Friday Watch

Late-Night Headlines
Bloomberg:
- MBIA Inc.(MBI) has announced that in response to media and other inquiries received as a result of information the Company posted on December 19, 2007 on its Web site relating to its collateralized debt obligation exposure, the Company is issuing the following statement: The inflation posted on December 19,2007 discloses no additional Multi-Sector CDO exposure. MBIA discussed its exposure to CDO transactions with inner CDOs during a conference call for investors on August 2, 2007. The stock surged 11% in after-hours trading.
- Toshihiko Fukui’s final act as governor of the Bank of Japan may be to cut borrowing costs for the first time in more than six years.
- Sharp Corp., Japan’s largest maker of liquid-crystal displays, rose the most in two weeks in Tokyo trading after a report said Toshiba Corp. may buy its LCD panels.

NY Times:
- Genentech(DNA) appears to have resolved a dispute with ophthalmologists that will allow its drug Avastin to continue to be used to treat eye diseases, both sides said.

MarketWatch.com:
- Research In Motion(RIMM) on Thursday saw earnings more than double for its fiscal quarter amid continued strong demand for the company’s BlackBerry line of smart-phone devices.
- NetSuite CEO: Ellison played critical role. Buy Nelson says software on-demand marks changing of the guard in industry.

BusinessWeek.com:
- If you’re a contrarian, you’ll probably like Eastman Kodak(EK), which is currently a pariah on the Street.
- The FCC’s auction of wireless spectrum is swarming with participants, some of which you might not expect – including Chevron(CVX) and Vulcan’s Paul Allen.
- Record Online Sales in Britain. Christmas came early to online retailers as Internet sales have skyrocketed more than 65% higher than during last year’s holiday period.

CNNMoney.com:
- Toy makers close in on safety plan. Group representing companies hopes to get regulators’ OK on tougher testing measures.

SmartMoney.com:
- CEO Interview: John Riccitiello, Electronic Arts(ERTS).

USA Today.com:
- Starbucks-Dunkin’ faceoff may stir market share in hot industry.

Reuters:
- Washington Mutual(WM) said on Thursday it is cooperating with a SEC inquiry into the handling and reporting of mortgage loans that may have been based on inflated home appraisals.

China Securities Journal:
- China’s economy may expand 10.9% next year and inflation may rise 4.5%, the central bank’s research bureau forecast in a report today.

Late Buy/Sell Recommendations
Citigroup:
- In general, we garnered little new from Micron’s(MU) earnings report. We maintain our generally positive view, therefore, predicated on capital spending declines, 200mm decommissioning and NT price stabilization. We note that Micron did point to above seasonal demand conditions for CY1Q08, echoing commentary from other parts of the supply chain. This bodes well for Intel(INTC), our top idea, where strong demand will support upside to consensus margin for 1Q08 and 2Q08(as inventories prove difficult to build).

Morgan Stanley:
- Reiterated Overweight on (CELG), target $79.

CSFB:
- Reiterated Outperform on (CELG), target lowered to $65.

Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 futures +.14%.
NASDAQ 100 futures +.29%.

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Earnings of Note
Company/EPS Estimate
- (CC)/-.31
- (WAG)/.44

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for November is estimated to rise .5% versus a .2% decline in October.
- Personal Spending for November is estimated to rise .7% versus a .2% gain in October.
- The PCE Core for November is estimated to rise .2% versus a .2% gain in October.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for December is estimated at 74.5 versus 74.5 in November.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are higher, boosted by technology shares and financial stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Gains in the Technology Sector

Indices
S&P 500 1,460.12 +.49%
DJIA 13,245.64 +.29%
NASDAQ 2,640.86 +1.53%
Russell 2000 767.54 +1.51%
Wilshire 5000 14,673.05 +.62%
Russell 1000 Growth 609.65 +.79%
Russell 1000 Value 790.14 +.29%
Morgan Stanley Consumer 738.66 +.05%
Morgan Stanley Cyclical 984.85 +1.18%
Morgan Stanley Technology 626.02 +1.70%
Transports 4,583.86 -.01%
Utilities 536.72 -.02%
MSCI Emerging Markets 148.72 +.23%

Sentiment/Internals
Total Put/Call .63 -44.7%
NYSE Arms 1.05 +7.63%
Volatility(VIX) 20.58 -5.07%
ISE Sentiment 110.0 -1.79%

Futures Spot Prices
Crude Oil $91.20 -.04%
Reformulated Gasoline 233.73 +.23%
Natural Gas 7.11 -.89%
Heating Oil 259.43 -.14%
Gold 799.80 -.70%
Base Metals 212.28 +1.92%
Copper 297.0 +.41%

Economy
10-year US Treasury Yield 4.04% +1 basis point
US Dollar 77.78 +.26%
CRB Index 349.63 -.16%

Leading Sectors
Software +2.22%
Wireless +2.11%
Computer Hardware +2.08%

Lagging Sectors
Insurance -.55%
Oil Tankers -1.04%
Airlines -1.17%

Evening Review
Market Summary
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In Play

Afternoon Recommendations
Needham:
- Rated (SINA) Buy.

