Housing Starts Falls More Than Estimates

- Housing Starts for October fell to 1486K versus estimates of 1680K and 1740K in September.
- Building Permits for October fell to 1535K versus estimates of 1630K and 1638K in September.

BOTTOM LINE: Housing starts in the US declined in October as builders cut inventories. Starts are down 27% from year-ago levels. Starts fell 26% in the South, 12% in the Midwest and 2.1% in the West. Starts surged 31% in the Northeast. I continue to believe it is a positive for housing to see starts slow, which will bring inventories down further. I still expect housing to stabilize at relatively high levels over the coming months.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Billionaire investor Carl Icahn and Macklowe Properties bid $4.26 billion in cash for New York real estate investment trust Reckson Associates Realty Corp.(RA), trumping an earlier offer from SL Green Realty Corp.
- Emory University in Atlanta, GA, received a $261.5 million grant from the Robert W. Woodruff Foundation to build and an outpatient-care clinic and help fund a strategic plan to improve academic programs and campus facilities.
- Sudan has agreed “in principle” to the deployment of a joint UN-African Union peacekeeping force of up to 23,000 soldiers and police in the nation’s Darfur region, a step toward ending the world’s worst humanitarian crisis.
- Nymex Holdings’ IPO was priced above the company’s expectations at $59/share, raising $384 million after investor demand for the shares increased the price range earlier this week.
- Carlos Ghosn, the head of Nissan Motor and Renault, stymied in his attempt to find a North American partner, may hire GM(GM) or Ford(F) to make cars at their underused factories.
- Copper prices in Shanghai are falling again, heading for the biggest weekly decline in almost four months, amid concerns that supply growth may outpace demand on rising stockpiles and production from China.
- DisplaySearch, a technology industry researcher, raised its estimates for global shipments of liquid-crystal display TV panels by 6% on sales of video-game consoles such as of Sony’a(SNE) new PlayStation 3.
- Oil traded near a one-year low, set for its biggest weekly decline since October 2005, on speculation OPEC will exceed its production target.

- Crain’s Chicago Business:
- At least two Chicago businessmen say they are assembling investment groups in hopes of buying Major League Baseball’s Chicago Cubs from Tribune Co.(TRB).

Xinhua News Agency:
- About 1.24 million graduates in China, or 30% of 4.13 million people expected to complete universities and vocational schools this year, won’t be able to find jobs.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SPH), target $36.
- Reiterated Buy on (GOOG), target $600.

Business Week:
- Ametek Inc.(AME), a maker of electronic instruments that can detect harmful materials, is expected to benefit as the US government spends more on homeland security, citing analyst James Lucas of Janney Montgomery Scott.
- Isis Pharmaceuticals(ISIS) may rise because the company’s drug cut levels of “bad” cholesterol in a three-month trial by almost two-thirds, citing Needham’s Mark Monane.

Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.12%.

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Economic Releases
8:30 am EST
- Housing Starts for October are estimated to fall to 1680K versus 1772K in September.
- Building Permits for October are estimated to fall to 1630K versus 1638K in September.

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

DJIA Hits Another All-Time High on Plunging Energy Prices, Decelerating Inflation and More Homebuilder Optimism

Indices
S&P 500 1,399.76 +.23%
DJIA 12,305.82 +.44%
NASDAQ 2,449.06 +.26%
Russell 2000 790.75 -.15%
Wilshire 5000 14,041.90 +.16%
S&P Barra Growth 650.05 +.20%
S&P Barra Value 747.48 +.25%
Morgan Stanley Consumer 678.68 +.60%
Morgan Stanley Cyclical 875.23 +.07%
Morgan Stanley Technology 579.63 +.54%
Transports 4,881.57 +1.06%
Utilities 449.53 +.25%
Put/Call .77 -3.75%
NYSE Arms .77 -3.38%
Volatility(VIX) 10.16 -1.45%
ISE Sentiment 123.0 -15.17%
US Dollar 85.50 +.20%
CRB 304.85 -1.93%

Futures Spot Prices
Crude Oil 56.12 -4.49%
Unleaded Gasoline 152.50 -3.61%
Natural Gas 7.72 -4.89%
Heating Oil 165.76 -2.06%
Gold 618.80 -.47%
Base Metals 234.61 +2.24%
Copper 305.20 -.75%
10-year US Treasury Yield 4.65% +.77%

Leading Sectors
Gaming +1.51%
Restaurants +1.06%
Homebuilders +1.04%

Lagging Sectors
Steel -3.17%
Oil Service -3.71%
Gold & Silver -3.76%

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Afternoon Recommendations
Deutsche Bank:
- Rated (CNQR), target $19, (TLEO), target $16 Buys.

