Thursday, March 31, 2005

First Quarter Scoreboard*

Indices
S&P 500 1,180.59 -2.59%
DJIA 10,503.76 -2.59%
NASDAQ 1,999.23 -8.10%
Russell 2000 615.07 -5.60%
DJ Wilshire 5000 11,637.25 -2.63%
S&P Equity Long/Short Index 1,022.18 +.48%
S&P Barra Growth 569.05 -2.23%
S&P Barra Value 607.20 -2.93%
Morgan Stanley Consumer 577.86 -2.19%
Morgan Stanley Cyclical 746.99 -4.73%
Morgan Stanley Technology 455.43 -10.29%
Transports 3,715.97 -2.16%
Utilities 358.33 +6.98%
Put/Call .73 +17.74%
NYSE Arms 1.23 +2.50%
Volatility(VIX) 14.02 +5.49%
ISE Sentiment 129.00 -39.44%
AAII % Bulls 28.43 -50.69%
US Dollar 84.04 +3.96%
CRB 313.57 +10.45%

Futures Spot Prices
Crude Oil 55.28 +27.96%
Unleaded Gasoline 166.45 +35.32%
Natural Gas 7.65 +25.62%
Heating Oil 161.02 +40.14%
Gold 430.50 -2.91%
Base Metals 130.33 +3.72%
Copper 150.10 +6.27%
10-year US Treasury Yield 4.48% +6.23%
Average 30-year Mortgage Rate 6.04% +3.96%

Leading Sectors
Energy +18.12%
Hospitals +12.76%
Oil Service +12.40%

Lagging Sectors
Biotech -15.25%
Networking -18.26%
Airlines -18.48%

*1Q % Change

Thursday Close

Indices
S&P 500 1,180.59 -.07%
DJIA 10,503.76 -.35%
NASDAQ 1,999.23 -.32%
Russell 2000 615.07 +.03%
DJ Wilshire 5000 11,637.25 +.03%
S&P Barra Growth 569.05 -.32%
S&P Barra Value 607.20 +.18%
Morgan Stanley Consumer 577.86 -.30%
Morgan Stanley Cyclical 746.99 +.55%
Morgan Stanley Technology 455.43 -.61%
Transports 3,715.97 -.54%
Utilities 358.33 +1.09%
Put/Call .73 -12.05%
NYSE Arms 1.23 +116.32%
Volatility(VIX) 14.02 +2.79%
ISE Sentiment 129.00 -13.42%
US Dollar 84.05 unch.
CRB 313.57 +.82%

Futures Spot Prices
Crude Oil 55.20 -.36%
Unleaded Gasoline 166.15 -.10%
Natural Gas 7.64 -.17%
Heating Oil 161.38 -.14%
Gold 430.70 -.09%
Base Metals 130.33 +1.39%
Copper 150.25 unch.
10-year US Treasury Yield 4.48% -1.42%

Leading Sectors
Oil Service +3.11%
Disk Drives +2.11%
Energy +1.97%

Lagging Sectors
Insurance -1.24%
Airlines -1.61%
Restaurants -1.70%

After-hours Movers
PSRC +4.2% after missing 3Q estimates and raising 4Q outlook.
IPXL -4.4% after announcing that it was not able to file its Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2004.

Evening Review
Detailed Market Summary
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
Futures Recap
S&P 500 Gallery View
Timely Economic Charts
PM Market Call
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on XRX.

Afternoon/Evening Headlines
Bloomberg:
- Paul Wolfowitz, the US Deputy Defense Secretary and an architect of the liberation of Iraq, was elected as the 10th president of the World Bank.
- Al-Qaeda had developed an “extensive, well-organized” biological weapons program before the wars in Afghanistan and Iraq and had the capacity to produce a “virulent” germ codenamed “Agent X,” a US presidential commission reported.
- Shares of MBIA Inc., the world’s biggest bond insurer, fell by the most in 2 ½ years after NY Attorney General Spitzer and the SEC sought new information about the company’s accounting practices.
- Illinois may require utilities to purchase 8% of their electricity from renewable resources such as wind and farm waste.
- American International Group faces higher financing costs and lower earnings after the company lost its top credit ratings because of flawed accounting.
- Google Inc. plans to boost spending on computers and equipment 57% to more than $500 million this year to develop new products and lure more visitors to its Web sites.

Fox News:
- Pope John Paul II has been given the last rites of the Roman Catholic Church because of his failing health.

Autralian:
- A Morgan Stanley real estate fund may buy Sidney’s Chifley Tower for about $541 million, making it Australia’s biggest office transaction.

BOTTOM LINE: US stocks fell modestly today after yesterday’s sharp gains and energy prices rose. The Portfolio finished lower on losses in my Base Metal shorts and Networking longs. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market remained modestly negative into the afternoon as the advance/decline line fell slightly, sector performance stayed mixed and volume improved modestly. Energy-related stocks and Cyclicals outperformed throughout the day, while Tech underperformed and measures of investor anxiety were mostly higher. Overall, today’s market action was neutral. I expect long-term rates to decline further on tomorrow’s economic reports. Investors will likely respond favorably to this development as talk of a 50 basis point rate hike by the Fed fades into the background. I will post a 1Q Scoreboard later tonight.

Mid-day Scoreboard

Indices
S&P 500 1,180.88 -.04%
DJIA 10,506.05 -.33%
NASDAQ 1,998.14 -.38%
Russell 2000 613.77 -.18%
DJ Wilshire 5000 11,637.89 +.07%
S&P Barra Growth 569.83 -.18%
S&P Barra Value 607.60 +.24%
Morgan Stanley Consumer 578.18 -.24%
Morgan Stanley Cyclical 748.20 +.71%
Morgan Stanley Technology 456.29 -.44%
Transports 3,712.50 -.64%
Utilities 357.65 +.90%
Put/Call .79 -4.82%
NYSE Arms 1.12 +95.27%
Volatility(VIX) 13.90 +1.69%
ISE Sentiment 173.00 +16.11%
US Dollar 84.02 -.32%
CRB 315.50 +1.44%

Futures Spot Prices
Crude Oil 55.60 +3.07%
Unleaded Gasoline 164.80 +3.25%
Natural Gas 7.69 +3.08%
Heating Oil 166.80 +3.82%
Gold 430.80 +.30%
Base Metals 130.33 +1.39%
Copper 150.10 +.60%
10-year US Treasury Yield 4.50% -.98%

Leading Sectors
Oil Service +2.76%
Energy +1.75%
Commodity +1.60%

Lagging Sectors
Networking -1.02%
Restaurants -1.43%
Airlines -1.77%

Links of Interest
Market Internals
Movers & Shakers
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon
Real-time Intraday Chart/Quote

BOTTOM LINE: US stocks are modestly lower mid-day on worries over higher energy prices. The Portfolio is slightly lower as losses in my Base Metal shorts and Networking longs are more than offsetting gains in my Homebuilding and Software longs. I exited some Tech longs this morning as they hit stop-losses, thus bringing the Portfolio’s market exposure to 50% net long. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mixed and volume is light. Technology stocks are underperforming, while Cyclical stocks are outperforming and measures of investor anxiety are mixed. Today’s overall market action is neutral. It is a positive that stocks are maintaining yesterday’s gains for the most part even with Goldman Sachs’, the largest trader of energy derivatives, outrageous $105/bbl. spike oil call on the last day of the quarter. However, with long-term interest rates declining, I would have expected stocks to rise notwithstanding that call. I expect US stocks to trade mixed-to-higher into the close as short-covering, bargain hunting, quarter-end window-dressing and lower long-term interest rates more than offsets worries over higher energy prices.

Today's Headlines

Bloomberg:
- India’s economy grew at the slowest pace in six-quarters as below-average rainfall reduced harvests.
- French joblessness rose in February, keeping the unemployment rate at a five-year high of 10.1% which is almost double the US unemployment rate.
- The unemployment rate in Germany rose to 12.0% in March, another post WWII record, as companies eliminated jobs in response to slowing demand.
- Continental Airlines will reduce annual expenses by $418 million after the company’s pilots, dispatchers and mechanics accepted new pay and benefit agreements.
- Shares of Zimmer Holdings, Stryker and other makers of artificial hips and knees fell after federal prosecutors demanded documents related to some of the companies’ contracts with surgeons.
- Ted Koppel, anchor and managing editor of Disney’s ABC news show “Nightline,” is leaving the program when his contract expires in December.
- US Treasury notes rose after first-time claims for unemployment insurance benefits unexpectedly increased and the Fed’s most watched measure of inflation held steady.
- Crude oil is rising and gasoline and heating-oil surged to records on signs that US refineries lack capacity to make enough fuel and Goldman Sachs predicted that oil could touch $105/bbl.