Afternoon/Evening Headlines
Bloomberg:
- The US housing market will bottom out in the second quarter of 2008 and become a positive force on the national economy by the end of the year, said David Seiders, chief economist for the National Association of Home Builders.
- Research In Motion Ltd.(RIMM) said third-quarter profit doubled and gave a forecast that topped analysts’ estimates on consumer demand for the BlackBerry e-mail phone, spurring an 11% surge in the stock in after-hours trading.
- GE Commercials Finance and Allied Capital Corp. raised $3.6 billion to fund smaller private-equity transactions after lenders tightened financing requirements. Unitranche Fund LLC will provide loans of as much as $500 million.
- Red Hat Inc.(RHT) named former Delta Air Lines(DAL) COO James Whitehurst as CEO and said third-quarter profit rose 39%. Red Hat jumped 7.4% in extended trading.
- Campbell Soup(CPB) agreed to sell its Godiva chocolate unit to Yildiz Holding AS for $850 million.
- NetSuite Inc.(N), the software maker majority-owned by Oracle’s(ORCL) Larry Ellison, surged 37% in its first day of trading, underscoring investors’ confidence in business software spending.

NY Times:
- GM’s Fuel-Cell Test: 100 Cars, No Charge.

BOTTOM LINE: The Portfolio finished higher today on gains in my Software longs, Medical longs, Semi longs and Internet longs. I did not trade 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 about average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish. After the close, Research In Motion(RIMM) beat earnings estimates and boosted its guidance, saying it sees “strong” enterprise demand. This report is a huge positive, given RIMM’s exposure to the financial services sector. There still remains little evidence of the imminent recession that so many have been expecting since housing began deteriorating over two years ago. A further lifting of the uncertainty in the financial services sector, lower energy prices, more fed rate cuts and non-recessionary data in 1Q should provide the catalysts for a very good 1Q for US stocks. I expect the broad market to participate in another tech sector-driven rally tomorrow. Nikkei futures are indicating a +120 open in Japan.

Stocks Mostly Higher into Final Hour, Led by Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, Internet longs and Medical longs. I added to my (NUAN) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. The total put/call hit a high 1.25 and the ISE sentiment index hit a very depressed 64.0 today, as retail option traders remain skeptical of the chances for a year-end rally, which bodes well for further gains. Despite the Bear Stearns(BSC) and MBIA(MBI) news, the (XLF) is less than one percent lower on the day, which isn’t too bad. Moreover, the 30-day asset backed commercial paper yield is falling another 9 basis points today and is down 51 basis points in a week. The US dollar is firm, despite today’s weaker economic data, which bodes well for further dollar strength. Oil is having trouble staying above $92/bbl. for the fifth consecutive day. I still think oil will begin another move lower at the first of the year after the year-end mark-ups by investment funds end, the dollar strengthens more, supply exceeds estimates and global demand continues to decelerate. True “growth” stocks are particularly strong again today. As well, technology shares are substantially outperforming the major averages. The MS Tech Index is now 10.6% higher year-to-date, almost triple the return of the S&P 500. I said early in the year that I expected technology to outperform this year. I also expect this to be the case again next year. Research In Motion's(RIMM) earnings report after the close could provide the catalyst for further tech sector gains tomorrow. The financials continue to trade as if at the very least they are forming a short-term bottom. Instability in the financial sector is the only thing holding the broad market back from more vigorous gains into year-end, in my opinion. Overall bearish sentiment towards US equities remains very elevated. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, tech sector strength, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Mobile-Phone Spending in US Rises to Record After New iPhone.
- Gold is falling another $3.20/oz. after the US dollar climbed further against the euro and oil reversed earlier gains, eroding the appeal of the precious metal as an alternative investment.
- The cost of borrowing in euros, pounds and dollars fell for a third day as central banks inject cash into global money markets to ease a year-end lending squeeze.

