Today's Headlines

Bloomberg:
- Ten Commandments displays designed for two Kentucky courthouses are unconstitutional, the US Supreme Court ruled in a high-profile church-state clash.
- The US Supreme Court bolstered the entertainment industry’s anti-piracy campaign, saying Grokster Ltd. and other Internet file-sharing networks may bear responsibility when users illegally download music and films.
- The euro rose the most in more than a week against the dollar and yen after European Central Bank officials damped speculation they are considering a reduction in interest rates.
- Crude oil touched a record for a third straight day on concern that Iran’s new president may limit foreign investment in the nation’s oil industry.
- President Bush said the US and its allies view Iran’s pursuit of nuclear weapons “unacceptable.”

Wall Street Journal:
- The US Housing and Urban is planning a review of closing costs for home mortgages in a bid to better define them and reduce their costs for homebuyers.
- US federal prosecutors have sent subpoenas to more than a dozen insurers and re-insurers that have entered into “finite-risk” and other non-traditional transactions with units of Warren Buffett’s Berkshire Hathaway.

NY Times:
- Viacom’s MTV Networks will promote Midway Games video games in advertising and programming in a partnership expected to be announced today.
- SBC Communications delayed plans to sell television programming over high-speed lines by six months because of problems with installation.

NY Daily News:
- NY’s murder rate may fall below 500 this year, which would be the lowest since 1991.

San Francisco Chronicle:
- Ethanol, a clean-burning fuel produced by corn and sugarcane, may require as much as six times as much energy to produce as it gives off, citing a study in the journal Critical Reviews in Plant Sciences.

Financial News:
- Blackstone Group LP may seek to raise an unprecedented $12.5 billion for its latest buyout fund, topping the record $8.5 billion raised by Goldman Sachs Group.

Washington Post:
- Employees of suppliers to Wal-Mart Stores are moving near the company’s northwest Arkansas headquarters, gentrifying the area and increasing the region’s average income.

Reuters:
- Cingular Wireless LLC, the biggest US cellular phone service, may sell a Motorola handset that can download and play songs from Apple Computer’s iTunes music service.

Financial Times:
- Wal-Mart Stores will start a new marketing push for George clothing, the brand the US-based discount-store chain acquired withy its 1999 purchase of Britain’s Asda sotres.

Economic Releases

None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- China said it opposes anti-dumping investigations by the European Union into increased Chinese show imports, accusing its trading partner of distorting trade figures and misleading the public.
- China's central bank Governor Zhou Ziaochuan said it's too soon to drop the decade-old yuan peg and that he has no plans to discuss the currency's link to the US dollar at a weekend meeting of the world's central bankers in Basel, Switzerland.
- Russian President Putin urged US executives from companies including Citigroup and Intel to invest more in Russian, after the breakup of OAO Yukos undermined investor confidence.
- Finance ministers from the European Union and Asia called on OPEC to boost oil production, saying "high and volatile" crude costs pose a threat to global economic growth.
- The US dollar is headed for its biggest quarterly advance since Sept. 2000 and may extend its rally, according to a Bloomberg News survey.
- International Paper may sell its $900 million stake in New Zealand forester Carter Holt Harvey, ending a 14-year investment as it seeks better returns in markets such as China.
- Crude oil is rising to another record in NY after Iran, OPEC's second-largest producer, elected a president who promised to pursue the country's nuclear power program, increasing tension with the US.

Wall Street Journal:
- US Congress members signed a letter asking President Bush to review CNOOC's $18.5 billion unsolicited bid for Unocal.

Barron's:
- A global economic slowdown will help counter inflationary pressures and increase the possibility of a prolonged expansion, said Nancy Lazar, an economist at International Strategy & Investment Group.
- The US Fed may raise the fed-funds rate another two or three times, to 3.75% or 4%, by year-end, citing economists.

New York Times:
- Morgan Stanley former President John Mack has told the board of the company he wants two former executives, Vikram Pandit and Joseph Perella, to return with him if he takes up the post of CEO.
- The city of Philadelphia's public schools will require all students entering high school this year to take a course in African-American history to graduate, making it the first major US city with such a requirement.
- Chevron Vice Chairman Robertson called CNOOC's $18.5 billion offer for Unocal unfair because Chevron was competing with the Chinese government, not another commercial company, for oil producer Unocal.
- Chinese bids for US companies may benefit the US economy by keeping domestic workers employed longer than they might have been otherwise.

Crain's New York Business:
- NY companies are increasingly offering insurance and other benefits to their gay and lesbian employees' live-in partners.

Crain's Chicago Business:
- Chicago's downtown has more than 26 million square feet of vacant office space, making it one of the weakest markets in the nation.

