CPI, Industrial Production Rise More Than Estimates

- The Consumer Price Index for November rose .8% versus estimates of a .6% gain and a .3% increase in October.

- The CPI Ex Food & Energy for November rose .3% versus estimates of a .2% increase and a .2% gain in October.

- Industrial Production for November rose .3% versus estimates of a .2% gain and a downwardly revised .7% decline in October.

- Capacity Utilization for November rose to 81.5% versus estimates of 81.7% and 81.4% in October.

BOTTOM LINE: US consumer prices rose more than expected on higher energy costs, Bloomberg reported. Core consumer prices are now rising at a 2.3% rate over the last 12 months versus the long-term average of 3.0%. Energy prices surged 5.7% versus a 1.4% gain the prior month. Food prices rose .3% versus a .3% gain the prior month. The 10-year TIPS spread, a gauge of inflation expectations, is rising to 2 basis points to 2.36% on the report, but is still down from 2.48% less than three weeks ago. The CPI should begin decelerating again next month on the recent decline in energy prices. I continue to believe inflation fears have peaked for this cycle and the long-term trend of disinflation remains firmly in tact.

Industrial Production in the US rose more than expected last month as factories made more cars and consumer electronics, Bloomberg reported. The report shows manufacturing, boosted by record demand for US products abroad, is holding up well. US exports in October soared to a record $141.7 billion. Utility production dropped 1.3% for a second straight month on unseasonably warm temperatures across the nation. Production of consumer durable goods, including autos, furniture and electronics, rose .9% and motor vehicle production surged 1.7%. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of booming exports.

Bull Radar

Style Outperformer:

Large-cap Growth (+.02%)

Sector Outperformers:

Alternative Energy (+2.44%), Airlines (+1.69%) and I-Banks (+1.18%)

Stocks Rising on Unusual Volume:

TRU, CMO, ATE, RIGL, MELI, BMRN, BMTI, ESLR, CSUN, SVNT, ASYS, IPSU, ARTC, SMTS, JASO, AFFX, LEAP, FTEK, UNTD, ENER, WOOF, CLWR, TTWO, ICE, JRJC, MANT, BEAV, USMO, HES and C

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Friday Watch

Late-Night Headlines
Bloomberg:
- Amaranth Advisors LLC failed to persuade a federal appeals court to grant an emergency stay halting the Federal Energy Regulatory Commission’s proposed $291 million fine of the hedge fund. The hedge fund, which is accused of manipulating prices on natural-gas futures markets last year, says FERC doesn’t have authority to punish wrongdoing in futures markets.
- US senators reached a deal to vote on a measure that would make Federal Housing Administration loans available to subprime borrowers facing foreclosure.
- The US Senate approved energy legislation that would increase vehicle fuel efficiency for the first time in more than three decades and boost the use of biofuels to reduce gasoline consumption.
- Michael Price, the president of MFP Investors LLC, raised his stake in Sallie Mae(SLM) after the student-loan company cut its profit forecast and said a buyout group spurned its offer to hold acquisition talks. Price said he bought shares yesterday and today.
- Freddie Mac(FRE) will have more than enough capital to weather “challenging” conditions in 2008 as tighter underwriting and guarantee fee increases boost profit, according to Bear Stearns(BSC) analysts.
- New Jersey’s Legislature became the first in the US to repeal the death penalty, approving legislation that Democratic Governor Jon Corzine said he will sign.
- Nissan Motor and Chrysler LLC, the third-largest Japanese and US automakers, may borrow technology from each other’s cars and trucks to develop new vehicles.
- China’s factory and property spending growth slowed, another sign that government lending curbs may be starting to cool the world’s fastest-growing major economy.

Wall Street Journal:
- Honda to Launch Car Using ‘Affordable’ Hybrid Engine.
- How Goldman Won Big On Mortgage Meltdown.

NY Times:
- The global wealth boom has created a new breed of billionaire in once-destitute countries, and a number of them are using their wealth to push for social changes.

