Mid-day Update

S&P 500 1,187.25 +1.0%
NASDAQ 2,109.52 1.49%

Leading Sectors
Semis +4.14%
Disk Drives +3.82%
Boxmakers +3.0%

Lagging Sectors
Hospitals +.41%
Airlines +.20%
Utilities -.55%

Other
Crude Oil 46.08 -.02%
Natural Gas 7.14 +.22%
Gold 445.00 +1.02%
Base Metals 118.62 +1.27%
U.S. Dollar 83.37 -.51%
10-Yr. T-note Yield 4.14% -1.55%
VIX 13.00 -1.59%
Put/Call .63 -8.70%
NYSE Arms .52 -68.64%

Market Movers
S +22.5% after Kmart agreed to buy the company for $11 billion to create the third-biggest U.S. retailer. KMRT +17.6%.
HPQ +5.1% after beating 4Q estimates and raising 1Q/2Q 05 guidance.
NTAP +16.6% after beating 2Q estimates and raising 3Q outlook.
MO +4.6% after cigarette makers asked a federal appeals court to block the Justice Department from using an organized crime statute to get $280 billion from the industry in a civil court lawsuit now on trial in Washington.
MSO +17.0% on optimism over greater sales due to S/KMRT merger.
INSP -9.1% on Merriman Curhan downgrade to Neutral.

Economic Data
Consumer Price Index for October rose .6% versus estimates of a .4% rise and a .2% gain in September.
CPI Ex Food & Energy for October rose .2% versus estimates of a .1% increase and a .3% rise in September.
Housing Starts for October were 2027K versus estimates of 1960K and 1905K in September.
Building Permits for October were 1984K versus estimates of 2000K and 1998K in September.
Industrial Production for October rose .7% versus estimates of a .4% gain and a .1% rise in September.
Capacity Utilization for October was 77.7% versus estimates of 77.4% and 77.3% in September.

Recommendations
-Goldman Sachs reiterated Outperform on MERQ and BAX.
-Citi Smith Barney said to switch from RSAS to VRSN, target $38. Citi reiterated Buy on KMB, target $72. Citi reiterated Buy on MAR, target $63. Citi reiterated Buy on WTS, target $35. Citi reiterated Buy on HD, target $48. Citi reiterated Buy on SPLS, target $37. Citi reiterated Buy on WMT, target $65. Citi reiterated Buy on JCP, target $50.
-JP Morgan raised RSG to Overweight. JP Morgan rated HGR Underweight.
-Prudential Equity downgraded WMT to Underweight, target $57.
-Bear Stearns raised CTMI to Outperform, target $18.
-Merrill Lynch raised DOW to Buy, target $65.
-Morgan Stanley raised UTSI to Overweight, target $28.70.
-Raymond James raised TSRA to Outperform, target $40.

Mid-day News
U.S. stocks are higher mid-day on optimism over the prospects for technology shares and better economic growth. Microsoft will buy a stake in Vintela, which makes software to connect Windows operating system computers with those running other systems such as Linux or Unix, the Wall Street Journal reported. About 205,000 nurses have been hired by U.S. hospitals and medical facilities since 2001, lured by higher wages and better benefits, and more are needed to ease a shortage, the Wall Street Journal reported. SBC Communications plans immediately to charge a fee for Internet phone calls connected through its local phone network, and may have the fee in place by tomorrow, the Wall Street Journal reported. Trump Hotels & Casino Resorts will file for Chapter 11 bankruptcy protection as early as Monday, the Philadelphia Inquirer reported. Iran is producing enriched uranium at a secret facility in Tehran that United Nations inspectors haven't been told about, according to an Iranian opposition group, the NY Times reported. Motorola expects sales of new cell phones to more than quadruple in 2005, Reuters reported. A Walt Disney promotion of its ABC show "Desperate Housewives" that featured partial nudity during a Monday Night Football broadcast will be reviewed by the U.S. FCC, CNBC reported. SBC Communications selected Microsoft to provide the software for a tv-over-Internet service, Bloomberg said. U.S. housing starts rose 6.4% in October to the highest level of the year, suggesting home construction is helping drive economic growth, Bloomberg reported. U.S. industrial production increased by the most in three months in October, helped by a jump in manufacturing of automobiles and home electronics, Bloomberg said. Kmart, the retailer controlled by billionaire Edward Lampert, agreed to buy Sears for $11 billion to create the third-biggest U.S. retailer, Bloomberg said. JetBlue Airways may accelerate plans to begin flights to Chicago by bidding on Midway Airport gates leased by bankrupt ATA Holdings, Bloomberg said. U.S. Treasury notes rose after the CPI failed to increase as much as some traders expected, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day on strength in my retail, semi, wireless and steel longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is very strong today as volume very healthy and many more stocks are advancing than declining. Interest rates are falling again, notwithstanding the Bears and pundits attempts to paint inflation as a serious problem. It is very good to see the outperformance by semis and this should continue through year-end as accelerating demand eliminates most of the inventory issues plaguing these stocks. I expect U.S. equities to trade mixed into the close as positive news is offset by low levels of investor anxiety.

