DJIA Hits Another Record into Final Hour on Lower Energy Prices and Buyout Speculation

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Medical longs, Semi longs and Computer 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 lower, most sectors are rising and volume is below-average. Over the weekend, as usual, I read and heard numerous scary headlines despite the DJIA putting in its best showing in decades. Local papers had big headlines on the front of their business sections talking of a U.S. recession without even mentioning the Dow's record-shattering run. As well, around the web there was more depression comparisons and 20s crash talk. Finally, a recent Street.com column illustrates the prevailing sentiment among the many bears, in my opinion. David Tice of the Prudent Bear fund said, "We've never been more confident" and "I am as confident as ever that we are going to be right," in references to his belief in the market's impending 50% collapse. Even more telling, his fund is down 5% over the last decade including dividends, yet his fund sales are near their peak during the 2000-2003 market meltdown and his assets are at a new all-time high. The many bears still remain stunningly complacent, in my opinion. I continue to believe overall investor sentiment regarding U.S. stocks has never been worse in history with the DJIA at record highs. I view sentiment as closer to a major market bottom than a major market top. Sentiment gauges have been the best market-timing tools since the major bear market lows in 2002, in my opinion. I have noticed that the new bear catchword to describe the U.S. economy relative to the U.S. stock market is "disconnect." The market anticipates the future. In the current "U.S. negativity bubble" the thought that things could actually get better, not worse, isn't even considered. The mid-cycle slowdown in 1995 was much worse than the current one, yet stocks rose by double-digit percentages during that period as multiples expanded in anticipation of faster economic growth. The real "disconnect" is between the perception of investors regarding the long-term prospects for U.S. stocks and reality, in my opinion. I expect US stocks to trade mixed into the close from current levels as lower energy prices and buyout speculation offset profit-taking and positioning ahead of likely weak retail sales reports.

Today's Headlines

Bloomberg:
- US stocks are rising again and the DJIA climbed to its fifth straight record after Alcoa’s(AA) unsolicited $26.9 billion bid for Alcan(AL) added to speculation the record pace of takeovers will accelerate.
- Israeli Prime Minister Ehud Olmert survived three no-confidence motions brought by parliamentary opponents after a government commission’s report blaming Olmert for being unprepared for last year’s war in Lebanon.
- Teva Pharma is bidding more than $6.1 billion to acquire Merck KGaA’s generic-drug unit.
- Microsoft(MSFT) CEO Ballmer interrupted a Hawaiian vacation to call his top Internet ad man, Yusuf Mehdi, on April 16 after Google Inc.(GOOG) announced its $3.1 billion purchase of DoubleClick.
- Abby Joseph Cohen of Goldman Sachs(GS) and Edward Keon of Prudential Equity Group raised their forecasts for US stocks as the S&P 500 climbed toward a record.
- Gasoline futures fell for a second day as some refineries increased production, after a recent rash of “outages,” signaling inventories may grow for the first time in three months. Oil is falling another $.91/bbl., breaking below its 50 and 200-day moving averages as investment funds cut record speculation on the commodity as US inventories move towards 8-year highs.
- Copper dropped in New York, halting a six-session rally, after a mining strike ended in Peru, the world’s third-largest producer of the metal.
- Corn futures in Chicago fell 3% on speculation dry weekend weather firmed muddy fields in the eastern Midwest, allowing farmers to accelerate planting of the biggest US crop.
- Wal-Mart Stores(WMT) will install solar-power systems to provide some of its electricity at 22 locations in Hawaii and California.
- Democratic presidential candidate Barack Obama said the US should help Detroit-based automakers pay for retiree health care while at the same time requiring them and their overseas competitors to boost fuel efficiency and reduce tailpipe emissions.
- Warren Buffett, the billionaire chairman of Berkshire Hathaway(BRK/A), said newspaper investors face “long-term problems.”
- Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end. On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group(GS) to JPMorgan Chase(JPM) to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.
- New Century Financial Corp.(NEWC), the largest subprime lender in bankruptcy, can borrow as much as $100 million to stay open as it auctions off its remaining assets, a judge ruled.
- Total SA, Europe’s third-largest oil company, said its proposed oil plant in Canada may start processing bitumen from Alberta’s oilsands by 2013.

Wall Street Journal:
- BAE Systems Plc is in advanced talks to buy Armor Holdings Inc.(AH), a US maker of military and heavy vehicles, for $3.5 billion.
- Some shareholders of Clear Channel Communications(CCU) lobbied the company’s board over the weekend to reconsider a sweetened $19.35 billion buyout proposal it turned down on May 3.
- Small and mid-size company mutual fund flows were down 35% from year-ago levels in the first quarter, despite the fact that mid-caps have been this year’s best performing group, according to data from Citigroup.

