Thursday Watch

Late-Night Headlines
Bloomberg:
- Democrats won a US Senate seat in Virginia, giving them majorities of both chambers of Congress for the first time in 12 years.
- Time Warner(TWX) sold $5 billion of bonds in its first sale since 2002 to refinance debt and buy back stock.
- A federal judge temporarily blocked a law approved yesterday by California voters that bars registered sex offenders from living within 2,000 feet of a school or a park frequented by children. US District Court Judge Susan Illston in San Francisco issued an order halting the state from enforcing the new law, saying a sex offender who sued today is likely to succeed on his claim that the restriction is unconstitutional.
- Over-sized dogs and those without photo identification in Beijing are being snatched by the city police to curb the spread of rabies, which has killed about 200 people a month in China this year.
- Archer Daniels Midland(ADM), the world’s biggest grain processor and ethanol producer, said it may expand its se of palm oil in Indonesia and sugar in Brazil to produce bio-fuels as demand for alternative energy soars.
- As many as 60 million Chinese are considered obese, 20 million of them suffer from diabetes while 160 million have high blood pressure, the Chinese Center for Disease Control and Prevention said yesterday on its Web site.

International Oil Daily:
- Natural Fuel Ltd., an Australian renewable energy company, will build a $130 million biodiesel plant in Singapore, citing the CEO.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.24%.

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Earnings of Note
Company/EPS Estimate
- (AIG)/1.42
- (CPKI)/.33
- (DLB)/.11
- (ENER)/.09
- (EXPE)/.30
- (GLBC)/-1.55
- (GT)/.24
- (HANS)/.33
- (JCP)/1.22
- (KG)/.38
- (KSS)/.64
- (MTZ)/.24
- (NVDA)/.34
- (RRI)/.34
- (SNDA)/.18
- (TXU)/1.95
- (URBN)/.18
- (VIA)/.48
- (DIS)/.34

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for September is estimated to shrink to -$66.0 billion versus -$69.9 billion in August.
- The Import Price Index for September is estimated to fall -1.0% versus a -2.1% decline in August.
- Initial Jobless Claims for last week are estimated to fall to 318K versus 327K the prior week.
- Continuing Claims are estimated to rise to 24245K versus 2415K prior.

10:00 am EST
- Preliminary Univ. of Mich. Consumer Confidence for November is estimated at 93.6 versus 93.6 the prior month.
- Wholesale Inventories for September are estimated to rise .5% versus a 1.1% gain in August.

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

Stocks Finish Near Session Highs on Less Political Uncertainty, Microsoft's Vista News and Short-Covering

Indices
S&P 500 1,385.72 +.21%
DJIA 12,176.54 +.16%
NASDAQ 2,384.94 +.38%
Russell 2000 769.84 +.71%
Wilshire 5000 13,876.54 +.30%
S&P Barra Growth 642.81 +.05%
S&P Barra Value 740.79 +.36%
Morgan Stanley Consumer 675.27 +.06%
Morgan Stanley Cyclical 857.96 +.38%
Morgan Stanley Technology 557.35 +.12%
Transports 4,723.26 +.10%
Utilities 446.99 +.99%
Put/Call .77 +1.32%
NYSE Arms 1.30 +16.88%
Volatility(VIX) 10.75 -3.07%
ISE Sentiment 141.0 -18.02%
US Dollar 85.48 +.06%
CRB 313.23 +.64%

Futures Spot Prices
Crude Oil 60.0 +1.80%
Unleaded Gasoline 156.0 +2.36%
Natural Gas 7.86 +1.42%
Heating Oil 171.50 +2.07%
Gold 617.50 -.13%
Base Metals 246.02 -1.12%
Copper 325.50 +.32%
10-year US Treasury Yield 4.63% -.51%

Leading Sectors
Gaming +2.73%
Oil Service +2.18%
Tobacco +1.71%

Lagging Sectors
Gold & Silver -1.14%
Drugs -1.64%
HMOs -3.51%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Cisco Systems(CSCO) said first-quarter profit gained 28% as clients bought more gear to provide faster Internet video. The shares surged 10% in after-hours trading.
- Microsoft(MSFT) said it finished its new Windows Vista in time to release it to businesses this month and consumers in January.
- Copper fell almost 4% to 5-month lows as rising stockpiles and the start of labor talks at the biggest mine in Chile eased concern that supplies will fall short of demand.
- Steel demand and production growth worldwide may slow in 2007 as global economies decelerate, the OECD said.

