Today's Headlines

Bloomberg:
- The median net worth of Americans rose to an all-time record of $93,100 in 2004.
- Hewlett-Packard(HPQ) entered the retail photo-printing market with kiosks it says will produce better prints than those from Eastman Kodak.
- Research In Motion’s(RIMM) BlackBerry scored lower than Palm’s(PALM) Treo in a survey of customer satisfaction.
- Fed Vice Chairman Ferguson’s resignation may help new Fed chief Ben Bernanke win support at the central bank for a numerical inflation goal.
- Texas Pacific Group, the buyout firm that owns stakes in Burger King and China’s Lenovo Group, formed a venture to invest in securities of troubled companies.
- 71% of Americans expect Democratic Senator Hillary Clinton of New York to run for president in 2008 and lose, a poll by the Marist College Institute for Public Opinion found.
- Iraqi Foreign Minister Zebari said insurgents are trying “everything” to foment civil war as reprisal attacks followed yesterday’s bombing of the Golden Mosque in Samarra, sacred to Shiite Muslims.
- US Treasuries declined after an unexpected drop in the number of claims for jobless benefits added to evidence the economy is strengthening.
- Wal-Mart Stores(WMT) will reduce the time part-time employees must wait to get health insurance and provide coverage to their children.
- Wal-Mart(WMT) said today it will expand coverage for workers and build more than 50 health clinics in its stores.
- Crude oil is falling more than $1/bbl. in NY on speculation that US fuel supplies are sufficient to meet demand.

Wall Street Journal:
- Officials in President Bush’s administration obtained special security pledges from Dubai Ports World before approving its bid to take over a company which owns some US ports.
- IBM(IBM), Texas Instruments(TXN), Exxon Mobil(XOM) and other US companies are boosting their donations to career-oriented summer camp for US youth in order to create an active worker pool for future retirement.
- The NYSE wants by the end of this year to create a joint venture with the National Association of Securities Dealers to regulate brokerages.
- Nintendo’s Brain Age videogame with word and math problems is intended for older people who never played videogames.
- Fannie Mae’s(FNM) former finance chief J. Timothy Howard is held largely responsible for the company’s accounting policies and problems by a report to be released today.
- More individual investors are putting their money in stocks as the market improves and short-term interest rate increases weaken returns from real estate and bonds. Trades by individual investors at discount brokerage firms increased 30% to 40% in January from December.

NYPost:
- Mario Gabelli’s Gamco Investors may set up a hedge fund that abides by Islamic law to attract Middle Eastern investors.

CNET News.com:
- IBM(IBM) will unveil software called “Octopiler” to help developers write code for products like video games.

AP:
- Lenovo Group Ltd., the world’s third-biggest PC maker, plans to start selling own-brand computers outside its home market of China.
- The US government demanded assurances of cooperation with future investigations from the Dubai company that is acquiring six US ports before approving the takeover.
- America’s Second Harvest, a nonprofit organization representing 80% of US food banks, shelters and soup kitchens, said its members served 25 million people in 2005, an increase of 9% from 2001.

Job Market Still Healthy

- Initial Jobless Claims for last week fell to 278K versus 300K the prior week.
- Continuing Claims rose to 2495K versus a downwardly revised 2454K prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week, a further sign the labor market is gaining strength, Bloomberg said. The four-week moving-average of claims fell to 281,750 from 283,250 the prior week. Moreover, the four-week moving-average of continuing claims fell to the lowest in five years. I continue to believe the labor market will remain healthy over the intermediate-term without generating significant unit labor cost increases.

Links of Interest

Market Snapshot
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Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- US prosecutors told lawyers Steven Schulman and David Bershad, partners in NY’s Milberg Weiss Bershad & Schulman, that they’ll be charged with participating in a scheme to pay kickbacks to clients.
- Saudi Arabia’s chief diplomat said an incoming Hamas-led government in the Palestinian territories should continue to be funded, putting the kingdom at odds with the US view that the Islamic group should be cut off.
- General Motors(GM) said sales growth at its Shanghai venture will slow this year as China’s auto market cools and competition increases.
- Japan had a trade deficit in January, its first in five years, after the Chinese Lunar New Year holiday curbed exports of electronics to Asia and imports surged 27%.

Wall Street Journal:
- Boeing Co.(BA) is working on a verbal agreement to sell 80 of its 737 planes to China, which agreed to buy 70 of the jetliners in November.
- China plans to change regulations to require overseas banks to incorporate operations in the mainland. Within the next few months, the commission will ask foreign banks to become China-registered companies and make accounting and management changes to conform to the way Chinese banks are structured.
- Lehman Brothers(LEH) is in talks with some mutual-fund firms about separating stock-trading and research fees.

Xinhua:
- Arab League Secretary-General Amr Moussa on Wednesday renewed the call for the recognition of Israel by Hamas.

AFP:
- Nearly all of China’s fast-rising number of skyscrapers are filled with excessive air pollutants that could cause serious harm to office workers.

Economic Daily News:
- Sony Corp.(SNE) plans to place $6 billion of orders for products such as notebook computers, liquid-crystal displays and LCD televisions from Taiwan this year.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (S).
- Reiterated Underperform on (ELNK) and (ESRX).

