Wednesday Watch

Late-Night Headlines
Bloomberg:
- Paul Wolfowitz, President Bush's nominee to lead the World Bank, gained support from European Union nations including the Netherlands and Italy.
- The US 10-year T-note is rising in Asia for the first day in four on optimism a US government report on consumer prices tomorrow will ease concern inflation in quickening.
- Japanese exports rose at the slowest pace in more than a year in February as shipments of electronic equipment slumped, signaling the nation may not be able to rely on overseas demand to drive a recovery from recession.
- Crude oil is falling for a second day in NY on concern the Fed will accelerated the pace of US interest rate increases, slowing global economic growth and demand for fuel.
- The Fed's two-edged message -- that while inflation risks are rising, it needn't yet step up the pace of interest rate increases -- may reflect disagreements among policy makers that will be clarified in coming weeks, economists and former Fed officials said.

The NY Times:
- Borders Group, Piney Bowes and other companies are offering special discounts and employee programs as a way to attract older workers.

Financial Times:
- Hedge fund managers worldwide earned as much as $45 billion more than US mutual funds.

London-based Times:
- Millennium & Copthorne Hotels Plc, a British hotelier, plans to sell the Biltmore Hotel in Los Angeles for as much as $500 million.

Beijing Morning Post:
- China's film industry will grow 140% and be worth $12 billion by 2007, up from $5 billion in 2004.

China Business News:
- GE Energy plans to spend about $100 million to acquire Shanghai-based Xinhua Control Engineering Co. to gain access to the Chinese company's technology.

Korea Economic Daily:
- BHP Billiton is asking Japanese steelmakers to pay double for its iron ore this year, more than Brazil's Cia. Vale do Rio Doce's 71.5% increase.

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

Banc of America:
- Reiterated Sell on BDY, target $8.

Night Trading
Asian Indices are -1.25% to unch. on average.
S&P 500 indicated -.09%.
NASDAQ 100 indicated -.27%.

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
DRI/.51
FINL/.56
GME/.69
MLS/.49

Splits
ATVI 4-for-3
BZH 3-for-1
IIVI 2-for-1

Economic Releases
8:30 EST:
- The Consumer Price Index for February is estimated to rise .3% versus a .1% gain in January.
- The CPI Ex Food & Energy for February is estimated to rise .2% versus a .2% increase in January.

10:00 EST:
- Existing Home Sales for February are estimated to fall to 6.7M versus 6.8M in January.

BOTTOM LINE: Asian indices are mostly lower as commodity and exporter shares in the region decline on worries over slowing global demand. I expect US equities to open modestly lower in the morning on a slightly higher-than-expected CPI report. A significantly higher-than-expected report would lead to a larger morning decline. Again, I will key on the bond market for the direction of equities. I plan to increase market exposure into any morning losses using tight stops. The Portfolio is 25% net long heading into tomorrow.

Tuesday Close

Indices
S&P 500 1,171.71 -1.02%
DJIA 10,470.51 -.90%
NASDAQ 1,989.34 -.91%
Russell 2000 618.58 -.48%
DJ Wilshire 5000 11,570.94 -.92%
S&P Barra Growth 565.65 -.74%
S&P Barra Value 601.72 -1.29%
Morgan Stanley Consumer 570.62 -.50%
Morgan Stanley Cyclical 758.78 -.68%
Morgan Stanley Technology 450.70 -1.54%
Transports 3,754.23 +.13%
Utilities 351.89 -1.96%
Put/Call .98 +27.27%
NYSE Arms 1.04 +16.28%
Volatility(VIX) 14.27 +4.85%
ISE Sentiment 166.00 +25.76%
US Dollar 83.44 +.57%
CRB 313.02 -.15%

Futures Spot Prices
Crude Oil 55.68 -.62%
Unleaded Gasoline 156.63 -.55%
Natural Gas 7.21 -.51%
Heating Oil 153.95 -.46%
Gold 427.00 -1.07%
Base Metals 130.36 +.06%
Copper 148.25 -1.0%
10-year US Treasury Yield 4.64% +2.61%

Leading Sectors
Airlines +1.03%
Computer Service +.56%
Oil Service +.56%

Lagging Sectors
Utilities -1.96%
Insurance -2.10%
Software -2.44%

After-hours Movers
ATPL +36.0% after announcing a special, one-time cash dividend of $12.50 per common share.