The Wall Street Journal:
- Some investors are speculating that Morgan Stanley may end up selling the whole company or part of it, as it copes with a rift between CEO Purcell and former executives.
- Web sites such as those run by American Eagle Publications of Show Low, Arizona, are selling or giving away software coding for computer viruses.

Reuters:
- Intel and Bertelsmann AG will work together to develop Internet technology to download and share films, music and other files.

New York Times:
- Qwest Communications may announce a higher offer for MCI Inc. as early as today to prevent an acquisition by Verizon Communiciations.
- The threat of terrorism promoted and financed by foreign countries against the US is falling.

NY Post:
- Haggar Corp. has hired Bear Stearns to help it explore alternatives, including a possible sale.

Boston Globe:
- The Massachusetts Senate passed a bill yesterday supporting embryonic stem cell research, a setback to Governor Mitt Romney because it promotes a technique that involves cloning human cells.

Washington Post:
- Washington, DC-area officials are considering laws to reduce how much land a house and driveway can cover on a piece of property, in an effort to curb construction on over-sized residences.

Women’s Wear Daily:
- JC Penney is the target of a leveraged buyout by a group led by Cerberus Capital Management LP and the Carlyle Group.

Al-Ahram:
- Apache Corp. secured new rights to explore for oil and gas in Egypt for about $50 million.

Dagens Industri:
- Ericsson AB expects the number of mobile phone users in the Middle East to rise by as many as 36 million over the next three years.

Economic Releases

- Personal Income for February rose .3% versus estimates of a .4% increase and a 2.5% decline in January.
- Personal Spending for February rose .5% versus estimates of a .5% increase and a .1% gain in January.
- PCE Deflator for February rose 2.3% versus estimates of a 2.3% rise and a 2.2% gain in January.
- PCE Core for February rose 1.6% versus estimates of a 1.6% increase and a 1.6% increase in January.
- Initial Jobless Claims for last week rose to 350K versus estimates of 320K and 330K the prior week.
- Continuing Claims fell to 2608K versus estimates of 2650K and 2674K prior.
- The Help Wanted Index for February remained at 41 versus estimates of 41 and a reading of 41 in January.
- The Chicago Purchasing Manager report for March rose to 69.2 versus estimates of 60.5 and a reading of 62.7 in February.
- Factory Orders for February rose .2% versus estimates of a .5% increase and a 0.0% change in January.

Morning Buy/Sell Recommendations

Goldman Sachs:
- Reiterated Outperform on AIG and SYK.
- Reiterated Underperform on HRB.
- Reiterated Attractive view of Oil Service sector, favorites are RIG, DO, SII, BHI and SLB.

Smith Barney:
- Reiterated Bullish view of Managed Care companies.
- Reiterated Buy on CSGS, target $21.
- Reiterated Buy on AMT, target $22.
- Reiterated Buy on EEFT, target $38.
- Reiterated Buy on UNM, target $20.
- Reiterated Buy on JBL, target $35.
- Reiterated Buy on TXN, target $32.
- Reiterated Buy on FSLB, target $22.5.
- Reiterated Sell on SNDK, target $22.

CSFB:
- Raised FITB to Outperform, target $50.

Merrill Lynch:
- Raised ENTG to Buy, target $13.
- Raised WDC to Buy, target $16.50.

Morgan Stanley:
- Cut ELN to Underweight.
- Raised PD to Overweight, target $123.
- Rated SHO Overweight, target $25.
- Rated LQI Overweight, target $10.25.

Banc of America:
- Reiterated Sell on VECO, target $13.75.
- Reiterated Buy on BIIB, target $39.
- Reiterated Buy on AIG, target $69.

UBS:
- Raised BLS to Buy, target $30.
- Raised HPT to Buy, target $45.
- Raised HT to Buy, target $11.50.
- Rated AV Buy, target $15.

Jeffries:
- Rated BSX Buy, target $39.

Deutsche Bank:
- Rated BRCM Buy, target $38.

JP Morgan:
- Added CPB to Focus List.
- Raised WAT to Overweight.
CIBC:
- Rated COL Sector Outperform, target $56.
- Rated CW Sector Outperform, target $66.

Piper Jaffray:
- Reiterated Buy on WDC, target $16.
- Reiterated Buy on CAO, target $20.

Oppenheimer:
- Rated PYX Buy, target $11.

Thursday Watch

Late-Night Headlines
Bloomberg:
- Morgan Stanley and Goldman Sachs Group are among global companies plowing more than $7 billion into Japan as property prices recover from a 15-year slide.
- Morgan Stanley had its credit rating outlook cut to stable from positive by Standard & Poor's, which cited management concerns after the removal of key executives including President Stephan Newhouse.
- The US dollar is headed for its best quarter since 2001 in Asia on speculation US job creation will lay the ground for the Fed to raise interest rates in larger increments this year.
- Paul Wolfowitz, who today will be elected the 10th president of the World Bank, will continue to pursue his agenda of promoting democracy as head of the world's biggest development institution, friends and colleagues say.

Wall Street Journal:
- Brilliance China Automotive Holdings Ltd. will display its Zhonghua mid-size sedan to the Leipzig Auto Show this weekend, as it prepares to bring the car to Germany as early as September.
- An Iranian opposition group says the country has speeded up construction of a heavy-water nuclear reactor that could allow construction of a heavy-water nuclear reactor that could allow construction of weapons-grade fuel.

Washington Post:
- General Dynamics' Stryker armored vehicles, which were first deployed in Iraq in October 2003, have many defects and put troops at unanticipated risk from rocket-propelled grenades, citing a classified Army study.
- US Airways Group's plan to exit bankruptcy protection is running into complications in the form of rising fuel prices, operational problems, lower employee morale and an increase in customer complaints.

Financial Times:
- The International Monetary Fund said that selling a small portion of its gold reserves to help fund debt relief for poor nations would likely have little market impact.
- Microsoft Corp. should be made to ensure it complies with the European Commission order that it licenses sensitive information on the Windows operating system to rival companies.
- EchoStar Communications said it will move forward with plans to buy assets from Cablevision Systems even after Cablevision Chairman Dolan asked regulators to stop the sale.

Hindu Business Line:
-Indian steelmakers such as Tata Steel Ltd. will raise prices by as much as 8% starting tomorrow to cover soaring raw material costs.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Attractive view of Energy sector, favorites are XOM, AHC, BBG, DVN, ECA, MUR, NFX, PXD, PCO, STR and SU.
- Reiterated Outperform on MSFT, CSCO and KSS.
- Reiterated Underperform on VTS.

Night Trading
Asian Indices are +.75% to +1.0% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated unch.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
FRE/1.51
GY/-.63
PH/1.11
RHAT/.06
TOY/1.09

Splits
HRS 2-for1
MCRI 2-for-1
BTU 2-for-1

Economic Releases
8:30 EST:
- Personal Income for February is estimated to rise .4% versus a 2.3% decline in January.
- Personal Spending for February is estimated to rise .5% versus an unchanged reading in January.
- The PCE Deflator for February is estimated to rise 2.3% versus a 2.2% rise in January.
- The PCE Core for February is estimated to rise 1.6% versus a 1.6% gain in January.
- Initial Jobless Claims for last week are estimated to fall to 320K versus 324K the prior week.
- Continuing Claims are estimated to fall to 2657K versus 2673K prior.

10:00 EST:
- The Help Wanted Index for February is estimated at 41 versus a reading of 41 in January.
- The Chicago Purchasing Manager Index for March is estimated to fall to 60.5 versus a reading of 62.7 in February.
- Factory Orders for February are estimated to rise .5% versus an increase of .2% in January.

BOTTOM LINE: Asian indices are higher, led by exporters, on optimism over US stock gains. I expect US equities to open mixed in the morning as higher energy prices offset lower long-term interest rates. However, stocks should move modestly higher later in the day on short-covering, bargain hunting, quarter-end window dressing and strength in the Technology sector. The Portfolio is 75% net long heading into tomorrow.