Wednesday Watch

Earnings of Note
Company/Estimate
AMAT/.26
BKST-.33
GME/.24
INTU/-.27
HOTT/.27
MDT/.45
PETM/.24
OSIP/-1.17
MGAM/.22
TOO/.27
TLB/.50

Splits
None of note.

Economic Data
Consumer Price Index for October estimated up .4% versus a .2% increase in September.
CPI Ex Food & Energy for October estimated up .1% versus a .3% gain in September.
Housing Starts for October estimated at 1950K versus 1898K in September.
Building Permits for October estimated at 2000K versus 1998K in September.
Industrial Production for October estimated up .4% versus a .1% gain in September.
Capacity Utilization for October estimated at 77.4% versus 77.2% in September.

Recommendations
Goldman Sachs reiterated Outperform on DHR, JTX, GE and Underperform on HRB. Banc of America upgraded FD to Buy.

Late-Night News
Asian indices are mostly higher on strength in technology shares in the region. ING Groep NV, the biggest Dutch financial services company, is in talks to sell its U.K. fund management unit in two parts to Massachusetts Mutual Life Insurance and Northern Trust, the Financial Times reported. AU Optronics said there are signs prices of flat panel displays are bottoming out, Commercial Times reported. SBC Communications will pay Microsoft $400 million for software for sending television content over high-speed data lines, the NY Times reported. Caterpillar is named on a list of U.S. companies and products being targeted by the European Union as likely to face punitive customs duties in 2005 in response to the U.S.'s so-called Byrd Amendment, the Financial Times reported. The U.S. Senate finance committee will push ahead with proposals for changes to the tax system and won't wait for the conclusions of a commission, the Financial Times reported. The Chicago Board of Trade may meet investment banks today to discuss plans for a share sale that could value the exchange at as much as $2 billion, the Financial Times reported. FedEx has asked the Indian government for approval to set up a wholly owned subsidiary in the country, the Economic Times reported.

Late-Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.15%.
NASDAQ 100 indicated +.29%

BOTTOM LINE: I expect U.S. equities to open modestly lower on inflation worries and trade mixed-to-higher into the afternoon on falling energy prices and stronger economic reports. The Portfolio is 100% net long heading into tomorrow.

Tuesday Close

S&P 500 1,175.43 -.71%
NASDAQ 2,078.62 -.74%

Leading Sectors
Oil Service +.59%
Broadcasting +.33%
Utilities +.02%

Lagging Sectors
Retailers -1.72%
Homebuilders -1.94%
Airlines -2.31%

Other
Crude Oil 46.15 +.09%
Natural Gas 7.12 -.06%
Gold 439.80 -.16%
Base Metals 117.13 -.76%
U.S. Dollar 83.84 +.05%
10-Yr. T-note Yield 4.21% unch.
VIX 13.21 -1.27%
Put/Call .69 +27.78%
NYSE Arms 1.69 +57.94%

After-hours Movers
NTAP +10.3% after beating 2Q estimates and raising 3Q outlook.
HPQ +7.8% after beating 4Q estimates and raising 1Q/2Q 05 guidance.
VNUS +4.8% after meeting 3Q estimates and raising 4Q outlook.

