Job Market Still Healthy, Leading Indicators Rise Slightly, Philly Fed Falls Slightly, Prices Paid Down 52% from October Highs

- Initial Jobless Claims for last week fell to 299K versus estimates of 310K and 309K the prior week.
- Continuing Claims rose to 2453K versus estimates of 2445K and 2428K prior.
- Leading Indicators for September rose .1% versus estimates of a .3% increase and a .2% decline in August.
- The Philly Fed for October fell to -.7 versus estimates of 7.0 and a reading of -.4 in Septebmer.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to the lowest level in almost three months, suggesting the job market remains buoyant, Bloomberg reported. The four-week moving-average fell to 307,750 from 313,500 the prior week. The unemployment rate dropped in September to a historically low 4.6%. The unemployment rate among those eligible for jobless benefits, which tracks the US unemployment rate, held steady at 1.9% this week. I continue to believe the job market will remain healthy over the intermediate-term without generating substantially unit labor cost increases.

An index of US leading economic indicators rose less than expected in September, Bloomberg reported. Five of ten indicators contributed to a gain. Improving confidence, rising incomes and higher stock prices are boosting the leading indicators. I expect GDP growth to come in around 1.5-2.0% in the third-quarter before rebounding to around 3-3.5% this quarter.

Manufacturing in the Philly area unexpectedly contracted slightly for a second month, Bloomberg reported. However, the new orders component of the index surged to 13.4 from -1.3 in September. The prices paid component fell to 32 from 38.1 the prior month. The prices paid component has plunged 52% from October 2005 highs. I expect the Philly Fed to rebound next month as manufacturers rebuild low inventories and consumer spending remains strong.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Oil was little changed after falling below$58 a barrel in NY on a larger-than-expected jump in US oil inventories that left supplies 14% above the five-year average.
- Hewlett-Packard(HPQ) reclaimed the title of world’s biggest personal-computer maker after trailing behind Dell Inc.(DELL) for three years.
- DE Shaw, a NY-based hedge fund firm, plans to invest as much as $4500 million in the closely held ERORA Group, an owner and developer of coal-gasification projects.
- The SEC is increasing its focus on insider trading by hedge funds, because of suspicious buying and selling ahead of corporate mergers, SEC Chairman Christopher Cox said.
- China’s economic growth slowed to 10.7% last quarter as Premier Wen Jiabao’s investment curbs began to take hold.
- South Korea’s economy faces “downward risks” exacerbated by nuclear test announcements by North Korea that may cause growth to slow, Finance Minister Kwon Okyu said.

Reuters:
- China National Cereals, Oils & Foodstuffs will invest more than $1 billion in ethanol projects to increase capacity to 3 million metric tons.

Apple Daily:
- AU Optronics’(AUO) Chairman KY Lee forecast demand for liquid-crystal display televisions will grow 50% next year as his company’s factories are currently using 100% of production capacity. Global LCD TV sales are set to rise 39% to $33.4 billion this year, according to iSuppli Corp.

Xinhua:
- The Chinese government will “reinforce” measures to control inflation in the real estate industry because housing prices in some cities are “still rising rapidly.”

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (T), target $37.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.12%.
NASDAQ 100 indicated -.10%.

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Earnings of Note
Company/EPS Estimate
- (AH)/.62
- (BK)/.55
- (BAC)/1.15
- (B)/.31
- (BAX)/.55
- (BGG)/-.23
- (BRCM)/.30
- (CERN)/.36
- (CHKP)/.32
- (C)/1.03
- (KO)/.59
- (CMA)/1.20
- (CAL)/1.22
- (CY)/.15
- (LLY)/.79
- (FSL)/.51
- (GOOG)/2.42
- (HSY)/.81
- (HON)/.63
- (MCD)/.68
- (NE)/1.37
- (NUE)/1.56
- (PFE)/.45
- (PPG)/1.27
- (DGX)/.77
- (RS)/1.35
- (RHI)/.41
- (SNDK)/.57
- (SHW)/1.27
- (LUV)/.20
- (SY)/.33
- (TRB)/.45
- (UNP)/1.47
- (UB)/1.22
- (UPS)/.89
- (UNH)/.76
- (WYE)/.76
- (XLNX)/.23

Upcoming Splits
- None of note

Economic Releases
8:30 am EST:
- Initial Jobless Claims for last week are estimated to rise to 310K versus 308K the prior week.
- Continuing Claims are estimated to come in at 2445K versus 2445K prior.

10:00 am EST:
- Leading Indicators for September are estimated to rise .3% versus a .2% decline in August.

12:00 pm EST:
- Philly Fed for October is estimated to rise to 7.0 versus a reading of -.4 in September.

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

Dow Jones Industrial Average Hits Another All-time High, Approaches 12,000 as Oil Falls Again, Inflation Decelerates and Profits Rise

Indices
S&P 500 1,365.96 +.14%
DJIA 11,992.68 +.36%
NASDAQ 2,337.15 -.33%
Russell 2000 763.41 -.20%
Wilshire 5000 13,660.21 -.42%
S&P Barra Growth 633.05 +.25%
S&P Barra Value 730.91 +.03%
Morgan Stanley Consumer 662.57 +.58%
Morgan Stanley Cyclical 850.76 -.49%
Morgan Stanley Technology 544.35 -.73%
Transports 4,605.27 -.93%
Utilities 442.81 +.79%
Put/Call .90 unch.
NYSE Arms 1.39 -.93%
Volatility(VIX) 11.34 -3.32%
ISE Sentiment 115.0 +9.52%
US Dollar 86.89 +.02%
CRB 304.52 -1.18%

Futures Spot Prices
Crude Oil 57.79 -1.93%
Unleaded Gasoline 146.70 +.25%
Natural Gas 6.88 +6.88%
Heating Oil 169.72 -2.11%
Gold 593.70 +.19%
Base Metals 242.78 -1.87%
Copper 348.00 -.46%
10-year US Treasury Yield 4.75% -.21%

Leading Sectors
HMOs +1.60%
Airlines +1.46%
Drugs +1.14%

Lagging Sectors
Oil Tankers -1.57%
Gold & Silver -1.89%
Semis -2.79%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Added (LLY) to Conviction Buy List.

