Thursday Watch

Late-Night Headlines
Bloomberg:
- New Zealand’s central bank unexpectedly raised its benchmark interest rate to a record 8%, saying housing demand and consumer spending are fanning inflation.
- Brazil’s central bank lowered the benchmark lending rate by half a percentage point today, the biggest reduction this year, as a rally by the country’s currency holds inflation at an eight-year low.
- China, the world’s biggest consumer of copper, may have slashed imports of the metal by 50% last month as high prices deterred buyers, said traders and analysts, including Xue Feng at Maike Futures. Refined copper and alloy imports are expected to drop to between 50,000 and 100,000 metric tons in May, Li Rong, an analyst at Great Wall Futures Co., said by phone from Shanghai. This compares with April’s level of 192,069 tons. A slowdown in copper shipments to China may allow global stockpiles of the metal to rebuild and weigh on prices ahead of the traditionally weak summer demand period.

Wall Street Journal:
- Brian Tierney, who last year led an effort to purchase the Philadelphia Inquirer and Philadelphia Daily News for $515 million, is interested in bidding for Dow Jones(DJ)

Shanghai Securities News:
- China Three Gorges Project Corp. has invested more than $21 billion in the world’s largest hydro-electric dam project.

Late Buy/Sell Recommendations
Citigroup:
- US equity investors have become far more concerned this week, as 10-year treasury yields have approached 5%, fearing that valuations will begin to be in jeopardy of contracting. We add equity risk premium to bond yields, which provides a stronger correlation with P/Es than the traditional Fed Model. This approach is still signaling strong gains for stocks ahead. Admittedly, if the 10-year treasury yield increased to 5.5%(all else equal), this would not be a positive sign for equities, but this is not in our forecast. We believe that investors are still skeptical, and our Panic/Euphoria model is nowhere near Euphoric levels as in 1987 or the last 1990s. Indeed, this gauge is signaling a better than 90% probability of positive six-month forward gains for US stocks. Our six- and 12-month outlook continues to be upbeat, and we do not expect small pullbacks to change our longer-term outlook. Thus, we would be buyers during market weakness.’

Morgan Stanley:
- Reiterated Overweight on (GILD). The CDC’s new funding for HIV testing is a positive for Gilead Sciences(GILD) as it could: 1) Accelerate new patient diagnoses by nearly 30 to 40% and 2) Drive longer-term growth of the HIV market as success of this program could also accelerate the uptake of “opt-out” routine testing. We expect Gilead to be the key beneficiary of this market expansion as it is capturing 80% of new patient starts with Atripla.

Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/EPS Estimate
- (ALOG)/.31
- (CAE)/.92
- (FINL)/.07
- (FORR)/.14
- (JOSB)/.42
- (NSM)/.23
- (QSII)/.33
- (ZQK)/-.04
- (SFD)/.36
- (TBL)/.15
- (UTIW)/.16
- (VOL)/.41

Upcoming Splits
- (NGA) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 312K versus 310K the prior week.
- Continuing Claims are estimated to rise to 2500K versus 2472K prior.

10:00 am EST
- Wholesale Inventories for April are estimated to rise .3% versus a .3% gain in March.

3:00 pm EST
- Consumer Credit for April is estimated to fall to $6.0B versus $13.5B in March.

Other Potential Market Movers
- The Fed’s Mishkin speaking, ICSC Chain Store Sales, EIA weekly natural gas inventory report, CSFB Engineering/Construction Conference, Bear Stearns Biotech Confab, CIBC Alternative Energy Conference, Citi Power/Gas/Utilities Conference, Keybanc Industrial/Automotive Conference, Piper Jaffray Consumer Conference, Stephens Investment Conference and Lehman Brothers Global Services Conference could also impact trading today.

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

Stocks Close Lower on Healthy Profit-taking and Europe Worries

Indices
S&P 500 1,517.38 -.89%
DJIA 13,465.37 -.95%
NASDAQ 2,587.18 -.92%
Russell 2000 841.21 -.83%
Wilshire 5000 15,300.98 -.92%
Russell 1000 Growth 599.77 -.98%
Russell 1000 Value 871.69 -.91%
Morgan Stanley Consumer 740.08 -.87%
Morgan Stanley Cyclical 1,075.08 -1.12%
Morgan Stanley Technology 614.06 -.94%
Transports 5,158.98 -1.76%
Utilities 503.91 -1.30%
MSCI Emerging Markets 127.12 -1.32%

Sentiment/Internals
Total Put/Call 1.12 +19.15%
NYSE Arms 1.44 +28.71%
Volatility(VIX) 14.87 +9.10%
ISE Sentiment 111.0 -29.30%

Futures Spot Prices
Crude Oil 65.98 +.56%
Reformulated Gasoline 218.93 -.82%
Natural Gas 8.11 +.56%
Heating Oil 197.38 +.48%
Gold 675.60 +.07%
Base Metals 264.74 -1.61%
Copper 340.25 -1.13%

Economy
10-year US Treasury Yield 4.96% -3 basis points
US Dollar 81.89 unch.
CRB Index 313.66 -.31%

Leading Sectors
I-Banks +.21%
Medical Equipment -.36%
Computer Hardware -.37%

Lagging Sectors
Homebuilders -2.37%
Coal -3.06%
Oil Tankers -3.38%

Evening Review
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GuruFocus.com
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After-hours Movers
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In Play

Afternoon Recommendations
Deutsche Bank:
- Upgraded (TMB) to Buy.

