Job Market Still Historically Healthy, Confidence Spread Between Present Situation/Future Expectations at Hurricane Katrina Levels

- The Change in Non-farm Payrolls for November was 94K versus estimates of 80K and 170K in October.

- The Unemployment Rate for November remained at 4.7% versus estimates of 4.8% and 4.7% in October.

- Average Hourly Earnings for November rose .5% versus estimates of a .3% gain and a .1% increase in October.

- Preliminary Univ. of Mich. Consumer Confidence for December fell to 74.5 versus estimates of 75.0 and a reading of 76.1 in November.

BOTTOM LINE: Employers in the US hired more workers than forecast in November, suggesting job growth will help prop up spending, Bloomberg reported. Service industries, which account for the majority of US growth, added 127,000 jobs last month. Average Hourly Earnings rose a strong 3.8% year-over-year. The Monster Employment Index is just 6 points off its all-time record set in May. The 50-week moving average of jobless claims has been lower during only two other periods since the 70s. The unemployment rate is a historically low 4.7%, down from 5.1% in September 2005, notwithstanding significantly fewer real-estate related and auto production jobs during that period. The unemployment rate’s current 12-month average is 4.6%. It has only been lower during two other periods since the mid-50s.

Furthermore, most measures of Americans’ income growth are still very healthy. The 3.8% year-over-year gain in Average Hourly Earnings is substantially above the 3.2% 20-year average. The 12-month moving-average of the rate of growth of Americans’ Average Hourly Earnings is currently 3.94%. 1998 was the only year during the 90s expansion that it exceeded current levels.

Besides a healthy job market, the Case-Shiller Home Price Index is up 114% over the last decade and the S&P 500 has risen 105% since the October 2002 major bear market lows. As a result, Americans’ net worth just hit another all-time record, a fact that continues to be ignored by the record number of stock market participants that believe it is in their financial and/or political interest to paint a bleak picture of America. This is the main reason that consumer spending hasn’t fallen off the cliff that the many bears have predicted incorrectly for years.

The preliminary University of Michigan Consumer Confidence reading came in slightly below estimates, Bloomberg reported. The Expectations component of the index fell to 63.2 from 66.2 the prior month. However, the Current Conditions component, which gauges consumer attitudes about their current financial situation and whether or not it’s a good time to buy a big-ticket item, actually rose to 92.1 from 91.5. The last time the spread between the Expectations and Current Conditions components was this high was September/October 2005, right after hurricane Katrina ravaged the Gulf coast and wreaked havoc on the psyche of the nation. From the lows in October 2005, the S&P 500 gained 14% in under seven months.

Bull Radar

Style Outperformer:

Mid-cap Value (+.15%)

Sector Outperformers:

Airlines (+3.1%), Road&Rail (+1.5%) and Retail (+.70%)

Stocks Rising on Unusual Volume:

LLL, RC, EW, NRP, BSI, GFA, LQDT, SIRO, BECN, FAST, SNPS, SOLF, ICOC, HOKU, CTCM, CSIQ, OCNF, PZZA, POOL, ACTL, STAR, TESS, ALGN, LIFC, DDUP, BUCY, CAL, PCU, CTCM, UAUA, GTV, BTH, FCX, ARII, AVP and CA

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Friday Watch

Late-Night Headlines
Bloomberg:
- Countrywide Financial(CFC), the nation’s biggest residential lender, led shares of mortgage companies and homebuilders higher as the US government announced a freeze on some subprime rates.
- Subprime rate freeze is good for mortgage bonds, Moody’s says.
- The yen headed for a second weekly decline against the US dollar and the euro as concerns eased that credit-market losses will spread, encouraging purchases of higher-yielding assets funded in Japan.
- Japan’s third-quarter expansion was slower than the government initially reported, and growth may lose more steam because of a slump in domestic housing construction and waning US demand. The world’s second-largest economy grew an annualized 1.5% in the third quarter. The US economy grew 4.9% during the same three month period.
- JetBlue Airways(JBLU) will begin offering free in-flight e-mail and instant-message services next week through a partnership with Yahoo!(YHOO) and Research In Motion(RIMM).

Wall Street Journal:
- AT&T(T) expects a revenue increase of at least 20% next year in the Asian-Pacific region, citing expansion by clients in countries such as China and India.
- News Corp.(NWS/A) Duo Set To Lead Dow Jones As Zannino Resigns.

MarketWatch.com:
- MarketWatch CEO of the Year 2007: McDonald’s(MCD) Jim Skinner.
- Another bear growls at China. Hutchinson sees big debt, and big problems, ahead for Beijing. Is a China crash coming? The top-performing China letter continues cautious.
- Google(GOOG) is forging ahead on a second spectrum-related initiative, by filing its own testing results for so-called “white spaces” wireless technology with the Federal Communications Commission.
- Will ‘Golden Compass’ controversy hurt the box office? New Line film is subject of protest from Catholic group for atheist themes.