Les Echos:
- French Interior Minister Nicolas Sarkozy, head of the governing Union for the Popular Movement party, cited France’s 35-hour work week and the high tax system as factors in high French unemployment. The 35-hour work week is a “catastrophe,” because it makes France less competitive than other countries. France also needs to reform its fiscal system, including the scrapping of inheritance taxes, he said.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Biotech longs and Telecom longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished higher, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was bullish. The S&P 500 is very close to its high of 10 days ago. It is now 13% higher for the year. With an overwhelming majority of U.S. hedge fund and mutual fund managers underperforming this benchmark, I suspect another meaningful stock market surge has begun as performance anxiety rises again. Greater P/E multiple expansion is likely over the coming weeks as the U.S. imminent recession view fades rapidly. I want to reiterate the fact that there has never been this much money in U.S. history betting against U.S. stocks at a time of DJIA all-time highs. Moreover, the public is the most skeptical of recent stock market gains. The herd still believes the U.S. is in a secular bear market. I continue to believe the many bears remain stunningly complacent given the current environment for U.S. stocks and recent gains.

Stocks Higher into Final Hour on Short-Covering, Less Political Uncertainty and Lower Long-term Interest Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Telecom longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. An even more divided Senate, a House with many newly elected Democrats running to the right, a Republican President and Hillary Clinton likely running as a moderate in 08 should produce significant gridlock and result in much less market and economic damage than the many stock market bears would like. In my opinion, the 2008 election will have a much greater impact on the direction of the economy and stock market. Health care-related stocks are the only group under meaningful pressure today. I suspect the major averages have begun another meaningful surge higher into year-end. According to theflyonthewall.com, Reuters is reporting that Apple Computer (AAPL) executive Phil Schiller is saying that interest in the new iPod shuffle is "extremely high." He also said that shipments of the product began "when we expected" and that the company is "really excited" about the upcoming holiday period. The stock is rising to session highs on the report. I still see substantial upside in the shares and it remains my second largest long position behind Google (GOOG). I expect US stocks to trade modestly higher into the close from current levels on short-covering, performance anxiety, declining interest rates and less irrational pessimism.

Today's Headlines

Bloomberg:
- Defense Secretary Donald Rumsfeld, unable to fulfill US goals in Iraq and Afghanistan during his tenure, is stepping down and will be replaced by former CIA Director Robert Gates, President Bush said.
- Ethanol production in Japan may more than double by 2020 to 502 million gallons.
- Venezuelan President Hugo Chavez said oil prices should not fall under $50 a barrel and pledged to work with OPEC and non-OPEC states to keep prices from sliding further.
- Brazil’s 60% share of the world’s trade in ethanol is being challenged by China, according to Cargill, the largest US agricultural company.
- US ethanol production may rise to 15 billion gallons a year by 2013, allowing for every gallon of gasoline in the country to contain 10% of the alternative fuel, the Clean Fuels Development Coalition said.
- Kuwait may build a refinery in Louisiana, the second-largest crude-oil processing state in the US, as it seeks to invest more of its oil earnings outside the Middle East, the country’s oil minister said.
- Japan’s support for the US in Iraq won’t be affected by the outcome of the mid-term US elections, Japan’s Prime Minister Shinzo Abe said.
- Pakistan’s security forces will combat and crush the threat of terrorism threatening the country, President Pervez Musharraf told military commanders.
- Australia’s central bank raised its benchmark interest rate to the highest in almost six years to curb inflation, risking an economic slowdown as households grapple with record debt.
- A Cezanne still-life sold for $37 million and a Modigliani portrait of a boy fetched $31.1 million at Sotheby’s(BID) impressionist and modern art sale last night in NY, highlighting the largest single auction since 1990.
- Shares of drugmakers including Pfizer(PFE) and health-insurance providers such as Humana(HUM) fell after voters handed control of the US House of Representatives to Democrats who pledged to control pharmaceutical spending.

Wall Street Journal:
- Google Inc.(GOOG) is adding staff to capture more sales for advertising carried by large radio companies.

NY Times:
- Technological advancements in deepwater drilling have helped increase production in the Gulf of Mexico, tagged “the Dead Sea” a decade ago and abandoned by energy companies. About 40 billion barrels of undiscovered reserves lie in the deep water, enough to satisfy US consumption for more than five years.
- “Several thousand” people have returned to their homes in Sudan’s battle-stricken Darfur region. Some places such as corners in the southwester part of Darfur are peaceful now, citing aid workers.

Loyd’s List:
- UK oil producers will spend $572 billion to extract the North Sea’s remaining reserves, citing Malcolm Webb, CEO of the UK Offshore Operators Assoc. The UK will be able to produce 60% of its own oil requirements, and 20% of its gas needs by 2020, Webb said.

Xinhua News:
- China discovered a coal mine with estimated reserves of 6.4 billion tons in the northern Inner Mongolia Autonomous Region.

Economic Releases

- None of note

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