Tuesday Watch

Earnings of Note
Company/Estimate
BSC/2.14
GIS/.87
GTK/.35
MWD/1.01
PAYX/.23
SLR/.05

Splits
ADSK 2-for-1

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on BSX, IP and SPP. Goldman reiterated Attractive View of the Internet sector.

Late-Night News
Asian indices are mostly higher, led by financial stocks in the region. A former American Online worker reached a tentative deal with federal prosecutors in a case accusing him of selling millions of stolen e-mail addresses to so-called spammers, the AP reported. China shouldn't rush to tighten its fiscal policy because there is not sign of higher inflation and the economy overall isn't overheated, the official Xinhua news agency said. Donald B. Marron, the former chief executive officer of Paine Webber Group, may be among the top candidates to replace Fannie Mae CEO Franklin Raines should the company decide to fire him, Bloomberg reported. U.S. stocks may rise more than expected next year amid speculation that President Bush's plan to privatize Social Security will spur cash inflows, according to Tobias Levkovich, chief US equity strategist for Citigroup Global Markets. Enron Corp. legal advisers led by NY law firm Weil Gotshal & Manges asked a judge to approve more than $780 million in fees, the most ever in a bankruptcy case, Bloomberg said. OAO Yukos Oil said it will sue to recover more than $20 billion of damages after the government confiscated its biggest unit, prompting concern cargoes may be seized by foreign courts, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly lower and to rise later in the afternoon ahead of a number of economic reports. The Hennessee Hedge Fund Short-Biased Index, which was up 15.81% at the end of August, is now only ahead by 1.57% this year. I suspect many short-biased funds and "market neutral" funds that are hovering near breakeven for the year will be quick to cover into year-end to keep their performance positive for the year. The Portfolio is 100% net long heading into tomorrow.

Monday Close

S&P 500 1,194.65 +.04%
NASDAQ 2,127.85 -.34%

Leading Sectors
Utilities +1.25%
Energy +1.10%
Tobacco +.65%

Lagging Sectors
Hospitals -1.04%
Drugs -1.10%
Software -1.43%

Other
Crude Oil 45.62 -.35%
Natural Gas 6.93 -.32%
Gold 444.00 +.09%
Base Metals 120.60 +1.96%
U.S. Dollar 81.65 -.02%
10-Yr. T-note Yield 4.19% +.09%.
VIX 11.83 -1.0%
Put/Call .93 +12.05%
NYSE Arms 1.05 -26.57%

After-hours Movers
SSTI -10.2% after cutting 4Q estimates.
CTIC -11.0% after saying it agreed to sell approximately 2.6M shares of its common stock to several institutional investors at $7.10/share.
ENCY -9.5% after saying a study on using the Thelin treatment for patients with pulmonary arterial hypertension at a small dose showed "no meaningful efficacy trends."

Recommendations
Goldman Sachs rated TRI and HMA Outperform. Goldman rated THC Underperform. UBS rated FSH Buy, target $74. CSFB reiterated Outperform on SYMC and MFE.

After-hours News
U.S. stocks finished quietly mixed today as declines in pharmaceutical and software stocks were offset by gains in energy shares. After the close, Toyota Motor will release a car with no lead, mercury, cadmium or hexavalent chromium in 2006 as part of its plan to reduce environmental waste disposals, Nikkei English News reported. Rio Tinto Group, BHP Billiton and Cia Vale do Rio Doce are seeking to raise iron ore prices by a record for 2005 during contract talks with Japanese steelmakers, the Tex report said. Pfizer's CEO McKinnell said the FDA's cardiology panel will review studies of the Celebrex painkiller on Feb. 15 and Feb. 16, CNBC reported. Consumer devices that measure blood pressure may be better able to predict heart disease than those at the doctor's, according to a recommendation published in Hypertension: Journal of the American Heart Association. Jabil Circuit, a designer and builder of electronics for Cisco Systems, NEC Corp. and Hewlett-Packard, said first-quarter profit rose 32% as it boosted consumer electronics sales, Bloomberg said. President Bush said he'd propose "a tough budget" to send a signal to financial markets that he's serious about reducing the federal budget deficit during his second term, Bloomberg reported. Liberty Media said it will end a stock swap agreement with Merrill Lynch early, boosting its voting stake in News Corp. to about 18%, Bloomberg said. Iraqi political parties were assigned positions on the Jan. 30 ballot as President Bush and UN Secretary-General Annan said they were confident the vote could be held, Bloomberg reported. PanAmsat Holding Corp., which owns and operates 24 satellites, filed to sell as much as $1.12 billion worth of shares in an IPO, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my internet and security longs were offset by losses in my retail and semi longs. I exited a retail long in the afternoon and added SYMC long, thus leaving the Portfolio 100% net long. I am using a $23.50 stop-loss on this position. The tone of the market was weak today as most sectors declined and the advance/decline line finished near its daily low. As well, most measures of investor anxiety fell. On the positive side, volume was lighter and energy prices fell. I continue to expect the major indices to mount anther push higher before year's end.

Mid-day Report

S&P 500 1,197.13 +.25%
NASDAQ 2,133.50 -.08%

Leading Sectors
Utilities +1.23%
Energy +.98%
Iron/Steel +.81%

Lagging Sectors
Drugs -.83%
Broadcasting -.99%
Software -1.26%

Other
Crude Oil 45.00 -2.77%
Natural Gas 6.88 -7.74%
Gold 443.00 +.05%
Base Metals 120.60 +1.96%
U.S. Dollar 81.70 -.56%
10-Yr. T-note Yield 4.18% -.51%
VIX 12.17 +1.84%
Put/Call .84 +1.20%
NYSE Arms 1.07 -25.17%

Market Movers
SYMC -4.5% on continuing worries over VRTS merger, TMIC news and slowing growth.
MFE -6.7% after MSFT said it would use TMIC's anti-virus computer technology for MSN Hotmail.
TASR +4.0% after saying it had entered into an exclusive distribution agreement with one of the largest firearm and accessory distributors in the US.
CATG +14.7% after winning a court ruling awarding it higher royalties from US partner Abbott Labs.
KRT +17.03% after Centro Properties and Watt Commercial Properties agreed to buy it for $610 million in cash.
CMC +9.42% after reporting strong 1Q and raising dividend.
TMIC +9.9% after announcing an agreement with MSN to provide anti-virus scanning and cleaning protection for Hotmail.
PEG +5.6% after Exelon Corp. agreed to buy it for about $12.8 billion to create the nation's biggest utility operator.
SMSC -16.5% after missing 3Q estimates substantially and lowering 4Q outlook.

Economic Data
Leading Indicators for November rose .2% versus estimates of a .1% gain and a .4% fall in October.

Recommendations
-Goldman Sachs reiterated Outperform on COH, TU, PFE, ACS, CCL, GILD and Underperform on SGP, PBG.
-Citi SmithBarney thinks semi equipment merger activity will accelerate in 05. Favorite combinations would be AMAT/VECO, KLAC/ORBK, MTSN/ACLS, AMAT/UTEK, LTXX/Eagle Test Systems, MYK/Celerity Group. Citi reiterated Buy on SANM, target $12. Citi reiterated Buy on WMT, target $65.
-UBS raised FCH to Buy, target $17. UBS cut COTT to Reduce, target $24.
-JP Morgan rated AGCC Underweight. JP Morgan cut BVN to Underweight.
-Banc of America rated CCRN Buy, target $21. BofA rated AHS Buy, target $19.
-Deutsche Bank rated ZIPR Buy, target $21.

Mid-day News
U.S. stocks are quietly mixed mid-day as weakness in the software and drug sectors is being offset by strength in energy shares. Sprint today will announce plans to add a radio service to its cell phones, allowing customers to listen to music for $5.99 a month, the NY Times reported. Cingular Wireless and other mobile-phone carriers are trying to not offer pornography and violent video games as more of this content is being adapted for wireless services, the NY Times said. Amazon.com and other Internet retailers are extending the cutoff date for last-minute orders to guarantee delivery of packages in time for Christmas, the NY Times reported. Campbell Soup is selling more of its products through food vendors at restaurants and college campuses to limit its dependency on grocery store sales, the Philadelphia Inquirer reported. US Steel Corp. plans to raise its prices on carbon flat-rolled steel products by $30 to $50 a ton on Jan. 3, American Metal Market reported. Wm. Wrigley Jr. Co. may consider buying Tootsie Roll Industries, Crain's Chicago Business reported. Bristol-Myers Squibb and biotechnology partner Gilead Sciences formed a venture to develop and market an HIV treatment that combines two of their drugs, Bloomberg reported. Crude oil is falling on expectations that temperatures in most of the US will rise, reducing demand for heating oil, Bloomberg said. The index of leading US economic indicators rose in November for the first time in six months, buoyed by higher stock prices, Bloomberg reported.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet and security longs. I have not traded today and the Portfolio is still 100% net long. The underlying tone of the market is slightly negative. Given the positive news today with falling energy prices, declining interest rates and a better Leading Indicators report, today's action is disappointing for the bulls. I expect US stocks to rise modestly into the close.

Monday Watch

Earnings of Note
Company/Estimate
AMHC/.21
JBL/.31
NAV/1.86

Splits
AIT 3-for-2
CNC 2-for-1

Economic Data
Leading Indicators for November estimated to rise .1% versus a .3% decline in October.

Weekend Recommendations
Rukeyser's Wall Street had guests that were positive on LU, PD, ITW, COH, UNH, TIF, HMA, HDI, CVD, PXP, CSH, CVX, COP and PFE. Forbes on Fox had guests that were positive on DRS and mixed on COO. Cashin' In had guests that were positive on GE, CIG, MAT and negative on AAPL, MU. Bulls and Bears had guests that were positive on GE, MER, GOOG, SAP, PPH, CTX, ABT, TIF and mixed on NVDA, COST, PAYX, BRCM. Wall St. Week w/Fortune had guests that were positive on BBY, TGT, JCP, AEOS, LTD, AAPL, mixed on WMT and negative on ZIXI, KKD. Barron's had positive comments on MOSY, TWX and negative comments on HSY. Goldman Sachs reiterated Outperform on MO, PFE, MDT, EBAY, DHR, INTC and underperform on UNM, RAI, MU, SGP.

