Today's Headlines

- MovieBeam Inc., backed by Walt Disney(DIS), is taking on video-rental stores with a system that transmits the latest movies to homes for as little as $1.99 each.
- General Motors(GM) will announce today that it’s investing $500 million in five Michigan factories.
- Research In Motion(RIMM)’s Blackberry services will stay up and running “no matter what happens,” Co-Chief Executive Officer James Balsillie said in an interview.
- Coca-Cola(KO) said billionaire investor Warren Buffett won’t stand for re-election to the company’s board.
- US Treasury notes are dropping after a government report showed retail sales last month grew at the fastest pace since May 2004.
- Crude oil is falling below $60 a barrel and gasoline futures dropped to the lowest level in almost a year as traders ignored colder weather and worries over Iran and focused on deteriorating fundamentals for the commodities.

Wall Street Journal:
- Sun Microsystems(SUNW) will announce today technical information to help programmers to adapt Linux or other operating systems to a new range of servers that use the company’s Sparc chips.
- The US will step up its enforcement of existing trade rules with China rather than create new policy.
- US utility companies such as PG&E Corp.(PCG) are offering rewards to customers who use less energy.
- US money manager BlackRock(BLK) aims to branch out from big investors and the bond market to individuals and stock investing with its proposed $8.4 billion transaction with Merrill Lynch(MER).
- KB Home(KBH) said it its annual report that cancellations of home orders have risen and the number of orders has dropped in the past two months, as US housing starts have fallen.

USA Today:
- The US military says 40% of Iraq’s combat battalions have taken the lead role in fighting insurgents, a sign of their greater effectiveness and a measure of when US troops can return home.

Washington Post:
- The Virginia Senate voted to ban smoking in state workplaces, restaurants and bars.

NY Times:
- More than a third of NY high school students failed to graduate on time in 2005, citing State Education Commissioner Richard P. Mills.
- NY is developing a city-branded condom that may help measure the effectiveness of its free condom distribution program, citing the Health and Mental Hygiene Dept.
- Paul Hackett, an Iraq war veteran and popular Democratic candidate in Ohio’s US Senate race said he is dropping out of the election and leaving politics because of pressure from Senators Harry Reid and Charles Schumer. Hackett said he learned that Democratic party leaders were calling his campaign contributors and asking them to stop donating money.
- The Center for Union Facts spent $240,000 to run full-page ads in three newspapers yesterday as part of its campaign to get the truth out about organized labor.

Chicago Tribune:
- Abbott Labs(ABT) has purchased 500 acres of land in Pleasant Prairie, Wisconsin, for about $30 million and may use it to expand.

Chronicle of Higher Education:
- S&P said the financial outlook for US public and private colleges and universities remains stable.

China Daily:
- China is drawing up an alternative-fuel strategy that will be part of the country’s new development plan for the five years through 2010.
- China will seek wider uses of agriculture biotechnology and increase investment in safety monitoring of gene-altered crops.

ThisDay:
- OPEC has told Nigeria and Saudi Arabia that they can boost oil production by a combined 2 million barrels a day, citing the head of Nigeria’s state oil company.

Ansa:
- Italian Reforms Minister Roberto Calderoli today began wearing a T-shirt sporting copies of the Danish cartoons of the prophet Muhammad that sparked international protests by Muslims.

Retail Sales Very Strong

- Advance Retail Sales for January rose 2.3% versus estimates of a .9% increase and a downwardly revised .4% increase in December.
- Retail Sales Less Autos for January rose 2.2% versus estimates of a .8% increase and a .2% rise in December.

BOTTOM LINE: Retailers rang up their biggest sales gains since May 2004 last month, more than doubling economists’ forecasts as energy prices fell and the labor market improved, Bloomberg reported. Unemployment is at a four-year low and recent wage gains have been healthy. Sales at restaurants and drinking establishments gained 3.2%, the best showing since January 2001. Moreover, same-store sales rose a brisk 5.1% in January, the largest year-over-year increase since June, according to the ICSC. The National Retail Federation estimates that $18.5 billion in gift cards were purchased last year, a 6.6% gain over 2004. Economists are now projecting strong US economic growth of 4% for the first quarter of this year. I continue to believe falling energy prices, a healthy job market, low long-term rates, rising stocks prices, improving sentiment and a stable housing market will boost consumer spending throughout most of the year.

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fidelity Investments is in talks to build a facility for as many as 5,000 workers in Research Triangle Park in North Carolina.
- Amgen(AMGN) plans to sell $4 billion of convertible notes to fund a $3 billion stock repurchase plan.
- Whirlpool(WHR) agreed to delay the completion of its acquisition of Maytag(MYG) so that the US Justice Dept. can have more time to review the transaction.