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 PAYX.
- Said BenQ’s newly developed ink cartridges will pressure printer margins of established printer vendors.

Legg Mason:
- Raised MKC to Buy, target $41.

Morgan Stanley:
- Raised SDS to Overweight.

Afternoon/Evening Headlines
Bloomberg:
- US Treasuries are still overvalued even after the recent rise in yields, said Bill Gross, chief investment officer at PIMCO.
- American International Group may have a “serious problem” if executives refuse to answer questions in an accounting investigation, NY Attorney General Eliot Spitzer said.
- The US dollar rose to the highest in a month against the euro and yen after the Fed raised its target interest rate a quarter point to 2.75% and suggested the pace of rate hikes may accelerate.
- US Treasury notes tumbled the most since November after the Fed raised its benchmark interest rate.
- AOL Latin America said it may file for bankruptcy protection because it doesn’t have enough cash to fund its business beyond September and pay its debt.
- Oracle Corp. said third-quarter profit fell 15% on costs to buy PeopleSoft and revenue lagged behind analysts’ expectations.

Financial Times:
- Hyundai Motor aims to increase sales in the US by one-sixth this year, mostly at the expense of Japanese rivals.

Sydney Morning Herald:
- Rio Tinto Group and Xstrata Plc may be studying a joint bid for WMC Resources Ltd. to top BHP Billiton’s A$7.85 a share offer.

China Daily:
- China’s central bank may raise interest rates again in the second quarter.

SportsBusiness Daily:
- General Motors will become the exclusive automobile partner of Major League Baseball as part of a $50 million agreement.

BOTTOM LINE: US stocks fell today on worries over rising interest rates and inflation. The Portfolio finished higher on gains in my Chinese ADR shorts, Homebuilding shorts and Gaming longs. I took profits in a number of Tech longs in the afternoon and added a few new Homebuilding shorts, thus leaving the Portfolio 25% net long. One of my new shorts is HOV and I am using a $54 stop-loss on this position. The tone of the market deteriorated meaningfully into the afternoon as the advance/decline line dropped substantially, almost every sector fell and volume increased. Tech and interest-rate sensitive sectors underperformed, while small-caps outperformed and measures of investor anxiety were mostly higher. Overall, today’s market action was negative, considering recent losses, a firming US dollar and declining energy prices. The Bloomberg Crude Oil % Bulls is now at 64%, the highest reading since oil peaked in Oct. of last year. The bond market’s reaction to the Fed’s policy statements leads me to believe the 10-year T-note yield will test its highs set in June of last year. While today’s action was disheartening for the Bulls, a further spike in measures of investor anxiety from current levels will likely result in a much more durable and tradable bottom in the near future.

Mid-day Scoreboard

Indices
S&P 500 1,187.74 +.33%
DJIA 10,591.32 +.24%
NASDAQ 2,010.95 +.17%
Russell 2000 625.56 +.64%
DJ Wilshire 5000 11,720.97 +.36%
S&P Barra Growth 572.14 +.39%
S&P Barra Value 611.20 +.27%
Morgan Stanley Consumer 575.81 +.40%
Morgan Stanley Cyclical 769.49 +.73%
Morgan Stanley Technology 456.60 -.25%
Transports 3,793.59 +1.17%
Utilities 359.55 +.18%
Put/Call 1.02 +32.47%
NYSE Arms .86 -4.51%
Volatility(VIX) 13.35 -1.91%
ISE Sentiment 172.00 +30.30%
US Dollar 82.75 -.28%
CRB 313.54 +.02%

Futures Spot Prices
Crude Oil 57.05 -.71%
Unleaded Gasoline 159.00 -.35%
Natural Gas 7.32 +.03%
Heating Oil 156.50 -.54%
Gold 431.40 unch.
Base Metals 130.36 +.06%
Copper 149.90 +.67%
10-year US Treasury Yield 4.48% -.94%

