Today's Headlines

Bloomberg:
- US Treasuries rose after the Fed left its target for the overnight lending rate between banks unchanged at 5.25% for a fourth straight time and downgraded its assessment of the economy.
- Sabre Holdings, the owner of tourism Web site Travelocity.com, agreed to be acquired by buyout firms Texas Pacific Group and Silver Lake Partners for about $4.4 billion.
- OMV AG, central Europe’s largest oil and natural gas company, plans to invest $50 million to develop new energy technology like hydrogen filling stations and gas made from vegetable oils.
- China passed Mexico as the second-largest US trading partner in the first 10 months of this year, demonstrating a surge in commerce between the two countries since China joined the WTO.
- Merrill Lynch’s(MER) Chief Investment Strategist Richard Bernstein, one of Wall Street’s most bearish analysts during a four-year rally in US stocks, raised his 12-month forecast for the S&P 500’s Index by 5.5% to 1570.
- US retailers’ sales last week rose at their fastest pace so far this holiday season, helped by colder weather and increased gift-buying by consumers.
- Nucor(NUE), the second-biggest US steelmaker, said fourth-quarter profit will be less than anticipated because of rising inventories and lower prices.
- Best Buy(BBY) said earnings rose less than it estimated because the company was forced to cut prices to meet competition from Wal-Mart Stores(WMT) and Circuit City Stores(CC).
- Goldman Sachs(GS) capped the most profitable year ever for a Wall Street firm, almost doubling fourth-quarter earnings on trading, underwriting and investments in Asia.
- Needham, Mass., won’t publish its high school honor roll in the local newspaper to help reduce tension among students.

Wall Street Journal:
- US and European scientists have identified certain proteins which may help detect the earliest stages of Alzheimer’s disease, citing a paper in the Annals of Neurology.
- Hedge funds are breaking with traditional lending practices by opting to take control of companies that fail to repay debt.
- San Francisco’s Soma neighborhood, home to hundreds of Web companies in the 1990s, is again attracting small technology companies.
- Harrah’s Entertainment(HET), the largest US casino operator by revenue, probably will get an $87-per-share increased bid from Apollo Management and Texas Pacific Group.
- PlusFunds Group Inc. is causing consternation among hedge fund managers by offering detailed trading histories of dozens of funds to whomever will pay $75,000.
- Salesforce.com(CRM) will today say that it will help other companies sell services through its Internet site in exchange for a share of the income.

NY Times:
- The largest of six American Muslim charities that the Treasury Dept. has said support terrorists is suing the agency.

Washington Post:
- Military experts told President Bush they didn’t agree with some Iraq Study Group recommendations, particularly the plan to withdraw American forces from Iraq.
- The House and Senate passed a bill to bolster the Bush administration’s $5.6 billion dedicated to countering bioterrorism by restructuring the program’s management and funding more research and testing.

Stratfor:
- Saudi Arabia’s ambassador to the US, Turki al-Faisal, resigned from his post yesterday.

Financial Times:
- A hedge fund and a fund of private-equity funds are being set up to invest in renewable energy as interest in green technologies grows.
- The bidding war for Corus Group Plc, the British steelmaker, may be showing that steel and other commodity prices are at their peak, “Lex” wrote.

China Oil News:
- China’s government will start implementing an oil-product pricing system that will reflect international prices on Jan. 1. China will link fuel prices to Brent, Dubai and Minas crude benchmarks.

US Trade Deficit Shrinks Most in Almost 5 Years

- The Trade Deficit for October shrunk to -$58.9 billion versus estimates of -$63.0 billion and -$64.3 billion in September.

BOTTOM LINE: The US Trade Deficit shrank the most in almost five years in October as the price of imported oil dropped and US exports surged, Bloomberg reported. Imports of goods and services dropped 2.7% in October, the most since December 2001. The average price per barrel of imported oil declined to $55.47 versus $62.52 the prior month. US exports rose to $123.6 billion on increasing demand for computers, drilling equipment and medicines. I expect the US trade deficit to only improve modestly over the intermediate-term as falling prices more than offsets an acceleration of US demand.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Nike Inc.(NKE) signed top-ranked golfer Tiger Woods to a new endorsement contract, both his agent and Nike(NKE) said.
- Gains in Japan’s producer prices slowed for a second month in November as oil costs fell, adding to evidence inflationary pressure is easing in the world’s second-largest economy.
- Shares of LG.Philips LCD Co., the world’s second-largest liquid-crystal display maker, dropped 7.6% after the company said it was raided by officials in South Korea, the US and Japan in an antitrust probe of screen makers.
- Pakistan’s agreements reached with groups in the tribal region bordering Afghanistan have boosted Taliban fighters sheltering in the area, the International Crisis Group said.
- BHP Billiton(BHP) said growth in production capacity of alumina refineries will outpace demand next year. China, the world’s top user and producer of aluminum, is cutting back on imports, BHP said.
- OPEC shouldn’t decide to cut crude oil output for a second time in two months, US Energy Secretary Bodman said in Tokyo.

Wall Street Journal:
- Toyota Motor(TM) may have rushed vehicle production without enough quality checks and relied too much on computer simulations, citing President Katsuaki Watanabe.