Wednesday, March 30, 2005

Wednesday Close

Indices
S&P 500 1,181.41 +1.38%
DJIA 10,540.93 +1.30%
NASDAQ 2,005.67 +1.61%
Russell 2000 614.90 +1.70%
DJ Wilshire 5000 11,633.97 +1.37%
S&P Barra Growth 570.87 +1.39%
S&P Barra Value 606.13 +1.37%
Morgan Stanley Consumer 579.59 +1.16%
Morgan Stanley Cyclical 742.92 +1.31%
Morgan Stanley Technology 458.21 +1.91%
Transports 3,736.32 +1.71%
Utilities 354.47 +1.38%
Put/Call .83 -11.70%
NYSE Arms .57 -60.51%
Volatility(VIX) 13.64 -5.87%
ISE Sentiment 149.00 -10.24%
US Dollar 84.33 +.01%
CRB 311.02 +.68%

Futures Spot Prices
Crude Oil 54.11 -.22%
Unleaded Gasoline 159.80 +1.59%
Natural Gas 7.48 +1.12%
Heating Oil 160.20 +2.94%
Gold 428.70 -.19%
Base Metals 128.54 +.54%
Copper 149.00 -.13%
10-year US Treasury Yield 4.54% -.53%

Leading Sectors
Airlines +5.24%
Internet +2.49%
HMOs +2.32%

Lagging Sectors
Broadcasting +.45%
Homebuilders +.32%
Insurance +.19%

After-hours Movers
WDC +11.9% after boosting 3Q results substantially.
ODMO +6.56% after beating 4Q estimates.
MXO +4.82% on WDC news.
ELN -28.4%, BIIB -9.41% after announcing that their ongoing safety evaluation of TYSABRI has led to a previously diagnosed case of malignant astrocytoma being reassessed as progressive multifocal leukoencephalopathy, in a patient in an open label Crohn’s disease clinical trial.

Evening Review
Detailed Market Summary
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
Futures Recap
S&P 500 Gallery View
Timely Economic Charts
PM Market Call
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on AMGN and MSFT.

Afternoon/Evening Headlines
Bloomberg:
- A buyout group led by Texas Pacific Group will invest $350 million in cash for a 12% stake in China’s Lenovo Group Ltd., which is acquiring IBM’s personal computer unit.
- Time Warner plans to test a service called Start Over that lets tv viewers begin a show at any time during its broadcast.
- Johnson & Johnson said today its DePuy Orthopaedics unit received a subpoena from the US Attorney’s Office in Newark, New Jersey, requesting documents on contracts with orthopedic surgeons.
- EBay named Omnicom Group’s BBDO as its ad agency, replacing Goodby, Silverstein & Partners.

CNBC:
- Former Morgan Stanley Chairman S. Parker Gilbert and retired President Robert Scott said they and other former executives might stage a proxy fight to oust CEO Philip Purcell.

Women’s Wear Daily:
- Saks Inc. seeks buyers for its regional department store unit and Belk Inc. is the primary suitor.

BOTTOM LINE: US stocks had their broadest, strongest rally of 2005 today as oil prices declined, long-term interest rates fell and quarter-end window dressing took hold. The Portfolio finished slightly higher as gains in my Internet longs and Networking longs more than offset losses in my Base Metal shorts. I added a few new longs from various sectors in the afternoon, thus leaving the Portfolio 75% net long. One of my new longs is PHM and I am using a $71 stop-loss on this position. The tone of the market strengthened further into the afternoon as the advance/decline line rose to its daily highs, every sector advanced and volume was decent. Small-caps and Tech outperformed and measures of investor anxiety were mostly lower. Overall, today’s market action was positive. I expect US stocks to rally further near-term as long-term interest rates decline over the next 2 days on weaker-than-expected economic data, thus quelling some speculation that the Fed will raise rates 50 basis points at the next meeting. An unexpected rise in long-term interest rates would likely cut any rally short. I also expect oil to remain in a trading range near-term. However, one more push higher in energy prices is possible over the next 6 weeks before steeper declines occur in the second-half of the year.

Mid-day Scoreboard

Indices
S&P 500 1,177.80 +1.07%
DJIA 10,513.00 +1.04%
NASDAQ 1,999.89 +1.32%
Russell 2000 612.25 +1.26%
DJ Wilshire 5000 11,608.82 +1.15%
S&P Barra Growth 569.75 +1.20%
S&P Barra Value 604.96 +1.17%
Morgan Stanley Consumer 579.06 +1.07%
Morgan Stanley Cyclical 740.78 +1.02%
Morgan Stanley Technology 457.75 +1.81%
Transports 3,727.54 +1.46%
Utilities 354.25 +1.31%
Put/Call .87 -7.45%
NYSE Arms .63 -56.40%
Volatility(VIX) 13.72 -5.31%
ISE Sentiment 123.00 -25.90%
US Dollar 84.17 -.18%
CRB 310.28 +.44%

Futures Spot Prices
Crude Oil 52.95 -2.18%
Unleaded Gasoline 155.90 -.89%
Natural Gas 7.45 +.65%
Heating Oil 156.00 +.24%
Gold 429.60 +.21%
Base Metals 128.54 +.54%
Copper 149.20 +1.46%
10-year US Treasury Yield 4.55% -.35%

Leading Sectors
Airlines +4.71%
Internet +2.08%
Semis +1.88%

Lagging Sectors
Broadcasting +.17%
Hospitals +.16%
Insurance -.06%

Links of Interest
Market Internals
Movers & Shakers
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon
Real-time Intraday Chart/Quote

BOTTOM LINE: US stocks are higher mid-day on a technical bounce, end-of-quarter window dressing and lower energy prices. The Portfolio is unchanged as gains in my Homebuilding shorts and Retail longs are offsetting losses in my Chinese ADR shorts and Base Metal shorts. I took profits in a few shorts this morning and added some new longs from various sectors, thus bringing the Portfolio’s market exposure to 50% net long. One of my new longs is OSTK and I am using a $41.50 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is decent. Technology stocks are outperforming and measures of investor anxiety are mostly lower. Today’s overall market action is positive. I would like to see the major indices hold gains or improve into the close. Stocks should continue bouncing through week’s end on quarter-end window dressing, short-covering, bargain hunting, lower long-term interest rates and declining energy prices. I expect US stocks to trade mixed-to-higher into the close on short-covering, window dressing and bargain hunting.

Today's Headlines

Bloomberg:
- Morgan Stanley Chairman and CEO Philip Purcell says he has the “unanimous” support of his board.
- AIG said a reinsurance contract with Warren Buffet’s Berkshire Hathaway led to the “improper” reporting of financial results.
- GM will spend $44 million to help develop a fleet of vehicles using fuel cells as part of an agreement with the US Department of Energy.
- The US economy expanded at a 3.8% annual rate in the fourth quarter, restrained by a slower building of inventories than the government estimated last month.
- Crude oil is falling more than $1 a barrel to the lowest in almost three weeks after a government report showed that US inventories rose for a seventh straight week.

Wall Street Journal:
- Rising steel prices have made millionaires in some US “Rust Belt” communities such as Fort Wayne, Indiana, that haven’t seen prosperity since the 1950s.
- Berkshire Hathaway Chairman Warren Buffett was told beforehand of a transaction that is central to an investigation into one of its units.
- Short Sellers are finding it more difficult to make money because of increased competition and a less-favorable tax code.
- Citigroup’s Diners Club credit card wants to improve its market share by almost tripling the number of locations where the cards are accepted.

New York Times:
- A review of the UN agency that monitors free elections found management abuses including employees humiliation, misuse of funds and a willingness to tolerate sexual harassment.
- Disney’s Miramax studio and MGM are cutting their production budgets as Hollywood struggles with rising costs of film-making.

Chicago Sun-Times:
- Wm. Wrigley Jr. Co. is opening three facilities around the world to help it meet increasing demand for chewing gum in Asia.

LA Times:
- The Bush administration will announce today it is sending 500 more Border Patrol agents to Arizona to crack down on illegal immigration along the US-Mexican border.

San Francisco Chronicle:
- San Francisco’s Board of Supervisors approved a 45-day moratorium on new medical marijuana clubs until they can devise regulations protecting them from federal law.

Rocky Mountain News:
- Colorado Governor Bill Owens wants the US Congress to revise gaming laws to limit the $20 billion American Indian gambling industry.

China Central Television:
- China called for the scrapping of export rebates on some steel products and curbs on the expansion of steel production.

Financial Times Deutschland:
- Siemens AG and IBM have submitted a joint bid to upgrade the computer system of the German army.

National Post:
- Cognos Inc., Canada’s biggest software maker, plans to increase its workforce 47% to 5,000 by 2008.

Economic Releases

- Final 4Q GDP rose 3.8% versus estimates of a 4.0% rise and a prior estimate of a 3.8% gain.
- Final 4Q GDP Price Deflator rose 2.3% versus estimates of a 2.1% increase and prior estimate of a 2.1% gain.
- Final 4Q Personal Consumption rose 4.2% versus estimates of a 4.3% increase and a prior estimate of a 4.2% gain.
- Summary of Weekly Petroleum Data for the Week Ending March 25, 2005.

Morning Buy/Sell Recommendations

Goldman Sachs:
- Reiterated Underperform on MU and HRB.
- Reiterated Outperform on AIG.

