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Friday Watch

Late-Night Headlines
Bloomberg:
- Crude oil may fall next week as US refineries increase gasoline production in preparation for the peak-demand summer driving season, according to a Bloomberg survey of 34 analysts and traders.
- New Century Financial Corp. will close its sub-prime home-lending unit after failing to find a buyer.
- A US House panel voted to expand a federal agency’s powers to help low-income borrowers at risk of losing their homes as Congress pushes legislative fixes for the sub-prime mortgage problems.
- US Treasury Secretary Paulson said the low returns that Chinese earn on their savings are “perverse” and undermine the nation’s goal of stimulating domestic consumption. China’s savers are earning about 2.5% on their roughly $2 trillion of assets. That means savers must save more out of their income, rather than spend, to meet their investment goals, he said.
- The oldest gauge of US transportation stocks reached a record last week, with a boost from Warren Buffett. For Keith Wirtz at Fifth Third Asset Management, it’s a sign more gains are ahead for the overall market.
- The US dollar is headed for the biggest weekly gain in four months against the euro as strength in manufacturing and services suggested the Fed will refrain from cutting interest rates in coming months.
- BP Plc(BP) forecast today that capacity at the Cushing, Oklahoma, crude-oil storage terminal, where futures contracts traded in NY are delivered, will increase by 25% to about 50 million barrels within 18 months.
- Crude oil production in April by OPEC rose 50,000 barrels per day, a Bloomberg survey showed.
- Venezuela’s dollar bonds fell to the lowest in more than six months on concern that President Chavez’s decision to withdraw from the International Monetary Fund will cause a default on the country’s debt.
- Venezuelan President Chavez threatened to seize the country’s largest steelmaker, Siderurgica Del Orinoco, saying the company is a monopoly that refuses to supply some businesses.

Wall Street Journal:
- Ellington Management Group LLC won an auction today with a bid of $58 million for a parcel of mortgage loans and residual rights owned by New Century Financial Corp.

Financial Times:
- UK Prime Minister Tony Blair may seek to become the first president of the European Union when he leave office.
- One Equity Partners LLC, the US private equity group affiliated to JPMorgan Chase(JPM), is understood to have expressed an interest in buying EMI Group Plc in a deal that could value it at more than $6 billion.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NT), target $35.
- Reiterated Buy on (QLGC), target $21.

Business Week:
- Bank of America Corp.(BAC) shares may rise 27% within a year, citing Carl Birkelbach, chairman and CEO of Birkelbach Investment Securities.
- Accredited Home Lenders Holding(LEND), a sub-prime lender, is a potential takeover target. Matthew Howlett of the investment firm Fox-Pitt Kelton Ltd. told the magazine a sale is the “most-likely” long-term option for Accredited.
- Monsanto(MON) will be a leader in agribusiness growth worldwide, citing Robert Levitt, founder and CIO of Levitt Capital Management.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.04%.

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Earnings of Note
Company/EPS Estimate
- (ATK)/1.44
- (BHS)/.25
- (EK)/-.03
- (KBR)/.23
- (STN)/.59
- (WY)/.34

Upcoming Splits
- (AZZ) 2-for-1
- (CIG) 3-for-2

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for April is estimated at 100K versus 180K in March.
- The Unemployment Rate for April is estimated to rise to 4.5% versus 4.4% in March.
- The Change in Manufacturing Payrolls for April is estimated at -14K versus -16K in March.
- Average Hourly Earnings for April are estimated to rise .3% versus a .3% increase in March.

BOTTOM LINE: Asian indices are higher, boosted by metal 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 100% net long heading into the day.

Stocks Finish Slightly Higher, DJIA Closes at Another Record

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Stocks Higher into Final Hour Ahead of Tomorrow's Jobs Report

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Medical longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is slightly higher, almost every sector is rising and volume is heavy. The major averages and breadth are grinding to session highs on good volume. Gaming, retail and hospitals are the only real sources of any weakness. Technology, energy and transportation remain sources of strength today. I suspect tomorrow's non-farm payrolls release will come in around estimates of 100K, possibly a bit lower. The market should react in a positive fashion to the report, given other stronger economic readings of late. The 10-year yield is stable and my intraday gauge of investor angst is around average levels. While it is possible, I suspect someone other than Google (GOOG) will acquire Monster Worldwide (MNST), which is surging on buyout speculation. The fact that refinery utilization is near levels seen after Hurricane Katrina is temporarily propping up the energy complex. However, artificially inflated prices will just further exaggerate ongoing pervasive global demand destruction and raises the probability of substantial oil price declines in the future. I expect US stocks to trade mixed-to-higher into the close from current levels on positive earnings reports, better economic data, short-covering, falling energy prices and buyout speculation.