Wall Street Journal:
- Starbucks Corp.(SBUX) Chairman Howard Schultz said the coffee chain will continue its aggressive expansion in China.
- India may invest as much as $1 billion to develop oil-sands projects in Canada within the next 12 months, citing an Indian government official.
- Morgan Stanley(MWD) CEO John Mack, who last month ended talks to buy a majority stake of money-manager BlackRock(BLK), may try to buy as many as 12 smaller hedge funds.

DigiTimes:
- Intel Corp.(INTC) plans to reduce prices of some of its newest microprocessors by as much as 50% in April to spur demand.

London-based Time:
- Unilever NV will award an $871.3 million outsourcing contract to Accenture Ltd.(ACN).

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (EBAY), (BSX), (UHCO), (MRVL) and (SYMC).

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/EPS Estimate
(ANF)/1.78
(CEPH)/.74
(DE)/.83
(EXBD)/.51
(FAF)/1.10
(ITRI)/.48
(JAH)/.52
(LVS)/.27
(MMC)/.31
(MAS)/.50
(STR)/1.11
(SIAL)/.93
(RIG)/.48
(WMI)/.40

Upcoming Splits
- (WGOV) 3-for-1

Economic Releases
8:30 am EST
- Advance Retail Sales for January are estimated to rise .9% versus a .7% increase in December.
- Retail Sales Less Autos for January are estimated to rise .8% versus a .2% gain in December.

10:00 pm EST
- Business Inventories for December are estimated to rise .5% versus a .5% gain in November.

BOTTOM LINE: Asian indices are mostly lower, pressured by exorters in the region. I expect US equities to open modestly lower and to trade higher into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Lighter Volume, Led Down by Commodity Shares

Indices
S&P 500 1,262.86 -.33%
DJIA 10,892.32 -.24%
NASDAQ 2,239.81 -.98%
Russell 2000 710.53 -.92%
S&P Barra Growth 599.64 -.35%
S&P Barra Value 659.44 -.31%
Morgan Stanley Consumer 592.52 -.17%
Morgan Stanley Cyclical 778.79 -.48%
Morgan Stanley Technology 528.16 -.68%
Transports 4,298.33 -.55%
Utilities 403.97 -.27%
Put/Call 1.01 +48.53%
NYSE Arms 1.0 -11.56%
Volatility(VIX) 13.35 +3.73%
ISE Sentiment 173.00 -7.98%
US Dollar 90.57 +.02%
CRB 327.57 -1.22%

Futures Spot Prices
Crude Oil 61.21 -.07%
Unleaded Gasoline 143.89 +.54%
Natural Gas 7.28 +.48%
Heating Oil 164.04 +.11%
Gold 542.50 +.07%
Base Metals 165.76 -.95%
Copper 222.90 -.22%
10-year US Treasury Yield 4.57% -.13%

Leading Sectors
Disk Drives +.47%
Gaming +.14%
REITs +.13%

Lagging Sectors
Gold & Silver -2.57%
Steel -2.66%
Coal -2.67%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (KRG) and (BLK).
- Reiterated Underperform on (HCC).

Afternoon/Evening Headlines
Bloomberg:
- US economic growth will be robust for several years and inflation will remain tame, fueling an expansion that will keep unemployment low and foreign investment flowing to the world’s largest economy.
- Discover Financial Services will for the first time offer a debit card to banks that previously issued only cards from Visa and Mastercard.
- Zinc fell to a four-week low, leading a decline in base metals such as lead and tin.
- The average US pump price for gas fell for a second week, dropping 5.8 cents to $2.284/gallon.
- Crude oil and heating oil fell to six-week lows on speculation that heating-fuel supplies are sufficient to meet demand after a storm dropped record snowfall on NY. Unleaded gas futures dropped to the lowest level since Nov.
- 3M Co.(MMM) raised its dividend 9.5% and said it plans to buy back as much as $2 billion of its own shares.

Nikkei English News:
- Sanyo Electric and Finland’s Nokia Corp.(NOK) are planning a joint venture in the US, which would be based in San Diego, to make cellular telephones.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Computer longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was below average. Measures of investor anxiety were higher into the close. Overall, today's market action was negative. However, it is a positive that the major averages stabilized even as commodity prices headed even lower. As well, volume was below average on today's pullback and the NYSE Arms was elevated throughout the day. Considering it is only February and most stocks are higher for the year, sentiment seems to have turned too bearish.

Stocks Lower into Final Hour, Pressured Again by Losses in Commodity Stocks

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is lower and volume is average. I personally think it would be prudent for the Fed to at least 'pause' for a bit here. However, one of their chief concerns has been rising commodity prices. Will Bernanke risk reigniting the commodity market by making dovish comments? With the energy complex on its back, with the exception of oil, he most likely will make more positive comments about the economy, which will likely be perceived as "hawkish." I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower commodity prices and bargain hunting.