Housing Starts Fall Again, Jobless Claims Plunge, Philly Fed Contracts More Than Expected

- Housing Starts for December fell to 1006K versus estimates of 1145K and 1173K in November.

- Building Permits for December fell to 1068K versus estimates of 1135K and 1162K in November.

- Initial Jobless Claims for this week fell to 301K versus estimates of 331K and 322K the prior week.

- Continuing Claims rose to 2751K versus estimates of 2705K and 2685K prior.

- The Philly Fed for January fell to -20.9 versus estimates of -1.0 and -5.7 in December.

BOTTOM LINE: Housing starts were lower than expected in December as homebuilders try to pare down inventory, Bloomberg reported. For all of 2007, housing starts fell 25%. I continue to believe new home construction will remain muted over the intermediate-term as homebuilders continue to work down inventories. With home sales stabilizing over the last three months near mid-1995 levels and mortgage rates plunging recently, I wouldn’t be surprised to see home sales surprise on the upside over the coming months on some pent up demand.

The number of Americans filing first-time claims for unemployment benefits unexpectedly plunged to a three-month low last week, Bloomberg reported. The four-week moving average of claims fell to a two-month low of 328,500, from 340,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose back to 2.1% from 2.0% the prior week, which is still a historically low level. With all the housing-related job losses that have already occurred over the last two years, continuing record US exports and the impending retirement of millions of baby-boomers, it is very possible the job market is stabilizing at still healthy levels.

Manufacturing in the Philly region contracted more than expected in January, Bloomberg reported. The New Orders component fell to -15.2 from 12 the prior month. The Inventory component fell to -11.7 from -6.5 the prior month. The Employment component fell to -1.5 from 3.8 in December. The Future Expectations component fell to 5.2 from 11.1. While this number is surprisingly negative, it is important to note that it averaged -15.1 for four months during the 1995 mid-cycle slowdown, hitting a low of -21.0 during that period, and the US economy, which was more dependent on manufacturing then than now, never tipped into recession. I expect this indicator to improve next month on inventory rebuilding.

ISE Sentiment Index(ISEE) Makes New Record Low

Bottom Line: The ISE Sentiment Index(ISEE) made a new record low this morning of 23.0. This is well below the prior record of 36.0 on July 3, 2006. This contrary indicator has had a very good track record in the past for marking meaning market bottoms.

Bull Radar

Style Outperformer:

Large-cap Growth (-.76%)

Sector Outperformers:

Homebuilders (+1.38%), Networking (+1.12%) and Computer Hardware (+.93%)

Stocks Rising on Unusual Volume:

CGV, ELY, PENN, LCRD, COGO, HMSY, ICLR, URBN, VRUS, MATR, JASO, ASML, LULU, GENZ, CVCO, ULBI, AKAM, NUVA, TRMB, ADCT, OMCL, TIF, CN, WSM, BRP, FELL, HMC, MO, PPG, BK, ROC, AFSI, BCS and AZN

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Fisker Automotive Inc., a startup planning to build rechargeable hybrid luxury cars, will be able to begin sales by 2009 because it’s using a power system already developed for military vehicles, a company director said.
- The International Monetary Fund predicted economic growth in Iraq will accelerate this year to the fastest pace since 2004 as security improves and crude oil output climbs. Iraq’s economy will expand 7.1% this year. Growth is expected to pick up to 10.4% by 2010, the IMF said.
- Harvard University received a record number of applicants for the next freshman class after the end of the school’s early-admissions program gave officials more time to recruit a broader array of students.
- “American Idol,” the most-popular show on primetime television, attracted 33.4 million viewers in its seventh-season debut on the Fox network.
- Ambac Financial Group Inc.(ABK) is being reviewed by Moody’s Investors Service for a possible downgrade.
- Sharp Corp., Japan’s biggest liquid-crystal display maker, climbed the most in more than a month after Goldman Sachs Group(GS) raised the rating on the stock, citing demand for panels.

