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Friday Watch

Late-Night Headlines
Bloomberg:
- The risk of Australian and Japanese companies defaulting on their bonds fell, credit-default swaps show. The Markit iTraxx Australia Series 9 Index dropped 10 basis points to 83 basis points in Sydney, Citigroup said. The Markit iTraxx Japan Index fell 9 basis points to 70 basis points in Tokyo, according to Morgan Stanley.
- Crude oil fell for a fourth day as the US dollar rose against most currencies, limiting the appeal of commodities as an inflation hedge.
- The yen fell for a second day against the dollar and declined against the euro as gains in stocks encouraged investors to increase holdings of higher-yielding assets funded in Japan.
- Canon Inc., Japan’s biggest office equipment maker, rose the most in a week in Tokyo trading after the company said it plans to spend $600 million in the US to expand laser-printer cartridge production. Tokyo-based Canon will build a new 700,000 square-foot factory to produce cartridges in Hampton Roads, Virginia. The new plant will create more than 1,000 jobs.

Wall Street Journal:
- Electric Nissans Planned in US by 2010. Nissan Motor CEO Carlos Ghosen said he is preparing to take advantage of a “mass market” in electric vehicles he expects to emerge by 2012.
- Microsoft Corp.(MSFT) CEO Steve Ballmer said he can build an Internet advertising business without buying Yahoo! Inc.

MarketWatch.com:
- Commonly cited measures of US home prices are overstating the degree to which the vast majority of Americans’ home values have declined in the last year, producers of two of the most widely tracked indexes acknowledged this week.
- Richard Russell says we’ve seen this market’s bottom.

CNBC.com:
- Help Wanted In Filling These Hot Jobs.
- Big Wall Street investment companies are pulling back on their borrowing from the Federal Reserve’s emergency lending program. This week marks the fourth straight where investment firms borrowed less from the central bank.

NY Times:
- Soaring gas prices have turned the steady migration by Americans to smaller cars into a stampede.

BusinessWeek.com:
- The Mac in the Gray Flannel Suit. More office workers infatuated with iPods and iPhones are demanding Macs.
- Stocks: 11 Innovation Plays.
- Strong Summer Rentals for the Hamptons.

Forbes.com:
- Shares of Lehman Brothers(LEH) rose Thursday as Citi Investment Research analyst said the investment bank’s shares could be worth as much as $65 based on Citi’s valuation model and past performance of the investment bank.

CNNMoney.com:
- AT&T(T) price cut could juice iPhone sales. AT&T’s(T) planned $200 subsidy on Apple’s(AAPL) iPhone could increase the sales of the new 3G model by 50%, according to one analyst.
- Apple’s(AAPL) new Hollywood deal: Death of the DVD?

USA Today.com:
- The Federal Trade Commission said Thursday it hoped to complete rules by the end of the year on how it plans to enforce a new law against price manipulation and deception in the oil-trading markets.
- Anybody who dreaded first-quarter earnings reports is probably relieved now. Earnings, excluding the financial sector, are up 12.2%.

greentechmedia:
- Will Micro Fuel Cells Fly High? The US has approved the use of some micro fuel cells in airplanes, removing a major market barrier.

puregreencars:
- General Motors(GM) and Mascoma Corp. announced a strategic relationship to develop cellulosic ethanol focused on Mascoma’s single-step biochemical conversion of non-grain biomass into low-carbon alternative fuels.

Financial Times:
- A growing number of hedge fund managers are trying to persuade investors to back new ventures by offering discounted fees to help make up for losses at funds that have failed.
- Yahoo Inc.(YHOO) could announce an agreement to carry search advertisements from Google Inc.(GOOG) within a week as it braces for Microsoft Corp.(MSFT) to abandon its unsolicited acquisition offer or go hostile.
- Euro shows signs of end to bull run. Many economists are reaching the view that eurozone growth has slowed to the point where the European Central Bank will have to cut interest rates or risk stunting economic growth. “Within the space of one week, the outlook for the eurozone has worsened significantly,” said Carsten Brzeski at ING Capital Markets. “Sound economic fundamentals are melting away.”

