Today's Headlines

Bloomberg:
- The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.
- Societe Generale SA said unauthorized bets on stock index futures by a rogue trader caused a $7.2 billion trading loss, the largest in banking history.
- NY’s insurance regulator said a plan to have US banks aid bond insurers will “take some time to finalize.”
- Dow Chemical(DOW) CEO Andrew Liveris said financial markets are overreacting to the prospect of the US entering a recession.
- Short-term debt backed by assets such as mortgages and auto loans expanded for a fourth straight week as the Fed cut its target rate the most in 23 years, pushing borrowing costs to the lowest since July 2005.
- The risk of companies defaulting fell after NY regulators urged Wall Street firms to bail out bond insurers including MBIA Inc.(MBI) and Ambac Financial Group(ABK) to avert worsening credit-market turmoil.

Wall Street Journal:
- Some of Mike Huckabee’s top advisers are working pay and some field directors have been let go entirely, the campaign said today, as money woes have taken hold.
- The Wall Street Journal’s Web site, WSJ.com, will keep a significant portion of its content behind its paid-subscription wall, News Corp. Chairman Rupert Murdoch said.

NY Times:
- Jeffries Cuts Hedge Fund Investment Amid Loss.

NY Post:
- Sharks Circle Yahoo!(YHOO). LBO, Media Bigs Attracted to Battered Stock.

Reuters:
- OPEC doesn’t need to raise its output because recent declines in prices show there is enough supply, citing Abdullah bin Hamad al-Attiyah, Qatar’s oil minister.
- Spanish Economy Minister Pedro Solbes said the European Central Bank is debating whether to cut interest rates amid market turmoil.

Financial Times:
- One of the most controversial figures in world shipping markets has denied playing a pivotal role in the past few weeks’ decline of dry bulk shipping rates, saying it results from fundamental market changes.
- French Prime Minister Francois Fillon said he expects the European Central Bank to act to cushion the economy against market turbulence and slowing growth.

globeandmail:
- Smiles disappearing in hedge fund land.

Cbichina.com:
- China’s copper output rose 17% to 302,200 metric tons in December, compared with a year earlier, citing figures form the National Bureau of Statistics.

Bear Radar

Style Underperformer:

Small-cap Value (-1.17%)

Sector Underperformers:

Airlines (-2.92%), Retail (-2.28%) and Utilities (-1.61%)

Stocks Falling on Unusual Volume:

DLX, CNH, CY, OREX, THQI, DGII, MTSC, SPWR, EBAY, NFLX, VARI, CVCO, SOLF, IRBT, PSSI, AVID, PETM and VRTX

Jobless Claims Still Low, Continuing Claims Fall Substantially, Existing Home Sales Fall, Home Inventories Decline

- Initial Jobless Claims for this week fell to 301K versus estimates of 320K and 302K the prior week.

- Continuing Claims fell to 2672K versus estimates of 2720K and 2747K prior.

- Existing Home Sales for December fell to 4.89M versus estimates of 4.95M and 5.0M prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly dropped for a fourth straight week, indicating companies may be in better shape than believed, Bloomberg reported. The four-week moving average fell to a three-month low of 314,750 versus 328,750 the prior week. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, fell to 2% from 2.1% the prior week and remains at historically low levels. The recent decline in jobless claims is a major positive and they are no where near the 360,000+ usually associated with recessions, notwithstanding the overwhelming majority of pundits that claim we are already in one. CNBC just asked why so many talk as if we are already in a recession when the data clearly do not indicate such. It is due to the record number of stock market participants that perceive it is in their own political and financial interest to see a bear market and recession. We are in an election year with historically bitter political rhetoric. As well, there has been an explosion in the number of low correlation/negative correlation investment funds and all the businesses that cater to them since the bursting of the internet bubble and bear market of 2000-2003. These vocal individuals perceive a strong secular bull market as their enemy and they are the main reason for the current “US negativity bubble” and the parabolic rise in short interest, in my opinion. They believe the more they talk as if a recession and a bear market are inevitable the more likely they become as scared consumers, businesses and investors retrench. Many are quick to dismiss any positive analysis from long only managers, saying they are just talking their book. However, one could make the same argument regarding the analysis of investment managers that benefit from a poor market and economy. I continue to believe the job market will remain healthy over the intermediate-term, notwithstanding slower economic growth, as companies remain very slow to let go of workers before the historic exodus of baby boomers from the labor force over the coming years.

Sales of existing homes in the US fell slightly more than forecast in December and inventories fell, Bloomberg reported. For all of last year, prices of existing homes fell 1.8%. Over the prior six years, the Case-Shiller home price index rose 103.3%. The number of homes for sale at the end of December fell 7.4% to 3.91 million. At the current sales pace, that equates to 9.6 months’ supply, down from 10.1 months in November. Builders broke ground in December on the fewest new homes since 1991. I continue to believe the recent plunge in mortgage rates and pent-up demand will lead to a modest unexpected bounce in home sales over the coming months, which should bring down inventories meaningfully as builders continue to break ground on fewer homes. Fed fund futures now imply a 64.0% chance for a 50 basis point rate cut and 36% chance for a 25 basis point rate cut at the January 30th FOMC meeting. According to data released today, the average 30-year fixed mortgage rate is 5.48%, down 21 basis points over the last week and down 126 basis points from June 07 highs.

