Friday Watch

Late-Night Headlines
Bloomberg:
- Merck & Co.(MRK) won dismissal of federal securities lawsuits claiming the company defrauded investors before withdrawing its Vioxx painkiller from the market in September 2004. Merck’s experimental arthritis drug Arcoxia, the successor to its withdrawn Vioxx, shouldn’t be allowed on the market because of safety concerns, US regulators said. Merck also raised its first-quarter earnings forecast to 78 cents a share, as much as 34% higher than its earlier forecasts, citing higher sales across its product lines.
- New Century Financial(NEWC) won permission to sell about 2,000 mortgages to a Royal Bank of Scotland Group PLC subsidiary unless a rival tops the bank’s $47.3 million bid.
- CBS Corp.(CBS) said it will no longer broadcast Don Imus’s morning radio program in response to the talk-show host’s remarks.
- Apple Inc.(AAPL) delayed the release of its new Macintosh system software after shifting engineering resources to ensure the iPhone makes its debut in June. The stock fell 3.2% after-hours.
- The US Congress must not exclude fossil-based fuels, such as liquids extracted from coal, from proposed legislation to reduce gasoline use, said Alexander Karsner, assistant secretary for renewable energy at the Energy Dept.
- Codelco, the world’s largest copper producer, said the current rise in copper prices is “temporary.”

Investor’s Business Daily:
- Jones Soda(JSDA) plans to boost sales of its premium soft drinks via mass-market retailers such as Wal-Mart Stores(WMT).

Business Week:
- US workers can more easily sue companies for being unfairly fired because federal, state and local lawmakers have passed laws expanding who qualifies for legal protection during the past 40 years. Since 1991, the number of lawsuits filed in federal court against businesses has increase to 14,353 from 8,273.

AP:
- Durham County District Attorney Mike Nifong apologized to three former Duke University lacrosse players a day after they were cleared of sexually assaulting a stripper. Nifong, who stepped down as the lead prosecutor on the case in January amid charges of ethics violations, said that the judgments he made “proved to be incorrect.”

Financial Times:
- Apple Inc.(AAPL) has opened talks with some music companies about introducing a music subscription service for its iTunes online store.

Xinhua News Agency:
- China began a six-month campaign to crack down on Internet pornography yesterday, targeting distributors of videos and pictures and the organizers of online strip shows.

South China Morning Post:
- Cnooc Ltd, China’s largest offshore oil producer, increased total reserves by 7% last year, boosted by overseas acquisitions, citing the company’s annual report. The gain is the fastest in four years.

Economic Times:
- Nymex Holdings(NMX) and Merrill Lynch(MER) are interested in buying stakes in commodity exchanges in India, with the government set to allow overseas investment of as much as 49% in those bourses.

Late Buy/Sell Recommendations
CSFB:
- Reiterated Outperform on (AKAM). One of the primary drivers of our Outperform rating is our belief that with increased adoption of video content over the Internet, Internet bandwidth consumption-and in turn the use of CDNs that ease the demand for bandwidth-is poised for tremendous growth unlike anything we have seen to date.

Lehman Brothers:
- Raised Samsung Electronics to Overweight.

Business Week:
- Avalon Pharmaceuticals(AVRX) shares may rise more than 180% in a year on the promise of a drug in early-stage trials, citing Patrick Flanigan of WR Hambrecht.
- Sunpower Corp.(SPWR), a maker of panels and solar cells that generate electricity from sunlight, could have its earnings double this year and again in 2008. ThinkEquity Partners’ David Edwards raised his 12-month target price for Sunpower to $60 from $50 because of the company’s five-year outlook.

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

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Company/EPS Estimate
- (GE)/.44

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- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for February is estimated to widen to -$60.0 billion versus -$59.1 billion in January.
- The Producer Price Index for March is estimated to rise .7% versus a 1.3% gain in February.
- The PPI Ex Food & Energy for March is estimated to rise .2% versus a .4% gain in February.

10:00 am EST
- The preliminary Univ. of Mich. Consumer Confidence reading for April is estimated to fall to 87.5 versus a reading of 88.4 in March.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and energy stocks 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 Near Session Highs on More Economic Optimism, Short-Covering

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In Play

Stocks Higher into Final Hour on Strong March Retail Sales

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs, Biotech longs, Semi longs and Retail longs. I covered my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Yesterday, the Philly Fed reported its Leading Economic Index for February, which is a future gauge of activity for New Jersey, Pennsylvania and Delaware. It rose at a 3.4% rate, the best in at least a year and up from a 1.1% rate in November of last year. Biotechs are outperforming substantially today and Gilead (GILD) is hitting an all-time high. I remain long the stock. Same-store sales for March rose an above-estimates 5.9%. It was the best March since 2004, despite higher energy prices and the drag from housing. While better weather did contribute to this strong performance, many bears said weather wasn't an excuse for retailers during one of the coldest Februarys in U.S. history. Moreover, March sales were strong across the board, even at many lower-end retailers. I see little evidence that only high-end retail is doing well, which is a myth that has been perpetuated in many circles for several years now, even as most of the stocks have moved meaningfully higher. More than weather or the calendar, I suspect the very healthy job market is the main reason sales were strong.