Afternoon/Evening Headlines
Bloomberg:
- The stock market renewed its fourth-quarter rally, helping the Dow Jones Industrial Average advance to another all-time high towards 12,000, as the year’s steepest drop in consumer prices removed the threat of accelerating inflation.
- Crude oil fell below $58/bbl. in NY after an Energy Dept. report showed a larger-than-expected jump in US oil inventories as refineries shut units for maintenance.
- Billionaire investor Carl Icahn said he has more than two-thirds of the support he needs to replace ImClone Systems’(IMCL) CEO and remove three other board members.
- Apple Computer(AAPL) said fourth-quarter profit rose 27% on back-to-school sales of Macintosh notebook computers and new versions of the iPod music player. The shares surged 5% in after-hours trading.
- Advanced Micro Devices(AMD) said third-quarter profit jumped 77%, fueled by market share gains. The shares tumbled 13% on weak forward guidance.
- EBay(EBAY) said third-quarter profit rose 10% after online payment services spurred revenue growth.
- Ryland Group(RYL), the biggest US homebuilder for first-time buyers, said third-quarter profit fell 26% as sales incentives reduced earnings. The shares jumped 7% as the profit beat analysts’ estimates.

LA Times:
- The University of Southern California offered a basketball scholarship to a 14-year-old high school freshman.

BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Telecom longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was neutral today as the advance/decline line finished about even, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was neutral. Oil continues to trade heavy, down another $1.20/bbl back near recent lows. Natural gas is traded up 7% on record speculation once again, notwithstanding all-time high inventories. This speculation should subside over the coming weeks as natural gas enters its seasonally weak period and funds liquidate long positions to meet year-end redemptions. I sense the action over the last few days has allowed those market shorts that had stepped away to reload. My intraday measures of investor angst were elevated throughout the day.

Dow Jones Industrial Averge Breaks 12,000 Intraday as Oil Falls to Recent Lows Offsetting Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Telecom longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is heavy. The Associated Press is reporting that North Korea has informed China that it may conduct "as many as three additional tests." This is likely the main reason for the mixed performance in the major averages today. I sense the action over the last two days has prompted the shorts to reload, which bodes well for another round of short-covering. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, lower energy prices and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- The Dow Jones Industrial Average rose, briefly surpassing 12,000 for the first time in US history, after consumer prices fell by the most since November and oil declined.
- Crude oil is falling below $58/bbl. in NY after an Energy Dept. report showed a larger-than-expected jump in US oil inventories as refineries shut units for maintenance.
- Time Warner’s cable unit filed for an IPO that may value the business at more than $40 billion and give investors a stake in the second-largest US cable-tv provider for the first time.

Wall Street Journal:
- US real-estate industry executives believe commercial investments may have peaked, and they expect a slowdown next year, citing a new survey by PricewaterhouseCoopers and the Urban Land Institute. The poll indicates commercial real estate may return to more typical levels of profit from booming levels.
- Wal-Mart(WMT) will hold its annual analyst and investor meeting in New Jersey and Manhattan, outside its home state of Arkansas for the first time.
- Rap singer Jay-Z, sponsored by Coca-Cola, is among music industry figures using Internet music-sharing sites for promotion, as the entertainment business uses anti-piracy tools as an advertising vehicle.
- Barry Sternlicht, chairman and chief executive of closely held Starwood Capitol Group Global LLC, is developing a new brand of “green” luxury hotels.

NY Times:
- Sony Corp.(SNE), which will start selling its PlayStation 3 video-game console in less than a month, will market the product just as Microsoft(MSFT) publicizes its Xbox 360 console.
- Chinese carmakers, beset by lower quality than their competitors, staid designs and increasing labor costs could face years before sending a large number of vehicles to the US.
- Nielsen Media Research, which tracks how many people watch television shows, caused some advertisers to complain about its plan to rate commercials.
- The American-Arab Anti-Discrimination Committee filed a lawsuit against the Department of Homeland Security over concerns the government is profiling Arab-Americans and Muslims.

AP:
- An Attleboro, Massachusetts, elementary school has banned students from playing tag, touch football and any unsupervised chase games during recess. Willett Elementary School principal Gaylene Heppe told AP that accidents happen during recess. The school wants to keep children safe and avoid liability for injuries.

AFP:
- Former dictator Saddam Hussein’s genocide trial resumed in Baghdad today.
- A Jordanian court handed down jail terms of two to ten years to eight defendants with links to al-Qaeda after they were convicted of plotting attacks on Americans and Jews in Jordan.

London-based Times:
- The UK Treasury will review regulation of hedge funds after the Bank of England said that some are taking too many risks.

Globe and Mail:
- Manos Vourkoutiotis, head of the Canadian arm of Amaranth Advisors LLC, raised $702.6 million to start a new hedge fund. Moore Capital Management, a firm run by billionaire Louis Bacon, is backing the fund.

Financial Times Deutschland:
- The German government expects economic growth to slow to 1.4% next year from 2.3% this year.