Telegraph:
- China has secretly built a major underground nuclear submarine base that could threaten Asian countries.

The Business Times:
- Singapore Prime Minister Lee Hsien Loong said the city-state’s economic slowdown may extend into 2009.

Taipei Times:
- Taiwan’s property market may be in oversupply as developers build more homes than needed, citing Chuang Meng-han, an industrial economics professor at Taipei’s Tamkang University.

Xinhua:
- More than 1,000 children aged from nine to sixteen were put to work as cheap labor at factories in the southern Chinese city of Dongguan, citing the city’s deputy mayor Li Xiaomei. The children were forced to work almost around the clock, beaten and deprived of pay, nourishment and basic medical care. The government will fine those involved as much as $7,156.
- The rapid appreciation of the Chinese currency against the US dollar is taking a big toll on Asian companies using China as base for exports to the US.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CMCSK), lowered target to $29.

Night Trading
Asian Indices are +.50% to +2.0% on average.
S&P 500 futures +.16%.
NASDAQ 100 futures +.18%.

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Earnings of Note
Company/EPS Estimate
- (CCU)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for April is estimated at -75K versus -80K in March.
- The Unemployment Rate for April is estimated to rise to 5.2% versus 5.1% in March.
- Average Hourly Earnings for April are estimated to rise .3% versus a .3% gain in March.

10:00 am EST
- Factory Orders for March are estimated to rise .2% versus a -1.3% decline in February.

Other Potential Market Movers
- The Morgan Stanley Global Healthcare Conference and Fed governors speaking on consumer regulations could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares 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 Financial, Airline, Technology and Retail Shares

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In Play

Stocks Soaring into Final Hour on Lower Energy Prices, Stronger US Dollar, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs, Medical longs, Retail longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 7.9%, but remains above average at 19.2. The ISE Sentiment Index is low at 93.0 and the total put/call is above average at .98. Finally, the NYSE Arms has been running about average most of the day and is currently .78. As I said yesterday, investors’ initial negative reaction to the 25 basis point fed funds rate cut and less-hawkish-than-expected FOMC commentary seemed overdone. Today the US dollar is surging, which is further pressuring commodity prices and boosting the broad stock market. I still think the dollar has seen its lows for at least this year and probably much longer. I heard a trader on CNBC say recently that global oil production was capped at 85 million barrels per day, even though global oil production is currently a new record 87.6 mbpd and has been above 85 mbpd for quite some time. I also heard someone say today that US oil demand has been rising for 30 years, which is also an incorrect statement. These are just two of the many false statements I hear from oil bulls regarding the current state of the fundamentals for the commodity. The TED spread is falling 9 basis points today to 139 basis points, which is the lowest since April 8^th. The US dollar-based Libor rate is falling 7 basis points today to 2.78% and appears to be rolling over again. This rate, which many mortgage rates are tied to, has plunged from 5.73% in September of last year. The 30-day asset backed commercial paper yield is falling 11 basis points today to 2.83% and also appears to be rolling over again. The European Financial Sector Credit Default Swap Index is falling another 3.16 basis points today to 59.10. This is another new low and down from 131.41 on March 21, which is also a big positive. Nikkei futures indicate an +314 open in Japan tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, technical buying and less economic pessimism.