Recommendations
Goldman Sachs reiterated Outperform on HD.

After-hours News
U.S. stocks finished modestly lower today on profit-taking and inflation worries. After the close, Walt Disney is preparing to begin work on a sequel to Pixar Animation Studios' "Toy Story", a move that may make it difficult for Disney to resume negotiations to extend Pixar's distribution agreement, the Hollywood Reporter said. European government bonds offer the best prospects for returns because the region's economy is slowing and inflation is slower than in the U.S., PIMCO's Mark Keisel told CNBC. President Bush phoned Sudan's president and its rebel leader today, asking them to halt two decades of civil war and urging an end to attacks on Africans by government-backed Arab militias, Bloomberg reported. Ohio will recount ballots cast in the Nov. presidential election next month after the Green and Libertarian parties raised more than the $113,600 required to fund the process, the AP reported. The Association of Flight Attendants representing workers at United Airlines, US Airways Group and 24 other carriers, plans to call for a nationwide strike if any airline uses bankruptcy to scrap a contract with attendants, Bloomberg said. Hewlett-Packard said fourth-quarter profit rose 27%, beating analyst estimates, as sales of servers and storage devices rebounded, Bloomberg said. India will start reducing its military contingent in the disputed territory of Kashmir starting today to coincide with a visit to the region by Prime Minister Singh, Agence France-Presse reported. A taped promotion showing a naked actress from ABC's "Desperate Housewives" embracing Philadelphia Eagles receiver Terrell Owens was "inappropriate and unsuitable" for "Monday Night Football's" audience, the NFL said. Network Appliance said second-quarter net income rose 14% and sales jumped, Bloomberg reported. Crude oil futures fell near a two-month low amid speculation a report will show U.S. oil and fuel inventories rose last week, easing concern about lean supplies during the winter, Bloomberg reported.

BOTTOM LINE: The Portfolio finished lower today on weakness in my internet, retail and Chinese ADR longs. I exited some long positions in the afternoon as they hit stop-losses, thus leaving the Portfolio 100% net long. Today's mild declines were mainly a result of profit-taking as the action in the bond market suggested investors believe the current elevated inflation readings to be temporary. A few days of declines and consolidation would help eliminate some of the complacency that has built over the last several weeks. However, HPQ and NTAP are responding quite favorably to their earnings' reports after the close.

Mid-day Update

S&P 500 1,177.18 -.56%
NASDAQ 2,078.78 -.73%

Leading Sectors
Oil Service +.88%
Utilities +.28%
Energy +.15%

Lagging Sectors
Retail -1.47%
Airlines -1.82%
Homebuilders -1.84%

Other
Crude Oil 46.70 -.36%
Natural Gas 7.20 -3.17%
Gold 440.40 +.71%
Base Metals 117.99 -.03%
U.S. Dollar 83.75 -.30%
10-Yr. T-note Yield 4.21% +.64%
VIX 13.36 -.15%
Put/Call .60 +11.11%
NYSE Arms 1.48 +38.32%

Market Movers
RMBS +17.1% after a federal judge issued a ruling defining terms in a patent dispute with Hynix Semiconductor.
GOOG -4.3% after a lock-up on 39.1 million insider shares expired.
CTMI +30.0% after beating 4Q estimates substantially and raising 1Q guidance.
ELOS +5.4% after announcing that its Vela system for non-invasive cellulite treatment has received Medical CE Mark 0344 approval.
GGC +5.7% after CSFB upgrade to Outperform.
IFIN +7.9% after beating 3Q estimates and giving strong 04 outlook.
FNF +9.3% on speculation the company may draw bids of $9 billion from Thomas H. Lee Partners and Texas Pacific.
TSRA +13.1% after agreeing to settle a lawsuit with Samsung.
NILE -12.1% after announcing the intention of insiders to sell.
INSP -9.3% on Raymond James downgrade to Outperform.
XIDE -19.3% after missing 2Q estimates.
ESE -6.8% after beating 4Q estimates and lowering 05 guidance.

