Today's Headlines

Bloomberg:
- Crude oil plunged to the lowest this year in New York on doubts that OPEC ministers will come to an agreement to cut production enough to stem falling prices.
- Visa, lured by MasterCard’s 84% gain since it went public in May, plans to sell shares in an offering that may dwarf its credit card rival.
- Sony Ericsson Mobile Communications said third-quarter profit almost tripled on sales of handsets with high-resolution cameras and Walkman music players.
- The US budget deficit is set to come in around 1.9% of GDP, significantly better than prior estimates and lower than the 40-year average of 2.3% of GDP.
- Bill Gross, manager of the world’s largest bond fund at PIMCO, said demand for emerging-market debt may wane as a result of the 25% fall in oil prices.
- Jacuzzi Brands agreed to be bought by Apollo Management LP for about $990 million.

Wall Street Journal:
- News Corp.’s(NWS) Myspace.com wants to expand its relationship with Google(GOOG).
- Bank of America(BAC) will offer up to 30 free online stock trades a month to banking customers with at least $25,000 in deposits.
- Airlines’ share prices are creeping up despite slowing revenue growth, because fuel prices, which account for 20 to 30 percent of carriers’ operating costs, are falling.
- Egan-Jones Ratings may offer ratings of mutual funds by the end of the year, citing the company’s marketing chief.

NY Times:
- Europeans are showing less tolerance toward Muslim immigrants as worries about Islamic extremism spread since the terror attacks of Sept. 11, 2001.
- New York City is to start a program which will steer developers toward building low-cost housing.
- Apollo Management Group and Texas Pacific Group have raised their bid for Harrah’s Entertainment(HET) to more than $15.5 billion.
- A non-profit group in the US plans to provide 1.2 million educational computers for Libyan children by June 2008.
- Yahoo!(YHOO) has fallen out of favor with some advertisers, as new video and social networking sites attract more visitors.

NY Daily News:
- New York City’s Hudson Yards Project will generate more than $25 billion in revenue over 25 to 30 years after development.

Reuters:
- Nigeria’s oil production will probably rise to 2.5 million barrels a day next year, citing President Olusegun Obasanjo. Nigeria’s recent loss of 600,000 barrels a day of oil production will probably last until February.

Boston Globe:
- Election ballots in more than a third of Massachusetts’ cities and towns will ask voters next month whether US troops should immediately be withdrawn from Iraq. Massachusetts Governor Mitt Romney is critical of the initiative, saying he believes troops should return after stability is achieved in Iraq.

Washington Post:
- American households will pay lower heating bills this winter as natural gas bills are forecast to drop for the first time since the winter of 2001.

Les Echos:
- A 700 mile fence between the US and Mexico, approved last month by the US Congress, won’t staunch trade between the two countries, Mexican Foreign Minister Luis Ernest Derbez said.

NKK Television:
- The Japanese government will block all North Korean ships from entering the country’s ports.

AFP:
- Iran may cut 140,000 barrels a day in oil production if OPEC lowers quotas by a total of 1 million barrels a day.

El Nacional:
- Venezuela plans to base spending in next year’s budget on an average oil price of $29 a barrel.

US Budget Deficit as Percentage of GDP Now Below 40-year Average

- The US budget deficit came in at $248 billion in the fiscal year ended Sept. 30 versus prior estimates of $296 billion.

BOTTOM LINE: The US recorded a budget deficit of $248 billion in the fiscal year ended Sept. 30, $48 billion less than the government predicted in August, Bloomberg reported. Revenue to the US Treasury rose 12% from the prior year, mainly due to a 27% surge in corporate income taxes. This is a direct result of the greatest streak of double-digit profit growth gains in US history. The smaller deficit is evidence that “pro-growth policies work,” President Bush said at a press conference today. President Bush met his goal of cutting the deficit in half three years ahead of schedule. Lower individual tax rates increase economic growth, which in turn boosts government tax receipts and helps lower the US budget deficit. A booming housing market, strong stock market and healthy job market have all substantially boosted government tax receipts. The Treasury on Sept. 15 took in an all-time record $85.8 billion in taxes, including a one-day record $71.8 billion in corporate taxes. The US budget deficit as a percentage of GDP is now 1.9%, below the 40-year average of 2.3%.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Bear, Stearns & Co.’s(BSC) Francois Trahan, the top-ranked Wall Street strategist, increased his forecast for where the S&P 500 Index will finish next year, predicting a 15% advance from today’s close.
- Crude oil traded near an eight-month low after falling yesterday on speculation Middle East shipments and a seasonal dip in demand will increase global stockpiles.
- Katie Couric has lost almost 33% of her viewers since she took over as anchor of “The CBS Evening News” and now trails predecessor Bob Schieffer.
- Chevron Corp.(CVX) said it will prepare a proposal for the development of at least three biofuel plants for Ethanex Energy by 2008.
- Nippon Oil, Japan’s biggest petroleum refiner, will cut crude oil processing 25% compared with a year ago this month because of rising stockpiles.
- Amaranth Advisors LLC, the hedge-fund manager that lost $6.6 billion betting on natural gas, bought energy stocks in the third quarter before it was forced to liquidate, according to regulatory filings.
- Rabies was China’s deadliest infectious disease in the first nine months of 2006, with the number of cases surging by 30%, the health ministry said.

Wall Street Journal:
- The US Justice Department will probably approve AT&T’s(T) acquisition of BellSouth Corp.(BLS) for $67 billion with few or no conditions as early as tomorrow.