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.09%.

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Earnings of Note
Company/EPS Estimate
- (BEAS)/.12
- (CBS/A)/.40
- (CKP)/.36
- (ESV)/.59
- (GPS)/.39
- (GSF)/.56
- (HRB)/.26
- (KSS)/1.07
- (CLI)/.32
- (MVL)/.31
- (MRVL)/.41
- (MGM)/.33
- (MHK)/1.50
- (NTES)/.88
- (JWN)/.68
- (PWR)/.07
- (TOL)/.92
- (WYNN)/.08

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 300K versus 297K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2511K prior.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude build of 1,200,000 barrels. Gasoline inventories are estimated to rise 1,000,000 barrels, and distillate supplies are expected to decrease by 1,500,000 barrels. Refinery utilization is expected to fall .2%. Finally, Natural Gas supplies are estimated to fall 110 bcf.

BOTTOM LINE: Asian indices are mostly higher, led by technology shares in the region after oil prices fell and US interest rates declined. I expect US equities to open modestly lower and to trade higher into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs as Energy Prices Resume Downtrend and Long-term Rates Decline

Indices
S&P 500 1,292.67 +.75%
DJIA 11,137.17 +.62%
NASDAQ 2,283.17 +.89%
Russell 2000 733.53 +.93%
Wilshire 5000 13,005.76 +.73%
S&P Barra Growth 611.14 +.69%
S&P Barra Value 678.02 +.82%
Morgan Stanley Consumer 605.37 +.57%
Morgan Stanley Cyclical 804.14 +.66%
Morgan Stanley Technology 533.85 +1.05%
Transports 4,449.17 +1.23%
Utilities 412.47 +.32%
Put/Call .70 -22.22%
NYSE Arms 1.08 +.64%
Volatility(VIX) 11.88 -4.27%
ISE Sentiment 136.00 -6.85%
US Dollar 90.63 +.10%
CRB 326.03 -1.28%

Futures Spot Prices
Crude Oil 60.83 -.33%
Unleaded Gasoline 147.00 -.31%
Natural Gas 7.25 -.38%
Heating Oil 164.90 -.19%
Gold 558.10 +.27%
Base Metals 167.46 -.19%
Copper 226.15 -.13%
10-year US Treasury Yield 4.52% -.99%

Leading Sectors
Homebuilders +2.82%
Airlines +2.29%
Banks +2.15%

Lagging Sectors
Telecom -.74%
Energy -1.68%
Oil Service -2.35%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (FCX).
- Reiterated Underperform on (RAI).

Afternoon/Evening Headlines
Bloomberg:
- Public-health advisers expanded the list of Americans who should get vaccinated against the flu to include healthy children ages 2 years to 5 years, an industry supported group said.
- The largest-ever lottery prize of $365 million was won by a group of eight workers from a meat processing plan in Lincoln, Nebraska, Powerball officials announced today.
- Campbell Soup(CPB) will introduce new versions of its most popular soups and beverages that contain at least 25% less sodium to appeal to health conscious consumers.
- Former Fed Chairman Greenspan told a forum organized by ABN Amro Holding NV that the US economy is in good shape, according to people present.
- US Treasuries rose after a government report on consumer prices tempered speculation that inflation is poised to accelerate.
- Merrill Lynch(MER) is paring back its bond research dept.
- UAL Corp. CEO Tilton said US airlines inevitably will find ways to merge and his company won’t sit idly by if its UAL unit would benefit.
- Crude oil fell on speculation that surging US supplies, which are 12% above the 5-year average, are sufficient to make up for any disruption in Nigerian shipments.

Pittsburgh Tribune-Review:
- The American collaborator of the South Korean scientist who faked stem cell research data used the once-vaunted results to obtain a $16 million federal science grant.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Biotech longs, Semi longs, Computer longs, Retail longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was good for the bulls. The major averages and breadth finished near session highs, while oil and the 10-year T-note yield finished near session lows. Better performance by high-growth equities is mainly a result of lower long rates. As well, I expect oil to break back below $60 on tomorrow's inventory data. Stocks should continue to build on gains in the short run as once again too many are pessimistic and underexposed on the long side. The Value Line Geometric Index, a good measure of the broad-based market, is making another cycle high and has risen 6.21% this year.

Stocks Higher into Final Hour as Long-term Rates and Energy Prices Fall

BOTTOM LINE: The Portfolio is substantially higher into the final hour on gains in my Biotech longs, Semi longs, Computer longs, Retail longs and Energy-related shorts. I exited my (IWM)/(QQQQ) shorts, added to my (RACK) long and added to my (VLO) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. After the bubble burst in 2000, the U.S. was swimming in overcapacity in multiple sectors and many companies lost pricing power, thus sending earnings plunging at a historical rate. Most recent inflation data show prices increasing at above-average rates vs. long-term averages. However, current readings are not high for prior expansionary periods. There is little evidence that some inflation is bad for equities. In fact, modest inflation has historically been a positive for stocks as companies regain some pricing power. I continue to believe measures of inflation are peaking for the year this quarter as commodities continue to weaken through year-end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower commodity prices, lower long-term rates and bargain hunting.