Smith Barney:
- Said to Buy AD.
- Reiterated Sell on MU, target $11.50.

CSFB:
- Raised APOL to Outperform, target $84.
- Reiterated Outperform on TTMI, target $13.

Merrill Lynch:
- Raised AMR to Buy, target $14.
- Raised FRNT to Buy, target $12.
- Raised STON to Buy, target $24.50.
- Raised POT to Buy, target $94.
- Raised KOSP to Buy, target $50.

Morgan Stanley:
- Raised SSI to Overweight, target $64.
- Rated EMC Overweight, target $16.
- Reiterated Overweight on NYT, target $45.
- Reiterated Overweight on APOL, target $87.
- Reiterated Underweight on SLM, target $46.

Banc of America:
- Reiterated Buy on BFAM, target $38.

Jeffries:
- Rated IMA Buy, target $32.
- Rated L Buy, target$14.87.

Prudential:
- Raised SFD to Overweight, target $35.
- Raised SHFL to Overweight, target $35.

Thomas Weisel:
- Rated AKAM, TWW, GRIC Outperform.
- Rated INLD Underperform.

Piper Jaffray:
- Cut SBIB to Underperform, target $12.

Legg Mason:
- Rated DF Buy, target $40.

Chart of Interest

Image hosted by Photobucket.com

Wednesday Watch

Late-Night Headlines
Bloomberg:
- The US dollar weakened for the first day in 10 against the yen in Asia, ending the longest winning streak since 2001, as some traders bet the currency's rally was excessive.
- Bristol-Myers Squibb won FDA approval for its Baraclude hepatitis B drug.
- Nikko Citigroup Ltd. eclipsed Nomura Holdings Inc. as Japan's leading stock underwriter in the first quarter after arranging the biggest block trade in its six-year history for computer maker Fujitsu Ltd.
- Qwest Communications hired a proxy adviser to build shareholder support for its takeover bid for MCI Inc. and escalate a battle with Verizon Communications.

Wall Street Journal:
- The number of securities class-action suits filed against US companies rose 16% last year to 203.

Washington Post:
- The American Association of Retired Persons is spending more than $5 million over two weeks attacking President Bush's plan to save Social Security.

Financial Times:
- Russia's slowing investment growth is making it difficult to meet a "catastrophic excess" of domestic demand.
- The share prices of international companies with listings in the US may decline if the Sarbanes-Oxley Act compels them to disclose inadequate internal controls, citing research by Mori and PricewaterhouseCoopers LLP.
- Inflation in China may ease this year, falling to 3-3.5%.

Orange County Business Journal:
- Kia Motors, South Korea's second-biggest automaker, bought land for $28 million in Southern California that will be the site of its new US headquarters.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on HOT, PFE, DIS, AMR, RIG, DIS and FS.
- Reiterated Underperform on EQR and VTS.

Banc of America:
- Reiterated Buy on DJ, target $44.
- Reiterated Buy on JRC, target $21.
- Reiterated Buy on NYT, target $40.

JP Morgan:
- Upgraded INSP to Overweight.
- Reiterated Overweight on HPQ.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.10%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
AGE/.66
AMT/-.17
KMX/.28
NRG/-.16
RI/.39
TEX/.45

Splits
None of note

Economic Releases
8:30 EST:
- Final 4Q GDP is estimated to rise 4.0% versus a prior estimate of 3.8%.
- Final 4Q Personal Consumption is estimated to rise 4.3% versus a prior estimate of 4.2%.
- Final 4Q Price Deflator is estimated to rise 2.1% versus a prior estimate of 2.1%.

BOTTOM LINE: Asian indices are lower as commodity and exporter shares in the region continue to decline on worries over slowing global demand. I expect US equities to open modestly lower in the morning on higher energy prices and losses in Asia. However, stocks should stage a short-term rally beginning sometime over the next 2 days. The Portfolio is 25% net short heading into tomorrow.

Tuesday, March 29, 2005

Tuesday Close

Indices
S&P 500 1,165.36 -.76%
DJIA 10,405.70 -.76%
NASDAQ 1,973.88 -.94%
Russell 2000 604.63 -1.71%
DJ Wilshire 5000 11,477.20 -.86%
S&P Barra Growth 576.-.79%
S&P Barra Value 597.95 -.73%
Morgan Stanley Consumer 572.94 -.34%
Morgan Stanley Cyclical 733.31 -1.69%
Morgan Stanley Technology 449.62 -.76%
Transports 3,673.57 -1.80%
Utilities 349.65 -1.35%
Put/Call .66 unch.
NYSE Arms 1.45 +69.37%
Volatility(VIX) 14.49 +5.38%
ISE Sentiment 166.00 -14.87%
US Dollar 84.32 -.22%
CRB 308.93 +.51%

Futures Spot Prices
Crude Oil 54.41 +.67%
Unleaded Gasoline 157.50 +.15%
Natural Gas 7.32 +4.63%
Heating Oil 156.00 +.80%
Gold 426.00 unch.
Base Metals 127.85 +.26%
Copper 146.25 -.54%
10-year US Treasury Yield 4.57% -1.45%

Leading Sectors
Hospitals +2.15%
Insurance +.60%
Foods -.06%

Lagging Sectors
Gaming -2.12%
Oil Service -2.46%
Iron/Steel -3.27%

After-hours Movers
ANGO +5.12% after beating 3Q estimates and raising 05 guidance.
VTS +6.77% after beating 2Q estimates.
MERX +7.11% after beating 3Q estimates and raising 4Q outlook.
IMH +11.64% after announcing 1Q dividend of .75/share.
TTEK -20.3% after lowering 2Q guidance and taking substantial charge.

Evening Review
Detailed Market Summary
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
Futures Recap
S&P 500 Gallery View
Timely Economic Charts
PM Market Call
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on KO and YUM.
- Reiterated Underperform on PBG.

Afternoon/Evening Headlines
Bloomberg:
- US Supreme Court justices questioned the federal rules that say Time Warner and other cable-tv operators don’t have to open their Web-access networks to rival Internet service providers.
- Natural gas futures rose for the first time in five sessions on speculation that US demand this summer will be stronger than normal.
- Delta Air Lines hired two companies to perform maintenance on about half its fleet, allowing it to eliminate as many as 2,000 jobs and save $240 million over five years.
- Liberty Media Chairman John Malone said he wants to hold or expand his company’s stake in Rupert Murdoch’s News Corp., heightening a conflict between the executives over the future of Malone’s investment.
- Eight former Morgan Stanley executives urged the board to oust CEO Purcell, saying his “failure of leadership” has caused the firm’s shares to lag behind Wall Street rivals.
- Miramax Film founders Harvey and Bob Weinstein will leave Walt Disney in September following clashes with CEO Eisner.
- Japan’s industrial production fell more than expected in February as overseas demand cooled, adding to evidence that a recovery in the world’s second-biggest economy may stall.

AP:
- Telecommuters who work for New York employers while living outside the state must pay New York taxes on their full incomes, the state’s highest court ruled.

The Star:
- GE is seeking a stake in a Malaysian bank.

BOTTOM LINE: US stocks finished lower today on continuing worries over slowing global growth. The Portfolio finished higher on gains in my Base Metal shorts, Chinese ADR shorts and Internet shorts. I did not trade in the afternoon, thus leaving the Portfolio 25% net short. The tone of the market deteriorated into the close as the advance/decline line dropped considerably to its daily lows, almost every sector declined and volume rose from low levels. Cyclicals and Small-caps underperformed substantially throughout the day and measures of investor anxiety were mostly higher. Overall, today’s market action was negative, considering recent losses, declining long-term interest rates, merger activity and the modest decline in Consumer Confidence. I expect a short counter-trend rally will begin sometime tomorrow or Thur.