Wall Street Journal:
- After delaying a domestic satellite-surveillance program for more than two months, Homeland Security Secretary Michael Chertoff expects to finalize a new charter for it this week, a move that attempts to quell civil-liberties concerns and get the program back on track.
- Great Wall Street of China. Morgan Deal Underlines The New Capital Flow; Who’s Playing Whom?
- Latest Luxury: The Store Concierge. Retailers Kick It Up a Notch To Coddle Affluent Clientele.

NY Times:
- Silicon Valley Shaped by Technology and Traffic.
- It has been a difficult few years for earmarks, the pet spending projects that lawmakers pursue in Congress. They have been linked to felony cases, blamed for the national debt, stripped from the budget, exposed to public scrutiny and subjected to ridicule. Yet earmarks and the lawmakers who love them will not be denied.
- 2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy.
- Nanotechnology Companies Planning IPOs.

Knowledge @ Warton:
- A Closer Look at Sovereign Wealth Funds: Secretive, Powerful, Unregulated and Huge.

Wired:
- Apple(AAPL) May Make Big Splash With Apple TV in 2008.

International Herald Tribune:
- The secrecy surrounding the William J. Clinton Foundation has become a campaign issue as Senator Hillary Rodham Clinton seeks the Democratic presidential nomination with her husband as a prime source of strategy and star power. Some of her rivals argue that donors could us presidential foundations to circumvent campaign finance laws intended to limit political influence.

Final 3Q GDP Soars 4.9%, Initial Jobless Claims Rise, Leading Indicators Fall, Philly Fed Weak

- Final 3Q GDP rose 4.9% versus estimates of a 4.9% gain and prior estimates of a 4.9% increase.

- Final 3Q Personal Consumption rose 2.8% versus estimates of a 2.8% gain and a prior estimate of a 2.7% increase.

- Final 3Q GDP Price Index rose 1.0% versus estimates of a .9% gain and a prior estimate of a .9% gain.

- Final 3Q Core PCE rose 2.0% versus estimates of a 1.8% increase and prior estimates of a 1.8% gain.

- Initial Jobless Claims for this week rose to 346K versus estimates of 335K and 334K the prior week.

- Continuing Claims rose to 2646K versus estimates of 2610K and 2634K prior.

- Leading Indicators for November fell .4% versus estimates of a .3% decline and a .5% decline in October.

- Philly Fed for December fell to -5.7 versus estimates of 6.0 and a reading of 8.2 in November.

BOTTOM LINE: The US economy accelerated from July through September to the fastest pace in four years, Bloomberg reported. Growth last quarter was boosted by record exports and some inventory rebuilding. The shrinking trade deficit contributed 1.4 percentage points to GDP growth, the most in 11 years. Personal incomes grew at a 6% annual rate in the third quarter, which was well above the 4.3% year-over-year November CPI reading. I continue to believe booming exports, inventory rebuilding, decelerating inflation and resilient consumer spending will more than offset the drag from housing over the intermediate-term. 4Q GDP growth will likely come in around 1%, however I still expect GDP growth to average 2-2.5% over the intermediate term.

The number of Americans filing first-time claims for unemployment benefits rose more than forecast last week, Bloomberg reported. The four-week moving average climbed to 343,000. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2%. While jobless claims have ticked up recently, they are still below the 20-year average of 351,400. I continue to believe the overall job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Leading indicators fell slightly more than economists expected, Bloomberg reported. The leading index is down at an annual rate of 2.3% over the last six months, well short of the 4.5% decline usually seen before recessions. Gains in the factory workweek, rising orders for capital equipment and slower delivery times helped cushion the decline in the leading index. I expect the leading index to begin rising in the first quarter of next year, boosted by gains in stocks.

Manufacturing in the Philly region fell in December, Bloomberg reported. The New Orders component of the index actually rose to 10.7 versus 3.5 the prior month. Moreover, shipments surged to 18.4 from 4.7 the prior month. The Inventory component fell to -6.7 from 2.5 the prior month. The Employment component declined to .5 from 4.8 the prior month. While the headline number was weak, the underlying components don’t indicate contraction. I continue to believe that 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.

Bear Radar

Style Underperformer:

Small-cap Value (-.84%)

Sector Underperformers:

Oil Tankers (-2.26%), Airlines (-1.99%) and Retail (-1.45%)

Stocks Falling on Unusual Volume:

CPY, RT, MBI, APOG, ATLS, FSIN, BWLD, BRLI, WRLD, TSCM and SLM