Here are some examples of non high-end retailers that had exceptionally strong same-store-sales during March:

Company Actual Estimate
BJ's Wholesale (BJ) +5.5% 1.20%
Dollar General (DG) +5.5% +5.6%
Family Dollar (FDO) +5.8% +4.0%
Fred's (FRED) +4.4% +2.5%
JC Penney (JCP) +10.6% +7.4%
Kohl's (KSS) +16.8% 9.90%
Ross Stores (ROST) +6.0% +4.6%
Stein Mart (SMRT) +8.0% +5.0%
Target (TGT) +12.0% 12.00%
TJX Companies (TJX) +6.0% +4.6%
Wal-Mart (WMT) +4.0% +1.7%
Dress Barn (DBRN) +12.0% +5.0%
Costco (COST) +6.0% +5.0%

I expect US stocks to trade mixed-to-higher into the close on short-covering, more economic optimism, stable long-term rates and bargain-hunting.

Today's Headlines

Bloomberg:
- The shares of MedImmune Inc.(MEDI) rose after a report that the company, maker of the FluMist nasal spray vaccine, hired Goldman Sachs Group to explore a possible sale.
- Jones Apparel Group(JNY) may sell its Barneys NY unit for more than $1 billion to a private-equity fund linked to Qatar’s royal family.
- Valero Energy(VLO), the largest gasoline refiner in the US, said it’s McKee oil refinery won’t reach full capacity this year. Low refinery utilization, as a result of “outages,” has been the driving force behind higher gas prices this year. Oil surged 1.84/bbl. on the news.
- California home prices rose last month, with the median price in Southern California setting a record, DataQuick Information Systems said.
- US retailers, led by Wal-Mart Stores(WMT), reported March sales rose 5.9%, the best March since 2004 on strong purchases of holiday gifts and spring clothing.
- The al-Qaeda-linked group that killed 33 people in Algeria yesterday has members in Europe and is targeting France, said French presidential candidate and former Interior Minister Nicolas Sarkozy.

Wall Street Journal:
- Sub-Saharan Africa is starting to experience social and economic development after decades of deprivation and conflict, Paul Wolfowitz, the president of the World Bank, wrote. 17 countries, home to one in three Africans, have achieved annual growth rates of 4% or better in the past decade, with even higher growth in those that were ravaged by years of conflict, Wolfowitz said.
- Global Hyatt Corp. plans a new brand of luxury hotels called Andaz, with the first ones opening in London, NY and LA.
- US pension funds are adopting riskier investment strategies and are moving cash away from domestic stocks and into international shares and hedge funds in an attempt to juice returns. Some pension funds are giving their portfolio managers more freedom to engage in short selling the vary companies their investors may work for.
- A personal computer program that eliminates unwanted trial software, ads and offers can be downloaded at www.pcdecrapifier.com, Walter Mossberg writes.
- CBS Corp.(CBS) is set to announce deals to distribute television and other video programming to Web sites including Microsoft Corp.’s(MSFT) MSN and Time Warner’s(TWX) AOL.
- Ralph Whitworth, a US activist investor, has built a stake of almost 1% in mobile-phone company Sprint Nextel Corp.(S).

NY Times:
- A five-year effort to prosecute voter fraud has turned up little proof that problems exist, citing court records and interviews.
- The US military believes Iran may be supplying weapons and training to both Sunni and Shiite militias in Iraq, citing Major General William B. Caldwell.

Forbes:
- Mexican billionaire Carlos Slim Helu has passed investor Warren Buffett to become the world’s second-richest man.

Financial Times:
- A study ordered by Group of Seven finance ministers and central bank governors about hedge funds will not call for specific steps to boost regulations, citing a draft of a report expected next month.

Daily Telegraph:
- CVC Capital Partners Ltd., Centaurus Capital Ltd. and Cerberus Capital Management were among firms whose representatives were interrogated by hostile Dutch legislators of all parties at a parliamentary hearing in The Hague yesterday. Dutch politicians demanded laws to restrict the activities of British and US hedge funds and private-equity firms.

Dagens Industri:
- Nasdaq Stock Market(NDAQ) bid $3.3 billion for OMX AB and the board of the Swedish exchange will meet today to discuss the offer.

Vedomosti:
- Evraz Group SA is in talks to buy Canadian steelmaker Ipsco Inc.(IPS)

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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