Weekend News
Japan's crude steel production will likely reach a 30-year high this year, Nihon Keizai reported. AO VimpelCom's bill for $157 million of back taxes "appears exaggerated" and will be reviewed next week in talks between Russia's Finance Ministry and the tax service, Interfax reported. Germany will train more Iraqi military personnel, the daily newspaper Handelsblatt reported. The disclosure of problems in drugs from Pfizer, Eli Lilly and AstraZeneca shows that pharmaceutical companies are having trouble developing new drugs, the NY Times said. The ACLU is being criticized for using software to collect information about its members and donors, which goes against its support for privacy rights, the NY Times reported. Foxwoods Resort Casino and Las Vegas Sands will compete for a license to operated slot machines in Bethlehem, Pennsylvania, the Morning Call of Allentown reported. New Jersey will test a $1.5 million automatic road de-icing system on Route 78 this winter, the Morning Call reported. The UN reported it had found 150 allegations of sexual misconduct, including rape and sex with minors, by peacekeepers in the Congo, the NY Times reported. Xcel Energy has won approval form Colorado regulators to build a $1.35 billion coal-fired power plant in the state after agreeing to invest in pollution control and energy-efficiency programs, the Rocky Mountain News reported. Citigroup may buy Union State Bank for about $530 million to expand in Westchester and Rockland counties, New York, the NY Daily News reported. T-Mobile USA forecast growth to accelerate as the planned merger of two competitors helps it gain customers, Focus reported. BMW AG plans to modernize its factory in South Carolina to increase output there, Automobilwoche said. Vodafone Group Plc may back a bid by Verizon Communications for Sprint Corp. that would cost the British company at least $15 million, the Observer reported. Dell Inc. has sought to cut manufacturing costs by increasing productivity in its US operations instead of relying on overseas plants, the NY Times reported. Donations to major nonprofit organizations are on the rise nationally, Crain's NY Business reported. The Bush Administration is pressing the Pentagon to cut spending over the next several years to help cut the budget deficit, the LA Times reported. Microsoft lost market share to Firefox in Web browsers for the first time due in part to the outdated security programming of its Internet Explorer, the NY Times said. Pfizer agreed to suspend advertising of its Celebrex drug to consumers and change the way it markets the drug to doctors at the request of the US FDA, the Wall Street Journal reported. President Bush said Congress should seek to improve the US economy by making his tax cuts permanent, overhauling Social Security and limiting liability litigation to restrict junk lawsuits, Bloomberg reported. President Bush was named Time's "Person of the Year" in 2004, Time reported. Russia's property fund agreed to sell the largest oil unit of OAO Yukos Oil to OOO Baikalfinansgroup for $9.34 billion, Bloomberg reported. Centro Properties Group, Australia's fourth-largest real estate investment trust by market value, agreed to buy Kramont Realty Trust, a US shopping mall owner, for $610 million, Bloomberg reported. Honda Motor said its global sales of automobiles may rise 8% in 2005, on demand for new models like its Ridgeline light trucks, Bloomberg reported. Merrill Lynch plans to buy $400 million of asset-backed securities from LG Card Co. as South Korea's second-largest credit card company seeks a bailout to avoid collapse, Bloomberg reported. Nokia stands by its forecast that the global mobile phone market will grow by 10% next year, the Financial Times reported. A computer science professor at Rice Univ. and two of his students have found a security problem with Google's new desktop search program, the NY Times reported. The US FDA may soon issue a ruling on cox-2 painkiller drugs which could include a demand for their withdrawal, the Financial Times said.

Late-Night Trading
Asian indices are mostly higher, -.25% to +.50% on average.
S&P 500 indicated +.14%
NASDAQ 100 indicated +.31%.

BOTTOM LINE: I expect US stocks to open modestly higher in the morning on a decline in energy prices and a stronger Leading Indicators report. The Portfolio is 100% net long heading into tomorrow.

Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Leading Indicators (Tues.)-None of note (Wed.)-Final 3Q GDP, Final 3Q Personal Consumption, Final 3Q Price Deflator (Thur.)-Personal Income, Personal Spending, PCE Deflator, Durable Goods Orders, Initial Jobless Claims, Final Univ. of Mich. Consumer Confidence, New Home Sales (Fri.)-Financial Market Closed. Leading Indicators, Personal Spending, Initial Jobless Claims and Consumer Confidence all have market-moving potential.

Tue.-Bear Stearns(BSC), General Mills(GIS), Morgan Stanley(MWD), Paychex(PAYX), Solectron Corp.(SLR) Wed.-Micron Technology(MU) are some of the more important companies that release quarterly earnings this week. The Fed's Lacker speaking Mon. could also impact trading.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, strong economic reports, more optimism, a stabilizing US dollar and short-covering. My short-term trading indicators are still giving Buy signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,194.20 +.52%

Click here for the Weekly Wrap by Briefing.com.

Economic Week in Review

ECRI Weekly Leading Index 133.60 +.45%

Advance Retail Sales for November rose .1% versus estimates of a .1% decline and a .8% increase in October. Retail Sales Less Autos for November rose .5% versus estimates of a .3% increase and a 1.1% gain in October. "There certainly appears to be no sign of a consumer retrenchment," said David Greenlaw, chief U.S. fixed income economist at Morgan Stanley, who raised his estimate for spending this quarter to a 3.7% annual rate. "Usually the holiday season isn't defined until the week leading into Christmas and the week after Christmas" when people start cashing in gift cards, said National Retail Federation spokesman Scott Krugman. Purchases excluding gasoline, building materials and cars, the category used by the Commerce Department to gauge personal consumption in its GDP report, rose .4% in November after rising .8% for two months in a row, Bloomberg reported. The economy has created an average of 185,450 jobs/month so far this year, the best since 1999, helping fuel incomes and spending, Bloomberg said.

Industrial Production for November rose .3% versus estimates of a .2% increase and a .6% gain in October. Capacity Utilization for November was 77.6% versus estimates of 77.8% and 77.5% in October. "Demand for industrial goods has gotten stronger," said Sandy Cutler, chief executive officer of Eaton Corp. "If you look at machine goods builders currently, you're seeing lead times spread out."

Federal Reserve policy makers raised the benchmark US interest rate a quarter point to 2.25% and restated a plan to carry out further increase at a "measured" pace to keep inflation in check, Bloomberg reported. "Labor market conditions continue to improve gradually," the Fed said. "Inflation and longer-term inflation expectations remain well contained" and "output appears to be growing at a moderate pace despite the earlier rise in energy prices." "It really looks good for the rate of inflation in 2005," said Wayne Angell, of Angell Economics. The Fed also said it will begin releasing minutes of meetings three weeks after they take place, instead of six.

Empire Manufacturing for December rose to 29.93 versus estimates of 20.0 and a reading of 18.86 in November. "Things are brightening up for the early part of next year," said Michael Gregory, a senior economist at BMO Nesbitt Burns. The bank's measure of new orders soared to 40.2 from 16.9, the highest level in the three-year history of the survey, Bloomberg said. As well, the index of unfilled orders rose to 10.4 from -1.4 the month before. "Shipments and orders are up, and we are seeing some companies hiring more to handle the increased demand," said Randall Wolken, president of the Manufacturers Assoc. of Central NY. Consumer demand and corporate spending to replace aging equipment are fueling production as inventories near historic lows, Bloomberg reported. "The economy is now in very good shape," said Harvard University economist Martin Feldstein.

The NAHB Housing Market Index for December rose to 71 versus estimates of 70 and a reading of 70 in November. The NAHB last week raised its forecasts for new home sales this year to an ALL-TIME record of 1.18 million, Bloomberg said. "The combination of an improving economy and historically low interest rates are sustaining housing activity," said Jayanth Nazareth, an economist at JP Morgan Chase. "We see very strong demand patterns across the country in most major housing markets," said Stuart Miller, CEO of homebuilder Lennar.

Housing Starts for November fell to 1771K versus estimates of 1980K and an upwardly revised 2039K in October. Building Permits for November fell to 1988K versus estimates of 2000K and an upwardly revised 2018K in October. The decline in housing starts is not the beginning of substantial weakness in housing, economists told Bloomberg. November's starts declined from the best month of the year in October, when builders kicked into high gear following summer hurricanes. Building permits fell just 1.5% in November and a recent survey showed builders are the most optimistic in five years, Bloomberg reported. "There definitely is a rising backlog and that is because demand and contracts are exceeding the ability to produce," said Robert Toll, CEO of Tolls Brothers.

Initial Jobless Claims fell to 317K last week versus estimates of 342K and 360K the prior week. Continuing Claims were 2737K versus 2787K prior. Initial Jobless Claims dropped to the lowest level since July 3 and showed the largest weekly drop in three years, Bloomberg said. Companies are holding onto more workers and increasing hiring to meet demand. "It's getting incredibly difficult for companies to squeeze more out of what they've got and so it's becoming increasingly important for companies to hire," said Chris Low, chief economist at FTN Financial. 24% of US employers surveyed by Manpower Inc. expect to add to their staff from January through March of 2005, up from 20% who said they would do the same during the first quarter of this year.

The Philadelphia Fed. for December rose to 29.6 versus estimates of 20.5 and 20.7 in November. Lean inventories and rising sales suggest factories will need to boost production in coming months, Bloomberg said. The US dollar's decline since its mid-May high is contributing to demand for US products, by making exports cheaper, economists told Bloomberg. "There's every reason and hope that manufacturing will be really strong in 2005" unless the US dollar strengthens considerably, said Joel Naroff, president of Naroff Economic Advisors. The Philly Fed's new orders index rose to 26.4 from 22.1. The measure of shipments rose to 32.0, the highest since August, from 24.5. The index of unfilled orders rose to 7.7, the first positive reading in three months, from minus 1.2, Bloomberg reported. The prices-paid component fell to 52.2 from 53.9. The prices-received index fell to 20.0 from 28.0, Bloomberg said. Finally, a gauge measuring the average workweek rose to 18.6, a 10-month high.

Consumer Price Index for November rose .2% versus estimates of a .2% rise and a .6% gain in October. CPI Ex Food and Energy rose .2% in November versus estimates of a .2% increase and a .2% rise in October. Economist project the CPI to rise 3.3% this year, below the 3.4% rate in 2000 and slightly higher than the long-term average rate of 3.0%, Bloomberg said. The cost of all goods including cars, apparel and food fell .1% last month. President Bush's economic advisors recently predicted the decline in energy prices will bring inflation down to about 2% in 2005, Bloomberg reported. UBS Securities' economists recently projected all consumer prices to rise 1.7% next year as energy prices decline, Bloomberg reported.

