Confidence Slightly Below Estimates, Existing Home Sales Fall

- Consumer Confidence for April fell to 104.0 versus estimates of 105.0 and an upwardly revised 108.2 in March.

- Existing Home Sales for March fell to 6.12M versus estimates of 6.4M and 6.68M in February.

BOTTOM LINE: Consumer confidence in the US declined to the lowest level since April on rising gas prices and housing worries, Bloomberg reported. The Present Conditions component of the index fell to 131.3 versus 138.5 the prior month. The Expectations component fell to 85.8 from 87.9 the prior month. However, the percentage of people expecting more jobs over the next six months rose to 12.9% from 12.7% the prior month. As well, those planning to purchase an auto rose to 6.0% from 5.4% the prior month. The Fed’s Mishkin said recently that subprime spillovers “appear to have been minimal” and that “most borrowers are not likely to face a serious credit constraint.” As well, historically low unemployment and strong wage growth are helping sustain consumer sentiment and spending. Confidence in the Northeast Central region continues to depress the overall gauge. It fell another 10% to a very depressed 59.0 and is right at the major bear market lows seen in 2003. I continue to expect consumer confidence to head back to cycle highs later this year as gas prices fall, inflation decelerates, the job market remains healthy, housing sales stabilize at relatively high levels, interest rates remain low and stocks rise further.

Sales of previously owned homes in the US fell more than forecast in March, Bloomberg reported. Existing home sales had surged the prior month the most since December 2003. This month’s decline in sales was partly weather related. The supply of homes for sale at the current sales pace is now 7.3 months’ worth versus 6.8 months in February. The median price of an existing home remained steady, falling .4% to $217,000. Sales fell 10.9% in the Midwest, 9.1% in the West, 8.2% in the Northeast and 6.2% in the South. I expect existing home sales to bounce back next month, however construction will remain muted as homebuilders reduce inventory.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- BHP Billiton(BHP), the world’s biggest mining company, said third-quarter copper, iron ore and nickel output rose. Copper output surged 22%, iron ore output gained 8% and nickel production rose 14%.
- Former Apple Inc.(AAPL) CFO Fred Anderson agreed to pay $2.5 million to resolve SEC claims over backdated stock option grants to Apple executives approved by CEO Jobs.
- North Korea is an “enormous” threat to Japan and must be closely watched to see that it fulfills its pledge to shut down its nuclear weapons program, Japanese national security adviser Yuriko Koike said.
- Valero Energy(VLO), the largest US oil refiner, said it’s cutting gasoline output 71% at its St. Charles refinery in Norco, Louisiana, after a “mechanical failure” idled the plant’s fluid catalytic cracking unit. The plant will lose 60,000 barrels a day of gasoline production. The “outage” is expected to last 14 days.
- Australia’s consumer prices rose less than expected in the first quarter, sending the currency tumbling as traders reduced bets the central bank will increase interest rates next week.

Wall Street Journal:
- China is set to become the world’s top greenhouse gasses emitter this year, surpassing the US, citing the International Energy Agency. The IEA, which advises developed countries on energy policy, had previously forecast China to surpass the US by 2010. China’s growing carbon-dioxide emissions are expected to exceed any reductions from Europe, the US and Japan. If left unchecked, its emissions are forecast to double that of all the member countries in the OECD, which includes Europe, the US, Canada, South Korea and Japan.

AP:
- US Representative Dennis Kucinich, an Ohio Democrat running for president, will tomorrow start impeachment proceedings against Vice President Dick Cheney.

Financial Times:
- A majority of companies in the UK, Australia, US, France and Germany reported experiencing leaks of sensitive data during the last 12 months, citing a survey by Datamonitor Plc and McAfee Inc.
- The leading 25 hedge fund managers together earned $15 billion, citing an annual industry survey by Institutional Investor’s Alpha magazine. Three managers – Renaissance Technologies’ James Simons, Citadel Investment Group’s Ken Griffin and ESL Investments’ Eddie Lampert – earned in excess of $1 billion.
- JetBlue Airways Corp.(JBLU) may introduce an in-flight text messaging service to boost revenue, citing CEO David Neeleman.
- Russia’s sustained financial growth over the past seven years, fuelled mostly by credit from foreign markets, is nearing its limits, citing Barclays Capital Chairman Hans-Joerg Rudloff. The Russian market’s current growth is not “sustainable” and the “boom” will come to a “painful end in the near future,” Rudloff said at the Russian Economic Forum in London.