Bull Radar

Style Outperformer:

Mid-cap Growth (+1.24%)

Sector Outperformers:

Steel (+5.2%), Wireless (+3.20%) and Networking (+3.05%)

Stocks Rising on Unusual Volume:

EMM, WNS, BCA, EMG, ITB, FDG, SCX, GBX, DSG, HTZ, ESI, BRNC, MHGC, FFIV, EXPO, SASR, EURX, PLXS, PLCM, ALDN, TRMB, COIN, SMTS, MOLX, DROOY, SYMC, PRXL, RRGB, ASML, ACGY, SNCR, FDRY, COF, DLLR, BPFH, PCU, FCX, PBR, REP, BBV, TKC, PHI and DLR

Links of Interest

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Saudi Arabia, the world’s biggest oil producer, plans to start its first sovereign wealth fund with about $6 billion, channeling surplus crude-oil revenue into investments in foreign companies.
- Newcrest Mining Ltd., Australia’s largest gold mining company, said second-quarter output of the precious metal from its mines in Australia and Indonesia rose 19%.
- The yen fell against 14 of the 16 most-active currencies after Asian stocks rose, making investors more confident to hold higher-yielding currencies funded in Japan.
- Qualcomm Inc.(QCOM), the second-biggest maker of chips that run mobile phones, said first-quarter profit rose 18% and boosted its revenue forecast for 2008, sending the shares up as much as 6.5% in after-hours trading.
- Western Digital(WDC), the second-largest maker of computer hard-disk drives, said second-quarter profit more than doubled as orders increased for notebooks and electronics. The shares rose 6.9% in late trading.
- Symantec Corp.(SYMC), the world’s biggest maker of security software, reported earnings and gave a forecast that beat analysts’ estimates, sending the shares up 9.3% in extended trading.
- F5 Networks announced revenue grew 28% from the first quarter of last year and authorized a $200 million share repurchase program. The shares soared 19% in after-hours trading.
- EBay Inc.(EBAY) fell 4.7% in US trading after it forecast 2008 sales and profit that missed some analysts’ estimates and said john Donahoe will succeed Meg Whitman as CEO.

MarketWatch.com:
- Homeowners facing resets on their adjustable-rate mortgages or hoping to refinance into less-burdensome loans may be the biggest beneficiaries of the Federal Reserve’s surprise rate cut this week as mortgages continue to get cheaper. Consider what's happened since September's rate cut for creditworthy Schwab borrowers. A 5-1 adjustable rate mortgage of $350,000 carried a 6.52% interest rate, assuming a 20% down payment, on Oct. 7. The rate this week for that same loan was 5.04%. That translates into an annual mortgage payment that's $5,100 cheaper.
- “Refinance applications are up 92% since the beginning of November and purchase applications are up 7%,” said Jay Brinkmann, the MBA’s vp of research and economics. Interest rate on 15-year fixed-rate mortgage falls below 5%.

CNBC:
- Bond Insurers Soar on Report of Possible Bailout.
- Congressional Budget Office Doesn’t Foresee Recession.

BusinessWeek.com:
- Are Investors Unfairly Sour on Apple?

USA Today.com:
- Jobs, iPhone have Skyhook pointed in right dirction.

Reuters:
- Managers confront baffling array of hedge funds.
- Prominent hedge funds nurse heavy losses in 2008.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (CNH) to Buy, target $55.
- Maintain Buy on (UTX), target $86.
- Maintain Buy on (VAR), target $61.
- Maintain Buy on (GILD), target $56.
- Maintain Buy on (SPX), target $115.

Oppenheimer:
- Rated (SCOR) Outperform, target $35.
- Rated (OMTR) Outperform, target $34.

CSFB:
- Reiterated Outperform on (GILD), target $54.
- Reiterated Outperform on (UTX), target $84.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures +.10%.
NASDAQ 100 futures +.25%.

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Earnings of Note
Company/EPS Estimate
- (NOC)/1.31
- (ED)/.59
- (LEN)/-2.05
- (BDX)/1.02
- (CPS)/.41
- (KMB)/1.11
- (BTU)/.79
- (NUE)/1.21
- (BAX)/.74
- (HSY)/.55
- (ABC)/.62
- (DLX)/.78
- (LMT)/1.70
- (F)/-.24
- (T)/.71
- (BEN)/1.90
- (KLAC)/.71
- (BRCM)/.31
- (MCHP)/.37
- (WFR)/.96
- (AMGN)/.97
- (JNPR)/.24
- (JAVA)/.31
- (MSFT)/.46
- (SY)/.56
- (LRCX)/.99

Upcoming Splits
- (BTJ) 3-for-2

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 320K versus 301K the prior week.
- Continuing Claims are estimated to fall to 2720K versus 2751K prior

10:00 am EST
- Existing Home Sales for December are estimated to fall to 4.95M versus 5.0M in November.

Other Potential Market Movers
- The weekly EIA energy inventory data and JPMorgan High Yield Conference could also impact trading today.

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