Bottom Line: Overall, last week's economic data were positive. The Weekly Leading Index is now at its highest level since the first week of May. Retail sales are solid and will likely improve over the next few weeks. Internet retail continues to exhibit exceptional strength. Industrial production is continuing at healthy levels. I expect the Fed to pause after a 25 basis point hike on Feb. 2 and to raise rates less than currently expected in 05. Measures of manufacturing continue to accelerate from their pre-election lull. Inventory rebuilding and strong demand will likely keep manufacturing at relatively high levels for the next few months. At this point, I am not worried about the decline in housing starts from record-high levels. I expect long-term rates to fall modestly during the first half of 05 which should help maintain brisk demand. The labor market is healthy and continues to improve at a modest rate. This results in a muted increase in unit labor costs, thus holding inflation in check. Consumer inflation, currently near long-term average levels, should decelerate next year as commodity prices fall.

Weekly Scoreboard*

Indices
S&P 500 1,194.20 +.52%
Dow 10,649.92 +1.01%
NASDAQ 2,135.20 +.33%
Russell 2000 642.08 +1.56%
S&P Equity Long/Short Index 1,007.77 +.83%
Put/Call .83 +33.87%
NYSE Arms 1.43 +3.62%
Volatility(VIX) 11.95 -6.35%
AAII % Bulls 52.53 +2.30%
US Dollar 82.16 -.53%
CRB 287.19 +3.82%

Futures Spot Prices
Gold 442.90 +1.68%
Crude Oil 46.28 +14.07%
Unleaded Gasoline 119.01 +10.4%
Natural Gas 7.46 +9.02%
Heating Oil 143.95 +17.41%
Base Metals 118.28 +3.57%
10-year US Treasury Yield 4.20% +1.20%
Average 30-year Mortgage Rate 5.68% -.53%

Leading Sectors
Iron/Steel +5.33%
Oil Service +4.38%
Utilities +2.94%

Lagging Sectors
Internet -.68%
Networking -1.80%
Airlines -1.81%

*% Gain or loss for the week

Mid-day Report

S&P 500 1,194.17 -.75%
NASDAQ 2,139.13 -.33%

Leading Sectors
Hospitals +.62%
Iron/Steel +.51%
Biotech +.29%

Lagging Sectors
Homebuilders -1.24%
Airlines -1.25%
Drugs -4.03%

Other
Crude Oil 45.80 +3.67%
Natural Gas 7.44 +6.29%
Gold 443.00 +1.07%
Base Metals 118.28 +.05%
U.S. Dollar 82.13 -.40%
10-Yr. T-note Yield 4.21% +.60%
VIX 12.24 -.24%
Put/Call .82 +22.39%
NYSE Arms 1.55 +124.64%

Market Movers
PFE -13.9% after saying Celebrex increased the risk of heart attacks in a study of cancer patients.
PLMO -19.7% after meeting 2Q estimates, but failing to give 3Q guidance.
OSIP +42.6% on AZN news.
ZOLT +19.5% after saying that it received a contract from Vestas Wind Systems A/S, the world's largest producer of wind turbine generators, to provide $80 million to $100 million of carbon fiber and materials during the next three years.
NKE +6.4% after beating 2Q estimates and giving strong 3Q/4Q guidance.
MATR +13.8% after boosting 05 guidance.
WLT +8.1% after announcing its Board approved up to $135 million for a capital investment program to significantly increase coal production capacity.
KMX +7.7% after beating 3Q estimates and raising 4Q outlook.
AHG +6.0% on multiple upgrades.
LF -11.55% after cutting 04 outlook substantially.
VIP -8.8% after denying a report it may receive a $322 million tax bill for 2002.
TELK -12.5% on AZN news.
AZN -8.8% after saying its Iressa lung cancer treatment didn’t help patients live longer in a study.
LEG -7.1% after lowering 4Q guidance.

Economic Data
Consumer Price Index for November rose .2% versus estimates of .2% and a .6% increase in October.
CPI Ex Food & Energy for November rose .2% versus estimates of .2% and a .2% increase in October.

Recommendations
-Goldman Sachs reiterated Outperform on DHR, DNA, PFE, NKE and Underperform on SCS.
-Citi SmithBarney reiterated Buy on PRE, target $71. Citi reiterated Buy on KBH, target $141. Citi reiterated Buy on DRS, target $52. Citi reiterated Buy on MXRE, target $24. Citi reiterated Sell on UST, target $38. Citi reiterated Buy on PBG, target $33. Citi reiterated Sell on GMR, target $35. Citi reiterated Sell on SEPR, target $40. Citi reiterated Sell on LF, target $10. Citi reiterated Buy on CCE, target $25. Citi reiterated Buy on GS, target $125. Citi reiterated Buy on CTAS, target $55.
-CSFB reiterated Outperform on DE.
-Banc of America rated SBSA Buy, target $12. BofA rated EVC Buy, target $10. BofA rated UVN Buy, target $33. BofA rated KWK Buy, target $43. BofA rated LNCR Buy, target $48. BofA rated AHG Buy, target $40.
-Bear Stearns downgraded PLMO to Underperform.
-JP Morgan rated LNG Overweight. JPM rated ONXX Overweight.

Mid-day News
U.S. stocks are modestly lower mid-day on worries over higher energy prices and weakness in the pharmaceutical sector. Oil prices will drop through March, losing as much as 25%, as inventories increase in industrialized countries, according to Merrill Lynch. Reuters Group is expected to buy Telerate, the bond data company, early next week, Financial News said. Cox Communications, Time Warner and Comcast are among cable companies laying their own fiber-optic networks or leasing them to offer new services combining telephone and the Internet as well as tv, the Wall Street Journal reported. Resistance to new financial regulations is rising in the US and Europe, the NY Times reported. The Los Angeles region likely attracted a record high number of visitors this year, thanks in part to a weaker US dollar providing bargains for foreign tourists, the LA Times reported. EBay agreed to buy privately held Rent.com for $415 million in cash and stock as it expands into classified listings, Bloomberg said. Pfizer said Celebrex posed a greater risk to the heart than a placebo in a long-term study of the painkiller, Bloomberg reported. AstraZeneca Plc's Iressa lung cancer treatment didn't help patients live longer in a study, Bloomberg said. Crude oil is rising, heading for its biggest weekly gain since March 2003, on expectations that below-normal temperatures will boost demand for heating oil, Bloomberg reported. President Bush signed into law a bill creating a director to oversee US intelligence gathering and making other changes the Sept. 11 commission said were needed to prevent future attacks, Bloomberg said. Eli Lilly said it added a safety warning to the label of its attention-deficit drug Strattera, Bloomberg reported.

Bottom Line: The Portfolio is slightly lower mid-day on losses in my semi and internet longs. I have not traded and the Portfolio is still 75% net long. Considering the news today, it is a mild positive that the major indices are only showing modest losses. Energy prices are spiking, interest rates are rising and the pharmaceutical sector is sustaining significant damage. Also on the positive side, the ARMS Index and Put/Call readings are soaring and the ECRI Weekly Leading Index rose again this week and is now at its highest level since the first week of May. I expect US stocks to trade mixed-to-higher into the close.

Friday Watch

Earnings of Note
Company/Estimate
AGE/.56
KMX/.17
CC/-.08
FDO/.33
SCS/.04

Splits
None of note.

Economic Data
Consumer Price Index for November estimated to rise .2% versus a .6% increase in October.
CPI Ex Food & Energy for November estimated to rise .2% versus a .2% gain in October.

Recommendations
Goldman Sachs reiterated Outperform on AMGN, DNA and Underperform on FISV, VTS. Banc of America upgraded NBL to Buy. Shares of Keynote Systems(KEYN), which measures how well a company's web site can attract and service customers, are expected to rise following a recent price drop, Business Week reported.

Late-Night News
Asian indices are mostly higher, led by Japanese exporters. Adam Aron, chairman and chief executive officer of Vail Resorts, said the weaker US dollar is drawing more foreign visitors to the slopes, CNBC reported. Alltel, which sells wireless and local-telephone service, may be the next takeover target with the telecom industry, Business Week reported. Nissan Motor, Suzuki Motor Corp. and other Japanese carmakers face worsening shortages of steel next year as auto production reaches its seasonal peak, the Financial Times reported. The Standard & Poor's 500 Index will rise about 8% next year as corporate profit growth levels off, Business Week reported, citing a poll of strategists. Citigroup's consumer business profits from Asia may rise to about 20% within a few years, the Financial Times said. A US judge ordered a 10-day halt to the sale of OAO Yukos Oil's biggest unit, Agence France-Presse reported. The US, Europe and Arab countries may double aid for the Palestinians if they and Israel meet certain conditions aimed at calming their conflict, the NY Times reported.

Late-Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated -.06%

BOTTOM LINE: I expect U.S. equities to open modestly lower on declines in technology stocks. However, equities should rally later in the day on lower energy prices and interest rates. The Portfolio is 75% net long heading into tomorrow.

Thursday Close

S&P 500 1,203.21 -.21%
NASDAQ 2,146.15 -.76%

Leading Sectors
Drugs +2.35%
Consumer +.57%
Tobacco +.28%

Lagging Sectors
Semis -1.60%
Broadcasting -1.94%
Software -2.02%

Other
Crude Oil 44.29 +.25%
Natural Gas 7.04 +.51%
Gold 438.70 +.11%
Base Metals 118.22 +.54%
U.S. Dollar 82.45 +1.0%
10-Yr. T-note Yield 4.18% +2.65%.
VIX 12.27 -.65%
Put/Call .67 +9.84%
NYSE Arms .69 -33.01%

After-hours Movers
IFIN +4.3% after raising 04 guidance.
NKE +4.4% after beating 2Q estimates and giving strong 3Q/4Q guidance.
TEK -6.0% after beating 2Q estimates and lowering 3Q outlook.
LF -16.0% after cutting 04 outlook substantially.
EFII -11.6% after cutting 4Q forecast substantially.
PLMO -14.4% after meeting 2Q estimates, but failing to give 3Q guidance.
TTWO -9.4% after missing 4Q estimates and lowering outlook.

Recommendations
None of note.