Mid-day Scoreboard

Indices
S&P 500 1,168.35 -.51%
DJIA 10,424.17 -.59%
NASDAQ 1,978.87 -.68%
Russell 2000 608.01 -1.16%
DJ Wilshire 5000 11,513.50 -.55%
S&P Barra Growth 564.64 -.51%
S&P Barra Value 599.99 -.39%
Morgan Stanley Consumer 574.12 -.14%
Morgan Stanley Cyclical 736.17 -1.30%
Morgan Stanley Technology 450.55 -.56%
Transports 3,684.45 -1.51%
Utilities 351.93 -.72%
Put/Call .66 unch.
NYSE Arms 1.23 +43.62%
Volatility(VIX) 13.92 +1.31%
ISE Sentiment 161.00 -17.44%
US Dollar 84.37 -.17%
CRB 308.70 +.44%

Futures Spot Prices
Crude Oil 54.10 +.09%
Unleaded Gasoline 156.90 -.24%
Natural Gas 7.27 +3.87%
Heating Oil 155.00 +.16%
Gold 426.00 unch.
Base Metals 127.85 +.26%
Copper 147.05 +1.10%
10-year US Treasury Yield 4.58% -1.19%

Leading Sectors
Hospitals +2.41%
Insurance +1.12%
Foods +.12%

Lagging Sectors
Biotech -1.06%
Gaming -1.48%
Iron/Steel -2.40%

Links of Interest
Market Internals
Movers & Shakers
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon
Real-time Intraday Chart/Quote

BOTTOM LINE: US stocks are lower mid-day on worries over slowing global growth. The Portfolio is higher on gains in my Chinese ADR shorts and Internet shorts. I added a few new shorts this morning, thus bringing the Portfolio’s market exposure to 25% net short. One of my new shorts is PD and I am using a $102 stop-loss on this position. The tone of the market is negative as the advance/decline line is lower, most sectors are lower and volume is light. Small-caps and Cyclicals are once again underperforming and measures of investor anxiety are mostly higher. Today’s overall market action is negative considering recent losses, the decline in interest rates and merger activity. This appears to be the beginning of the final push lower that I have been anticipating. Levels of investor anxiety should reach levels necessary to help form a meaningful bottom over the next few weeks. I continue to expect the second half of the year to be much better for the equities. I expect US stocks to trade mixed-to-lower into the close on worries over slowing global growth.

Today's Headlines

Bloomberg:
- Russian President Putin’s government expects to speed up state asset sales as the country seeks to restore investor confidence after the state seized OAO Yukos Oil’s biggest unit.
- US consumer confidence fell in March for a second straight month as higher gasoline prices damped the enthusiasm sparked by job growth.
- The SEC, trying to ease concerns over shareholder lawsuits, gave companies flexibility in reporting stock options as expenses on their financial statements beginning as soon as June.
- Hewlett-Packard chose NCR Corp. CEO Mark Hurd as its new CEO.
- MCI Inc. accepted a new $7.64 billion takeover from Verizon Communications, rejecting a higher bid from Qwest Communications.
- US Treasury notes rose as a drop in consumer confidence bolstered speculation high energy prices will damp consumer spending, helping to keep inflation in check.

The Wall Street Journal:
- Billionaire investor Warren Buffett was called by regulators to answer questions about an insurance transaction between a unit of his Berkshire Hathaway and American International Group.
- Cingular Wireless LLC had more complaints than any other cell-phone service in the fourth quarter.
- VeriSign Inc. is the leading candidate for operating the “.net” registry when its existing contract with the Internet Corporation for Assigned Names and Numbers expires.
- Closely held Cook Inc. is developing drug-coated stents, or small tubes used to open clogged arteries, for use in arteries away from the heart to see if they help blockages.
- Merck & Co. hasn’t been able to find a “heavy hitter” prepared to take over from CEO Raymond Gilmartin, who retires in March 2006.
- Identity thieves can find sensitive information using Google’s search engine or other services by knowing what to look for, putting the onus on Web sites to remove such data.

The New York Times:
- Less than 5% of the 20 million low-income US residents receiving Medicare applications for financial assistance will respond because the form is too complex.
- US airlines are cutting seat capacity by retiring less efficient planes because of fuel price increases.
- A former aide to UN Secretary General Kofi Annan, Iqbal Riza, will be criticized in a report for throwing away documents on the Iraqi oil-for-food program.
New York Post:
- Kohlberg Kravis Roberts is negotiating to buy a majority stake in GM’s GMAC Commercial Mortgage unit for at least $1 billion.

Dow Jones Newswires:
- OPEC suspended talks to raise output quotas for a second time this year.

Barron’s:
- Tiffany & Co. may be a target for a takeover, citing money manager and shareholder Shawn Krevetz of Esplanade Capital in Boston.

Yonhap News:
- Samsung SDI, the world’s largest maker of plasma display panels, forecast the present glut in the products will turn to a shortage during the fourth quarter.

Press Trust of India:
- PepsiCo Inc. plans to spend as much as $500 million to expand its business in India in the next three to five years.

Tex Report:
- Tokyo Steel Manufacturing has offered to pay as much as $19 more on each ton of ferrous scrap it will buy in the domestic market starting tomorrow.

Economic Releases

- Consumer Confidence for March fell to 102.4 versus estimates of 103.0 and a reading of 104.4 in February.

Morning Buy/Sell Recommendations

Goldman Sachs:
- Reiterated Outperform on FSH, YUM, PFE and BBBY.
- Rated AIG Outperform.

Smith Barney:
- Said to Sell ATK, target $60, and Buy DRS, target .
- Reiterated Buy on CD, target $28.
- Reiterated Buy on AA, target $42.
- Reiterated Buy on FCX, target $50.
- Raised TPP to Buy, target $43.

CSFB:
- Raised OTEX to Outperform, target $25.

Prudential:
- Downgraded LTD to Underweight, target $21.
- Reiterated Buy on ROK, target $70.

Merrill Lynch:
- Rated NOV Buy, target $55.
- Reiterated Buy on CELG, target $42.

Banc of America:
- Reiterated Buy on LYO, target $35.

Jeffries:
- Rated OSUR Buy, target $11.

Wachovia:
- Rated ISIL, LLTC and MCRL Outperform.

CIBC:
- Rated CVH Sector Outperform, target $84.
- Rated CI Sector Outperform, target $110.
- Rated WLP Sector Outperform, target $150.
- Rated UNH Sector Outperform, target $112.
- Rated AET Sector Outperform, target $88.
- Rated MGLN Sector Underperform, target $30.
- Rated HNT Sector Underperform, target $34.

UBS:
- Raised HBAN to Buy, target $27.

Oppenheimer:
- Raised HCA to Buy, target $62.
- Raised CMVT to Buy, target $30.

Piper Jaffray:
- Raised SUPX to Outperform, target $23.
- Rated WOOF Outperform, target $24.
- Rated CENT Outperform, target $50.

Legg Mason:
- Rated AMAT Buy, target $24.
- Rated CYMI Buy, target $34.
- Rated KLAC Buy, target $59.
- Rated LRCX Buy, target $45.
- Rated MTSN Buy, target $15.
- Rated VSEA Buy, target $50.

Tuesday Watch

Late-Night Headlines
Bloomberg:
- American International Group's Maurice "Hank" Greenberg plans to step down as chairman two weeks after probes of potential earnings manipulation forced his resignation as CEO of the world's largest insurer.
- Japan's household spending fell more than expected in February and unemployment rose, suggesting the world's second-largest economy may not be able to rely on consumers to drive a recovery from recession.
- China Petroleum & Chemical Corp. which makes two-thirds of the nation's fuels, said 2004 profit rose 61% to a record on higher demand for gasoline, diesel and chemicals.
- Aluminum Corp. of China, the country's biggest producer of the metal, had a 42% increase in second-half profit after it raised prices of alumina, a semi-processed material it sells to other smelters.
- EQT Partners AB, a buyout firm backed by Sweden's Wallenberg family, and Goldman Sachs Group's private-equity arm agreed to buy Denmark's ISS A/S, the world's biggest cleaning company, for about $3.8 billion.
- Societe Generale SA said oil prices over $50 a barrel are restraining fuel demand from China.

Washington Post:
- Sony Corp. may have to stop US sales of PlayStation 2 video-game consoles if it loses an appeal to a court ruling stating that the company violated patents by Immersion Corp.
- Text messaging on cellular telephones has become a vehicle for free speech in Arab countries, particularly in the Persian Gulf.
- The federal government is one of the most welcoming employers in the US for senior citizens, and top officials remain in their jobs and powerful long after the typical age for private sector retirement.

Financial Times:
- Merrill Lynch plans to expand its private client business internationally.
- The value of global mergers and acquisitions activity fell 23% in the first quarter of 2005 to $513 billion, compared with $670 billion in the last quarter of 2004.

Commercial Times:
- Taiwan won't toughen its stand against China after the mainland legislature passed laws authorizing an invasion of the island if it declares independence.

Economic Times:
- Merck & Co. may set up a unit in India to sell patented products.

China Securities Journal:
- China's economic growth probably slowed to 8.8% in the first quarter on lower agricultural output and investment in factories, roads and other fixed assets.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MSFT and BSX.
- Reiterated Attractive view of Hospital sector.

Night Trading
Asian Indices are -1.50% to -1.0% on average.
S&P 500 indicated -.37%.
NASDAQ 100 indicated -.51%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
APOL/.46
CCI/-.15
HLYW/.35
URI/.26
VTS/.41

Splits
None of note

Economic Releases
10:00 EST:
- Consumer Confidence for March is estimated to fall to 103.0 versus a reading of 104.0 in February.

