Jobless Claims, Import Prices Rise

- Initial Jobless Claims rose to 342K versus estimates of 320K and 323K the prior week.
- Continuing Claims rose to 2527K versus estimates of 2505K and 2489K prior.
- The Import Price Index for March rose 1.7% versus estimates of a .8% gain and a downwardly revised .1% increase in February.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly rose last week, influenced by the Easter holiday and school spring recess, Bloomberg reported. The four-week moving-average of claims rose to 323,250 versus 316,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the job market will remain very healthy over the intermediate-term without generating substantial unit labor cost increase.

Prices of goods imported into the US rose last month, led by a surge in the costs of crude oil and natural gas, Bloomberg reported. The average price of a barrel of crude oil traded on the NY Merc rose to $62 on March 1 from $57.30 on February 1. Excluding energy, import prices only rose .2% in March. Prices for imported capital goods declined .1% versus a .2% decline in February. I expect import prices to decelerate from current levels over the intermediate-term as energy prices fall from current levels.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Cable-television network MSNBC, bowing to pressure from advertisers including General Motors(GM) and Sprint Nextel(S), said it will no longer simulcast Don Imus’s radio show.
- The Senate fell short of a veto-proof margin in approving legislation today to lift the ban on federal funding for new embryonic stem-cell research.
- Petroleo Brasileiro SA(PBR), Brazils state-controlled oil company, may purchase tankers from Brazilian shipyards to export ethanol as the company moves to quadruple foreign sales of the biofuel.
- Exxon Mobil(XOM) said a power failure idled four units yesterday at its refinery in Baytown, Texas, the largest in the US. The incident was the sixth “malfunction” this year at the plant. Refinery “outages” have resulted in falling gasoline supplies which is boosting prices and gasoline crack spreads to record levels for this time of the year.
- Valero Energy(VLO), the largest US refiner, said emergency flaring was required yesterday at its refinery in Port Arthur, Texas, possibly because a level control valve “malfunctioned.” Agency data indicates it was the plant’s eighth “malfunction” this year.
- The value of mergers and acquisitions in the defense and aerospace industry last year was $33 billion, the highest level since 2000, citing PricewaterhouseCoopers LLP.
- The Fed’s Moskow said high inflation is a greater risk than slow economic growth for the US economy. Moscow also said the fixed rate mortgage market appears fine and that it is very unlikely subprime problems will curb consumer spending.
- The economies of China and India may cool as interest rates rise in the world’s two fastest growing major economies, the International Monetary Fund said.
- Japanese investors purchased foreign bonds at the fastest pace in five months in the first week of the fiscal year, attracted by higher yields overseas.

Nikkei:
- The Bank of Japan may say that consumer prices will rise .3% during the current fiscal year, or slower than the .5% it projected in a report last October.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (AMAG) and (DNA).

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
- (CBSH)/.76
- (CPWM)/.85
- (FAST)/.35
- (IFIN)/.51
- (JOSB)/1.25
- (KKD)/.05
- (LRCX)/1.08
- (MTG)/1.70
- (PIR)/-.28
- (PII)/.29
- (RAD)/.03

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 320K versus 321K the prior week.
- Continuing Claims rose to 2505K versus 2492K prior.
- The Import Price Index for March is estimated to rise .8% versus a .2% gain in February.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower After FOMC Minutes and Rise in Gas Prices

Indices
S&P 500 1,438.87 -.66%
DJIA 12,484.62 -.71%
NASDAQ 2,459.31 -.74%
Russell 2000 808.24 -.77%
Wilshire 5000 14,538.44 -.64%
Russell 1000 Growth 567.24 -.67%
Russell 1000 Value 831.59 -.63%
Morgan Stanley Consumer 708.38 -.69%
Morgan Stanley Cyclical 970.02 -.42%
Morgan Stanley Technology 568.99 -.86%
Transports 4,970.02 -.49%
Utilities 513.17 -.42%
MSCI Emerging Markets 120.99 +.09%