After-hours News
U.S. stocks finished modestly lower today on rising interest rates and worries over growth in the tech sector. After the close, Fidelity Investments, the world's largest mutual fund company, dismissed two employees and disciplined 14 others amid an investigation into whether workers accepted gifts from brokers seeking to win trading business, Bloomberg reported. Adobe Systems, the world's largest maker of graphic-design software, said fourth-quarter net income jumped 36% as sales surged for its Creative Suite publishing and design programs, Bloomberg said. A unit of Spain's Grupo Ferrovial SA won a contract to invest $7.2 billion in Texas to develop the first leg of the Trans-Texas Corridor Project with a toll road, rail line and other infrastructure form Oklahoma to Mexico, Bloomberg said. Nike said second-quarter earnings surges to $261.9 million after the Shox line spurred demand in Asia and the US, Bloomberg reported. European Union leaders agreed to begin membership talks with Turkey next Oct. 3, vowing to promote Turkish economic growth and build a bridge to the wider Muslim world, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today on losses in my technology longs. I exited a number of long positions in the afternoon, thus leaving the Portfolio 75% net long. Considering the positive news today, the major indices' action was disheartening for the bulls. Merger news, a rebounding US dollar, lower energy prices, strong earnings reports, lower jobless claims and a strong Philly Fed report failed to boost shares. Volume increased and the advance/decline line was poor. The FASB decision to force companies to expense employee stock options by mid-05 likely pressured tech shares. Large-cap value stocks outperformed today.

Mid-day Report

S&P 500 1,2004.29 -.12%
NASDAQ 2,157.66 -.23%

Leading Sectors
Drugs +1.73%
Biotech +.42%
Boxmakers +.42%

Lagging Sectors
Transports -1.27%
Software -1.27%
HMOs -1.52%

Other
Crude Oil 43.65 -1.22%
Natural Gas 7.06 -2.43
Gold 439.20 -.68%
Base Metals 118.22 +.54%
U.S. Dollar 82.30 +.82%
10-Yr. T-note Yield 4.18% +2.50%
VIX 12.25 -.81%
Put/Call .66 +8.20%
NYSE Arms .60 -41.75%

Market Movers
SYMC -8.0% after agreeing to buy Veritas Software(VRTS) for $13.5 billion, the biggest software purchase in six years.
ISON +23.1% on optimism over 2Q report.
SEPR +9.7% after saying it won FDA approval for its Lunesta sleeping pill and positive comments by JP Morgan.
ARBX +44.3% on strong demand for IPO.
AEA +28% on strong demand for IPO.
HUBG +18.3% on Bear Stearns upgrade to Outperform.
POG +14.3% after Noble Energy(NBL) agreed to acquire it for $2.76 billion to expand in the Rockies.
WYNN +7.2% after Prudential raised its price target from $62 to $95.
JOYG +10.6% after announcing 3-for-2 split, beating 4Q estimates and raising 05 outlook.
LVS +7.3% on continuing strong demand for IPO.
FLIR +7.1% after announcing 2-for-1 split, raising 05 eps and lowering 05 sales outlook.
MFE -11.3% on worries over slowing growth in anti-virus biz.
APOL -5.1% after meeting 1Q estimates, lowering 05 guidance slightly and Merrill Lynch downgrade to Neutral.

Economic Data
Current Account Balance for 3Q was -$164.7B versus estimates of -$170.6B and -$164.4B in 2Q.
Housing Starts for November were 1771K versus estimates of 1980K and 2039K in October.
Building Permits for November were 1988K versus estimates of 2000K and 2018K in October.
Initial Jobless Claims for last week were 317K versus estimates of 342K and 360K the prior week.
Continuing Claims were 2737K versus estimates of N/A and 2787K prior.
Philadelphia Fed. rose to 29.6 in December versus estimates of 20.5 and a reading of 20.7 in November.

Recommendations
-Goldman Sachs reiterated Outperform on CEN, MSFT.
-Bank of America downgraded IPCC to Sell.
-Citi SmithBarney upgraded COO to Buy, target $84. Citi rated CD Buy, target $28. Citi rated INTU Buy, target $54. Citi rated SY Buy, target $22.50. Citi reiterated Buy on FNM, target $81. Citi rated CHK Buy, target $20. Citi reiterated Buy on BBY, target $73. Citi reiterated Buy on TWX, target $22. Citi reiterated Buy on AMGN, target $90. Citi reiterated Buy on LEN, target $80. Citi reiterated Sell on SEPR, target $40.
-JP Morgan rated VVTV Overweight. JPM rated UVN Underweight.
-UBS raised BKS to Buy, target $38.
-Thomas Weisel cut AW to Underperform.
-CSFB cut TER to Underperform, target $14. CSFB cut CMOS to Underperform, target $7.50. CSFB cut KLIC to Underperform, target $7.50.
-Deutsche Bank rated JBHT Buy, target $46. Deutsche rated SCST Buy, target $25.
-Bear Stearns raised HUBG to Buy, target $70. Bear cut MFC to Underperform, target $45.
-Oppenheimer rated IDBE Buy, target $23.

Mid-day News
U.S. stocks are modestly lower mid-day as rising interest rates are more than offsetting lower energy prices, merger activity and strong economic reports. U.S. retailers including Gap, Nike and Build-A-Bear Workshop have aligned themselves with charities during this year's holiday shopping season to help appeal to customers, the NY Times reported. The average Wall Street bonus is up 15-20% this year, said Tom Cleary, a partner at Rhodes Associates. Sepracor CFO Southwell told CNBC that its newly approved sleeping pill Lunesta has the potential to reach $1 billion or more in sales. Peninsular & Oriental Steam Navigation, the largest UK shipping company, has been picked to establish a "green terminal" for the Port of Los Angeles, the LA Times reported. Illinois Governor Blagojevich wants to make renting or selling violent and sexually explicit video games to people under 18 illegal, the Chicago Sun-Times reported. The US dollar is "a little undervalued," said Mark Mobius, a managing director at Templeton Asset Management. Cendant agreed to buy the UK's Gullivers Travel and Octopus Travel for about $1.1 billion, Bloomberg reported. United Technologies agreed to buy Kidde of the UK for $2.8 billion in cash, Bloomberg said. FedEx said second-quarter net income almost quadrupled as international air shipments rose, Bloomberg said. Goldman Sachs said quarterly profit rose 23%, spurred by revenue from fixed-income trading and fees from providing merger advice, Bloomberg reported. Symantec will buy Veritas Software for $13.5 billion in stock to add data-storage products, Bloomberg said. The number of Americans filing first-time claims for unemployment insurance benefits fell by 43,000 last week to a five-month low, suggesting that more US companies are retaining workers to meet rising demand, Bloomberg reported. Johnson & Johnson agreed to acquire Guidant for $25.4 billion, Bloomberg said. Glamis Gold, which produces gold in Nevada and Honduras, made a hostile $3.38 billion takeover bid for Goldcorp, Canada's fourth-biggest gold producer, Bloomberg reported. The Philly Fed Index soared to 29.6 from 20.7 in November, substantially topping economists' estimates, Bloomberg said. The US dollar rose the most in two months against the euro after a report showed the US current-account deficit grew less than forecast in the third quarter, Bloomberg said.

Bottom Line: The Portfolio is higher unchanged mid-day as gains in my semi and rfid longs are offsetting losses in my internet longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is weaker today as interest rates rise on a better-than-expected Philly Fed report and lower jobless claims. Today's performance is a bit disappointing considering the merger activity, falling energy prices and strong economic/earnings reports. I do not view the weaker housing starts number as a problem, just a slowdown from scorching levels in October. I expect US stocks to trade mixed-to-weaker into the close.

Thursday Watch

Earnings of Note
Company/Estimate
FDX/1.27
ADBE/.42
APOL/.57
DRI/.23
CTAS/.44
CCL/.31
GS/2.32
KBH/4.13
NKE/.86
PLMO/.53
ZQK/.40
TTWO/1.55
TEK/.32

Splits
LCAV 3-for-2

Economic Data
Current Account Balance for 3Q estimated at -$170.6B versus -$166.2B in 2Q.
Housing Starts for November estimated at 1980K versus 2027K in October.
Building Permits for November estimated at 2000K versus 2018K in October.
Initial Jobless Claims for last week estimated at 342K versus 357K the prior week.
Continuing Claims estimated at N/A versus 2796K prior.
Philadelphia Fed. for December estimated at 20.5 versus 20.7 in November.
Minutes of Nov. 10 FOMC Meeting.

Recommendations
Goldman Sachs reiterated Outperform on BBBY, AMGN, IP and Underperform on AZR, HMT, VTS. Banc of America upgraded BIIB to Buy.

Late-Night News
Asian indices are quietly higher, led by Korean and Australian shares. Carlyle Group, a U.S. buyout fund, will acquire a 25% stake in China Pacific Life Insurance, the nation's third-biggest life insurer, for up to $400 million, in the biggest overseas private-equity purchase in China, the Financial Times reported. China's Supreme People's Court will issue new rules making piracy and counterfeiting of software and other goods a more severe criminal offense, stepping up the nation's crackdown on bootlegged intellectual property, China Daily reported. Isuzu Motors, Japan's largest truckmaker, is in talks with GM to get more steel as a worldwide shortage of the material crimps automakers, the Sankei newspaper said. Samsung said it expects to increase mobile phone sale by about 16% next year to more than 100 million units, Korea Economic Daily reported. Latin America's economy will grow by 5.5% this year, the fastest in 24 years, the Financial Times reported. Fannie Mae, the biggest source of money for U.S. home mortgages, failed to comply with accounting rules for financial contracts designed to protect against swings in interest rates, the SEC said. Johnson & Johnson agreed to acquire Guidant for $25.4 billion, adding electrical devices for treating heart disease to a lineup of thousands of health products ranging from Band-Aids to cardiac stents, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25%. to +.50% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated -.06%

BOTTOM LINE: I expect U.S. equities to open modestly higher on better-than-expected economic/earnings reports, short-covering and merger activity. The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,205.72 +.19%
NASDAQ 2,162.55 +.13%

Leading Sectors
Homebuilders +3.38%
Iron/Steel +2.67%
Disk Drives +1.78%

Lagging Sectors
Wireless -.44%
Airlines -.49%
Telecom -1.16%

Other
Crude Oil 44.53 +.77%
Natural Gas 7.22 -.15%
Gold 443.10 +.16%
Base Metals 117.59 +1.29%
U.S. Dollar 81.65 +.02%
10-Yr. T-note Yield 4.07% +.09%.
VIX 12.35 -2.99%
Put/Call .61 -20.78%
NYSE Arms 1.03 +18.39%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished higher today on gains in my internet, homebuilding, semi and healthcare longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. Once again, the tone of the market improved throughout the day as volume increased and the major indices closed near their highs. Today's mild gains should be considered a win for the bulls as the US dollar fell and energy rose. As well, it is a positive to see long-term rates decline again even as cyclicals and small-caps outperformed.