BOTTOM LINE: Asian indices are lower as commodity and exporter shares in the region continue to decline on worries over slowing global demand. I expect US equities to open modestly lower in the morning and to weaken throughout the day on worries over slowing global growth and the possibility the Fed will accelerate the pace of rate hikes. The Portfolio is market neutral heading into tomorrow.

Monday, March 28, 2005

Monday Close

Indices
S&P 500 1,174.28 +.24%
DJIA 10,485.65 +.41%
NASDAQ 1,992.52 +.07%
Russell 2000 615.12 -.02%
DJ Wilshire 5000 11,576.78 +.16%
S&P Barra Growth 576.53 +.29%
S&P Barra Value 602.36 +.20%
Morgan Stanley Consumer 574.89 +.17%
Morgan Stanley Cyclical 745.89 -.52%
Morgan Stanley Technology 453.07 -.07%
Transports 3,740.75 -.10%
Utilities 354.44 +.13%
Put/Call .66 +3.13%
NYSE Arms .85 -22.45%
Volatility(VIX) 13.75 +2.46%
ISE Sentiment 195.00 +12.72%
US Dollar 84.51 +.43%
CRB 307.36 +.16%

Futures Spot Prices
Crude Oil 53.85 -.37%
Unleaded Gasoline 156.70 -.36%
Natural Gas 7.00 +.01%
Heating Oil 154.00 -.49%
Gold 426.20 +.05%
Base Metals 127.52 -1.0%
Copper 145.45 unch.
10-year US Treasury Yield 4.64% +1.03%

Leading Sectors
Oil Service +1.31%
Insurance +1.29%
Retail +1.19%

Lagging Sectors
Broadcasting -1.13%
Biotech -1.33%
Iron/Steel -2.26%

After-hours Movers
HCA +7.96% after boosting 1Q guidance substantially.

Evening Review
Detailed Market Summary
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
Futures Recap
S&P 500 Gallery View
Timely Economic Charts
PM Market Call
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on HCA, WAG and MUR.

Afternoon/Evening Headlines
Bloomberg:
- DreamWorks Animation SKG said investors including Microsoft co-founder Paul Allen plan to sell $500 million of stock five months after the company issued shares to the public.
- Qwest Communications said MCI Inc. must make a decision on whether to accept its $8.45 billion takeover offer by April 5.
- Parker Hannifin lowered its fiscal third-quarter and full-year earnings forecasts because of weaker-than-expected sales to automakers.
- Richard Fuld Jr., chairman of the board of directors and CEO of Lehman Brothers, has been named a director of the Federal Reserve Bank of NY.
- Saks Inc. said the SEC opened a formal investigation into whether the company improperly collected as much as $21.5 million from vendors.
- Crude oil futures fell a second day on speculation rising production from OPEC will be sufficient to meet demand from refiners.
- US 10-yr T-notes fell on speculation that Friday’s employment report would exceed expectations.

NY Times:
- The Univ. of Colorado plans to review the record of Professor Ward Churchill to examine accusations of academic misconduct.

Business Week:
- Hewlett-Packard may name its new chief executive officer as early as tomorrow, less than 2 months after the high-profile ouster of Carleton Fiorina from the company.

Korea Times:
- South Korea will start terrestrial digital multimedia broadcasting, which would enable people to enjoy free tv programming through handsets.

Kyodo News:
- The number of births in Japan last year fell more than some had expected to the lowest since the end of WWII.

Nikkei English News:
- Canon Inc. is expanding into the pharmaceutical industry with production of DNA chips using inkjet technology used in its computer printers.

BOTTOM LINE: US stocks finished slightly higher today as declining energy prices and merger activity mostly offset worries over higher interest rates and slowing global growth. The Portfolio finished slightly higher as gains in my Homebuilding shorts more than offset losses in my Software longs. I added a few new shorts in the afternoon, thus leaving the Portfolio market neutral. One of my new shorts is EBAY and I am using a $38 stop-loss on this position. The tone of the market deteriorated modestly into the close as the advance/decline line dropped to its daily lows, sector performance was mixed and volume remained very light. Cyclicals underperformed throughout the day and measures of investor anxiety were mixed. Overall, today’s market action was modestly negative, considering recent losses, declining energy prices, merger activity and a firming US dollar.

Mid-day Scoreboard

Indices
S&P 500 1,178.27 +.58%
DJIA 10,510.27 +.65%
NASDAQ 2,002.13 +.56%
Russell 2000 615.96 +.11%
DJ Wilshire 5000 11,611.09 +.45%
S&P Barra Growth 569.30 +.60%
S&P Barra Value 604.22 +.51%
Morgan Stanley Consumer 575.73 +.31%
Morgan Stanley Cyclical 747.95 -.25%
Morgan Stanley Technology 455.51 +.47%
Transports 3,761.30 +.44%
Utilities 355.62 +.47%
Put/Call .84 +31.25%
NYSE Arms .76 -31.14%
Volatility(VIX) 13.53 +.89%
ISE Sentiment 180.00 +4.05%
US Dollar 84.59 +.51%
CRB 307.06 +.06%

Futures Spot Prices
Crude Oil 54.30 -.98%
Unleaded Gasoline 157.70 -1.39%
Natural Gas 6.97 -1.30%
Heating Oil 154.50 -.22%
Gold 426.00 +.24%
Base Metals 127.52 -1.0%
Copper 145.50 -.07%
10-year US Treasury Yield 4.62 +.72%

Leading Sectors
Oil Service +1.52%
Internet +1.23%
Retail +1.20%

Lagging Sectors
Biotech -.73%
Papers -1.02%
Iron/Steel -2.29%

Links of Interest
Market Internals
Movers & Shakers
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Hot Spots
Option Dragon
Real-time Intraday Chart/Quote

BOTTOM LINE: US stocks are higher mid-day on a decline in energy prices and bargain-hunting. The Portfolio is higher on gains in my Homebuilding shorts, Chinese ADR shorts and Retail longs. I added a few new retail longs this morning, thus increasing the Portfolio’s market exposure to 25% net long. One of my new longs is DECK and I am using a $35 stop-loss on this position. The tone of the market is mixed as the advance/decline line is slightly lower, most sectors are higher and volume is very light. Small-caps and Cyclicals are underperforming and measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering recent losses, the decline in energy prices and stronger US dollar. I continue to believe one more push lower is necessary to put in place a more durable bottom. I expect US stocks to trade mixed into the close as a decline in energy prices and bargain hunting offsets concerns over higher interest rates and worries over slowing global growth.

Today's Headlines

Bloomberg:
- Seven of the largest US buyout firms, led by Silver Lake Partners, agreed to acquire software maker SunGard Data Systems for $11.3 billion, collaborating in the biggest leveraged buyout since 1989.
- AmerisourceBergen Corp. cut its fiscal 2005 forecast for earnings per share from continuing operations to $3.10 to $3.50 from $4.00 to $4.10.
- AIG used private, offshore companies for six times more reinsurance than any of its nine biggest US competitors.
- Sprint Corp., Comcast and Time Warner are among companies whose borrowing costs may fall relative to government securities as investors buy their bonds rather than General Motors’ debt.
- An earthquake measured at a preliminary magnitude of 8.2 struck off the northwestern coast of Indonesia, possibly triggering a tsunami in the same area where a temblor caused widespread death and destruction in December.
- The US dollar is climbing to a five-month high against the yen and gained versus the euro on speculation reports this week will show US economic growth is outpacing Germany and Japan.
- Crude oil futures in NY are falling, extending last week’s decline from a record, on speculation of ample supplies when global consumption peaks in the third and fourth quarters.

The Wall Street Journal:
- The SEC is assuring companies they will not be forced into a one-size-fits-all approach to valuing employee stock options when it announces new accounting rules.
- Microsoft is adding features to the next versions of the Windows operating system and Internet Explorer browser to help prevent rogue Web sites from obtaining personal information.
- Professional short-sellers are increasingly betting against real-estate investment trusts, citing a Banc of America report.
- The SEC has sent subpoenas to 12 senior executives at AIG as investigations continue into transactions that may have been used to bolster its financial position.
- Television networks are planning shows with religious themes for next season as the success of “The Passion of the Christ” and “The Da Vinci Code” indicate there is a market for spiritual themes in popular culture.

The New York Times:
- New FCC Chairman Martin will try to broaden broadcasting indecency rules and increase fines for violations.
- A unit of billionaire investor Warren Buffet’s Berkshire Hathaway is being examined by investigators from the SEC, NY Attorney General Spitzer, the US Justice Department and regulators in Ireland, Britain and Australia.