MarketWatch.com:
- New $200 billion China fund opens bids to outsiders. Managers in US and Europe expected to line up for sovereign-wealth assets.
- Inflation-linked bonds weather PPI report. Expectations for higher US inflation support TIPS investments.
- AT&T(T) sticks to its own video strategy.

BusinessWeek.com:
- Google(GOOG) and the Wisdom of Clouds. A lofty new strategy aims to put incredible computing power in the hands of many.
- Marcial: Inside Wall Street. Gene Marcial’s stock picks this week: Focus Media, RSC Holdings and Abiomed.

IBD:
- AOL Bets On Video For Finance Site.

CNBC.com:
- Billionaire Wilbur Ross Jr. is considering investing in so-called monocline bond-insurance companies. “Most recently we are looking at some of the monbuying insurers because they all seem to need capital and if you can find one that can make it on through without losing the AAA rating, that could be a very, very good investment,” Ross said.
- Google’s Zeigeist: The Hottest Cultural List Around.

USA Today.com:
- In an effort to eliminate its increasing exposure to problems in the worldwide credit markets, Citigroup(C) announced late Thursday that it would consolidate seven special investment funds containing $49 billion in assets onto its balance sheet.
- GE(GE) Chief sees growth opportunities in 2008.

Reuters:
- US Dollar hits one-month high versus yen on solid US economic data.
- US diversified manufacturer United Technologies(UTX) said on Thursday it expected 2008 earnings to grow by 10% to 14%, citing global growth, and reaffirmed its profit forecast for the current year.

Financial Times:
- The likelihood of the US economy stalling or shrinking in the fourth quarter receded sharply on Thursday as figures showed that retail sale has risen twice as fast as expected last month.

Sydney Morning Herald:
- The International Monetary Fund has praised the coordinated efforts by several central banks to address credit problems.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BMRN), raised target to $42.
- (RIMM) continues to be our top pick in CY08 after an impressive ’07. We view the smartphone market as a secular growth segment w/in handsets and view (RIMM) as extremely well-positioned due to carrier partnership strategy, talented management, and technology.
- Reiterated Buy on (NKE), raised target to $78.

Night Trading
Asian Indices are -1.50% to unch. on average.
S&P 500 futures -.24%.
NASDAQ 100 futures -.33%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (BWA) 2-for-1
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Economic Releases
8:30 am EST
- The Consumer Price Index for November is estimated to rise .6% versus a .3% gain in October.
- The CPI Ex Food & Energy for November is estimated to rise .2% versus a .2% rise in October.

9:15 am EST
- Industrial Production for November is estimated to rise .2% versus a -.5% decline in October.
- Capacity Utilization for November is estimated at 81.7% versus 81.7% in October.

Other Potential Market Movers
- The (ACAD) analyst meeting, (IDC) analyst meeting and (UAM) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by 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 75% net long heading into the day.

Evening Review Links

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Stocks Lower into Final Hour on Weakness in Financials

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs, Medical longs and Internet longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are falling and volume is above average. Investor anxiety is above average again. Today’s overall market action is bearish. The US dollar-based 3-month LIBOR rate is falling another 7 basis points to 4.99% today and is down 74 basis points from September highs. As well, the 30-day asset backed commercial paper yield is falling another 4 basis points today to 5.97%, down 36 basis points from September highs. The 10-year swap spread is falling slightly today and is now 66 basis points over treasuries, which is down from 87 basis points three weeks ago. The Bear Stearns High Yield Index and JPMorgan Emerging Market bond indices are up .39% and .18%, respectively, over the last five days. These are all positives. The rise in the 10-year yield today is more related to the strong retail sales report, rather than inflation worries, in my opinion. The decline in oil is mainly related to US dollar strength. I continue to believe the US dollar has at the very least put in place an intermediate-term bottom. Market leading stocks and the financials(XLF) are cutting losses rapidly. Given how pessimistic the environment has become and the overwhelming belief that a recession is just around the corner, I suspect US stocks can rise meaningfully during the first quarter if such an outcome fails to materialize. I continue to believe modestly below trend economic growth of around 2% on average is likely over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on falling energy prices, less economic pessimism, bargain-hunting and short-covering.