Mid-day Report

S&P 500 1,202.09 -.11%
NASDAQ 2,156.79 -.14%

Leading Sectors
Homebuilders +2.52%
Iron/Steel +1.94%
Disk Drives +1.34%

Lagging Sectors
Biotech -.40%
Airlines -.73%
Telecom -.99%

Other
Crude Oil 43.80 +4.38%
Natural Gas 7.32 unch.
Gold 442.50 +1.19%
Base Metals 117.08 +.85%
U.S. Dollar 81.49 -1.01%
10-Yr. T-note Yield 4.08% -.93%
VIX 12.59 -1.10%
Put/Call .62 -19.48%
NYSE Arms 1.04 +19.54%

Market Movers
LVS +55.2% on strong demand for IPO.
RIMM -4.2% on continuing worries over yesterday's patent ruling.
LEN +10.1% after beating 4Q estimates and raising 05 guidance.
MSTR +8.2% on rebound after yesterday's fall related to CFO resignation.
SUN +4.2% on Prudential upgrade to Overweight.
FS +4.7% on positive comments from Goldman Sachs.
BBY +5.6% after beating 3Q estimates and raising 4Q outlook.
BMET -6.9% on disappointing 2Q report.
JRCC -7.0% on continuing worries over recent 3Q report.
JMDT -9.64% on NXTL/FON merger news.
PLMO -3.45% on profit-taking and Lehman downgrade to Equal Weight.
*Homebuilders up across the board on falling long-term rates and LEN report.

Economic Data
Empire Manufacturing for December rose to 29.93 versus estimates of 20.0 and a reading of 18.86 in November.

Recommendations
-Goldman Sachs reiterated Outperform on SYMC, BBY and KRB.
-Citi SmithBarney upgraded DD to Buy, target $57. Citi upgraded LZ to Buy, target $42. Citi reiterated Buy on GE, target $44. Citi reiterated Buy on SCH, target $14.50. Citi reiterated Buy on SLM, target $61. Citi reiterated Sell on FCEL, target $7. Citi reiterated Buy on NT, target $5. Citi reiterated Buy on BNI, target $50.50. Citi reiterated Buy on VRTS, target $33.
-Banc of America rated CENT Buy, target $44.
-UBS rated NAT Buy, target $42. UBS rated ATB Buy, target $24. UBS raised WEN to Buy, target $44.
-Morgan Stanley cut RAD to Underweight.
-Prudential raised SUN to Overweight, target $73. Pru cut VLO to Underweight, target $41. Pru raised MRO to Overweight, target $42. Pru cut PCO to Underweight, target $42.
-Raymond James rated ASPT Buy, target $15. RJF raised MRK to Strong Buy, target $38.50.

Mid-day News
U.S. stocks are modestly lower mid-day as worries over a bounce in oil prices and a decline in the US dollar more than offset declining interest rates and strong economic/earnings reports. U.S. hedge funds' returns are dwindling as more and more funds chase the same investment opportunities, the Wall Street Journal reported. Ali Hassan al-Majid, known as "Chemical Ali" because of his role in gas attacks on the Kurds, will become the first former aide of deposed Iraqi dictator Saddam Hussein to stand trial next week, Agence France-Presse reported. Palestinian public tv has been airing less anti-Israeli rhetoric, the NY Times reported. Charles Schwab CFO Dodds said the company may be able to beat a fourth-quarter earnings forecast by 10-20%, Dow Jones reported. Crude oil prices are expected to trade at $37 to $39/bbl. next year, Kyodo News reported, citing Japan's Institute of Energy Economics. Career Education Corp. may lose the right to operate its schools in California, the Financial Times reported. EchoStar Communications may soon start offering high-definition tv and high-speed Internet services using a new satellite to be launched this week, the Rocky Mountain News of Denver reported. Google can keep selling ads prompted by searches using trademarked company names, the AP reported, citing a federal judge in a case between Geico and Google. OAO Yukos said it sought Chapter 11 bankruptcy protection in the U.S. and requested an emergency court hearing to stop the government's auction of its biggest unit, Bloomberg reported. Russia is committed to a market economy and foreign investment, Finance Minister Kudrin said. Best Buy, the world's largest electronics retailer, said third-quarter earnings rose as it limited holiday discounts and sold more digital televisions, cameras and MP3 players, Bloomberg reported. Manufacturing in New York state expanded more than forecast this month as more factories reported rising orders, sales and increased employment, Bloomberg said. U.S. communications regulators approved a plan to foster high-speed Internet access aboard airplanes, Bloomberg said. The dollar fell the most in two months against the yen on a report showing purchases of assets in the U.S. increased in October at the slowest pace in a year, Bloomberg said. AT&T, MCI and other U.S. telephone companies that lease competitors' networks to sell local service will lose discount rates in early 2006, regulators said. Crude oil had its biggest gain in six months after the government reported a decline in U.S. heating-oil inventories and below-normal temperatures boosted demand, Bloomberg reported. Sprint agreed to buy Nextel for about $35 billion in a transaction that would leave three companies in control of 70% of the US mobile-telephone market, Bloomberg reported.

Bottom Line: The Portfolio is higher mid-day on gains in my semi, internet and homebuilding longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is mildly positive today, notwithstanding today's small losses in the major indices. The advance/decline line is slightly higher and many leaders are higher. It is also a positive to see interest rates lower again even with a decline in the dollar on worries over foreign demand for US treasuries. As well, the bounce in energy prices isn't resulting in any significant selling of equities. Oil will likely approach $45-$47/bbl. in the near-term before heading to $35/bbl. over the next few months. I expect US stocks to rise modestly into the close on short-covering, strong economic data, falling interest rates, good earnings reports and merger optimism.

Wednesday Watch

Earnings of Note
Company/Estimate
BBBY/.39
BBY/.44
BMET/.38
MLHR/.23
LEH/1.69
LEN/2.21
SCHL/1.76
WGO/.57
VTS/.18

Splits
None of note.

Economic Data
Empire Manufacturing for December estimated at 20.0 versus 19.76 in November.
NAHB Housing Market Index for December estimated at 70 versus 71 in November.

Recommendations
Goldman Sachs reiterated Outperform on EBAY, FS, GE, MDT, COH and Underperform on CR.

Late-Night News
Asian indices are higher as exporters in the region gained on optimism over sales to the US. Abby Joseph Cohen, chief investment strategist for Goldman Sachs, said she expects 2005 economic growth "will be good," averaging about 3.5%, CNBC reported. Wal-Mart declined to comment on a report that it may pull out of the bidding for Japan's Daiei, Bloomberg said. North Korea would consider any decision by Japan to impose economic sanctions against it as a "declaration of war," the communist nation's Foreign Ministry said. Sprint is close to an agreement to buy Nextel for more than $35 billion, doubling its customers, Bloomberg reported.

Late-Night Trading
Asian Indices are +.50%. to +1.25% on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strong earnings reports, economic data, merger speculation and gains in Asia. The Portfolio is 125% net long heading into tomorrow.

Tuesday Close

S&P 500 1,203.38 +.39%
NASDAQ 2,159.84 +.53%

Leading Sectors
Broadcasting +2.69%
Oil Service +1.89%
Semis +1.86%

Lagging Sectors
Software -.39%
Wireless -.47%
Networking -1.18%

Other
Crude Oil 41.91 +.22%
Natural Gas 7.29 -.52%
Gold 436.80 -.11%
Base Metals 116.09 +.37%
U.S. Dollar 82.32 +.27%
10-Yr. T-note Yield 4.12% -.56%.
VIX 12.73 +1.52%
Put/Call .77 +8.45%
NYSE Arms .87 +20.83%

After-hours Movers
BBI +5.33% after billionaire financier Icahn boosted his stake in Hollywood Entertainment to 9.54% and said he supports Blockbuster's bid for it.
ADCT +10.89% after beating 4Q estimates substantially.
MANC +5.0% on continuing optimism over 1Q report.
ABGX -5.7% after announcing it intends to sell approximately $150 million principal amount of its Convertible Senior Notes through a private placement.

Recommendations
Goldman Sachs reiterated Outperform on RIMM. Goldman cut WTW to Underperform .

After-hours News
U.S. stocks finished modestly higher today as merger speculation increased, long-term interest rates fell and the US dollar rallied. After the close, Russian policies are damaging the economy and the achievements of its rapid economic growth, the Financial Times reported. Federal Reserve policy makers raised the benchmark U.S. interest rate a quarter point to 2.25% and restated a plan to carry out further increases at a "measured" pace to keep inflation in check, Bloomberg reported. The US dollar rose against the yen after the Fed indicated it will keep increasing interest rates as the economy extends an expansion that's outpacing growth in Japan, Bloomberg said. The Nasdaq has advanced 23% from its 2004 low on Aug. 12, bringing its gain for the year to 7.8%. The index has jumped 94% since Oct. 9, 2002, Bloomberg reported. MCI Inc., formerly known as WorldCom before filing the biggest US bankruptcy, can pay more than $165 million to some of the consultants, lawyers and other advisers who guided its reorganization, Bloomberg said. Berkshire Hathaway named Microsoft founder Bill Gates to its board of directors, Bloomberg reported. Las Vegas Sands, owner of the Venetian Casino Resort in Las Vegas and China's Sands Macau, raised $690 million in the biggest IPO by a U.S. gaming company, Bloomberg reported. China has set the inflation target for 2005 at 4%, Wen Wei Po reported. China's consumer prices rose 2.8% in November from a year earlier, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly higher today as gains in my internet, semi and semi-equipment longs more than offset losses in my Chinese ADR and software longs. I exited a software long in the afternoon as it hit my stop-loss and added a new internet long, thus leaving the Portfolio 125% net long. I added MNST and I am using a $29.50 stop-loss on this position. The tone of the market improved throughout the day as volume increased and the advance/decline line finished near its daily high. It was also a positive to see long-term interest rates fall and the US dollar rally in the face of a disappointing trade report.

