DJIA Surging to Another All-Time High on Falling Energy Prices, Positive Economic Data and Buyout Speculation

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs and Biotech longs. I covered my remaining (IWM)/(QQQQ) hedges this morning and added to a few existing longs, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Theflyonthewall.com is pointing to a story on Looprumers.com that says Apple's(AAPL) iPhone could gain as much as 6% of the U.S. mobile market by next year. This would surpass Windows Mobile's share. This is quite a different prediction than Steve Ballmer recently made that the iPhone has "no chance." I am quite sure that those that have a vested interest in seeing the product fail will attempt to paint a negative picture upon release, however I continue to believe Apple's future has never looked brighter. The iPhone will bring in many new customers to the stores that have never owned an Apple product. I suspect the "halo effect," which began with the iPod, will gain significant traction with the release of the iPhone. Apple Computer remains my second-largest long position, behind Google Inc.(GOOG). I expect US stocks to trade mixed into the close from current levels as positive earnings reports, short-covering, falling energy prices and buyout speculation offset profit-taking.

Today's Headlines

Bloomberg:
- Crude oil is falling $.67/bbl. after an EIA report showed that refiners increased production and gasoline supplies fell less than estimates.
- Iraq, the site of the world’s third-largest oil reserves, will repair its northern pipeline and start exporting crude through it sometime in the third quarter, the country’s oil minister said.
- Saudi Arabia, holder of the world’s largest oil reserves, may not need to increase its oil-production capacity after 2009, the country’s oil minister said, because conservation and alternative energy sources could curb the consumption of oil.
- Sugar is falling again in NY, resuming a yearlong decline, on speculation that rising global production will exceed demand. Prices have plunged 54% since February of this year.

Wall Street Journal:
- Microsoft Corp.(MSFT) intensified a campaign to promote Open XML to counter attempts in several states to adopt OpenDocument Format promoted by Apple Inc.(AAPL), IBM(IBM), Sun Microsystems(SUNW), and Google Inc.(GOOG).
- Cisco Systems(CSCO), Advanced Micro Devices(AMD), Tyco Intl.(TYC) and other companies have turned to fixed billing from law firms including Fenwick & West to cut legal costs.
- Affiliated Managers Group(AMG) probably did its shareholders a favor when it bought as much as a quarter of AQR Capital Management LLC, a hedge-fund firm, two years ago. AQR’s assets have almost tripled since the fourth quarter of 2004 and some analysts say the firm may be contemplating an IPO.

NY Times:
- Delta Air(DALW), which emerged from bankruptcy protection Monday, hired a NY ad agency to develop $10 million worth of commercials to lure customers.

CNBC:
- Cablevision Systems Corp.s(CVC) board approved the sale of the company to the Dolan family for $36.26 a share.

Reuters:
- Clayton Dubilier & Rice and KKR will buy Royal Ahold NV’s US Foodservice unit for more than $6 billion.

Federal Reserve Bank of NY:
- Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998.

Financial Times:
- A surge in investments in energy-intensive heavy industries is worsening pollution in China, citing a study by the Peterson Institute for International Economics in Washington. “Huge investment” in steel, aluminum, cement and other plants has exacerbated the country’s energy use and emission of greenhouse gases. China now accounts for almost half of the world’s flat glass and cement production, more than a third of steel output and 28% of aluminum.
- NYSE Euronext(NYX) could still bid for the International Stock Exchange(ISE), noting that NYSE, which operates the New York Stock Exchange, lined up $3 billion in financing in the weeks before Eurex AG completed its arrangements to buy the ISE.

Toronto Globe and Mail:
- Peter MacKay, Canada’s foreign affairs minister, said he will investigate allegations that almost half the foreign spies operating in the country are working on behalf of China.

Factory Orders Surge

- Factory Orders for March rose 3.1% versus estimates of a 2.2% gain and an upwardly revised 1.4% increase in February.

BOTTOM LINE: Orders placed with US factories rose more than forecast in March, the most in a year, reinforcing signs in the past week that business investment was on the mend going into the second quarter, Bloomberg said. Excluding transportation equipment, bookings increased 1.9%. Orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, surged 4.8% versus a 2.4% decline the prior month. Bookings for automobiles rose 3.8% versus a .2% increase the prior month. After a -5.7% decline in January, factory orders have now had their largest two-month turnaround since 1970. I continue to believe manufacturing will add to economic growth this quarter after substantial inventory de-stocking helped pressure overall economic growth in 1Q.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Virgin Mobile USA Inc., a joint venture of billionaire Richard Branson’s Virgin Group Ltd. and Sprint Nextel Corp.(S), plans to raise as much as $100 million in an IPO.
- Creative Technology Ltd., whose music players compete with Apple’s(AAPL) iPod, reported its fourth loss in five quarters after losing market share to the US rival.
- Credit Suisse Group plans to sell a $3 billion bond backed by sub-prime mortgages and credit default swaps, most of it with top credit ratings, Fitch Ratings said.
- Oil production in the US Gulf of Mexico could reach 2.1 million barrels per day within 10 years if recent deepwater discoveries are realized, said the US Minerals Management Service. Gulf of Mexico production is expected to be 1.3 million barrels a day in 2007, according to the agency.
- General Electric(GE) won a contract to supply more than $750 million worth of wind turbines to closely held developer Invenergy Wind.
- The New York Mercantile Exchange said it will increase margin requirements on its gasoline futures contracts at the close of business tomorrow.
- California Public Employees’ Retirement System, the 13^th-largest holder of Berkshire Hathaway stock, sided against an investor who wants Berkshire to sell its stake in PetroChina Co. as a statement against violence in Sudan.
- The US dollar climbed to 120 against the yen for the first time since February before a government report that may show growth in factory orders accelerated in March.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (ADBL) to Speculative Buy, target raised to $13.

