boosted by automaker and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.