Financial Times:
- American International Group(AIG) is leading a group set to buy London City Airport for $1.4 billion.

Reuters:
- Ford Motor(F) is recalling more than 139,000 US vehicles because of defects related to door latches, citing the National Highway Traffic Safety Administration.

Late Buy/Sell Recommendations
Merrill Lynch:
- Emerging-market stocks may lag behind those in developed countries until year-end because they are still vulnerable to “sulks and tantrums” in the face of a slowdown in global economic growth.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated -.10%.
NASDAQ 100 indicated -.09%.

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Earnings of Note
Company/EPS Estimate
- (NDN)/.07
- (GCI)/1.11
- (LRCX)/1.03
- (MTB)/1.83
- (MON)/-.21
- (PGR)/.50
- (RI)/.36

Upcoming Splits
- None of note

Economic Releases
2:00 pm EST:
- Minutes of Sept. 20 FOMC Meeting

BOTTOM LINE: Asian indices are slightly higher, boosted by technology and automaker shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly mixed. The Portfolio is 100% net long heading into the day.

Dow Jones Industrial Aveage Makes Another All-time High as Oil Drops Again

Indices
S&P 500 1,353.42 +.20%
DJIA 11,867.17 +.08%
NASDAQ 2,315.43 +.16%
Russell 2000 745.88 +.18%
Wilshire 5000 13,525.25 +.24%
S&P Barra Growth 627.56 +.16%
S&P Barra Value 723.82 +.25%
Morgan Stanley Consumer 654.23 -.03%
Morgan Stanley Cyclical 849.10 +.78%
Morgan Stanley Technology 541.87 -.09%
Transports 4,640.32 +1.28%
Utilities 432.61 +.87%
Put/Call .80 -16.67%
NYSE Arms .69 -35.65%
Volatility(VIX) 11.52 -1.37%
ISE Sentiment 148.0 +20.3%
US Dollar 87.02 +.54%
CRB 299.40 -1.37%

Futures Spot Prices
Crude Oil 58.58 -2.30%
Unleaded Gasoline 146.78 -1.81%
Natural Gas 6.53 +1.57%
Heating Oil 168.18 -2.77%
Gold 577.40 +.21%
Base Metals 236.08 -.79%
Copper 339.0 +.36%
10-year US Treasury Yield 4.75% +1.23%

Leading Sectors
Oil Service +2.18%
Homebuilders +2.03%
Energy +1.60%

Lagging Sectors
Networking -.77%
HMOs -.77%
Hospitals -.77%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US gasoline at the pump fell for a ninth week, dropping 4.9 cents to a nationwide average $2.26 a gallon, the DOE said.
- Crude oil fell another $1.37/bbl.to $58.59/bbl., the lowest since February, after Saudi Arabia’s state oil company told customers in Asia and Europe to expect no cutbacks in their supplies next month.
- Symantec(SYMC) will release a series of Internet-based products and services to stave off growing competition from Microsoft(MSFT). As part of the effort, dubbed “Security 2.0,” Symantec will support VeriSign’s(VRSN) Identity Protection Service, which lets consumer use one-time passwords to protect their identities, and will work with Accenture(ACN).
- UK Prime Minister Tony Blair said his cabinet minister Jack Straw’s request for an open debate on Muslim women wearing full face veils was “perfectly sensible,” citing Blair.
- Two Hollywood studios will begin selling movie downloads through Apple Computer’s(AAPL) iTunes online store within the next six months, according to Piper Jaffray analyst Gene Munster.
- Legg Mason(LM) said fiscal second-quarter earnings were lower than analysts’ estimates because of a decline in revenue and higher distribution costs.
- Alcoa(AA) said rising prices drove third-quarter profit 86% higher, less than analysts estimated. The shares fell 9.5% in after hours trading.
- Genentech(DNA) said third-quarter profit rose 58% on sales of cancer medicines and a new treatment for age-related vision loss.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Semi longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished about even, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was neutral. I would classify today's action as a healthy consolidation of recent gains. Under Armour (UARM) the finished the day at record highs on above average volume and call activity. There are more acquisition rumors floating around. I remain long the stock. The bears were again unable to gain downside traction this morning. I suspect this will remain the case until the current extraordinary bearish complacency comes to an end.

Stocks Slightly Lower into Final Hour after New DJIA Intraday High

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Semi longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is about even, most sectors are lower and volume is about average. In my opinion, the recent sell-off in bonds, which I suspected may occur, is a result of many macro funds trimming their bets that the U.S. economy will experience a hard landing. I view this as a positive as inflation worries continue to diminish. I believe it would take a move in the 10-year yield to around 5.25% before the Fed would become concerned. I find this highly unlikely over the intermediate term. Global growth is still slowing despite a likely bounce back to around 3% in U.S. growth this quarter. I remain long a small portion of my original iShares Lehman 20+ Year Treasury Bond (TLT) position. I will look to add back to this long on any further substantial sell-off from current levels. Engadget is reporting that it is hearing from multiple trusted sources that Apple Computer (AAPL) will unveil a new wireless widescreen video iPod in the very near future. This would provide another catalyst for the stock to smash through its all-time high this quarter. Apple remains my second-largest long position behind Google (GOOG). I expect US stocks to trade mixed-to-higher into the close from current levels as short-covering, less pessimism, performance anxiety and lower energy prices more than offsets higher long-term rates.