NY Times:
- A US Defense Department program is using venture capitalists to help find innovations from start-ups that haven’t traditionally been part of the military’s supply chain. DeVenCi, or Defense Venture Catalyst Initiative, combines the slow moving bureaucracy of the federal government with fast-moving investors.
- Mobile-phone versions of television shows, which are rising in popularity, haven’t been able to draw advertisers, who are reluctant to abandon traditional formats.

Women’s Wear Daily:
- Wal-Mart Stores(WMT) may be interested in buying Gottschalks Inc.(GOT) department stores to gain a foothold in northern California.

AP:
- A New Jersey Senate committee may this week recommend replacing the state’s death penalty with a sentence of life imprisonment without the possibility of parole.

Edaily:
- Germany’s SunTechnics GmbH and South Korea’s Dongyang Engineering & Construction Corp. plan to build the world’s largest solar-powered plant in the Asian country.

Sarmayeh:
- Iran’s central bank passed a directive to allow foreign lenders to operate in the country.

Al-Hayat:
- The US Agency for International Development provided $350 million to support agriculture projects in Iraq.

Die Welt:
- German Finance Minister Peer Steinbrueck wants to persuade this counterparts from other European Union countries to back his government’s push for hedge funds to be subject to a code of conduct.

Gestion:
- US, German and Peruvian companies plan to invest over $100 million in wind-farm projects in Peru.

Vedomosti:
- Wal-Mart Stores(WMT) registered 42 trademarks in Russia after foreign brands including Starbucks(SBUX) were misused.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Nicolas Sarkozy claimed a mandate for change after his election as French president, pledging to unify the country as he began promoting a program of tax cuts, tougher prison sentences and tighter immigration rules. “The people of France have chosen to break with their ideas, habits and behavior of the past,” Sarkozy said. “I will restore the value of work, authority, morals, respect, and merit. I’ll restore national pride and national identity,” he said.
- Dow Jones’(DJ) owners and directors were sued by a shareholder seeking to compel acceptance of a $5 billion buyout offer by News Corp.(NWS/A) Chairman Rupert Murdoch.
- The number of US children hospitalized by a form of diabetes almost tripled from 1997-2003, largely because of obesity, according to a study.
- US Treasury 10-year notes gained last week, pushing their yields lower than those of two-year notes for the first time in four weeks, amid signs inflation is moderating.
- The US dollar rose last week against the euro as private reports showing resilience in US manufacturing and services industries reduced concern over a slowdown in the world’s largest economy.
- Berkshire Hathaway(BRK/A) shareholders voted by a 53-to-1 margin against an investor proposal calling on the firm to divest its $3.3 billion stake in PetroChina because it’s controlled by a company that does business in Sudan.
- The subprime mortgage crisis won’t be “any huge anchor” to the economy, though lenders and borrowers will have “plenty of misery,” Berkshire Hathaway Chairman Warren Buffett said.
- ``Spider-Man 3,'' starring Tobey Maguire, set a three-day box-office record at U.S. and Canadian theaters, taking in $148 million for Sony Corp.(SNE)
- Street Sense came from next-to-last to win the 133^rd Kentucky Derby before the third-largest crowd in race history.
- Berkshire Hathaway’s Warren Buffett usually laments that his company has more cash than investment opportunities. Yesterday he envisioned an acquisition so big that he’d have to sell some stocks to free up funds.
- People’s Bank of China Governor Zhou Xiaochuan said there’s room to raise commercial banks’ reserve requirements further after seven increases in 11 months failed to slow lending and inflation.
- Billionaire investor George Soros plans to start a foreign-affairs research institute in Europe Soros, who spent $27.5 million trying to defeat President Bush in the 2004 election, said the US can’t deal with global affairs on its own. Garton Ash, a professor of European Studies at Oxford University who is helping Soros with the plans, said that the new institute would concern itself with global inequality and climate change, similar to the US Council on Foreign Relations.
- Lakshman Achuthan, managing director at Economic Cycle Research Institute(ECRI), says US economy “growing healthy.”(video)

Wall Street Journal:
- The SEC and NY state attorney general’s office are investigating trading in shares and options of Dow Jones(DJ) prior to a $5 billion bid by News Corp.(NWS/A).
- US lawmakers are considering implementing a new standard for energy-efficient lighting that may result in the elimination of the common incandescent light bulb in 10 years.
- James Ottaway Jr., whose family controls 6.2% of Dow Jones Class B supervoting shares, opposes News Corp.’s(NWS/A) $5 billion bid for the company.
- Berkshire Hathaway’s(BRK/A) billionaire investor Warren Buffett said most low-cost index funds will beat hedge funds or hedge funds of funds over any 10-year period.