Leading Sectors
Oil Service +2.67%
Iron/Steel +2.24%
Homebuilders +1.90%

Lagging Sectors
Papers -.12%
Insurance -.51%
Software -1.38%

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 higher mid-day as long-term interest rates decline and energy prices stabilize. The Portfolio is higher on gains in my Chinese ADR shorts, Energy-related longs and Steel longs. I added a few longs from various sectors this morning, thus leaving the Portfolio’s market exposure 75% net long. One of my new longs is STN and I am using a $65 stop-loss on this position. The tone of the market is modestly positive as the advance/decline line is slightly higher, almost every sector is gaining and volume is very light. Commodities, Cyclicals and Small-caps are outperforming, while Tech is once again underperforming. Measures of investor anxiety are mostly lower, which is a negative. Today’s overall market action is decent ahead of the Fed’s commentary. I will closely monitor the bond market’s reaction to the news before further shifting the Portfolio’s market exposure. I expect US stocks to trade modestly higher into the close as volatility and volume increase on short-covering and bargain-hunting .

Today's Headlines

Bloomberg:
- Texas Pacific Group, a US buyout company, agreed to buy British Vita Plc, the UK’s largest maker of foam rubber.
- Global recorded music sales halted a four-year slide last year as digital downloads made up for a 1.3% decline in sales of compact discs.
- General Motor’s borrowing costs rose to the highest in almost two years after the world’s largest carmaker lost financial support from General Electric.
- Oracle Corp. won the takeover battle for Retek with a $643.3 million bid, beating SAP AG.
- ChevronTexaco Corp. may invest more than $1 billion to begin oil production in Brazil, capping six years of exploration and seeking to boost by a third its output from Latin America.
- IBM agreed to pay as much as $400 million to Compuware to settle lawsuits over software and patents.
- Kohlberg Kravis Roberts and Blackstone Group are among buyout firms that are increasingly teaming up to acquire bigger companies and avoid competing with each other.
- Wyeth, the maker of the antidepressant Effexor, said today that first-quarter profit excluding some items will exceed analysts’ estimates and reaffirmed its full-year forecast of $2.70 to $2.80 a share.

The Wall Street Journal:
- American International Group and a unit of Warren Buffet’s Berkshire Hathaway reversed at least half of a transaction that is being probed by US and state regulators.
- International Business Machines plans to use new technology to fight junk e-mail by sending back spam to the computer and the account that sent it
- TXU Corp., the largest Texas power producer, is taking advantage of deregulation to boost fees and rates and disconnect slow-paying customers.
- The US Consumer Product Safety Commission issued the largest civil penalty in its history, against Newell Rubbermaid’s Graco unit, a maker of car seats, cribs, and other children’s products.
- IGN Entertainment, a closely held maker of video games, may be sold for more than $800 million.
- The US Postal Service asked its governing board for permission to increase all rates by 5% to 6%.

The New York Times:
- The European Union delayed removing an arms embargo on China because of US pressure as well as China’s authorization to use force if Taiwan tries to secede.
- The New York Jets offered the state $720 million for the Manhattan site where the NFL team wants to build a $1.7 billion stadium.

Interfax:
- Primorsk oil port, Russia’s largest, exported 60% more crude in January and February than in the same period last year.

Vilaggazdasag:
- Motorola’s venture capital business wants to invest in East European technology development companies.

Economic Releases

- 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.
- At 2:15 EST the Fed is expected to raise the Fed Funds rate by 25 basis points to 2.75% and retain the phrase “measured pace” with respect to the pace of future hikes.

Morning Buy/Sell Recommendations

- Goldman Sachs: Reiterated Outperform on RIO and PAYX. Reiterated Underperform on NDC and SKS.
- Smith Barney: Reiterated Buy on CTSH, target $54. Reiterated Buy on BNI, target $60. Reiterated Buy on ERTS, target $67. Reiterated Buy on RCL, target $59. Rated NTGR Buy, target $20.
- Banc of America: Upgraded MOT to Buy, target $20.
- UBS: Raised CY to Buy, target $26. Raised MRVL to Buy, target $46. Raised NSM to Buy.
- JP Morgan: Raised FMD to Overweight.
- Piper Jaffray: Rated PBH Outperform, target $21. Rated TIBX Outperform, target $10. Rated HORC Outperform, target $47.
- Jeffries: Rated CHH Buy, target $75. Rated CERN Buy, target $59. Rated IDXC Buy, target $42.
- Bear Stearns: Rated SVR Outperform, target $19.
- Deutsche Bank: Rated SVR Buy, target $24.
- Prudential: Rated MHS Overweight, target $54.