Economic Data
Producer Price Index for October rose 1.7% versus estimates of a .6% increase and a .1% gain in September.
PPI Ex Food & Energy for October rose .3% versus estimates of a .1% gain and a .3% rise in September.

Recommendations
-Goldman Sachs reiterated Outperform on CSCO, HD and WMT.
-Citi SmithBarney reiterated Buy on FNM, target $81. Citi reiterated Sell on FRO, target $28. Citi reiterated Buy on MSFT, target $32. Citi reiterated Buy on PRE, target $69. Citi reiterated Buy on HD, target $70. Citi reiterated Buy on GE, target $38.
-JP Morgan raised ARM to Overweight.
-Banc of America rated PLB Sell, target $14. BofA rated ILSE Buy, target $22.
-Prudential rated AAP Overweight, target $44. Pru rated ORLY Overweight, target $48. Pru rated AN Underweight, target $15.
-CSFB raised GGC to Outperform, target $64. CSFB raised NCX to Outperform, target $52.

Mid-day News
U.S. stocks are quietly lower mid-day on profit-taking and a higher inflation reading. Take-Two Interactive Software's ESPN sports games have been able to gain market share against better-known titles from Electronic Arts, including its Madden football franchise, the Wall Street Journal reported. Commerce One is set to sell 39 patents covering aspects of Internet transactions in a bankruptcy court auction next month, the NY Times reported. Side air bags and an automatic brake feature are the two most important car safety features, the NY Times reported, citing recent studies. IBM will help finance a project to use the spare power of personal computers for research on AIDS, cancer and other diseases, the NY Times said. The number of births among U.S. girls ages 10-14 fell 38% from 1994 to 2002 to the lowest level in almost 60 years, the AP reported. U.S. Homeland Security Dept. Secretary Tom Ridge will resign, and Health and Human Services Secretary Tommy Thompson will also step down, Fox News reported. CIT Group plans to expand its international business and improve the U.S. leasing company's brand and name recognition in the U.K. and Europe, the Star-Ledger reported. Janus Capital plans to introduce three funds next year, including the Janus Research Fund in February, to win back customers and attract new ones, Reuters reported. Hedge funds attracted $46.6 billion during the first nine months of this year and more than half the money went to middlemen who don't personally oversee the funds, Bloomberg reported. Home Depot said third-quarter earnings climbed 15%, topping estimates, because of demand for installation services and higher sales during hurricane season, Bloomberg said. Wal-Mart said third-quarter profit rose 13%, helped by a tax credit, Bloomberg reported. International investors increased their holdings of U.S. assets in September by $63.4 billion, the most since June, as foreign demand for corporate bonds and U.S. Treasury securities rose, Bloomberg reported. SBC Communications will begin a residential Internet-based phone service in early 2005 to keep customers from switching to other carriers, Bloomberg said. Prices paid to U.S. producers rose 1.7% last month, the biggest jump in 14 years, as energy prices rose, Bloomberg said. Gasoline futures are falling for a third day in four amid speculation that rising refinery production will keep the U.S. amply supplied with fuel, Bloomberg said.

Bottom Line: The Portfolio is lower mid-day on declines in my internet, retail and Chinese ADR longs. I have not traded today and the Portfolio is still 125% net long. While the tone of the market is mildly negative today, volume is lighter and the advance/decline line isn't that bad. The PPI was likely just an excuse for profit-taking after a large run. Measures of inflation, while rising in the short-run, should begin decelerating again towards year-end on a decline in energy prices. The muted reaction by the bond market echoes this view. I expect U.S. equities to rise into the close on short-covering, bargain-hunting and declining energy prices.

Tuesday Watch

Earnings of Note
Company/Estimate
BJ/.31
BGP/-.02
HPQ/.37
HD/.56
JCP/.48
NTAP/.14
JWN/.46
SKS/.04
SPLS/.40
WMT/.54
ZLC/-.21

Splits
DVN 2-for-1
NFB 3-for-2

Economic Data
Producer Price Index for October estimated up .6% versus a .1% gain in September.
PPI Ex Food & Energy for October estimated up .1% versus a .3% increase in September.
NAHB Housing Market Index for November estimated at 70 versus a reading of 72 in October.