Mid-day Report

S&P 500 1,200.19 +.13%
NASDAQ 2,155.47 +.32%

Leading Sectors
Broadcasting +2.01%
Semis +1.63%
Oil Service +1.42%

Lagging Sectors
Wireless -.56%
Homebuilders -.56%
Networking -1.41%

Other
Crude Oil 41.40 +.95%
Natural Gas 7.29 +1.73%
Gold 437.40 -.66%
Base Metals 116.09 +.37%
U.S. Dollar 82.64 +.65%
10-Yr. T-note Yield 4.17% +1.31%
VIX 12.39 -1.20%
Put/Call .88 +23.94%
NYSE Arms .80 +11.11%

Market Movers
SYMC -12.1% after reports it is in advanced talks to acquire Veritas Software(VRTS) for at least $13 billion, the NY Times reported. VRTS +9.7%.
ERTS +5.6% after saying it entered into exclusive licensing relationships with the NFL and Players Inc. to develop, publish and distribute interactive football games. Competitor TTWO -5.3%.
RIMM +7.6% after a US appeals court orders new hearings in a patent infringement suit by a Virginia company.
ORNG +14.8% on strong demand for IPO.
MPS +13.2% after saying it had been selected as one of Raymond James' Analysts' Best Picks for 2005.
LNG +12.5% after completing an agreement to the rights to its Louisiana-based plant to ChevronTexaco.
PQE +11.2% after saying it will buy Voyager Expanded Learning for $360 million is cash and stock to expand its educational products.
SLAB +10.1% after Citi SmithBarney initiated it with Buy(Top Pick), target $46.
VRNT +7.4% on CIBC upgrade to Sector Outperform, target $43.
ADTN -14.7% after lowering 4Q estimates and multiple downgrades.
MSTR -10.4% after saying CFO is leaving and multiple downgrades.
AFCO -9.8% on Lehman Brothers downgrade to Equal Weight from Overweight.
JRCC -14.14% on disappointing 3Q results.
COO -7.1% on disappointing 3Q results.

Economic Data
Trade Balance for October was -$55.5B versus estimates of -$53.0B and -$50.9B in September.
Industrial Production for November rose .3% versus estimates of a .2% increase and a .6% gain in October.
Capacity Utilization for November fell to 77.6% versus estimates of 77.8% and 77.5% in October.

Recommendations
-Goldman Sachs reiterated Outperform on NKE, FON and SYMC.
-Citi SmithBarney said to Buy GIS, target $51.50. Citi said to Buy ACE and STA now, targets $49 and $43, respectively. Citi reiterated Sell on OSG, target $49. Citi reiterated Buy on CSC, target $68. Citi reiterated Buy AXP, target $57. Citi reiterated By on MAY, target $35. Citi reiterated Buy on ERTS, target $67.
-Banc of America rated NWS/A to Buy, target $21. BofA rated L Buy, target $13.25. BofA rated TWX Buy, target $23.
-UBS raised KYPH to Buy, target $30.
-CIBC raised VRNT to Sector Outperform, target $43. CIBC raised ISLE to Sector Outperform, target $30. CIBC raised HLT to Sector Outperform, target $25. CIBC raised PENN to Sector Outperform, target $59. CIBC raised HOT to Sector Outperform, target $61. CIBC cut PNK to Sector Underperform, target $16. CIBC cut ASCA to Sector Underperform, target $36. CIBC cut STN to Sector Underperform, target $55. CIBC cut KZL to Sector Underperform, target $56.
-Merrill Lynch said US dollar is undervalued and Euro is overvalued. Merrill also said US bonds will perform poorly in 2005.
-Thomas Weisel raised STE to Outperform, target $29.
-Legg Mason rated CBM Buy, target $31. Legg Mason rated FSH Buy, target $73.

Mid-day News
U.S. stocks are modestly higher mid-day on a rebound in the US dollar, merger speculation and a better-than-expected industrial production report. The US restaurant business is being pushed to reduce trans fats that are often used in processed foods to improve shelf-life, taste and texture, but which have been linked to health troubles, the Wall Street Journal reported. Mergers and acquisitions worth about $1.7 trillion worldwide have been announced so far this year, compared to $1.3 trillion for all of 2003, the Wall Street Journal reported. The Bush administration will urge Congress to overhaul air quality legislation early next year, the Washington Post reported. Bear Stearns is the subject of speculation on Wall Street over whether CEO Cayne will sell the company, the NY Times reported. Lucent and Nortel, the two main wireless network-equipment suppliers to Sprint, may benefit if Sprint merges with Nextel, the NY Times said, citing analyst Susan Kalla of FBR. Iraq next week will begin war crimes trials for leaders of the former regime of ousted dictator Saddam Hussein, the AP reported. Theme parks in North America boosted attendance by 4% this year, the first increase since the 2001 terrorist attacks, the LA Times reported. Companies are spending heavily on employee monitoring software, USA Today reported. Doctors might be able to identify patients with Alzheimer's disease by using a basic scratch-and-sniff test, Reuters reported. Boeing won a $928 million US contract to develop parts and systems for a site in Huntsville, AL, that will be part of a US anti-missile system from the Missile Defense Agency, Reuters reported. Mahmoud Abbas, the interim Palestinian leader and the front-runner to win Jan. 9 leadership elections, called for an end to the Palestinian armed uprising, saying it has been counterproductive, the AP reported. About 30% of companies in Massachusetts plan to hire in the first quarter of 05 compared with 20% a year earlier, according to Manpower. ChevronTexaco increased 2005 spending by 18% from this year to boost production amid record demand for oil and natural gas, Bloomberg said. Blockbuster will stop charging late fees to compete with Netflix, Bloomberg reported. Vodafone said it's not in talks with Verizon about mounting a bid for Sprint, Bloomberg said.

Bottom Line: The Portfolio is unchanged mid-day as strength in my semi and internet longs is offsetting weakness in my software and Chinese ADR longs. I have not traded today and the Portfolio is still 125% net long. The tone of the market is ok as more stocks are advancing than declining and volume is decent. It is a positive to see the US dollar rally on the trade report. The CRB is also falling again today even with the rise in energy prices. I expect US stocks to rise modestly into the close on merger optimism, short-covering and year-end repositioning.

Tuesday Watch

Earnings of Note
Company/Estimate
EASI/.71
FCEL/-.44
NTY/.40
PIR/.22

Splits
BLUD 3-for-2

Economic Data
Trade Balance for October estimated at -$53.0B versus -$51.6B in September.
Industrial Production for November estimated up .2% versus a .7% gain in October.
Capacity Utilization for November estimated at 77.8% versus 77.7% in October.
FOMC expected to raise 25 basis points to 2.25%.

Recommendations
Goldman Sachs reiterated Outperform on AGN, A, CIL, BAX and CAT. Goldman reiterated Underperform on RAI.

Late-Night News
Asian indices are higher on strength in exporters after a better-than-expected retail sales report in the US. Goodyear Tire & Rubber will renew efforts to raise cash by selling operations not related to tire-making, including a unit that makes hoses and conveyor belts, the Daily Deal reported. General Electric and other companies have invested billions of dollars into struggling airlines as a way to avoid potentially massive losses from a bankrupt carrier, the Wall Street Journal reported. Verizon Communications may bid for Sprint, with the backing of Britain's Vodafone Group Plc, its partner in Verizon Wireless, the Wall Street Journal said. Google will announce tomorrow that it will convert more than 15 million books and documents from research institutions such as Stanford University and Oxford University into Internet-searchable files, the NY Times reported. Frontline Ltd., the world's biggest tanker company, said it's considering a bid for General Maritime Corp., a move that would create a company able to ship about five days of OPEC oil production, Bloomberg reported.

Late-Night Trading
Asian Indices are +.50%. to +1.0% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly higher on optimism over merger activity, better-than-expected economic reports and gains in Asia. I also expect the Fed to raise 25 basis points and to reiterate their plans to continue raising at a "measureed pace." The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,198.68 +.90%
NASDAQ 2,148.50 +.96%

Leading Sectors
Software +3.09%
Iron/Steel +2.53%
HMOs +1.85%

Lagging Sectors
Retail -.09%
Networking -.41%
Hospitals -.49%

Other
Crude Oil 41.10 +.22%
Natural Gas 7.27 +1.52%
Gold 440.50 +.05%
Base Metals 115.66 +1.28%
U.S. Dollar 82.14 -.64%
10-Yr. T-note Yield 4.15% -.05%.
VIX 12.54 -1.72%
Put/Call .71 +14.52%
NYSE Arms .72 -47.83%

After-hours Movers
SHOP +4.6% after saying Shopping.com UK entered into a services agreement with Google.
SLAB +4.7% after Citi SmithBarney initiated it with Buy(Top Pick), target $46.
LNG +14.3% after completing an agreement to the rights to its Louisiana-based plant to ChevronTexaco.
ERTS +5.0% after saying it entered into exclusive licensing relationships with the NFL and Players Inc. to develop, publish and distribute interactive football games.
TTWO -6.21% on ERTS news.
TKLC -6.90% after saying its CFO resigned to become CFO for DGIN.

Recommendations
Citi SmithBarney rated SLAB and SWKS Buy, targets $46 and $14.25, respectively.

After-hours News
U.S. stocks finished higher today on optimism over U.S. economic growth and merger activity. After the close, China and Russia will hold joint military exercises next year, a step that the Chinese defense minister said should not be seen as threatening to other nations, Russia's Interfax news agency reported. The National Hockey League, which is in the midst of an 89-day lockout, will reject the latest proposal from the players union and make a counteroffer tomorrow, TSN of Canada reported. Anger, fear and other negative emotions may be triggers for a stroke, a study of 200 stroke victims bound, Bloomberg reported. New York's crime rate has dropped 4.6% this year, making it the safest of the 25 largest U.S. cities, Mayor Bloomberg said. Sprint and Nextel stand to save more than $3 billion in network costs by combining their U.S. mobile-telephone operations, Bloomberg reported. PepsiCo agreed to purchase General Mills' 40% stake in their European snacks joint venture for $750 million, Bloomberg said. Scott Peterson was sentenced to death by a California jury for the murder of his 27-year-old pregnant wife Laci, Bloomberg reported. American Express agreed with Citigroup to issue credit cards in the U.S. that will be accepted on its global merchant network, Bloomberg reported.