NY Times:
- Microsoft Corp.(MSFT) is talking with Yahoo!(YHOO) about a possible joint venture that focuses on a partnership of advertising networks or Internet units, a personal briefed on the talks said. A “creative partnership” is a possibility rather than an acquisition by Microsoft, the person said. An outright acquisition may face opposition by Yahoo! executives, who want to focus on the Internet and don’t want to become part of Microsoft.
- The character of Gordon Gekko, the manipulative suspender-wearing financier played by Michael Douglas in the film “Wall Street,” will be revived in a new movie.
- Anti-war groups that have banded together to form a coalition are seeking to pressure Democrats in Congress. The Americans Against Escalation in Iraq coalition may splinter if the Democratic leadership doesn’t stick with a deadline for US troops to leave Iraq. MoveOn.org’s leaders this week sent a letter to Democratic leaders warning them not to pass a bill that fails to impose any measures to end the war.
- Goldman Sachs(GS) and General Electric(GE) are among the companies that have developed products and divisions to capitalize on demand for investments that promote social and environmental values.
- Several leading liberal law professors contributed to a US appeal court decision in March to strike down a gun control law on Second Amendment grounds for the first time in the nation’s history.

Byte and Switch:
- Google(GOOG), which plans to build a major data center in Oklahoma this week, appears to be eyeing a location in Council Bluffs, Iowa, for another of its growing array of technology sites.

Forbes.com:
- Think chief executives get fat paychecks? People who manage piles of money do much better.

Bespoke Investment Group:
- The Bear Market in Analyst Sentiment. It appears as though the close the S&P 500 gets to its old highs, the less likely analysts are to embrace this bull market.

AP:
- President Bush declared a major disaster exists in Kansas after a powerful tornado nearly destroyed the town of Greensburg two days ago, leaving nine people dead.

Reuters:
- Carl Icahn said he may seek to fire Motorola Inc.(MOT) CEO Zander if he fails to improve results at the mobile-phone maker this year.

Financial Times:
- Reuters Group Plc appeared ready to recommend an offer from Thomson Corp.
- BT Group(BT) is planning to announce a $4 billion share buyback when it releases full-year results last this month.
- Berkshire Hathaway(BRK/A) CEO Buffett may select his successor as investment chief by giving as many as four managers up to $5 billion each and see how they perform.
- Blackstone Group’s proposed $60 billion IPO could be affected by a US Congress initiative to make private equity firms and hedge funds pay more tax.

London-based Times:
- Reuters Group Plc may be valued at as much as $17.5 billion in a takeover by Thomson Corp.

Banque de France:
- Financial Stability Review: Special Issue on Hedge Funds

Automobilwoche:
- DaimlerChrysler AG(DCX) is close to reaching a deal to sell the Chrysler division to Magna Intl., Canada’s largest auto-parts maker.

Commercial Times:
- Mediatek Inc. has received orders from Garmin Ltd.(GRMN) to supply navigation chips. Mediatek also outbid SiRF Technology Holdings(SIRF) to become the GPS chip supplier for Holux Technology, with shipments to begin this quarter.

Economic Daily News:
- AU Optronics Corp.(AUO) may post a profit in May as demand from customers “looks healthy,” citing company President Chen Hsuan-bin. The “prosperity” in the display panel market will probably continue through the end of the year, citing Chen.

Agencia Estado:
- JBS SA, the Brazilian meat producer that owns the Friboi meat brand, plans to make an offer to buy Swift & Co., the third-largest US beef and pork producer.

Saudi Press Agency:
- Saudi Aramco, the world’s largest state-owned energy company, will implement a five-year business plan that aims to meeting rising energy demand in the kingdom and abroad.

Kargozaraan:
- About 500 Iranian shops have started stocking clothes that conform with Islamic “decency” in exchange for tax cuts.

Weekend Recommendations
Barron's:
- Made positive comments on (DAL), (CNK), (RGC), (CKEC), (MDR) and (WLP).

Citigroup:
- Even amidst a housing slowdown, the consumer balance sheet remains strong. The perseverance of the consumer drove corporate profits and stock market gains in 1Q07. The outlook for the equity markets is bullish as implied earnings growth has risen above beginning of year levels and worries over possible declines in corporate profit margins have depressed valuations. Between year-end 2002 and year-end 2006, consumer net worth rose by $16.8 trillion. Of that increase, less than one-fifth came from increases in net real estate value.
- Reiterated Buy on (ADI), target raised to $44. Within the last week, signs of order pipelining, select semiconductor lead time increases and rush orders signal an analog semi upcycle is now forming. Other top analog picks include (ISIL), (ONNN) and (FCS).