AP
- EBay sales may be considered taxable income under IRS instructions.

Winston-Salem Journal:
- Krispy Kreme Doughnuts Inc. is expected to receive a $225 million loan from CSFB and hedge fund Silver Point Capital.

Daily News:
- Dog-treat dispensers, for owners and their pets who are on the go, are popping up on the streets of New York.

Economic Releases

None of note

Morning Buy/Sell Recommendations

Goldman Sachs:
- Reiterated Outperform on ADP, FSL and MRVL.
- Reiterated Underperform on MU.

Smith Barney:
- Upgraded ISIL to Buy, target $22.
- Reiterated Buy on HAL, target $56.
- Said interest rate worries seem overblown, as do inflation worries, given that labor costs are under control and commodity prices are a tiny share of total costs.
- Reiterated Buy on WMT, target $65.
- Reiterated Buy on Semi Equipment stocks, favorites are AMAT, WFR, MYK and LRCX.
- Said total semi short interest ratio for over 60 US traded semi companies increased .4 days or 17% m/m to 3.1 days in March from 2.6 days in February.

Banc of America:
- Upgraded TOL to Buy.

Bear Stearns:
- Reiterated Outperform on ITW, target $101.

Lehman Brothers:
- Raised IVX to Outperform, target $26.
- Reiterated Overweight on MOVI, target $30.

Merrill Lynch:
- Reiterated Buy on CMVT, target $30.

Morgan Stanley:
- Rated ANR Overweight, target $36.

JP Morgan:
- Rated ICGN Overweight.
- Rated WXS Overweight.

CSFB:
- Raised AMTD to Outperform, target $14.
- Rated WXS Outperform, target $22.
- Raised TAP to Outperform, target $100.

Deutsche Bank:
- Rated BGFV Outperform, target $30.
- Rated TSA Buy, target $31.
- Raised CELL to Buy, target $24.

UBS:
- Downgraded GM to Reduce, target $20.
- Reiterated Buy on LTM, target $38.
- Reiterated Buy on TLWT, target $21.
- Reiterated Buy on SLR, target $5.5.
- Reiterated Buy on GR, target $47.

Jeffries:
- Raised ORB to Buy, target $12.

Piper Jaffray:
- Raised GME to Outperform, target $30.
- Raised ELBO to Outperform, target $50.

Monday Watch

Weekend Headlines
Bloomberg:
- Taiwan President Chen Shui-bian joined as many as 1 million people in a mass rally in Taipei to protest against a Chinese law that authorizes attacking the island if it declares independence.
- NY-based Blackstone Group LP, manager of the world's biggest buyout fund, is leading an investor group in a $14.9 billion bid to acquire Italian mobile telephone company Wind SpA.
- Wal-Mart Stores said March sales at stores open at least a year are rising within its forecast as shoppers bought more food.
- Investors in US Treasury securities are their most bullish in seven weeks, reflecting optimism that the highest 10-year note yields since June offer adequate compensation for inflation.
- As the US dollar heads for the biggest quarterly advance against the euro since 2001, traders are more bullish on the US currency than they have been in 17 months, according to a Bloomberg survey.
- Crude oil futures in NY are falling, extending a 3.3% decline last week, after Qatar's energy minister said OPEC's customers weren't asking for more oil, reducing concern about global shortages.
- Boeing said it may raise its forecast for 2006 deliveries because of higher-than-expected demand from Chinese and Indian airlines.
- The US dollar may gain against the yen this year, snapping a three-year drop, as rising interest rates and a strong US economy increase the appeal of US assets, said Makoto Utsumi, a former top currency official at Japan's Ministry of Finance.
- McDonald's, Borders Group and 50 other companies have lopped more than $1.5 billion off their reported pretax earnings since federal regulators urged them in November to review how they account for leases of stores and other rental properties.

Wall Street Journal:
- Boeing plans to sell a new version of it 702 commercial satellite to help return the division to profitability this year.
- A group of 26 former Democrat and Republican national-security officials will send a letter tomorrow to US President Bush asking the federal government to spend as much as $1 billion in the next five years on cutting fossil fuel dependence.

NY Times:
- AIG is close to a decision to remove Maurice "Hank" Greenberg as chairman as his appearance before prosecutors investigating reinsurance transactions nears.
- A growing number of families of critically ill patients are fighting to keep their loved ones alive through advances in medical technology, even when doctors believe it is time to let the patients die.
- Digital set-top boxes that allow viewers to pause and replay live tv and skip commercials also give advertisers new ways to customize ads according to viewing habits.
- Dayton, Ohio, which has established 40 charter schools and is planning nine more, has become a subject of interest to educators as the system competes with public schools for students and money.
- Investigators on three continents are examining units of billionaire investor Warren Buffett's Berkshire Hathaway for possible financial manipulation.

Washington Post:
- The Bush administration is contacting Syrian opposition groups and assessing political trends there amid concern their nation's military withdrawal from Lebanon may destabilize the Damascus regime.

Chicago Tribune:
- Ten drugmakers, including GlaxoSmithKline, Pfizer and Novartis AG, plan to begin an advertising campaign to promote a drug card for US residents without health insurance.

Crain's Chicago Business:
- Chicago's Pritzker family is in talks to acquire the remaining 50% of the top-grossing casino in Illinois from its partner, Mandalay Resort Group.

Seattle Times:
- Microsoft is bolstering alliances in Washington as part of a long-term strategy to repair damage from its federal antitrust case and gain a voice in new media regulations.

Time Magazine:
- US Customs and Border Protection officials said they are planning to increase resources this week to target illegal immigration from Mexico to Arizona.

Daily Telegraph:
- General Motors may scrap some brands, such as Pontiac and Buick, as it tries to reverse a decline in sales.

Sunday Times:
- Elan Corp.'s directors are considering splitting off the company's San-Francisco-based biotechnology unit from its drugs delivery business.
- Ford Motor is preparing to put $934 million of new investment into its Jaguar brand.

Independent on Sunday:
- A group within the UK Labour government is preparing a plan for constructing up to 10 new nuclear reactors in Britain.

Bild am Sonntag:
- The European Union's foreign-policy chief said China's policies toward Taiwan are raising "concern" among EU member states, even if the bloc is still seeking to scrap a weapons ban against China.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on XOM, USU, COHR, DCX, UPS, SFD, mixed on C, MSFT, BUD, FHN, KOMG, KO, MVL and negative on AAPL, TOL, GE, FDX.

Cavuto on Business:
- Had guests that were positive on GM and mixed on EMC, TSO, ASO, WM.

Forbes on Fox:
- Had guests that were positive on VLO, SPI, WYE, mixed on PKZ, LUV and negative on SHOP.

Cashin' In:
- Had guests that were positive on SNE and mixed on WMT, PG.

Business Week:
- Had a positive columns on ADSK and YHOO.

Barron's:
- Had positive comments on GM's mini-bonds, COP, CNX, KWK, COG, TIF, ALSK and negative comments on X.

Goldman Sachs:
- Reiterated Outperform on NSM, CAN, YHOO, BSX, GOOG, EBAY, CL and MCHP.
- Reiterated Cautious view of Slot Manufacturers.
- Sees multiple catalysts for Gaming stocks in April, favorites are STN, WYNN and LVS.

Night Trading
Asian indices are mixed, -1.0% to +.75% on average.
S&P 500 indicated +.22%.
NASDAQ 100 indicated +.24%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
BKST/1.60
WAG/.48
IPXL/.14

Splits
QSII 2-for-1

Economic Data
None of note

BOTTOM LINE: Asian Indices are mixed tonight as gains in exporting stocks are offsetting losses in commodity-related shares in the region. China's Shanghai A-Share Index is falling again and is at cycle lows, down 28.9% in the last 12 months and 42.9% from its all-time high set in June 2001. I expect US stocks to open modestly higher in the morning on a bounce from last week's declines, a gain in the US dollar and lower energy prices. The Portfolio is Market Neutral heading into the week.