BOTTOM LINE: The Portfolio finished higher today on gains in my internet, semi, semi-equipment and Chinese ADR longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The overall tone of the market improved throughout the day with volume increasing and the advance/decline line finishing near its highs for the day. Interest rates failed to move higher even with the pullback in the dollar. As well, it was a positive for the bulls to see energy prices bounce up and equities advance to 3-year highs. I continue to expect data and events this week to propel U.S. stocks higher.

Mid-day Report

S&P 500 1,196.20 +.69%
NASDAQ 2,140.63 +.58%

Leading Sectors
Software +2.93%
Iron/Steel +2.51%
HMOs +1.91%

Lagging Sectors
Airlines -.63%
Networking -.73%
Hospitals -.75%

Other
Crude Oil 40.85 +.42%
Natural Gas 7.11 +3.90%
Gold 440.30 unch.
Base Metals 115.66 +1.28%
U.S. Dollar 82.19 -.58%
10-Yr. T-note Yield 4.14% -.28%
VIX 12.20 -4.39%
Put/Call .63 +1.61%
NYSE Arms .71 -48.55%

Market Movers

Economic Data
Advance Retail Sales for November rose .1% versus estimates of a .1% decline and an upwardly revised .8% increase in October.
Retail Sales Less Autos for November rose .5% versus estimates of a .3% increase and an upwardly revised 1.1% gain in October.
Business Inventories for October rose .2% versus estimates of a .5% increase and no change in September.

Recommendations
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Mid-day News

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet, semi and semi-equipment longs. I added a few new technology longs this morning, bringing the Portfolio's market exposure to 125% net long. One of my new longs is ARBA and I am using a $15.50 stop-loss on this new position. It is very positive to see the large revision in retail sales for Oct. and a better-than-expected Nov. Moreover, internet retail is booming this holiday season. OSTK remains my favorite internet retailer in the intermediate-term. It should also be a longer-term winner in this space. The overall tone of the market is pretty good today and improving, notwithstanding the bounce in energy prices and dollar pullback. I expect U.S. stocks to rise modestly into the close on optimism over economic growth, short-covering, merger activity and bargain-hunting.

Monday Watch

Earnings of Note
Company/Estimate
CKR/.16
ORCL/.13

Splits
GDW 2-for-1

Economic Data
Advance Retail Sales for November are estimated to fall .1% versus a .2% rise in October.
Retail Sales Less Autos for November are estimated to rise .3% versus a .9% gain in October.
Business Inventories for October are estimated to rise .5% versus a .1% gain in September.

Weekend Recommendations
Rukeyser's Wall Street had guests that were positive on SZE, TIF, XOM, TMO, PTEK, AEE, D and GIS. Forbes on Fox had guests that were positive on LLL, IDTI, INTC, RPM, ZBRA and ANZ. Cashin' In had guests that were positive on HSY, LUK, HD and mixed on K, PZZA, SAFM, NUE. Bulls and Bears had guests that were positive on GSIC, NCC, EBAY, ERTS, GS, SFA, NVS and mixed on CSCO, CI, TOL. Barron's had positive comments on JPM, AES, RRI, CPN, ADM, EK, HL, WMT and INT. Goldman Sachs reiterated Outperform on ACS, DNA, EBAY, MER, X, NUE and SPP.

Weekend News
China has raised next year's economic growth target to 8%, the first time it has lifted its estimate above 7% since 1999, the Economic Observer reported. Ukrainian opposition leader Yushchenko said his administration would go to court to reverse illegal sales of state assets if he were to become president, the Financial Times reported. Taiwan President Chen Shui-bian's party failed to win more seats in a legislative vote, which could hamper his proposals to further the island's national identity that would have deepened a rift with China, Bloomberg said. The Canadian Internet pharmacy industry, which has more than $800 million in annual sales in transactions with the U.S., is facing increasing regulatory, political and economic pressures, the NY Times reported. U.S. stocks will rise next year as the economy strengthens, boosting the S&P 500 Index as much as 12%, money managers told Barron's. Job growth may accelerate in 2005 and the US trade deficit may narrow to as little as 5% of gross domestic product, helping GDP growth to rise 4%-5%, higher than the 3.5% forecast of economists, Barron's reported. Bristol-Myers Squibb is preparing to sell its consumer medicines unit for as much as $800 million, and GlaxoSmithKiline Plc and Johnson & Johnson may bid for it, London's Sunday Times reported. More than 300,000 U.S. students between eighth and 12th grade used steroids last year, Newsweek magazine said, citing analysis of a report from the Univ. of Mich. Honeywell Intl., the world's No.1 maker of cockpit electronics, plans to buy Novar Plc for $1.52 billion to obtain its building security, fire systems and services business, the Wall Street Journal reported. Permira, a European buy-out group has entered a joint venture with Apollo Management LP to make an offer for Toys R Us, which is worth about $3.5 billion, the Financial Times said. Procter & Gamble's Indian unit had a 25.5% sales growth in October compared with a 1.9% increase at rival Hindustan Lever, Economic Times said. Mahmoud Abbas, the chairman of the Palestinian Liberation Organization, apologized to Kuwait for Palestinian support for Iraq in the 1990-1991 Persian Gulf War, the AP reported. The oil minister for Saudi Arabia, OPEC's biggest oil producer, said the nation will reduce output by 500,000 barrels a day to enforce a recent accord. The supply of oil is still outstripping demand after OPEC, the producer of more than a third of the world's output, begins to reduce production to prop up falling prices, the Qatari oil minister said. General Motors and DaimlerChrysler AG will jointly develop a gasoline-electric power system to catch Toyota Motor and Honda Motor in the technology that saves fuel and cuts tailpipe emissions, Bloomberg reported. A number of economists say a gradually declining US dollar is good for equities, the AP reported.

Late-Night Trading
Asian indices are mostly lower, -.75% to +.25% on average.
S&P 500 indicated +.14%
NASDAQ 100 indicated +.31%.

BOTTOM LINE: I expect US stocks to open modestly lower in the morning on a bounce in oil prices, however shares will likely strengthen later in the day. The Portfolio is 100% net long heading into tomorrow.

Chart of the Week

Morgan Stanley Commodity Related Index(CRX)

Bottom Line: The CRX has risen 28.1% over the last 12 months. However, I expect these stocks to underperform over the intermediate-term. An exodus by momentum investors, lower commodity prices, a stabilizing dollar, greater supply and slackening demand from Asia/Europe should provide the catalysts. I expect the CRX to test its 200-day moving-average over the coming months.

Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Advance Retail Sales, Business Inventories (Tues.)-Trade Balance, Industrial Production, Capacity Utilization (Wed.)-Empire Manufacturing, NAHB Housing Market Index (Thur.)-3Q Current Account Balance, Housing Starts, Initial Jobless Claims, Philadelphia Fed. (Fri.)-Consumer Price Index. Retail Sales, Industrial Production, Housing Starts, Philly Fed. and CPI all have market-moving potential.

Mon.-Oracle Corp.(ORCL) Tues.-FuelCell Energy(FCEL) Wed.-Bed, Bath & Beyond(BBBY), Best Buy(BBY), Biomet(BMET), Lehman Brothers(LEH), Lennar Corp. Thur.-Adobe Systems(ADBE), Apollo Group(APOL), Carnival Corp.(CCL), FedEx Corp.(FDX), Goldman Sachs(GS), Nike Inc.(NKE) Fri.-Circuit City(CC) are some of the more important companies that release quarterly earnings this week. There are also some other events that have market-moving potential. The SG Cowen Consumer Conference(Mon.-Tues.), FOMC policy announcement(Tues.), CSFB Small-cap Software Conference(Tues.-Wed.) and SEMI Book-to-Bill report(Thur.) could also impact trading this week.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, strong earnings/economic reports, more optimism, a stabilizing US dollar, short-covering and bargain-hunting. I also expect long-term interest rates to move modestly higher and energy prices to fall slightly. I continue to believe commodity-related stocks will underperform in the intermediate-term. My short-term trading indicators are still giving Buy signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,188.00 -.27%

Click here for the Weekly Wrap by Briefing.com.

Bottom Line: U.S. stocks finished slightly lower last week, led down by semiconductors after disappointing reports from Xilinx, Altera and Cymer. However, significant gains in the homebuilding sector, spurred by a very positive report from Toll Brothers, helped minimize losses in the major indices. Taking into account the 25% gain in the Morgan Stanley Tech Index since Aug. 12, losses in the sector were relatively muted considering the news. After basing for several weeks, the homebuilders broke to ALL-TIME highs last week on heavy volume. The index has now returned 41.4% since the bears and pundits said the "bubble" burst in May. It is good to see the AAII % Bulls fall, however investor complacency remains elevated as a whole. The plunge in energy prices is very positive for the U.S. economy and remains underreported by the mainstream press. While oil is at technical levels normally associated with a short-term bounce, still lower prices are likely. A few months ago I forecast oil would reach $35-$40/bbl. during the fourth quarter. However, more supply from the Middle-East, less demand from Asia/Europe, a stabilizing US dollar, less speculation and a lower terrorism/war premium may lead oil prices to overshoot on the downside in the intermediate-term. I would not be surprised to see crude approach $30/bbl within the next six months. This would be a very positive development with respect to measures of inflation and consumer spending. Disposable personal income has risen 4.3% from a year earlier versus a 2.5% gain in the Consumer Price Index. A substantial fall in energy prices would further bolster the US consumer. Finally, it was also a big positive to see the US dollar rebound and interest rates fall last week. I expect the dollar to continue its rebound and interest rates to rise slightly from current levels over the coming weeks.

Economic Week in Review

ECRI Weekly Leading Index 133.00 +.45%

Final 3Q Non-farm Productivity rose 1.8% versus estimates of a 2.0% increase and a prior estimate of 1.9%. Final 3Q Unit Labor Costs rose 1.8% versus estimates of a 1.6% gain and a prior estimate of 1.6%. The productivity of U.S. workers grew in the third quarter at the slowest pace in almost two years, suggesting companies may need to boost hiring to meet demand, Bloomberg said. Moreover, hours worked rose at a 2.4% pace, the most since the third quarter of 1999. "Labor costs have moved from a downward influence on inflation to a neutral one," said Stephen Stanley, chief economist at RBS Greenwich Capital. "Fed officials have consistently noted that labor costs are the key to inflation, not material costs."

