Today's Headlines

Bloomberg:
- Office vacancies in US cities dropped to a four-year low of 12.5% in the fourth quarter as companies added space for workers they’re hiring, real estate services firm Cushman & Wakefield said.
- France will maintain and develop its nuclear forces to counter states that might resort “to terrorist means” by using weapons of mass destruction, President Chirac said.
- Lehman Brothers Holdings(LEH) increased its annual dividend by 20% and said it may buy back as much as a fifth of its own shares this year.
- A man identified as al-Qaeda lead Osama Bin Laden warned of more attacks against the US, in an audiotape aired today on al-Jazeera television.
- US Treasures are falling as a government report showed new claims for unemployment benefits dropped to the lowest since April 2000, a sign job creation may accelerate.
- Manufacturing in the Philly area expanded less than economists forecast this month amid elevated energy costs and concerns about consumer spending.

CNBC:
- Nasdaq Stock Market(NDAQ) has held discussions to purchase the London Stock Exchange.

Wall Street Journal:
- Taiwan’s Q-ware Systems is spending $93 million to set up the world’s first citywide wireless Internet network in Taipei and give the city a competitive edge in communications.
- Walt Disney(DIS) is talking seriously to Pixar Animation(PIXR) studios about an acquisition for slightly more than the company’s current $6.7 billion market value.
- Amazon.com(AMZN) said it will start broadcasting a weekly show on the Web featuring left-wing comedian Bill Maher.

NY Times:
- RJ Reynolds Tobacco will today open a new upscale, luxury tobacco lounge in Chicago, where a smoking ban took effect this week.
- Officials from President Bill Clinton’s administration hampered an investigation into allegations that former US Housing Secretary Henry G. Cisneros evaded income tax.
- Cingular Wireless’s new wireless broadband service, known as BroadbandConnect, is fast and reliable, Walter Mossberg wrote.
- The NY Metropolitan Transportation Authority received four bids for free installation of a cellular network in underground subway stations.

USA Today:
- A US missile strike in Pakistan last week may have killed at least three top al-Qaeda operatives, including an explosives expert on America’s “Most Wanted” list and a relative of second-in-command al-Zawahiri.

NY Post:
- Starbucks Corp.(SBUX) plans to give away $10 gift cards to people who register on Yahoo’s(YHOO) Internet dating service to help generate business before Valentine’s Day.

al-Hayat:
- The US and Oman will today sign a free trade agreement that covers the exchange of goods and services.

Housing Starts Slow, Labor Market Remains Healthy

- Housing Starts for December fell to 1933K versus estimates of 2035K and 2121K in November.
- Building Permits for December fell to 2068K versus estimates of 2100K and 2163K in November.
- Initial Jobless Claims for last week fell to 271K versus estimates of 315K and 307K the prior week.
- Continuing Claims are estimated to fall to 2534K versus estimates of 2686K and 2692K prior.

BOTTOM LINE: US housing starts fell to a nine-month low in December as rising interest rates and prices make buying less affordable and builders pull back after the second-best year in history, Bloomberg reported. Starts declined 24% in the Midwest, 22% in the West and 14% in the Northeast. Starts rose 5.2% in the South. It is a positive that housing starts are slowing as sales slow. This should help ensure the market slows to a healthy sustainable level.

The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to the lowest since April 2000, evidence that companies are holding on to workers to meet demand, Bloomberg reported. The four-week moving average of initial claims fell to 299,000, the lowest since October 2000. The unemployment rate among people eligible for benefits, which tracks the US unemployment rate, fell to 2% versus 2.1% the prior week. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Links of Interest

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Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- Brazil’s central bank stepped up the pace of interest rate reductions today in a bid to shore up growth in Latin America’s biggest economy.
- Asian stocks rebounded from their biggest declines in nine months, led by Samsung Electronics and BHP Billiton.
- The Tokyo Stock Exchange may be forced to close early for a second day as transactions reached 2.2 million at the 11 am midday break, or more than half the limit the bourse has set to avoid overloading its computers.

Xinhua News Agency:
- China investigated 32,162 government officials for corruption during the first 11 months of last year and 18,755 of them were sentenced by courts, citing figures from the Supreme People’s Procuratorate.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (MYL), (SEPR), (JNC), (BBG) and (CAH).
- Reiterated Underperform on (UNH), (ABC), (HBAN) and (MRK).

Night Trading
Asian Indices are +.50% to +1.50% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.32%.