Washington Post:
- US colleges are competing to become more energy efficient and cut carbon dioxide emissions amid rising natural gas costs and student environmental activism.
- The internet has become more vulnerable to hackers and other problems, and those who repair glitches say the situation is getting worse.

Folha de S. Paulo:
- Google plans to open a Brazilian unit this year, according to Sergey Brin, a company founder and its technology chief.

Financial Times:
- Demand for shares in PartyGaming Plc's IPO is triple the amount available in the online poker operator.
- The victory of Mahmoud Ahmadinejad in Iran's presidential election on June 24 may jeopardize the country's relations with the European Union.
- Wal-Mart Stores plans to expand in central and eastern Europe, with particular emphasis on Poland, Hungary and Russia.
- Merrill Lynch says the growth of demand in the US for spirits may be a short-lived fashion rather than a structural change.

AFP:
- OPEC ministers have started talks to discuss ways of lowering oil prices that climbed to $60 a barrel this week, citing OPEC's president.

Nihon Keizai:
- Nissan Motor and Toyota Motor, Japan's two biggest automakers, will spend billions of dollars revamping their US dealerships.

China Daily:
- China may remove taxes on vehicles that emit low levels or zero exhaust emissions to cut pollution and oil consumption.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on BAC, MMC, AMR, mixed on UNH, NFG, AIG, VZ, IGT and negative on DIS, AA.

Forbes on Fox:
- Had guests that were positive on PSUN and mixed on DNA, AGN, EXEL, ISSX.

Cashin' In:
- Had guests that were positive on IGR, THO, RNT, SO and negative on VLCCF, NAT.

Cavuto on Business:
- Had guests that were positive on EFX, SYMC, KRB and C.

Barron's:
- Had positive comments on DOW, MNCP and HEW.
- Had negative comments on AAPL.

Goldman Sachs:
- Reiterated Outperform on MO.

Night Trading
Asian indices are -1.0% to unch. on average.
S&P 500 indicated -.05%.
NASDAQ 100 indicated -.07%.

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Earnings of Note
Company/Estimate
CYBX/-.32
NKE/1.27
PAYX/.24
SONC/.36
WAG/.38

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CTR 3-for-2

Economic Releases
None of note

BOTTOM LINE: Asian Indices are mostly lower on worries over slowing growth in the region. I expect US stocks to open modestly lower on another rise in energy prices. However, stocks may rise later in the day on short-covering and quarter-end window dressing. The Portfolio is 75% net long heading into the week.

Weekly Outlook

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

Economic reports for the week include:

Mon. - None of note
Tues. - Consumer Confidence
Wed. - Final 1Q GDP, Final 1Q Personal Consumption, Final 1Q GDP Price Index
Thur. - Personal Income, Personal Spending, PCE Deflator, Initial Jobless Claims, Chicago Purchasing Manager, Help Wanted, FOMC Rate Decision
Fri. - Univ. of Mich. Consumer Confidence

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

Mon. - Cyberonics Inc.(CYBX), Nike Inc.(NKE), Walgreen Co.(WAG), Paychex Inc.(PAYX), Sonic Corp.(SONC)
Tues. - Apollo Group(APOL), BearingPoint(BE), BMC Software(BMC), Doral Financial(DRL), Emmis Communications(EMMS)
Wed. - General Mills(GIS), Monsanto(MON), Oracle Corp.(ORCL)
Thur. - American Greetings(AM), Biomet(BMET), ConAgra Foods(CAG), Constellation Brands(STZ), PalmOne(PLMO), Red Hat(RHAT)
Fri. - None of note

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

Mon. - Wachovia Equity Conference
Tue. - Banc of America Utilities & Gas Conference, Wachovia Equity Conference, Bear Stearns Biotech Conference
Wed. - Morgan Stanley Business and Professional Conference, Wachovia Equity Conference
Thur. - Wachovia Equity Conference, Morgan Stanley Business and Professional Conference
Fri. - F, DCX, GM Sales Conference Call

BOTTOM LINE: I expect US stocks to finish the week modestly higher. End-of-the-quarter window dressing, an end to Fed speculation and better economic data should spur stock gains next week. A reversal in oil would obviously help, as well. US stocks will likely remain mixed over the next few weeks as earnings pre-announcements come in. A stronger dollar and weakening economic conditions in Europe may adversely affect US companies with significant exposure to the region. While the current level of energy prices is having minimal direct impact on US consumer spending thus far, it is affecting the already weakened economies of other nations to a much greater degree. With China's economy becoming increasingly susceptible to a "hard-landing" and Europe on the verge of negative growth, the odds of a synchronized global slowdown are rising. I continue to believe energy prices will decline precipitously during the second half of the year as global demand slows more than most anticipate. This should have a very positive effect on US stock prices. As well, low interest rates, lower inflation, a modestly improving labor market, a flight to US assets, a strong but slowing housing market, reasonable valuations and a stable dollar should help boost equities during this time period. My trading indicators are now giving neutral signals and the Portfolio is 75% net long heading into the week.