U.S. Household Net Worth advanced to another all-time high of $46.7 trillion as stock market and real estate values appreciated, the Fed said. Consumer Credit for October fell to $7.7B versus estimates of $6.0B and an upwardly revised $13.6B in September. The percentage of homeowners in foreclosure fell to 1.14%, the lowest level in 4 years. "Consumers are confident enough in the outlook for the economy to assume greater debt burdens," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. Personal bankruptcy filings across the country declined 2.6% for the fiscal year ended Sept. 30, suggesting most consumers are able to handle their rising debt, and that spending will continue, Bloomberg reported. Sales at U.S. retailers rose 3.3% during the first full week of the holiday season.

The Import Price Index for November rose .2% versus estimates of 0.0% and a 1.6% increase in October. The dollar's decline this year against other currencies makes imported goods more expensive, Bloomberg said. The report "echoes what we've seen in the broader price measures – big run-ups in prices of crude and intermediate goods but only a limited pass-through to consumer prices," said Stephen Stanley. "There is still little evidence as of yet that the Fed is risking a substantial acceleration in core consumer price inflation." "Import competition, particularly from China, is keeping downward pressure on manufactured products, such as apparel and fabricated metals," the Dallas Fed said in its regional report.

Initial Jobless Claims for last week were 357K versus estimates of 335K and 349K the prior week. Continuing Claims were 2796K versus estimates of 2746K and 2705K prior. "As oil prices come down, that should make companies a little less reluctant to hire," said John Shin, an economist at Lehman Brothers. Claims have fallen to a weekly average of 344,102 so far this year from 402,000 for all of 2003, Bloomberg said.

Wholesale Inventories rose 1.1% in October versus estimates of a .5% gain and a .6% increase in September. Consumer purchases rose the most in almost three years last quarter and business investment accelerated, recent reports have shown. Gains in spending caused inventories to rise at almost half the previous quarter's pace, leaving businesses room to add to stockpiles, boosting the economy this quarter, Bloomberg reported. "If you have sales booming, you have to have inventories keep pace," said Tom Rogers, chief economist at Briefing.com. Wholesalers had enough supply on hand to last 1.15 months at the current sales pace, the same as the prior month and up from an all-time record low of 1.12 months in April, Bloomberg said.

The Producer Price Index for November rose .5% versus estimates of a .1% increase and a 1.7% gain in October. The PPI Ex Food & Energy for November rose .2% versus estimates of a .2% increase and a .3% gain in October. "So far, businesses have been more successful in passing along cost increases to other business, but with consumers it's been much more difficult," said Nigel Gault, research director at Global Insight. The 26.4% decline in oil, the 31.9% plunge in natural gas and the 23.6% drop in heating oil should help restrain producer prices going forward, Bloomberg reported.

The preliminary Univ. of Mich. Consumer Confidence reading for December rose to 95.7 versus estimates of 93.5 and a reading of 92.8 in November. Job growth is helping bolster consumer spending and confidence and consumers have benefited from the decline in oil and gasoline prices, economists said. The U.S. economy has added 2.2 million jobs since August of last year, Bloomberg said. The current-conditions component of the index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 106.8 from 104.7 in November. The expectations component of the index, based on optimism about the next one to five years, rose to 88.8 from 85.2, Bloomberg said. "With the recent drop in energy prices consumer spending will give us a good holiday season," said Lynn Reaser, chief economist at Banc of America Capital.

Bottom Line: Overall, last week's economic data were positive. Productivity has fallen to levels normally associated with increased hiring. However, mitigating forces should hold unit labor costs in check in the intermediate-term. A modest increase in the rate of US job creation, a stabilizing US dollar, deflationary forces in Asia, continuing overcapacity in some areas of the US economy and falling commodity prices should lead to decelerating inflation readings in 2005. This will allow the Fed to slow the pace of rate hikes. With Americans' net worth at ALL-TIME high levels, a modest rise in interest rates next year should not significantly damage consumer spending or the US economy. Inventories are rising to keep up with brisk demand and should contribute meaningfully to 4Q GDP. It is very good to see Consumer Confidence rebound from recent disappointments. A very strong housing market, rising stock market, declining energy prices, good labor market, elections in Iraq, less pessimism from politicians, relatively low interest rates and diminished domestic terrorism fears should lead to new highs in consumer sentiment for this cycle in the next few months. The Weekly Leading Index is now at its highest level since late June.

Weekly Scoreboard*

Indices
S&P 500 1,188.00 -.27%
Dow 10,543.22 -.46%
NASDAQ 2,128.07 -.93%
Russell 2000 632.24 -1.55%
S&P Equity Long/Short Index 999.51 -.85%
Put/Call .62 -10.14%
NYSE Arms 1.38 +.73%
Volatility(VIX) 12.76 -1.54%
AAII % Bulls 51.35 -9.53%
US Dollar 82.67 +2.15%
CRB 276.62 -2.74%

Futures Spot Prices
Gold 435.30 -4.83%
Crude Oil 40.71 -4.12%
Unleaded Gasoline 107.99 -4.43%
Natural Gas 6.84 +.34%
Heating Oil 122.57 -.83%
Base Metals 114.20 -2.56%
10-year US Treasury Yield 4.15% -2.38%
Average 30-year Mortgage Rate 5.71% -1.72%

Leading Sectors
Homebuilders +4.53%
HMOs +4.21%
Hospitals +3.27%

Lagging Sectors
Airlines -3.19%
Iron/Steel -4.79%
Semis -5.06%

*% Gain or loss for the week

Mid-day Report

S&P 500 1,190.97 +.15%
NASDAQ 2,133.15 +.23%

Leading Sectors
Homebuilders +3.31%
Airlines +1.43%
I-Banks +1.10%

Lagging Sectors
Broadcasting -.88%
Oil Service -1.07%
Wireless -1.16%

Other
Crude Oil 41.15 -3.24%
Natural Gas 6.86 -.38%
Gold 436.10 -.25%
Base Metals 114.20 +.55%
U.S. Dollar 82.64 +.65%
10-Yr. T-note Yield 4.17% +1.31%
VIX 13.04 -1.14%
Put/Call .71 -20.22%
NYSE Arms .86 -29.51%

Market Movers
CBON +21.5% on strong demand for IPO.
HOV +10.7% on positive comments from multiple analysts.
MATK +8.9% after beating 4Q estimates.
FFIV +5.7% on comments from Citi SmithBarney.
ADIC -11.6% on disappointing 4Q results.
*Homebuilder up across the board on continuing optimism over fundamentals.

Economic Data
Producer Price Index for November rose .5% versus estimates of a .1% increase and a 1.7% gain in October.
PPI Ex Food & Energy for November rose .2% versus estimates of a .2% increase and a gain of .3% in October.
Preliminary Univ. of Mich. Consumer Confidence for December rose to 95.7 versus estimates of 93.5 and a reading of 92.8 in November.

Recommendations
-Goldman Sachs reiterated Outperform on MO. Goldman reiterated Underperform on WIN and CR.
-Citi SmithBarney reiterated Buy on GE, target $44. Citi reiterated Buy on TOL, target $94. Citi reiterated Buy on TYC, target $40. Citi reiterated Buy on MO, target $68. Citi reiterated Buy on BEAS, target $11.50. Citi reiterated Buy on BJ, target $34. Citi reiterated Buy on BBW, target $43. Citi reiterated Buy on NSM, target $21.
JP Morgan raised GYI to Overweight. JP Morgan rated FLSH Overweight.
-Banc of America rated DHI Buy, target $42. BofA rated HOV Buy, target $50.
-UBS downgraded AMD to Reduce, target $20.
-Thomas Weisel raised FHRX to Outperform, target $29. Thomas Weisel raised NVDA to Outperform. Thomas Weisel raised ATYT to Outperform.
-Legg Mason rated NIHD Buy, target $58.
-CSFB cut FLR to Underperform, target $45. CSFB cut EME to Underperform, target $35.
-Morgan Stanley rated MHS Overweight, target $45.

Mid-day News
U.S. stocks are modestly higher mid-day on optimism over better consumer sentiment and lower energy prices. A journalist from the Chattanooga Times Free Press was behind a U.S. National Guard's question to Defense Secretary Donald Rumsfeld on the shortage of vehicle armor available to the army, the Washington Post reported. OPEC agreed to cut output to end a six-week slide in prices, Dow Jones reported. Senator Grassley plans to introduce a new bill next year to require pharmaceutical companies to report drug trials on a public database, the NY Times reported. Gemstar-TV Guide Intl. CEO Shell, who resigned yesterday, may join Comcast to oversee the cable-tv operator's channels, the LA Times reported. The European Central Bank isn't as worried about inflation as it was a month ago, reducing pressure for an increase in interest rates, Swedish news service Direkt reported. The US dollar is heading for its biggest gain against the yen in almost six years amid speculation the Bank of Japan's Tankan survey will show business confidence is waning, Bloomberg reported. U.S. consumer sentiment rose for a second month in December as oil prices plunged and the government reported continued job creation in November, Bloomberg said. Carlyle Group may raise $6.5 billion for what would be the world's biggest buyout fund, Bloomberg reported. General Electric said it will increase its dividend by 10% and authorized the repurchase of $15 billion of its shares over three years, Bloomberg reported. Southwest Airlines is offering more than $100 million in cash and loans for ATA Holdings assets including Chicago airport gates, Bloomberg reported. The Core PPI had its smallest gain in four months, Bloomberg said.

Bottom Line: The Portfolio is higher mid-day on gains in my homebuilding, security, Chinese ADR and semi longs. I added a few longs this morning, bringing the Portfolio's market exposure to 100% net long. One of my new longs is DRIV and I am using a $39.75 stop-loss on this position. The tone of the market is moderately positive today notwithstanding the mixed performance of the major indices. Many market leaders are higher. The Weekly Leading Index rose again this week and is now at its highest level since late June. Moreover, the continuing decline in energy prices, low interest rates and a stabilizing US dollar bode well for stocks. I expect U.S. equities to rise modestly into the close on short-covering and bargain-hunting.