Today's Headlines

Bloomberg:
- Crude oil is falling another $.50/bbl. to $63.17/bbl. as investment fund speculation that gasoline inventories are too low to meet summer demand subsides.
- Former NY Mayor Rudolph Giuliani, who is favored among Republican presidential candidates, also leads the top Democratic contenders in head-to-head match-ups, a Quinnipiac University poll found. Giuliani leads NY Senator Hillary Clinton by 49% to 40% and is favored over Illinois Senator Barack Obama 44% to 41%.
- About 50 countries adopted a UN-sponsored plan to boost Iraq’s economy on the first day of a conference on the country’s security and economic future.
- Intel Corp.(INTC) CEO Otellini said profit will increase at a faster rate than sales this year as the chipmaker pushes ahead with its plan to lower costs by $2 billion.
- Prime Minister Nuri al-Maliki told a major conference on Iraq’s economy and security that there has been progress toward reconciling his country’s warring factions and appealed for debt deduction to help jump-start the economy.
- US Secretary of State Condoleezza Rice will meet with Syria’s foreign minister one-on-one about quelling violence in Iraq, a senior State Department official said.
- UBS AG, the world’s biggest money manager, reported a third straight decline in quarterly profit and said it plans to scrap the hedge fund run by John Costas after losses in the US mortgage market.
- Democratic Senator Charles Schumer introduced legislation that would hold lenders liable for brokers and appraisers who make bad mortgage loans and called on banks to match $300 million in federal funds to prevent foreclosures.

Wall Street Journal:
- T-Mobile USA Inc. will introduce a line of cell phones this summer that can roam on so-called Wi-Fi hotspots, carrying calls on the Internet to reduce the cost of mobile phone use.
- Michael Elefante, a Boston-based trust and estates attorney, is at the center of the decision over News Corp.’s(NWS/A) $5 billion offer for Dow Jones(DJ).
- JPMorgan Chase(JPM) is developing a pilot project to sell mortgages to illegal immigrants in Maricopa Country, Arizona.

USA Today:
- The US government need to do more to stop terrorists from using the Internet and video games to recruit young people.

Washington Post:
- The Democrat-led US Congress is considering legislation to protect reporters from being forced to disclose the identities of their sources.

Market News Intl.:
- The European Central Bank may have less of a reason to raise interest rates further after Juen if the euro continues to appreciate, citing “well-informed central bank sources.”

Dagens Nyheter:
- Czech lawmakers approved a bill that would mandate the addition of biofuels to gasoline and diesel.

China Central TV:
- China National Petroleum Corp., the nation’s biggest oil producer, said it discovered a field in Bohai Bay that may contain 1 billion tons of oil reserves. A discovery by PetroChina in Bohai Bay may hold as much as 2.2 billion barrels of oil. China is encouraging its oil companies to step up efforts to drill off the country’s coast and in the remote deserts of Xinjiang in the west.

Sarmayeh:
- China may sign a $2 billion contract with Iran to build several dams, citing an energy official.

Productivity Accelerates, Labor Costs Decelerate Substantially, Jobless Claims Fall, Service Sector Healthy

- Preliminary 1Q Non-farm Productivity rose 1.7% versus estimates of a .7% gain and an upwardly revised 2.1% increase in 4Q.
- Preliminary 1Q Unit Labor Costs rose .6% versus estimates of a 3.8% gain and a downwardly revised 6.2% increase in 4Q.
- Initial Jobless Claims fell to 305K versus estimates of 325K and 326K the prior week.
- Continuing Claims fell to 2495K versus estimates of 2550K and 2588K prior.
- ISM Non-Manufacturing for April rose to 56.0 versus estimates of 53.0 and a reading of 52.4 in March.

BOTTOM LINE: US worker productivity last quarter grew faster than forecast and labor costs moderated, raising speculation the labor market won’t fuel inflation, Bloomberg said. As well, manufacturing productivity rose at a 2.7% pace and non-financial corporate productivity rose at a 1% pace during the fourth quarter, which was just reported today. Unit labor costs, the main driver of inflation, are now rising below the 20-year average of 1.9%, which is a big positive. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

The number of US workers filing first-time claims for unemployment benefits fell to a three-month low last week, signaling the jobless rate may not rise in coming months, Bloomberg said. The four-week moving-average of jobless claims fell to 328,750 from 333,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, fell to 1.9% from 2.0% the prior week. I suspect Friday’s jobs report will show non-farm payrolls came in around estimates of 100,000, which should be viewed positively by investors.

Growth in US service industries accelerated more than forecast last month, a sign the economy may be picking up after slowing in the first quarter, Bloomberg said. The New Orders component of the index rose to 55.5 versus 53.8 the prior month. The Prices Paid component was 63.5 versus 63.3 the prior month. The Employment Component of the index rose to 51.9 from 50.8 the prior month. Strength in this index, which measures sectors that account for almost 90% of economic growth, is surprising and a big positive. After today’s data, the imminent US recession hypothesis has lost all credibility, in my opinion. I continue to believe that after a sluggish 1Q, US growth is in the beginning stages of accelerating back to around average rates.