Recommendations
Goldman Sachs reiterated Underperform on SMP, AMCC and VRTX.

Late-Night News
Asian indices are mostly lower as stocks in the region consolidate recent gains. President Bush will name Condoleezza Rice secretary of state tomorrow, Fox News reported. Chunghwa Telecom, Taiwan's largest phone company, this month will sign an accord with eight U.S. movie companies, including Time Warner, for rights to provide their movies on its movies-on-demand channel, Economic Daily reported. The number of millionaires in the U.S. rose 33% from a year earlier because of stock market gains, the Wall Street Journal reported. There were 8.2 million U.S. households with a net worth of more than $1 million excluding their primary residence as of the middle of the year, 2 million more than a year earlier, the newspaper said. Israel is ready to work with a "responsible" Palestinian Authority leadership on coordinating an Israeli plan to withdraw settlements from the Gaza Strip and West Bank, Bloomberg reported. Buyout firms Thomas H. Lee Partners and Texas Pacific Group may each bid $9 billion for Fidelity National, the largest U.S. title insurance company, the NY Times reported.

Late-Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.12%.
NASDAQ 100 indicated -.16%

BOTTOM LINE: I expect U.S. equities to open mixed-to-weaker in the morning and head modestly higher by day's end. The Portfolio is 125% net long heading into tomorrow.

Monday Close

S&P 500 1,183.81 -.03%
NASDAQ 2,094.09 +.42%

Leading Sectors
Airlines +3.47%
Homebuilders +2.06%
HMOs +1.88%

Lagging Sectors
Commodity -1.13%
Energy -2.18%
Oil Service -3.22%

Other
Crude Oil 46.72 -.32%
Natural Gas 7.43 -.01%
Gold 437.00 -.07%
Base Metals 118.03 -.23%
U.S. Dollar 84.00 +.37%
10-Yr. T-note Yield 4.19% +.18%
VIX 13.38 +.38%
Put/Call .54 -28.0%
NYSE Arms 1.07 +28.92%

After-hours Movers
LTON +17.2% after beating 3Q estimates and raising 4Q guidance.
LMIA +10.2% on continued optimism over 2005 outlook.
BOBE -3.7% after meeting 2Q estimates and lowering 2005 guidance.

Recommendations
Goldman Sachs reiterated Outperform on GE and Underperform on PSS, FISV.

After-hours News
U.S. stocks finished mixed today on a consolidation of recent gains. After the close, Skype Technologies SA, the European Internet telephone company, is to start an alliance with Tom Online to enter China's expanding online market, the Financial Times said. Wynn Las Vegas plans to sell $1.1 billion of 10-year first mortgage notes to repay other debt, according to S&P. The U.K. government will introduce a smoking ban in England to include all restaurants and bars that serve food and all enclosed public and work places, the BBC reported. Hedge fund manager Leon Cooperman acquired a 2.8% stake in MCI in the third quarter, making the No. 2 U.S. long-distance phone carrier his largest single stock holding, Bloomberg reported. Steel prices are set to add to gains as supplies remain tight because of surging China demand, said the president of Nippon Steel, the world's third-largest steelmaker. Lionel LLC, a maker of model trains for more than 100 years, filed for bankruptcy protection today, Bloomberg said. Fannie Mae said third-quarter profit rose 1% to $1.85 billion and that it won't meet the SEC's deadline for filing financial statements, Bloomberg reported.

BOTTOM LINE: The Portfolio finished higher today on gains in my security, semi, Chinese ADR and Indian ADR longs. I took profits in one of my internet longs in the afternoon and added VECO long, thus leaving the Portfolio 125% net long. I am using a $19.5 stop-loss on this position. The tone of the market improved modestly into the afternoon, notwithstanding a rebound in oil prices from morning lows. As I forecasted earlier in the year, the Bloomberg Homebuilding Index clearly broke its old all-time high today. While these stocks are a little extended in the short-term, they should continue to perform well over the intermediate-term. U.S. stocks will likely remain mixed-to-higher over the next few days, consolidating recent gains, before another substantial upwards move occurs around Thanksgiving.