Initial Jobless Claims Below 300K Again, Leading Indicators Fall

- Initial Jobless Claims for last week fell to 293K versus estimates of 315K and 298K the prior week.
- Continuing Claims fell to 2473K versus estimates of 2518K and 2551K prior.
- Leading Indicators for April fell -.5% versus estimates of unch. and an upwardly revised .6% gain in March.

BOTTOM LINE: First-time claims for jobless benefits unexpectedly dropped to a four-month low, pointing to strength in the labor market, Bloomberg said. The four-week moving-average of jobless claims fell to 305,500, the lowest in a year and down from 338,300 in early March. The unemployment rate among those eligible for jobless benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

A measure of the US economy’s future course unexpectedly fell in April, dragged down by lower housing construction, Bloomberg reported. Money supply growth and rising stock prices contributed positively to the report. The decline in building permits had the largest negative impact. The ECRI weekly leading economic index remains at cycle highs. I continue to believe US economic growth is accelerating this quarter and will move to more average rates by year-end.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The yen traded near a three-month low against the US dollar on speculation signs of weakening growth in Japan will keep the Bank of Japan from lifting borrowing costs at a faster pace this year.
- Acxiom Corp.(ACXM), a provider of computer and database services, agreed to be acquired by buyout firms Sliver Lack Partners and ValueAct Capital Partners LP for about $2.24 billion in cash.
- Sony Corp.(SNE) shares rose to a five-year high after CEO Howard Stringer said he’ll make good on a promise to lift profitability to 1999 levels.
- Japan’s economy, the world’s second-largest, cooled in the first quarter as companies cut spending. Gross domestic product grew at an annual 2.4% rate in the three months ended March 31, the Cabinet Office said.
- South Korea’s won is poised to reverse its gains versus the US dollar this year as more people buy overseas property and offshore borrowing by local lenders dwindles, the central bank’s top currency official said. South Korea’s currency is “highly overvalued” and has “more room to drop than rise,” Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview.
- General Motors(GM) and bus-maker New Flyer Industries may sell 500 hybrid buses to Washington state’s King County, the home of Seattle, under a five-year contract valued at as much as $500 million.
- Copper futures tumbled 4.8% in Shanghai on concern that China, the world’s biggest consumer of the metal, may be oversupplied.
- China’s spending on factories and real estate grew 25.5% in the first four months of 2007 from a year earlier, suggesting the central bank may need to raise interest rates to cool investment.
- The Hong Kong dollar may fall to the lowest since 1989 in the next three months because investors will borrow in the currency to fund purchases of higher-yielding securities elsewhere, said Standard Chartered Plc.

Reuters:
- Japan’s Trade Minister Akira Amari said the economy isn’t robust enough to cope with higher interest rates.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GOOG), target $600.
- Reiterated Buy on (EBAY), target $41.
- Reiterated Buy on (PETM), target $36.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.08%.

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Earnings of Note
Company/EPS Estimate
- (GYMB)/.64
- (INTU)/1.07
- (JCP)/1.03
- (KSS)/.63
- (MRVL)/.08
- (NTES)/.29
- (JWN)/.57

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 315K versus 297K the prior week.
- Continuing Claims are estimated to fall to 2518K versus 2555K prior.

10:00 am EST
- Leading Indicators for April are estimated unch. versus a .1% increase in March.

12:00 pm EST
- The Philly Fed for May is estimated to rise to 3.5 versus a reading of .2 in April.

Other Potential Market Movers
- The Fed’s Moskow speaking, Fed’s Bernanke speaking, former Fed Chairman Greenspan speaking, weekly EIA natural gas inventory report, CSFB Insurance Forum, BMO Capital Agriculture and Protein Conference, Goldman Sachs Basic Materials Conference, Bank of America Smid Cap Conference, Deutsche Bank Tech Conference and Kaufman Brothers Nex-Gen Infrastructure Tech/Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by 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.