Xinhua News Agency:
- China’s President Hu Jintao and other senior officials called for Web sites to produce “healthy” Internet material to promote social stability. China aims to foster a “healthy online culture” and prevent “decadent” material from being disseminated over the Internet.

Hong Kong Economic Journal:
- China Life Insurance Co. plans to sell a stake of as much s 19.9% to Citigroup(C).

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (SNDK) to Buy, target $52.
- Reiterated Buy on (ESRX), target raised to $110.

CSFB:
- Reiterated Buy on (ESRX), target raised to $106.

Morgan Stanley:
- Reiterated Overweight on (TGT), target $64.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.16%.

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Earnings of Note
Company/EPS Estimate
- (ACE)/1.76
- (AFL)/.79
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- (ACV)/.20
- (AMZN)/.20
- (T)/.61
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- (MWRK)/.40
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- (RDN)/1.40
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- (WEBX)/.39
- (WHR)/1.13

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for April is estimated to fall to 105.0 versus a reading of 107.2 in March.
- Existing Home Sales for March are estimated to fall to 6.4M versus 6.69M in February.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and automaker stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Lower on Healthy Consolidation of Recent Strong Gains

Indices
S&P 500 1,480.93 -.23%
DJIA 12,919.40 -.33%
NASDAQ 2,523.67 -.11%
Russell 2000 827.55 -.16%
Wilshire 5000 14,935.82 -.17%
Russell 1000 Growth 584.12 -.09%
Russell 1000 Value 853.76 -.29%
Morgan Stanley Consumer 733.50 -.07%
Morgan Stanley Cyclical 997.78 -.07%
Morgan Stanley Technology 582.10 -.15%
Transports 5,161.76 -.85%
Utilities 523.90 +.64%
MSCI Emerging Markets 122.68 +.03%

Sentiment/Internals
Total Put/Call .91 +21.3%
NYSE Arms 1.13 +29.92%
Volatility(VIX) 13.04 +8.04%
ISE Sentiment 133.0 +6.40%

Futures Spot Prices
Crude Oil 65.70 +2.51%
Reformulated Gasoline 219.95 +2.91%
Natural Gas 7.57 +2.51%
Heating Oil 189.10 +3.19%
Gold 692.70 -.45%
Base Metals 271.87 -.73%
Copper 365.60 +.97%

Economy
10-year US Treasury Yield 4.64% -3 basis points
US Dollar 81.74 +.12%
CRB Index 314.47 +.78%

Leading Sectors
Coal +4.02%
Biotech +1.64%
REITs +1.26%

Lagging Sectors
Drugs -1.26%
Airlines -1.94%
Homebuilders -1.99%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Cephalon Inc.(CEPH), Henry Schein(HSIC) and Steel Dynamics(STLD) are candidates to join the Nasdaq-100 Index, replacing Medimmune(MEDI), according to Gabriela Baez, head of index and portfolio research at Lehman(LEH).
- Crude oil surged, approaching $66/bbl. in NY, as investment funds speculated that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- Altera Corp.(ALTR), the world’s second biggest maker of programmable semiconductors, said first-quarter profit rose 28% on sales of new products for consumer electronics. The shares rose 2% after-hours.
- Express Scripts(ESRX), the third biggest US manager of drug benefits, said quarterly profit increased 28% as the company filled more prescriptions with cheaper generic copies. The shares surged 4.5% after-hours.
- Amgen(AMGN) said first-quarter profit rose 15% on sales of drugs to treat anemia in dialysis and cancer patients. The shares rose 1% after-hours.
- Texas Instruments(TXN), the world’s largest maker of mobile-phone chips, reported a 12% drop in first quarter profit, the first decline in more than two years, as phone shipments slowed. The shares soared 8% after-hours.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Medical longs and I-Banking longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished mildly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was neutral. Underlying market action remained very constructive today despite the jump in oil and comments from (GM). The Goldman Sachs Agricultural Commodity Sub-Index looks like it is rolling over again to me. As well, corn is falling 2.3% today and is testing recent lows. The AMEX Biotech Index (BTK) is building on its all-time closing high set last week. Mid-caps rose again today and continue to display significant relative strength. The VIX rose 8% today despite minor losses in the major averages. I expect more choppiness throughout the week.

Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Strong Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs and I-Banking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is above-average. Back in February I pointed out that the Vietnam Index was in the midst of an unsustainable meteoric rise. The Index peaked on March 12 and has since plunged 20.3%. While other Asian emerging markets continued to rally last night, the Vietnam Index fell another 3.9%. While this market is relatively small, it may indicate a negative shift in psychology regarding the mania for Asian emerging market stocks. The Vietnam Index is still 23.8% higher year-to-date and almost 300% higher over the last two years. The only place I see more investor complacency than commodities is in emerging markets and the two go hand-in-hand. If one mania ends, the other will soon follow, in my opinion. I still expect the mania for emerging market stocks to begin reversing course this year and eventually result in a significant increase in the demand for U.S. stocks at a time of very low supply. The UBS/Gallup Index of Investor Optimism fell to 74 in April vs. 78 in March. This is the lowest reading since September 2006, despite recent stock gains. I continue to sense that very few investors believe any meaningful market upside is possible from current levels. I continue to disagree. I expect US stocks to trade mixed into the close as higher energy prices and profit-taking offset buyout speculation and earnings optimism.

Today's Headlines

Bloomberg:
- Financial services minister Ed Balls called for regulators of the world’s major financial markets to adopt the British practice of running semi-annual checks of the hedge fund industry.
- Sugar plunged to a 21-month low in NY and the lowest price since November 2005 in London after China, the world’s second-largest consumer, said it may reduce imports.
- Corn is falling another 2.7% in Chicago as warmer, drier weather in the Midwest firmed up muddy fields as farmers accelerated planting what the US government said will be the most acres since 1944.
- Carl Icahn agreed to sell the Stratosphere, three other Nevada casinos and 17 acres on the Las Vegas Strip to Goldman Sachs Group’s(GS) real estate funds for $1.3 billion.
- Crude oil is rising above $65/bbl. in NY as speculators raise bets that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- AstraZeneca Plc(AZN), struggling to develop new medicines, agreed to buy US biotech company MedImmune(MEDI) for $15.2 billion in cash to gain flu vaccines and an antiviral treatment for babies.

Wall Street Journal:
- US farmers have funded a dam in Kenya that brings water and crops, helping combat a decrease in international aid to Africa and underscoring the impact small projects can have.
- US and UK hedge funds are selling stock in their funds to the public, but weak performance of some of the shares is creating doubt about this relatively new source of funding.

NY Times:
- New York Governor Eliot Spitzer plans to introduce legislation to legalize gay marriages in the state.
- Sales of video games for personal computers are on the rise as companies such as Microsoft Corp.(MSFT) try to use the games to highlight other technology and services.

AP:
- Time Warner Cable(TWX) will allow its broadband customers to become public wireless hotspots through technology offered by Fon, a Wi-Fi startup.

San Francisco Chronicle:
- San Francisco Mayor Gavin Newsom won’t allow any of the city’s employees to assist federal authorities in illegal immigration raids.

Chronicle of Higher Education:
- US colleges and universities will be encouraged to use debit cards to distribute money to students under a new proposal to streamline the flow of federal student aid.

Sueddeutsche Zeitung:
- The German government expects the economy to grow by 2.3% this year and 2.4% in 2008.

Vedomosti:
- Schlumberger(SLB) shareholders elected a Russian citizen to the company’s board, a first for a major Western company.

China Business News:
- Symantec Corp.(SYMC) and China’s Huawei Technologies may form a computer storage and network security venture.