Afternoon/Evening Headlines
Bloomberg:
- The DJIA made another all-time high as energy prices plunged, inflation decelerated and a survey of homebuilder sentiment improved.
- Oil had its biggest one-day decline since August 2005 in NY, falling $2.71/bbl. to $56.05/bbl.
- Starbucks(SBUX) said fourth-quarter profit fell 5.2% on costs to open new stores and lower sales at existing stores. The shares declined 5% in after-hours trading.
- New York City’s unemployment rate fell to 4.1% in October, the lowest in US history, from 5.8% a year ago, the state’s chief economist said.
- Shifting ocean patterns may bring cooler air to the Arctic and help slow global warming, according to a report released today from the US National Oceanic & Atmospheric Administration.
- Copper fell in NY to its lowest price since June on signs that slowing US and Chinese industrial production and rising production from China’s mines may ease supply concerns.
- Hewlett-Packard(HPQ) said fourth-quarter profit jumped fourfold after it reclaimed the title of world’s largest personal-computer maker from rival Dell(DELL).

Nikkei English News:
- Sony Corp.(SNE) will ask new owners of its PlayStation 3 video-game consoles to aid Stanford University in researching drugs to treat cancer and other conditions through access to the new machine.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Semi longs, Computer 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 modestly positive today as the advance/decline line finished about even, most sectors rose and volume was above average. Measures of investor anxiety were mostly lower into the close. Today's overall market action was mildly bullish. Bell Dell, a member of Sanford Bernstein's energy research team in London, wrote in a recent report that on a weighted average basis, commercial independent oil storage is now 97% full, up from 70% in 2003. Besides record speculation by investment funds, commercial hoarding has been responsible for the historic mania in energy. With storage near full, China's industrial production slowing and "peak oil" fears diminishing, recent hoarding should subside, thus alleviating the contango in the oil futures market. Dell's research note also said OPEC's spare production capacity will reach 4 million barrels per day next year and even higher in 2008. This should result in a significant decline in the "fear premium" that is still priced into oil. Despite historic capital inflows into commodities and numerous potential upside catalysts, oil has declined $20/bbl. from July highs. Energy bulls remain very complacent, in my opinion, as it is just assumed that oil can't fall meaningfully from current levels. Prices of oil or natural gas anywhere near current levels do not represent the underlying fundamentals, in my opinion. I continue to believe oil will weaken meaningfully over the intermediate-term and eventually decline to levels recently deemed unimaginable by most investors during the next significant global slowdown.

DJIA Hits Another All-Time High on Rising Homebuilder Optimism and Plunging Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs and Computer longs. I took more profits in my (TLT) long and added to an existing long, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is mixed, most sectors are rising and volume is above average.
The prices paid component of the Philly Fed fell again in November to 26.7.
It has plunged 60% from October 2005 highs. This gauge of inflation is just another in the slew of very benign readings of late. Today's modest rise in the 10-year yield is a result of "selling the news" and a reflection of the likelihood that economic data will show economic growth is accelerating modestly into year-end, in my opinion. This is a positive for equity investors as most are more worried about growth slowing too much rather than inflation. My TLT long is now an underweight position. I expect US stocks to trade modestly higher into the close from current levels on short-covering, performance anxiety, more economic optimism and falling energy prices.

Today's Headlines

Bloomberg:
- Crude oil is falling $2.50/bbl. to $56.26, the largest decline since August 2005, after an EIA report showed that US inventories of natural gas climbed and reports surfaced of Nigeria and Venezuela cheating on their pledged production cuts.
- House Democrats elected Steny Hoyer to the No.2 post in their caucus for the next session of Congress, handing a defeat to their own leader, Nancy Pelosi, who campaigned against him.
- Confidence among US homebuilders unexpectedly rose in November for a second month, in another sign that the slump in housing may be moderating, according to a private survey released today.

Wall Street Journal:
- Delta Air Lines plans to install air bags on its newest Boeing 777s to improve onboard safety.
- Economist Milton Friedman died today at the age of 94, citing his daughter.

CNBC:
- Clear Channel Communications(CCU) agreed to be acquired by Thomas H. Lee Partners and Bain Capital LLC for about $19 billion, or $37.60/share.

NY Times:
- Toyota Motor(TM) plans to open a $1.2 billion plant in Texas tomorrow to assemble the biggest version of its Tundra pickup.

AP:
- Target Corp.(TGT) is donating $1 million to the Salvation Army for a third year.

Financial Times:
- News Corp.’s(NWS) 20th Century Fox film unit may announce this week that it has set up a financial deal worth more than $520 million backed by Dune Capital Management, a hedge fund formerly controlled by billionaire George Soros.

Telegraaf:
- European Central Bank Governing Council member Nout Wellink said Democrats winning a majority in both houses of the US Congress for the first time since 1994 benefits Europe.

El Universal:
- Venezuela failed to meet a pledge to cut its output by 50,000 barrels a day as of Oct. 1, citing figures from OPEC. Nigeria also failed to meet its pledged cut of 120,000 bpd.

Jana:
- Libya, Africa’s second-largest oil producer, calculated its 2007 public budget on the assumption that the average price of its crude oil will be $35 a barrel, citing Prime Minister Baghdadi Mahmudi.