DJIA Surges to Another Record on More Economic Optimism

Indices
S&P 500 1,514.14 +.86%
DJIA 13,487.53 +.77%
NASDAQ 2,547.42 +.88%
Russell 2000 820.20 +.74%
Wilshire 5000 15,203.13 +.78%
Russell 1000 Growth 594.20 +.82%
Russell 1000 Value 873.53 +.83%
Morgan Stanley Consumer 743.88 +.82%
Morgan Stanley Cyclical 1,058.40 +.22%
Morgan Stanley Technology 607.93 +1.13%
Transports 5,215.25 +1.74%
Utilities 533.54 +.69%
MSCI Emerging Markets 126.12 +1.01%

Sentiment/Internals
Total Put/Call 1.02 +10.87%
NYSE Arms .66 -21.97%
Volatility(VIX) 13.50 -3.64%
ISE Sentiment 104.0 -14.75%

Futures Spot Prices
Crude Oil 62.50 -1.06%
Reformulated Gasoline 233.62 +1.50%
Natural Gas 7.95 +1.04%
Heating Oil 186.70 -1.23%
Gold 663.10 -1.69%
Base Metals 274.45 -.57%
Copper 342.50 -3.18%

Economy
10-year US Treasury Yield 4.71% +1 basis point
US Dollar 82.20 +.54%
CRB Index 310.12 -.12%

Leading Sectors
Airlines +2.40%
Homebuilders +1.50%
Internet +1.43%

Lagging Sectors
Coal -1.01%
REITs -1.03%
Gold -1.11%

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Afternoon Recommendations
Bank of America:
- Rated (VCLK) Buy, target $35.

Afternoon/Evening Headlines
Bloomberg:
- Democratic presidential candidate John Edwards held more than $1 million in funds run by his former employer, NY-based Fortress Investment Group LLC, last year, according to a regulatory filing. Edwards also earned a salary of $479,512 as a senior adviser to the firm. The former US senator, who has criticized the practices of subprime mortgage lenders as predatory, said he didn’t realize that Fortress has extensive holdings in subprime portfolios.
- Copper in NY tumbled 3.3%, the most in three months, on speculation that demand may slow in China, the world’s largest consumer of the metal.
- NYSE Euronext(NYX) may buy a US futures market to compete better with rivals, two Wall Street analyst said today.
- Hewlett-Packard(HPQ), the world’s biggest personal-computer maker, said second-quarter profit fell 6.5% from a year earlier. The company forecast sales of more than $100 billion this year, a first for a technology company. The shares are .35 higher in after-hours trading.
- GM(GM) may sell its medium-duty truck business as it focuses on making a profit from building cars and light trucks.
- US Treasury bills surged, pushing the three-month security’s yield to a one-year low, amid expectations for reduced sales. Growth in US tax revenue has exceeded forecasts, reducing the Treasury’s need to borrow.
- The Senate rejected a proposal to withdraw troops from Iraq next year in a symbolic vote intended to gauge support for restriction on war funding before negotiations on the issue begins with the House. The Senate voted 67-29 against the amendment offered by Wisconsin Democrat Russell Feingold that would have required President Bush to begin a troop withdrawal within 120 days and cut off funding for operations after March 31, 2008.

Wall Street Journal:
- DaimlerChrysler AG(DCX) CEO Zetsche said automobile industry consolidation will probably continue.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Biotech longs, I-Banking and Retail longs. I covered some more of my (EEM) short and the remainder of my (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish as the major averages finished near session highs. Given the way today's action started, I am very surprised by the sharp reversal and I am sure it resulted in more traders jumping off the bull train. Tech shares outperformed today. The MS Tech Index is already back near even with the S&P 500 for the year, rising 7%. I expect tech to substantially outperform in the second half of the year. My intraday gauge of investor angst is finished slightly above average levels, despite today's gains, which is a positive. I suspect we will build on today's strength tomorrow.