Morning Preview
US AM Market Call
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
(BZH)1.96
(COF).94
(CMA)1.18
(DHI).94
(FFIV).45
(FCS).07
(FSL).38
(GNSS).24
(HDI).81
(HYSL).36
(IGT).27
(MER)1.29
(MCHP).32
(MOT).34
(PFE).42
(RMBS).08
(SFA).43
(UNH).66
(WB)1.11
(XLNX).26

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for December are estimated to fall to 2035K versus 2132K in November.
- Building Permits for December are estimated to fall to 2100K versus 2163K in November.
- Initial Jobless Claims for last week are estimated to rise to 315K versus 309K the prior week.
- Continuing Claims are estimated to fall to 2682K versus 2702K prior.

12:00 pm EST
- Philly Fed. for January is estimated to rise to 13.0 versus 10.9 in December.

BOTTOM LINE: Asian indices are higher, boosted by tech companies and exporters in the region. I expect US equities to open mixed and to rally later in the day, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Lower, Pressured by Large-cap Commodity and Tech Shares

Indices
S&P 500 1,277.93 -.39%
DJIA 10,854.86 -.38%
NASDAQ 2,279.64 -1.0%
Russell 2000 703.78 +.02%
S&P Barra Growth 611.41 -.46%
S&P Barra Value 662.11 -.32%
Morgan Stanley Consumer 599.77 +.25%
Morgan Stanley Cyclical 779.53 -.64%
Morgan Stanley Technology 543.62 -.83%
Transports 4,129.69 +.95%
Utilities 420.83 -.11%
Put/Call 1.0 +29.87%
NYSE Arms 1.23 +12.22%
Volatility(VIX) 12.25 +2.85%
ISE Sentiment 172.00 -8.51%
US Dollar 89.25 -.06%
CRB 338.80 -1.07%

Futures Spot Prices
Crude Oil 65.85 +.18%
Unleaded Gasoline 177.34 +.01%
Natural Gas 8.70 +.07%
Heating Oil 175.34 -.12%
Gold 543.60 -.17%
Base Metals 162.64 +1.09%
Copper 211.80 -.09%
10-year US Treasury Yield 4.33% +.18%

Leading Sectors
Airlines +4.46%
HMOs +1.85%
Networking +1.04%

Lagging Sectors
Internet -2.14%
Oil Tankers -2.64%
Gold & Silver -3.05%

Evening Review
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Market Wrap CNBC Video(bottom right)
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GuruFocus.com
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (EBAY).
- Reiterated Underperform on (TER).

Afternoon/Evening Headlines
Bloomberg:
- Increased manufacturing and employment helped the US economy expand in the final weeks of last year, with competition and lower energy costs holding down prices increases in some areas, the Federal Reserve said.
- Kohlberg Kravis Roberts, seeking to raise more than $10 billion for its biggest buyout fund ever, won a $1.5 billion commitment from the Oregon Investment Council.
- EBay(EBAY) said fourth-quarter profit jumped 36% after US sales outpaced growth in Europe.
- Apple Computer(AAPL) said first-quarter profit almost doubled and sales reached a record, buoyed by surging holiday sales of iPod digital music players.
- Advanced Micro Devices(AMD) posted its highest quarterly profit in more than four years after the company took sales from Intel Corp.(INTC).
- Exxon Mobil(XOM) expects global gasoline and diesel production to expand faster than demand over the next five years, squeezing refining profits that set records last year.
- Natural gas fell for the sixth time in seven sessions on more predictions of mild winter weather.

Wall Street Journal:
- US billionaire investor Carl Icahn, who is urging Time Warner(TWX) be split up, would merge the company’s America Online and entertainment businesses with a smaller Internet portal.

Financial Times:
- Google(GOOG) and Yahoo!(YHOO) are extending their rivalry to local and image searches, citing Keynote Systems.

BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Medical longs and Internet longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was modestly negative today as the advance/decline line finished slightly lower, sector performance was mixed and volume was heavy. Measures of investor anxiety were higher into the close. Overall, today's action was mildly bearish considering the declines in Asian markets, commodity stocks and several tech leaders. Apple Computer(AAPL), one of my longs, is down 3 points after-hours. This appears to be an overreaction to me. I may buy more tomorrow if losses worsen.

Major Averages Lower into Final Hour, Pressured by Energy and Technology Shares

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Semi longs and Medical longs. I added to my GOOG long and to my IWM and QQQQ shorts, thus leaving the Portfolio 75% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are falling and volume is heavy. Measures of investor anxiety are higher. Today's "global selloff" is only resulting in a 0.6% decline in the S&P 500 (SPX). The SPX is still 2.2% higher for the year, while the Nasdaq is 3.2% higher. This is better than most other major global indices. One of last year's best performers, the Nikkei, is now down 4.8% for the year. It is too early to tell, but it appears to me that a global rotation back into U.S. stocks is in its early stages. I expect US stocks to trade modestly higher from current levels into the close on short-covering, positive economic data and lower energy prices.