Night Trading
Asian indices are +.50% to +.75% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/Estimate
- (ACMR)/-.01
- (AMT)/.06
- (ANH)/.00
- (NILE)/.17
- (CENT)/.30
- (FLML)/-.31
- (FLR)/.86
- (FST)/.53
- (GTRC)/.49
- (JCOM)/.32
- (MDR)/.75
- (MCK)/.78
- (PGN)/.50
- (WYNN)/.55

Upcoming Splits
- (CIG) 3-for-2

Economic Releases
3:00 pm EST
- Consumer Credit for March is estimated to rise to $4.0 billion versus $3.0 billion in February.

Other Potential Market Movers
- Raymond James Canadian Oil Sands Conference

BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open mixed and to rally into the afternoon finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

Click here for Stocks in Focus for Monday by MarketWatch

There are a number of economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Consumer Credit

Tues. - Wholesale Inventories, weekly retail sales

Wed. - MBA Mortgage Applications, FOMC Rate Decision

Thur. - Trade Balance, Import Price Index, Initial Jobless Claims, month retail same-store-sales, Monthly Budget Statement

Fri. - Producer Price Index, Advance Retail Sales, Business Inventories

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - American Tower(AMT), Central Garden(CENT), Flour Corp.(FLR), Forest Oil(FST), McDermott Intl.(MDR), McKesson(MCK), Wynn Resorts(WYNN)

Tues. - aQuantive(AQNT), Aquila Inc.(ILA), Atwood Oceanics(ATW), Brightpoint(CELL), Church & Dwight(CHD), Cisco Systems(CSCO), Conseco(CNO), CVS/Caremark(CVS), Duke Energy(DUK), Dynegy(DYN), El Paso(EP), Electronic Arts(ERTS), Energy Conversion Devices(ENER), Expedia(EXPE), Harrah’s(HET), Lazard(LAZ), Marsh & McLennan(MMC), Martin Marietta(MLM), Marvel Entertainment(MVL), Papa John’s(PZZA), priceline.com(PCLN), Revlon(REV), Sotheby’s(BID), Tenet Healthcare(THC), Tyco Intl.(TYC), VeraSun Energy(VSE), Walt Disney(DIS)

Wed. - Barnes Group(B), Frontier Oil(FTO), Legg Mason(LM), Microstrategy(MSTR), News Corp.(NWS/A), Onyx Pharmaceuticals(ONXX), Sina Corp.(SINA), Teekay Shipping(TK), TXU Corp.(TXU), Whole Foods Market(WFMI)

Thur. - American Intl. Group(AIG), California Pizza(CPKI), Consolidated Edison(CED), Federated Dept. Stores, Global Crossing(GLBC), International Rectifier(IRF), Lamar Advertising(LAMR), Mirant Corp.(MIR), Nvidia Corp.(NVDA), PG&E(PCG), Sara Lee(SLE), THQ Inc.(THQI), Timberland(TBL), Titanium Metals(TIE)

Fri. - Analog Devices(ADI), EchoStar Communications(DISH), Guess?(GES), JC Penney(JCP), Kohl’s(KSS), PEP Boys(PBY), RH Donnelley(RHD), Urban Outfitters(URBN)

Other events that have market-moving potential this week include:

Mon. - None of note

Tue. - Robert Baird Growth Stock Conference, Bear Stearns Global Transport Conference, UBS Global Generic/Specialty Pharma Conference, Goldman Consumer Products Symposium, Bank of America Basic/Industrials Conference, (TXN) analyst meeting

Wed. - Bear Stearns Global Transport Conference, Piper Jaffray Semi/Communications Conference, UBS Global Generic/Specialty Pharma Conference, Goldman Consumer Symposium, Bank of America Basic/Industrials Conference, Bank of England Policy Meeting, (NT) Investor Technology Day

Thur. - Merrill Lynch Global Industries Conference, CIBC Communications 1-on-1 Conference, Piper Jaffray Semi/Communications Conference, Bank of America Basic/Industrials Conference, Goldman Power/Utility Conference, Robert Baird Growth Stock Conference, Bank of England Policy Meeting, (IDTI) analyst meeting

Fri. - Deutsche Bank Hospitality/Gaming Conference

BOTTOM LINE: I expect US stocks to finish the week mixed as buyout speculation, constructive FOMC comments, better-than-expected earnings reports, lower energy prices, lower long-term interest rates and short-covering offsets profit-taking and weaker consumer spending data. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.