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve Bank of Kansas City President Thomas Hoenig said that he’s “confident” the US economy will pick up from last quarter’s slowdown and that he’s “hopeful” inflation will slow.
- ADC Telecom(ADCT), a maker of phone-networking gear, said second-quarter profit quadruples. The shares rose .40 to $17.70 in after-hours trading.

NY Times:
- China said it would start nationwide inspections of food and drug exports, responding to global concerns sparked by poisoned toothpaste and pet food.

BOTTOM LINE: The Portfolio finished lower today on losses in my Biotech longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, almost every sector declined and volume was above average. Measures of investor anxiety were elevated into the close. Today's overall market action was bearish. However, I continue to view weakness over the last couple of days as a much needed healthy pullback, not the start of a correction. Many market-leading stocks held firm throughout the day and the Broker/Dealer Index actually rose. The many US stock market “fearleaders” were out in full force today, however as I said in my previous post, I suspect this healthy pullback is close to running its course.

Stocks Lower into Final Hour on Weakness in Europe and Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs and Retail longs. I added (IWM) and (QQQQ) hedges this morning and covered them into afternoon weakness, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is above average. Today’s losses aren’t too bad considering Europe’s 1.75-2.0% declines. As well, many market leading stocks are holding very well and the Broker/Dealer Index is higher on the day at session highs. My intraday gauge of investor angst is quite elevated considering the major averages are down just around .75%. Given how quickly and sharply levels of investor angst have risen, I suspect the recent 2-day healthy pullback has just about run its course. Investors seemed to like the Fed’s Hoenig’s comments ,within the last 30 minutes, that a 5.25% fed funds rate allows the economy to grow and inflation to slow. He said the current rate is modestly restrictive, that he is hopeful inflation will slow and that US growth should bounce-back toward 3% trend. I expect US stocks to trade modestly higher into the close from current levels on buyout speculation, lower long-term rates, weakening gas futures and short-covering.

Today's Headlines

Bloomberg:
- Deckers Outdoor Corp.(DECK) CEO Martinez told CNBC in an interview today that the shoe industry is “moving into a sustainable, green approach.” Martinez said the company’s Green Toe shoes, made of organic materials including bamboo and natural latex rubber, deteriorate into the earth a few months after they are discarded.
- TD Ameritrade Holding Corp.(AMTD) shares rose as much as 5.3% after hedge funds Jana Partners LLC and SAC Capital Advisors LLC took a combined 8.4% stake and urged the third-largest online broker to merge with a rival.
- Copper futures in NY are falling the most in two weeks on concern that the metal’s recent rally was overdone.
- Corn is falling to a one-week low in Chicago on speculation that the highest US crop ratings since 1991 signal farmers will harvest more grain than forecast a month ago.
- Stem cells may be produced without destroying embryos or requiring women to donate eggs, say scientists from Harvard University, California and Japan.
- Ford Motor(F) had four of the top 10 brands in a benchmark US survey of new-vehicle quality, which has been dominated by Toyota Motor Corp.(TM).
- New cancer drugs from Pfizer Inc.(PFE) and Genentech(DNA), tested together for the first time, raised each medicine’s tumor fighting power, researchers reported this week.
- The European Central Bank raised interest rates to a six-year high today to keep economic growth from fueling inflation in the 13 nations sharing the euro.

Wall Street Journal:
- Thousands of crosses put on a hill in the San Francisco Bay Area to remember US soldiers killed in Iraq have set off a fight among residents concerned the memorial may lower property values.
- Wal-Mart Stores(WMT) rivals, including Kroger(KR) and SuperValu(SVU), are attracting customers back by cutting back on drugs and beauty products and focusing on gourmet foods and convenience.
- BlackRock Advisors LLC, State Street Global Advisors and Barclays Global Investors are among US management companies offering or set to offer so-called 130/30 funds. Such funds might invest $100 in a group of stocks, then short another $30 in shares they think are overvalued. They then use the proceeds from the short sale to buy stocks believed to be undervalued.
- US patent law faces major revisions in Congress following a Supreme Court ruling this year that makes it harder to get new patents and to defend existing ones.
- Private-equity firms on the acquisition trail are increasingly bringing not only bankers and lawyers to negotiations but also insurance brokers. The reason is that they want to be prepared against nasty surprises, and the trend has meant a significant increase in business for insurance brokerages such as Marsh Inc., Willis Group Holdings and Aon Corp.

NY Times:
- Hillary Rodham Clinton’s comments at a presidential debate that the US is safer now than it was before Sept. 11 has drawn rebuke from challengers for the Democratic presidential nomination.
- Senator Hillary Rodham Clinton has told a gay rights organization that she would support the repeal of part of the federal Defense of Marriage Act.

Washington Post:
- Congress is renewing a push for US terrorism detainees to receive basic legal rights.

Chronicle of Higher Education:
- The US House of Representatives passes a bill yesterday that would help boost the number of students studying overseas and help them understand other cultures.

San Francisco Chronicle:
- The California Assembly unanimously passed a bill that would force the state’s two public pension funds to sell investments in energy and defense companies that do business in Iran.

USA Today:
- California Attorney General Jerry Brown has filed a lawsuit against San Bernardino County for failing to regulate greenhouse gases releases by new homes and residential developments.

Financial Times:
- Wal-Mart Stores(WMT) is set to offer a payment card aimed at the roughly 80 million Americans who do not have a bank account.

***Alert***

Blogging will be light today due to a scheduling conflict. Sorry for the inconvenience and thanks for reading.

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