Sentiment/Internals
Total Put/Call .99 -9.17%
NYSE Arms 1.03 +5.05%
Volatility(VIX) 13.49 +6.39%
ISE Sentiment 136.0 +10.57%

Futures Spot Prices
Crude Oil 62.04 +.24%
Reformulated Gasoline 215.50 +1.53%
Natural Gas 7.81 -.80%
Heating Oil 187.28 +.90%
Gold 682.0 +.07%
Base Metals 273.57 -.02%
Copper 357.50 +1.39%

Economy
10-year US Treasury Yield 4.73% +1 basis point
US Dollar 82.64 -.07%
CRB Index 316.58 +.04%

Leading Sectors
Airlines +.53%
Hospitals +.50%
Engineering & Construction +.33%

Lagging Sectors
Oil Tankers -1.41%
Homebuilders -1.61%
REITs -1.65%

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Afternoon Recommendations
Deutsche Bank:
- Rated (GS), (IFIN), (C), (LEH), (BK), (MEL), (STT), (NT), (ET), (SCHW) and (MER) Buy.
- Rated (PNC), (NCC), (USB), (KEY), (FITB) and (TCB).

Afternoon/Evening Headlines
Bloomberg:
- NovaStar Financial(NFI), a subprime home lender, announced it’s formally exploring “a range of strategic alternatives,” including a possible sale. The shares are soaring 17% after-hours.
- Three former Duke Univ. lacrosse players were cleared of sexually assaulting a stripper, ending a racially charged case that North Carolina’s top lawman said was pushed along by an “unchecked” prosecutor.
- Comcast Corp.(CMCSA) agreed to buy online movie-ticket seller fandango.
- Genentech Inc.(DNA) said first-quarter profit rose 68%, driven by sales of its cancer drugs Avastin and Rituxin. The stock is slightly higher after-hours.
- Research In Motion’s(RIMM) fourth-quarter profit soared after the company introduced new BlackBerry e-mail devices and took customers from rivals. The company also said a SEC informal probe had been converted to formal. The shares fell 6.8% after-hours.
- General Motors(GM) has pulled its ads from radio host Don Imus’s morning show after his remarks about the Rutgers University women’s basketball team.
- US Democratic Senator Charles Schumer and other members of a key banking committee said the federal government should spend “hundreds of millions of dollars” to bail out subprime mortgage borrowers facing foreclosure.
- Kraft Foods(KFT) may generate as much as $2 billion in free cash flow a year that could be used to acquire companies, a Davenport analyst said.
- American Eagle Outfitters(AEO) said March same-store-sales soared 20.0% versus estimates of a 10.9% gain. The shares rose 4% after-hours.
- Advanced Magnetics(AMAG) reported positive results from two additional human studies of its intravenous iron replacement therapy. The shares surged 13% after-hours.

Nikkei English News:
- Sony Corp.(SNE) will become the first company to mass-produce organic electroluminescent televisions when it begins making them later this year. Sony will start making about 1,000 of the 11-inch panels a month as soon as this year. The televisions emit light when an electrical charge is passed through them, and are thinner, lighter and have a better picture quality than existing liquid-crystal displays.

AFP:
- The European Union will consider the creation of a “strategic reserve” of border guards to prevent the flow of illegal immigrants, citing EU parliament lawmaker Gerard Deprez.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Telecom longs and Computer longs. I added (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, almost every sector declined and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bearish. I suspect today's weakness was more related to the continuing rise in gas prices rather than the FOMC comments, which were not unexpected. The 10-year yield and U.S. dollar had just slight reactions to the minutes. It looks like more near-term market choppiness is likely before what I suspect will be another push higher in the major averages.