Stocks Surging into Final Hour on More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my I-Baking longs, Internet longs and Biotech longs. I covered some of my (EEM) short and (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. Google is surging to session highs on news that its new algorithm will add books, local images, news and video to basic search results. The fact that this stock trades at a discount relative to its internet peers is crazy to me. I don't believe most investors understand how dominate this company is in its fast-growing space. I think it will continue to grow at relatively high levels for much longer than most expect. I still think the stock is a steal anywhere near current levels. I remain long. Every Apple (AAPL) bull I know has taken profits recently, and most bears I know are short the stock. Considering that Apple hit an all-time high recently and had a relatively muted adverse reaction to today's false iPhone delay report, I suspect another new high for the stock is in the offing over the next few weeks. I remain long Apple, as well. Oil is falling -$.64/bbl., however gas futures are at session highs after Valero (VLO) announced it was shutting its Houston refinery due to "steam system and boiler problems." I wonder if Valero has considered ceasing all refining operations and just buying gas futures as a new business model? I continue to believe the nationwide rash of refinery "outages" is prompting further global demand destruction and raises the odds of substantial energy price declines this fall. As well, the U.S. dollar is surging 0.55% today, which is pressuring most commodities. I suspect the US dollar has bottomed for the year. I expect US stocks to trade modestly higher into the close from current levels into the close on short-covering, more economic optimism and lower energy prices.

Today's Headlines

Bloomberg:
- Crude oil is falling $.70/bbl. in NY after the Energy Department reported gasoline supplies rose more than estimates even as refinery utilization increased less than estimates.
- Valero Energy(VLO), the largest US oil refiner, halted fuel production at its Houston refinery due to “steam system and boiler problems.” The Houston complex is capable of processing 130,000 barrels of oil a day. Unusually low refinery utilization as a result of a rash of nationwide “outages” has been the driving force behind the recent surge in gas prices.
- Amazon.com(AMZN) will offer music downloads later this year and said it will make songs from more than 12,000 record labels available without copyright-protection software.
- Gold in NY is falling $12/oz. to the lowest in seven weeks after the US dollar index surged .56%. Silver is falling to a two month low.
- Copper is falling 3.3%, the most in three months, on speculation that demand may slow in China, the world’s biggest consumer of the metal.

Wall Street Journal:
- Elad Group, which owns NYC’s Plaza Hotel, will today announce a $5 billion plan to develop a casino, hotel, convention center and shopping project on the Las Vegas Strip.

Washington Post:
- Latino groups, representing the nation’s largest minority, have virtual veto power in Congress’s debate on immigration reform. The League of United Latin American Citizens, the Mexican American Legal Defense and Educational Fund, and the National Immigration Forum are among a network of organizations conferring in nightly conference calls and strategy sessions on immigration bills before Congress.

Reuters:
- Coffee consumption and production is gaining in China, a traditionally tea-drinking country, citing farmers and traders.
- Alcan Inc.(AL), subject of a $27.3 billion unsolicited takeover bid from rival Alcoa Inc.(AA), is set to hire UBS AG as part of its defense team with Morgan Stanley.

Computer Reseller News:
- Dell Inc.(DELL) CEO Michael Dell said the second-largest maker of personal computers will began selling PCs in retail stores in the US and overseas over the next several quarters.

Financial Times:
- The AFL-CIO is urging the SEC to stop the proposed IPO by Blackstone Group LP leveraged buyout fund.

London-based Times:
- Pakistani President Pervez Musharraf’s days in power are numbered as protests against his rule reach every “nook and cranny” of the country, former Prime Minister Nawaz Sharif said.

Globe and Mail:
- BMW AG’s plan to transfer some production of its X3 sport-utility vehicle to its own plant in South Carolina from a Magna International(MGA) factory in Austria could cost the Canadian auto parts maker up to $1.82 billion.