Today's Headlines

Bloomberg:
- Kuwait’s $250 billion sovereign wealth fund may boost its stakes in Citigroup Inc.(C) and Merrill Lynch(MER) as it pursues investments in US and European companies battered by subprime-mortgage related losses.
- Commodities fell the most in five weeks as a rally by the US dollar eroded demand for energy, metals, crops and livestock as alternative investments.
- The US dollar rose to the highest in five weeks against the euro on speculation the Fed will stop reducing borrowing costs.
- The cost of protecting European corporate bonds from default fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 18 basis points to 418 today, according to JPMorgan. The CDX North America Investment Grade Index fell 3 basis points to 92.
- Drake Management LLC, the money-management firm started by former BlackRock Inc. executives, is shutting down its largest hedge fund after losses prompted client withdrawals, according to a letter to investors.
- Top-rated securities backed by subprime or home-equity loans last month returned more than US Treasuries for the first time since December, as Fed efforts to calm credit markets helped entice buyers back.
- ICAP Plans Rival Index to Libor for US Bank Rates.
- Money in funds tracking the two most popular commodity indexes jumped 48% so far this year to $250 billion, showing investors have influenced record energy, food and metals prices, according to Sanford C. Bernstein. The California Public Employees’ Retirement System, the largest US pension fund, said in February it may increase its commodity investments 16-fold as it seeks to benefit from gains in gold, copper, wheat and oil. Oil this week climbed to $119.93/bbl., a record, while wheat and corn jumped to all-time highs in 2008, partly as pension and hedge funds switched away from a slumping dollar and tumbling stock markets. Countries including Haiti and Egypt have been hit by social unrest because of rising food prices that the World Food Programme said may result in a “silent famine” for the poorest in Asia.
- Wheat fell to a five-month low as the US dollar rallied against major currencies, eroding the appeal of US commodities to overseas buyers.
- MBIA Inc.(MBI), the world’s largest bond insurer, has enough capital to retail its AAA rating, CEO Jay Brown told shareholders. The stock is surging 11% on the news.
- Billionaire Sam Zell said institutional investors are beginning to return to the market for mortgage-backed securities that finance commercial real estate deals and new construction.
- Clinton Bests Obama Against McCain in Swing States, Poll Says.
- Nvidia(NVDA) Wins More Than Just Gamers at 12 Times Profit.

Wall Street Journal:
- US Thieves Target Metal Sculpture as Prices Soar.
- Shortage of Laborers Plagues India. Skills Gap Drags Down Economy.
- Asian Hedge Funds Lose Assets In 1Q From Poor Performance.

Detroit Free Press:
- More than two months into the UAW’s strike at American Axle, it appears that the two sides have pulled together a potential framework for a settlement, which likely will include buyouts, buy-downs in exchange for lower wages and the closure of at least two plants.

MarketWatch:
- Chip sales rose 3.8% in the first quarter, boosted by strong consumer demand worldwide, the Semiconductor Industry Association said.

MoneyNews.com:
- Mike Milken: Subprime Mess Overblown. Miken says comparisons of the high-yield, high-risk corporate bonds that he once touted at Drexel Burnham Lambert with the mortgage-backed securities behind the subprime meltdown are simply not fair. Investors who follow that train of though are merely “people who don’t understand markets very well,” Milken says. As for the markets, they have already seen the worst and the economy is on the rebound, the one-time trader predicts.

AP:
- The head of al-Qaeda in Somalia, Aden Hashi Ayro, was killed in an air strike. Somali government officials say Ayro trained in Afghanistan before al-Qaeda’s Sept. 11, 2001, attacks on the US.

Financial Times:
- One of Silicon Valley’s leading venture capital firms has more than tripled the amount of money it has set aside for invest in clean technology companies.
- Triple-A prices are out of sync. Why have the prices of triple-A mortgage-linked securities slumped so dramatically this year? Yes, the price of triple-A securities looks nuts from a fundamental credit pint of view; but this reflects the fact that the leverage which has underpinned the structured credit world in recent years has been mad too.

Haaretz.com:
- Israeli Transportation Minister and former defense Minister Shaul Mofaz said Wednesday that Iran could have nuclear bomb technology as early as this year.

Asharq al-Awsat:
- The number of Saudi public projects under execution has fallen to 950 this year valued at 22 billion riyals($5.9 billion), from 3,600 projects, worth 92 billion riyals, last year.

Bear Radar

Style Underperformer:

Mid-cap Growth +.41%

Sector Underperformers:

Gold (-3.79%), Coal (-3.73%) and Oil Service (-3.21%)

Stocks Falling on Unusual Volume:

MCRS, FSLR, OMTR, NTG, UDRL, ARD, PVA, MTL, PCU, FCX, SU, HES, SFLY, RDEN, HOLX, PDGI, JDSU, FARO, IRBT, GTLS, INSP, FEED, SNN, HOS, WLK and LVS

Stocks With Unusual Put Option Activity:

1) HOLX 2) BARE 3) COH 4) HES 5) VSEA