Sunday, March 27, 2005

Weekly Outlook

There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - Consumer Confidence
Wed. - Final 4Q GDP, Final 4Q Personal Consumption, Final 4Q GDP Price Deflator
Thur. - Personal Income, Personal Spending, PCE Deflator, Initial Jobless Claims, Help Wanted Index, Chicago Purchasing Manager, Factory Orders
Fri. - Unemployment Rate, Average Hourly Earnings, Change in Non-farm Payrolls, Average Weekly Hours, Univ. of Mich. Consumer Confidence, Construction Spending, ISM Manufacturing, Total Vehicle Sales

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Micron Technology(MU), Walgreen Co.(WAG)
Tues. - Apollo Group(APOL)
Wed. - Accenture Ltd(ACN), Best Buy(BBY), Carmax Inc.(KMX), Circuit City Stores(CC), Ruby Tuesday(RI)
Thur. - American Tower(AMT), Bed Bath & Beyond(BBBY), Freddie Mac(FRE), Red Hat Inc.(RHAT), Toys R Us(TOY)
Fri. - Pier 1 Imports(PIR)

Other events that have market-moving potential this week include:

Mon. - None of note
Tue. - Smith Barney Healthcare Conference, Banc of America Media/Telecom/Entertainment Conference, Prudential Metals & Mining Conference
Wed. - Lehman Brothers' Global Healthcare Conference, Banc of America Media/Telecom/Entertainment Conference, MSFT Analyst Meeting
Thur. - Lehman Brothers' Global Healthcare Conference
Fri. - Lehman Brothers' Global Healthcare Conference

BOTTOM LINE: I expect US stocks to begin the week modestly lower and then rally on an oversold technical bounce, bargain hunting, short covering, stabilizing long-term interest rates and quarter-end window-dressing. Consumer Confidence readings will likely come in below expectations due to the recent extreme negativity perpetuated in the media, high-profile acts of violence around the country, Terri Schiavo's Case, the Social Security debate, higher gas prices and lower stock prices. As well, other economic data may fail to meet elevated expectations. This, combined with a stronger US dollar, should lead to a stabilizing of long-term interest rates this week. I continue to expect the second half of the year to be much better for US stocks than the first half as inflation decelerates, commodities prices fall, long-term interest rates decline, low valuations tempt investors, growth remains healthy, the US dollar stabilizes, employment continues to improve, merger activity continues and corporate spending accelerates. My trading indicators are still bearish and the Portfolio is market neutral heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 135.20 -.44%

The Producer Price Index for February rose .4% versus estimates of a .3% increase and a .3% gain in January. The PPI Ex Food & Energy for February rose .1% versus estimates of a .1% gain and a .8% increase in January. Core prices were up 2.8% from February of last year, the biggest 12-month gain since November 1995. Not all the gains at the earlier stages of production have been passed on to consumers, suggesting manufacturers are relying on productivity to offset higher costs for energy and other raw materials, Bloomberg said. The price of gasoline increased 5.2% last month, the most since October of 2004. US central bankers "are setting us up for the possibility that they may need to accelerate if they think that the pace of inflation in picking up," said Edger Peters, chief investment officer at PanAgora Asset management. "There isn't any hard evidence that is happening, but there is anecdotal evidence," Peters said. Prices of raw materials, used at the earliest stage of the production process, actually fell 1.6% in February, Bloomberg reported. Cliff Waldman, an economist at Manufacturers Alliance, said "It's important to remember that labor costs hold the lion's share of total American business costs, and the data as a whole and labor costs going forward are fairly benign."

The FOMC raised the Fed Funds rate 25 basis points to 2.75%, the seventh increase in a row. The accompanying policy statement said that while the FOMC still expects "measured" rate increases, inflation pressures have picked up, Bloomberg reported. The statement's forward-looking third paragraph said inflation is "expected to be contained," a change from "is expected to be relatively low," the phrase used in February. Fed officials said they've seen little evidence that higher prices are working through to wage demands, one of the situations that might add to inflation. "Longer-term inflation expectations remain well contained," the FOMC's statement also said. The Fed's two-edged message – that while inflation risks are rising, it needn't yet step up the pace of rate hikes – may reflect disagreements among policy makers that will be clarified in coming weeks, economists and former Fed officials said. "I expect to see the 'measured' statement to go at the next meeting," said John Roberts, a managing director and head of government bond trading at Barclays Capital, Bloomberg reported.

The Consumer Price Index for February rose .4% versus estimates of a .3% increase and a .1% rise in January. The CPI Ex Food & Energy for February rose .3% versus estimates of a .2% gain and a .2% increase in January. Higher prices for gasoline, airfares and lodging contributed to February's gain, Bloomberg said. Year-over-year prices including food and energy rose 3%, right at the long-term average, Bloomberg reported. Energy prices, which account for about a 14th of the index, rose 2% in February after falling in the prior two months, Bloomberg said. The increase in the core index last month was probably exaggerated by a surge in the cost of hotel and motel rooms related to the Super Bowl, said Joseph LaVorgna, chief US fixed-income economist at Deutsche Bank Securities. Lodging costs rose 1.1% after a .7% decline in January, Bloomberg said.

Existing Home Sales for February fell to 6.79M versus estimates of 6.70M and 6.82M in January. An improving job market will give buyers the income needed to keep sales strong as the Fed raises rates, economists said. "We are still in a very, very strong market," said Daryl Jesperson, CEO of Re/Max International. "A stable employment picture, historically low interest rates and an economy that is doing well are all promoting activity," Jesperson said. The median price of an existing home rose 1.1% to $191,000 last month and was up 11% compared with February of last year. Sales were strongest in the Northeast, increasing 4.6%, Bloomberg reported. When the Fed first started raising rates in June of 2004, the average 30-year mortgage rate was 6.29% versus a current average of 6.01%, Bloomberg said.

Durable Goods Orders for February rose .3% versus estimates of a .9% gain and a 1.1% decline in January. Durables Ex Transportation for February fell .2% versus estimates of a .3% increase and an upwardly revised .9% increase in January. Orders are still up from a year earlier as companies continue to invest in equipment, software and inventories amid expectations that the economic expansion will continue, Bloomberg said. The drop in February's orders excluding transportation may be a belated response to the end of tax incentives designed to spur orders in 2004, economists said. "We were due for a pause," said Stephen Stanley, chief economist at RBS Greenwich Capital. "These figures are certainly not a cause for concern," Stanley said. Even with the declines in February, orders for non-defense capital goods excluding aircraft, an indication of future business investment, were up 16% in the first two months of 2005 compared with a year earlier, Bloomberg reported.

Initial Jobless Claims for last week rose to 324K versus estimates of 315K and 321K the prior week. Continuing Claims rose to 2673K versus estimates of 2650K and 2642K prior. The less-volatile four-week moving average was 321,750, down 5.4% from a year ago, Bloomberg reported. "Companies are generally becoming more confident despite the increase in energy costs and interest rates," said Lynn Reaser, chief economist at Banc of America Capital Management. "Sales and orders remain strong and companies are even experiencing some increases in pricing power. All of this is leading to increased hiring and a general easing in layoffs," Reaser said.

New Home Sales for February rose 9.4%, the most in more than 4 years, to 1226K versus estimates of 1150K and 1121K in January. Increasing job prospects and pent-up demand due to exceptionally wet weather in prior months spurred gains. The median sales price increased to $230,700 from a 10-month low of $210,400, Bloomberg reported. "This is clearly a boom period," said Tim Rogers, chief economist at Briefing.com. "I don't expect any serious declines until mortgage rates get into the mid-sixes," Rogers said. Measured against sales, the supply of homes actually decreased to 4.4 months in February from 4.6 months in January, Bloomberg reported. Sales were strongest in the northeast, rising 20.3%, Bloomberg said.

BOTTOM LINE: Overall, last week's economic data were mixed. Measures of inflation were only moderately higher last week, which is a positive considering the steep rise in commodity prices so far this year. I continue to expect inflation readings to begin to decelerate again during the second half of the year. Consumer prices for 2005 will likely rise around the 3.0% average of the last 40 years and below the 3.3% increase in 2004. The Fed may remove the word "measured" to describe the pace of future rate hikes from their next policy statement to allow more freedom. However, with the US dollar strengthening, foreign purchases of US assets remaining strong, the CRB Index turning lower, inflation only near average rates, global economic growth slowing and significant problems at a few major US companies, it is highly unlikely the Fed will actually raise rates 50 basis points at any meeting in the foreseeable future. While home sales may have benefited modestly from the perception that long-term rates are headed higher, the strong results were mainly a result of pent-up demand and improving employment prospects in most parts of the country. Durable Goods Orders are likely slowing to more sustainable healthy rates. The labor market continues to improve at a modest stable pace which is a big positive for the consumer and the stock market. As long as unit labor costs remain in check, inflation should stay well under control. Finally, the ECRI Weekly Leading Index fell .44% to 135.20.

In my opinion, the current environment is very similar to the period before last year's election, when almost every economic report was spun in a negative light by the media, politicians and bears. There are likely a number of reasons for this. Reality remains much more positive than current perception. However, if the extreme negativity persists, perception could begin to affect reality in a negative way, thus creating a self-fulfilling prophecy. Billionaire hedge fund investor and political activist George Soros described this type of reaction in his Theory of Reflexivity back in 1994.