Mysteel.com:
- China boosted crude steel output by 24% in November from a year earlier. For the first eleven months of the year, the nation produced 381.5 million tons of steel, up 18% from a year earlier. The November production of hot-rolled sheets, used to make cold-rolled products, rose almost 300% from a year earlier. Iron ore production surged 44% in November to 59.3 million metric tons.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SONS), raised target to $9.
- Reiterated Buy on (CCK), raised target to $25.

Morgan Stanley:
- Raised (JPM) to Overweight, target $53.
- Reiterated Overweight on (HIG), target $108.

Night Trading
Asian Indices are -1.0% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
- (ADCT)/.18
- (BBY)/.35
- (CKR)/.16
- (COO)/.79
- (DG)/.15
- (GS)/6.04
- (MATK)/.10

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for October is estimated to shrink to -$63.0 billion versus -$64.3 billion in September.

2:00 pm EST
- The monthly budget deficit for November is estimated to shrink to -$73.0 billion versus -$83.1 billion in October.

2:15 pm EST
- The FOMC is expected to leave the benchmark Fed Funds rate at 5.25%.

BOTTOM LINE: Asian indices are mostly higher, boosted by exporting 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.

Stocks Finish Slightly Higher Ahead of Tomorrow's FOMC Meeting

Indices
S&P 500 1,413.04 +.23%
DJIA 12,328.48 +.17%
NASDAQ 2,442.86 +.23%
Russell 2000 793.07 +.06%
Wilshire 5000 14,199.42 +.19%
S&P Barra Growth 652.97 +.11%
S&P Barra Value 758.26 +.34%
Morgan Stanley Consumer 686.32 -.01%
Morgan Stanley Cyclical 892.80 -.05%
Morgan Stanley Technology 571.62 +.17%
Transports 4,740.93 +.44%
Utilities 457.38 +.32%
Put/Call .74 -5.13%
NYSE Arms 1.21 +43.56%
Volatility(VIX) 10.71 -11.27%
ISE Sentiment 162.0 +9.46%
US Dollar 83.18 -.13%
CRB 312.08 -.10%

Futures Spot Prices
Crude Oil 61.29 -1.19%
Reformulated Gasoline 160.10 -1.0%
Natural Gas 7.45 -1.44%
Heating Oil 172.95 -1.58%
Gold 634.60 +.57%
Base Metals 243.12 -.14%
Copper 313.70 +.80%
10-year US Treasury Yield 4.51% -.69%

Leading Sectors
Airlines +1.86%
Telecom +.76%
Banks +.70%

Lagging Sectors
Papers -.60%
Steel -.61%
Coal -.95%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Exercise may lower the risk of developing breast cancer after menopause, while also helping maintain bone density, according to two separate studies published in the Archives of Internal Medicine today.
- New Jersey Transit’s new double-decker trains cars, which carry more passengers and eliminate the three-person seat that is the bane of many riders, started running today on the system’s busiest commuter route.
- Texas Instruments(TXN) cut its forecast for fourth-quarter sales and profit because of lower chip revenues. Analysts had expected the shortfall. The shares are trading down .19 in after-hours trading.
- Adam Geiger, Chief Investment Officer of Ivy Asset Management, is leaving the $16.4 billion fund of hedge funds, according to a letter sent to investors today.
- Robert Kraft, the owner of the New England Patriots and Paul Tudor Jones, a billionaire hedge fund manager, are joining other investors to back cable-tv programming for resort communities.
- The SEC meeting on raising the requirements for hedge fund investors has been rescheduled for this Wed.
- US gasoline at the pump fell during the past week to $2.29/gallon.
- Anadarko Petroleum expects capital spending of as much as $4.3 billion next year. 5-year annual production growth is predicted to be 5-9%.
- Devon Energy(DVN) today announced an oil discovery with the Mission Deep well on Green Canyon block 955.
- Crude oil fell almost $1/bbl. today as forecasts of milder weather reduced speculation by investment funds.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Telecom longs, Medical longs and Retail longs. 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, most sectors gained and volume was above average. Measures of investor anxiety were mixed into the close. I would classify today's overall market action as another healthy consolidation of recent gains. While analysts, managers and pundits continue to overwhelmingly love all energy-related stocks, the underlying commodity trades poorly in the face of potential upside catalysts. As well, the despised 10-year T-note finished near session highs and continues to trade well.

Stocks Modestly Higher into Final Hour on Falling Energy Prices and Buyout Speculation

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Retail longs and Telecom longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is modestly higher, most sectors are rising and volume is above average. A recent Piper Jaffray survey of 20 Apple (AAPL) specialist retailers shows about 25% of Mac purchasers are new to the Apple platform. Piper thinks the number will continue to grow due to the "halo effect" from iPods and the Boot Camp software. I continue to believe that Apple's full-year 2007 consensus earnings estimates are way too low as the Mac gains much more market share than most expect and new products gain significant traction. I suspect the stock will have another banner year next year as the multiple expands, demand for high-quality U.S. growth stocks increases globally and earnings meaningfully exceed estimates. Apple remains my second-largest long position, after Google (GOOG), due to substantial gains since adding to my long earlier in the year. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, buyout speculation, lower energy prices, declining long rates and portfolio manager performance anxiety.