Stocks Lower into Final Hour on Profit-taking, Mixed FOMC Minute Comments

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Telecom longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is declining and volume is about average. The Shanghai Composite Index is now up 242% in less than two years. It is up 31% year to date. I continue to believe the bubble in Asian emerging markets remains the most serious threat to the U.S. bull market longer-term. Tractor Supply (TSCO) boosted guidance slightly this morning. I still think long-term estimates are too low and the stock is still cheap at current levels based on my expectations. I am long the stock. While the MBA mortgage applications report was slightly lower, purchase applications rose a healthy 2.7%. There was something for the hawks and the doves in the FOMC minutes. The 10-year yield is moving only 1 basis point higher and the U.S. dollar is rising only slightly on the report. However, stocks are moving to session lows. There was nothing in the minutes that would change my mind regarding my expectations of the Fed remaining on hold throughout the year. I expect economic growth to improve to more average levels and inflation to decelerate further later this year. I expect US stocks to trade modestly higher into the close on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- CBS News fired an unidentified producer after finding that a video essay was plagiarized from the Wall Street Journal and posted on the network’s Web site, citing CBS spokeswoman Sandra Genelius.
- Former US Senator and actor Fred Dalton Thompson disclosed today that he has indolent lymphoma, a slow-growing form of the cancer.
- Fed Reserve Chairman Bernanke said that a “light regulatory touch” on hedge funds is justified because of the incentives that investors and creditors have to monitor risks.
- Citigroup Inc.(C) and Bank of America(BAC), the two largest US banks will provide $1 billion in fixed-rate, below-market mortgages for predatory-lending victims on the verge of losing their homes, an advocacy group said.
- US aluminum production rose 9.2% in March, according to the Aluminum Assoc.
- Orange-juice futures fell in NY, heading for the biggest weekly drop in 15 months, as rains improved the prospect for next seasons citrus crop in Florida, the biggest US grower of oranges.
- Gasoline futures in NY are rising to an eight-month high, on rising investment fund speculation, as the government reported today that supplies fell more than estimates as refiner utilization remains exceptionally low due to rampant “outages.”
- Federal Reserve officials agreed higher interest rates could still “prove necessary” to control inflation even as they removed a reference in their statement to tighter credit because of increased economic risks.
- Comcast Corp.(CMCSA) CEO Roberts said consumers’ surging appetite for packages of television, telephone and Internet services justifies spending more to keep up with demand.
- ConocoPhillips(COP) CEO Jim Mulva became the first head of a major US oil company to call for federal rules to reduce emissions of so-called greenhouse gases.
- North Korea will start the process of shutting down its main atomic reactor within a day of receiving $25 million in previously frozen funds.

Wall Street Journal:
- Overseas investors quadrupled their ownership stake in big emerging-market companies over five years, citing a Citigroup survey.
- The Bush administration has completed rules requiring motor-fuel refiners to use more renewable fuels including ethanol to reduce dependence on oil imports. The Renewable Fuels Standard, mandated by Congress, requires refiners to use a minimum of 7.5 billion gallons of renewable fuels within 5 years. Officials said it may reduce oil consumption by as much as 3.9 billion gallons and greenhouse gas emissions by as much as 13.1 million metric tons over the same time period.
- The wheels aren’t about to come off at Wells Fargo(WFC), the fourth-biggest US bank, though its shares have taken a dip lately because of the company’s heavy involvement in the subprime mortgage market.

NY Times:
- Retail condominiums are becoming popular investments in major cities with global appeal.

Financial Times:
- Rudy Giuliani, the former mayor of NYC, said he is proposing to cut taxes and reduce the federal government payroll as part of his campaign to win the Republican nomination for US president.

Globe and Mail:
- Onex Corp., Canada’s biggest buyout firm, is considering a joint bid with auto-parts maker Magna International for DaimlerChrysler’s(DCX) Chrysler unit.

Gestion:
- Petroleo Brasileiro SA(PBR), Brazil’s state-run oil and natural-gas company, will join other companies in investing a combined $1 billion in energy exploration in Peru this year.

Interfax:
- Russia is concerned by Iran’s decision to conduct air-defense exercises close to a nuclear reactor that it is building in the Islamic state.