Economic Week in Review

ECRI Weekly Leading Index 133.40 -.52%

Leading Indicators for May fell .5% versus estimates of a .3% decrease and an unchanged reading in April. The index of leading economic indicators fell for the fourth month in five, pulled down by a flattening of the yield curve. The University of Michigan’s Consumer Confidence Index fell in May which also contributed to the overall decline, however it has since rebounded. The Conference Board has stated that they believe a six-moth annualized decline of 3.5% or more would suggest imminent risk of recession. However, the six-moth annualized decline in May was 2.2%. "This is the fifth consecutive month of flat or down LEI numbers and this last happened ahead of the 1995 soft landing," said David Rosenberg, Chief North American Economist at Merrill Lynch. "The June LEI will rise, thanks to higher stock prices and consumer sentiment," said Ian Sheperdson, chief US economist at High Frequency Economics.

Initial Jobless Claims for last week fell to 314K versus estimates of 330K and 334K the prior week. Continuing Claims fell to 2600K versus estimates of 2600K and 2638K prior. The number of US workers filing first-time claims for jobless benefits fell more than expected as companies retained more of the productive workers who have led the economic recovery. The four-week moving average, a less volatile measure, fell 2,500 to 333,000, Bloomberg reported. "Growth is picking up, business conditions are improving and fewer companies are looking to trim staff at this point in the recovery," said Wesley Beal, chief US economist at IDEAglobal.com. "This report signals there's a good chance we'll see stronger employment growth in June." The four-week moving average of continuing claims fell to 2.603M from 2.596M, Bloomberg reported. "In the second half of an expansion, companies typically hold on to workers more closely as productivity gains slow and the pool of unemployed workers diminishes," said Michael Englund, chief economist at Action Economics. The insured unemployment rate, which tracks closely with the US unemployment rate, fell to 2.0% from 2.1% the week before last.

Existing Home Sales for May fell to 7.13M versus estimates of 7.15M and 7.18M in April. US sales of previously owned homes fell in May to the second-highest level on record, as low borrowing costs and rising incomes fueled demand and pushed prices to an all-time high, Bloomberg said. The median home sales price increased to $207,000 from $205,000 and is up 12.5% over the last 12 months. The supply of homes available for sale, another gauge of housing demand, rose to 4.3 months' worth in May from 4.1 months' worth the previous month, Bloomberg reported. "There clearly is some froth in some markets but we still don't see a nationwide housing bubble," said Fed Governor Olson.

Durable Goods Orders for May rose 5.5% versus estimates of a 1.5% increase and a 1.4% gain in April. Durables Ex Transportation for May fell .2% versus estimates of a .5% increase and a .7% decline in April. Orders for durable goods rose in May by the most in more than a year, mainly reflecting a surge in bookings for Boeing aircraft. With inventories fairly high and fuel costs rising, investment in new equipment may be slow to recover in coming months, Bloomberg said. At the current sales pace, manufacturers have 1.41 months of supply, unchanged from a month earlier and near a two-year high. Transportation equipment orders surged 21.2%, the most since July 2002, after rising 7.8% in April. Orders for non-defense capital goods excluding aircraft, a gauge of future business investment, fell 2.3% last month. However, unfilled orders, a proxy of future production rose 1.9%, the most since June 2000.

New Home Sales for May rose to 1298K versus estimates of 1320K and a downwardly revised 1271K in April. US new home sales rose to the second-best level in history, boosted by low mortgage rates and an improving job market. Prices declined 6.6%, the most since January 2003. The median price of a new home fell to $217,000 from $232,200 in April. The median price of a new home has increased 2.5% over the last 12 months. The National Association of Realtors said this year would be a record year for sales of both new and existing homes, beating last year’s records. Sales rose 22.9% in the Midwest and fell 24.5% in the Northeast. The supply of homes for sale was unchanged at 4.2 months in May, a relatively low level.

BOTTOM LINE: Overall, last week's economic data were modestly positive. The Leading Indicators is not as useful as other gauges, however it should not be ignored. At this point, it continues to forecast slowing growth, but not a recession. The labor market continues to improve at a moderate, choppy pace. This should hold unit labor costs in check. This month's payroll report should improve modestly over last month's. Home price appreciation appears to be moderating to more sustainable healthy rates. I continue to believe prices will consolidate at elevated levels for a few years rather than decline precipitously. Manufacturing activity is still sluggish and will likely remain that way for several more months. Finally, the ECRI Weekly Leading Index fell .52% to 133.40 and is forecasting moderately decelerating growth.