Wall Street Journal:
- JPMorgan(JPM) CEO Is Hunting In the Credit-Crunched Jungle. It’s time to pounce for JPMorgan CEO James Dimon and other top bosses of financial companies that have avoided a serious battering from the credit crunch.
- Will Silicon Valley Deals Kick Into Overdrive?
- President Bush says “there’s a hope” that, after his talks with Saudi King Abdullah seeking to restrain oil prices, OPEC “would be encouraged to authorized an increase in production,” a White House official said.

MarketWatch.com:
- US lawmakers on Wednesday debated ways to juice a languishing US economy with tax cuts or rebates.
- Wall Street losing its own confidence game.

CNBC:
- US mortgage applications surged last week, with demand hitting its highest in nearly four years as interest rates plunged, an industry group said Wednesday.
- Intel(INTC) Earnings: Is Wall Street Overreacting to Shortfall?

BusinessWeek.com:
- Wall Street is speculating WaMu(WM) will go the way of Countrywide Financial(CFC) and be acquired by a larger player, perhaps JPMorgan Chase(JPM).
- Bank of America’s(BAC) CEO tell Maria Bartiromo why the bank’s acquisition of troubled Countrywide Financial is a good deal.
- A buzzy Web site brings scrutiny to the previously secretive world of VC investing.
- The Economy: Five Signposts to Recovery.

CNNMoney.com:
- The current mortgage mess requires a more intelligent approach than the buzzsaw plan floated by Hillary Clinton.

SmartMoney.com:
- What You Need to Know About Sovereign Wealth Funds.
- Herman Miller’s(MLHR) Business Built to Last.

EnergyNewsToday:
-.Valero Energy Corp.(VLO), the largest US refiner, plans to reduce its processing rate for low-sulfur crude oil by as much as 20% because of shrinking profitability. The move would follow a reduction by Tesoro Corp.(TSO), the owner of seven US refineries, which said Jan. 14 that it cut fuel production this month.

USA Today.com:
- Retirement: Why older boomers have more to lean on financially.
- Apple’s(AAPL) skinny MacBook Air is fat with features.

Reuters:
- Adidas AG, the world’s second-largest sporting-goods maker, reiterated its forecast for sales to increase in the high single-digit percentage range this year.
- Delta(DAL) in merger talks with Northwest: congressman
- Dell(DELL) seen back to strong growth.
- SAP(SAP) sees no sign of global slowdown in ’07 results.

Commercial Times:
- Hon Hai Precision Industry Co. will probably be the second contract manufacturer for Apple Inc.’s(AAPL) MacBook Air laptop computers. Taiwan’s Quanta Computer Inc. has been making the slim laptops for Apple.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (JAVA), target $29.
- Lowered (HOG) to Sell, target $36.

Night Trading
Asian Indices are -1.50% to +.25% on average.
S&P 500 futures +.36%.
NASDAQ 100 futures +.32%.

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Earnings of Note
Company/EPS Estimate
- (PH)/1.19
- (PNC)/1.07
- (CAL)/.06
- (BK)/.69
- (CMA)/1.06
- (CIT)/.27
- (BLK)/2.15
- (AMTD)/.38
- (MER)/-4.82
- (IGT)/.36
- (BBT)/.78
- (PPG)/1.12
- (AMD)/-.38
- (XLNX)/.32
- (WM)/-1.43
- (STX)/.74
- (IBM)/2.68
- (BGG)/.05
- (ORB)/.24

Upcoming Splits
- (FWLT) 2-for-1

Economic Releases
8:30 am EST
- Housing Starts for December are estimated to fall to 1145K versus 1187K in November.
- Building Permits for December are estimated to fall to 1135K versus 1162K in November.
- Initial Jobless Claims for this week are estimated to rise to 331K versus 322K the prior week.
- Continuing Claims are estimated to rise to 2705K versus 2702K prior.

10:00 am EST
- The Philly Fed for January is estimated to rise to -1.0 from -5.7 in December.

Other Potential Market Movers
- The Fed’s Bernanke speaking, Fed’s Fisher speaking, Fed’s Lockhart speaking, weekly EIA natural gas inventory report, (AMAT) analyst meeting, (AEE) analyst meeting and Goldman Sachs Energy Conference could also impact trading today.

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

Stocks Finish Lower on Weakness in Commodity and Tech Sectors

Evening Review

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