Night Trading
Asian Indices are +.50% to +.75% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.05%.

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Earnings of Note
Company/EPS Estimate
- (APPB)/.33
- (RATE)/.28
- (BEC)/.59
- (BIIB)/.60
- (BBI)/-.16
- (BCO)/.56
- (CAI)/.60
- (CBL)/.32
- (CBI)/.31
- (CI)/2.52
- (CLX)/.78
- (CTSH)/.49
- (CMVT)/.21
- (CCI)/-.18
- (DVN)/1.25
- (DLB)/.28
- (D)/1.48
- (DPZ)/.43
- (GRMN)/.58
- (HVT)/.04
- (HP)/.86
- (ICE)/.71
- (JDSU)/.09
- (JNY)/.61
- (LVS)/.32
- (MA)/1.16
- (MSTR)/1.28
- (PRU)/1.65
- (ROG)/.50
- (RDC)/.68
- (SKYW)/.59
- (S)/.23
- (SPW)/.51
- (SYMC)/.19
- (TWX)/.21
- (TWC)/.19
- (RIG)/1.44
- (VRSN)/.22

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for March are estimated to rise 2.2% versus a 1.0% gain in February.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,500,000 barrels versus a 2,074,000 barrel increase the prior week. Gasoline supplies are expected to fall by -1,300,000 barrels versus a -2,793,000 barrel decline the prior week. Distillate Supplies are estimated to rise by 250,000 barrels versus a 5,000 barrel increase the prior week. Finally, Refinery Utilization is expected to rise .88% versus a -2.62% decline the prior week.

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

DJIA Closes at Another Record High on Oil Price Decline and Buyout Speculation

Indices
S&P 500 1,486.30 +.27%
DJIA 13,136.14 +.56%
NASDAQ 2,531.53 +.26%
Russell 2000 816.25 +.21%
Wilshire 5000 14,949.24 +.23%
Russell 1000 Growth 586.45 +.31%
Russell 1000 Value 853.94 +.21%
Morgan Stanley Consumer 734.99 +.33%
Morgan Stanley Cyclical 1,020.56 +2.0%
Morgan Stanley Technology 596.17 +.46%
Transports 5,034.33 -.06%
Utilities 524.53 +1.02%
MSCI Emerging Markets 121.71 +.17%

Sentiment/Internals
Total Put/Call 1.12 +19.15%
NYSE Arms .94 -34.88%
Volatility(VIX) 13.51 -4.99%
ISE Sentiment 114.0 -5.79%

Futures Spot Prices
Crude Oil 64.47 -1.89%
Reformulated Gasoline 224.78 -.51%
Natural Gas 7.71 -1.92%
Heating Oil 188.67 -.43
Gold 675.90 -1.11%
Base Metals 272.32 +.70%
Copper 362.25 +1.86%

Economy
10-year US Treasury Yield 4.64% +2 basis points
US Dollar 81.63 +.23%
CRB Index 311.58 -.36%

Leading Sectors
Restaurants +1.27%
Homebuilders +1.05%
Medical Equipment +1.04%

Lagging Sectors
Gold -.71%
REITs -.78%
Alternative Energy -1.09%

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Afternoon Recommendations
Bank of America:
- Upgraded (CME) to Buy, target $622.

Afternoon/Evening Headlines
Bloomberg:
- OPEC should increase production to assure adequate supplies in case of terrorist attacks and other disruptions, the Intl. Energy Agency said.
- The average gasoline pump price in the US is likely to rise to a record this summer because of refinery “disruptions,” Energy Secretary Samuel Bodman said.
- Cotton in NY fell to the lowest price in 20 months on speculation unsold supplies in the US will rise more than estimated as exports slump.
- OPEC’s compliance with output reductions set last year rose to 70% in April, from 65% in March, OPEC’s secretary general said.

Wall Street Journal:
- Shareholders with a slight majority of Dow Jones(DJ) stock don’t support News Corp.’s(NWS/A) $5 billion takeover bid.

Sparkspread.com:
- Dynegy Corp.(DYN) and US Power Generating Co. are considering bids for Mirant Corp.(MIR), citing officials familiar with the proposals.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Retail longs and Telecom longs. I exited my (LVLT) long and took profits in a trading short in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was neutral today as the advance/decline line finished slightly lower, most sectors rose and volume was heavy. Measures of investor anxiety were above average into the close. Today's overall market action was mildly bullish as the major averages finished near session highs, reversing morning losses, on heavy volume. Oil is down $1.22 per bbl. on little news. As well, gold fell $7.50 per ounce and continues to trade poorly, considering all the recent potential upside catalysts. The 10-year yield finished off session highs, rising 1 basis point. Today was another very frustrating day for the bears considering the below-expectations housing report and weak retail sales reports. Given the market's overbought state and heavy volume today, I suspect even more investors and traders are trapped leaning too heavily bearish.