BusinessWeek.com:
- After months of betting on an increase in oil prices, some speculators now see a new downward trend.

CNNMoney.com:
- Lilly projects seven new blockbusters for 2008.

CNBC.com:
- 10 Top Investing Blunders.

washingtonpost.com:
- Highlights of Mortgage Plan.
- Details on the House Energy Bill.

Barron’s:
- Carlos Slim May Trade CompUSA for Circuit City.

USA Today.com:
- Airport face-lifts smooth out wrinkles for fliers.

Reuters:
- Short interest on the NYSE rose 3.31% in late November, the exchange said on Thursday, suggesting an increase in bearish sentiment in the stock market. Moreover, short interest rose 87.2% in shares of Freddie Mac(FRE), 83.9% in shares of Nordstrom(JWN), 82.2% in shares of Discover Financial Services(DFS) and over 100% in shares of Fannie Mae(FNM).

DigiTimes:
- The dynamic random access memory market may improve next year as the increase in global output slows, citing Powerchip Semiconductor Corp. Chairman Frank Huang. Inventories in the distribution network “aren’t high,” Huang said. Powerchip is Taiwan’s biggest maker of DRAMs.

Late Buy/Sell Recommendations
Citigroup:
- RIMM continues to be our top pick in North America handsets. Our analysis shows only 14% of the subscriber base is in financial services. According to the Wall Street Journal JetBlue Airways will begin a trial Tues Dec. 11^th to provide free in-flight email and messaging via a WiFi connection on a specially equipped A320. JetBlue said it may install the service across its entire fleet if passenger response is positive. The in-flight WiFi service will be available to WiFi laptops and WiFi-enabled BlackBerries. We view this as an incremental positive for RIMM. Maintain Buy, target $140.
- Reiterated Buy on (HON), target $68.

Night Trading
Asian Indices are +.50% to +.1.25% on average.
S&P 500 futures -.22%.
NASDAQ 100 futures -.20%.

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Earnings of Note
Company/EPS Estimate
- (HITK)/-.05
- (KWD)/.13

Upcoming Splits
- (FLIR) 2-for-1
- (GRC) 5-for-4
- (ROL) 3-for-2

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for November is estimated at 80K versus 166K in October.
- The Unemployment Rate for November is estimated at 4.8% versus 4.7% in October.
- Average Hourly Earnings for November are estimated to rise .3% versus a .2% gain in October.

10:00 am EST
- Preliminary Univ. of Mich. Consumer Confidence for December is estimated at 75.0 versus 76.1 in November.

3:00 pm EST
- Consumer Credit for October is estimated to rise to $5.0 billion versus $3.7 billion in September.

Other Potential Market Movers
- The Lehman Brothers Technology Conference, (SON) analysts’ meeting, (HSC) analysts conference, (RRGB) analyst meeting and (NVO) analyst meeting could also impact trading today.

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

Evening Review

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In Play

Stocks Ripping Higher into Final Hour on Less Economic Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Semi longs, Computer longs, Internet longs, Biotech longs and Software longs. I took some more profits in my (TLT) long and a trading long and then finished adding (OMCL) long today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is substantially higher, almost every sector is rising and volume is around average. Investor anxiety is around average. Today’s overall market action is very bullish. Notwithstanding many pundits’ attempts to paint retail sales as bleak, the ICSC reported today that November retail sales rose 3.5% versus estimates of a 2.4% increase. WMT, ANF, ARO, ANN, BJ, BONT, DDS, JOSB, GPS, KSS, ROST, BKE, COST, M, JWN and SKS all beat estimates, as well. The 50-month average of ICSC retail sales increases is 3.5%. I continue to believe overall retail sales will exceed estimates for the entire holiday shopping season. The average 30-year mortgage rate plunged again this week to 5.96% from 6.1% the prior week. This is now down 78 basis points from June highs. As mortgage rates continue to fall, refis should help take some pressure off the overall housing situation as troubled homeowners move from arms to fixed-rates mortgages. The JPMorgan Emerging Market Bond Index is .94% higher over the last week, while the Bear Stearns High-Yield Index is .68% higher over that period. Fitch said that the subprime mortgage plan may stabilize mortgage defaults. Whether you agree with the government’s plan or not, investors are very pleased with it based on the action in the financials. The (XLF) is 11% higher in less than two-weeks. (ISRG) hit another new all-time high today. The stock is up 269% year-to-date and remains my third largest long position, behind Google(GOOG) and (AAPL). I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, bargain-hunting and short-covering.