Today's Headlines

Bloomberg:
- Crude oil is falling another $.50/bbl. to $63.17/bbl. as investment fund speculation that gasoline inventories are too low to meet summer demand subsides.
- Former NY Mayor Rudolph Giuliani, who is favored among Republican presidential candidates, also leads the top Democratic contenders in head-to-head match-ups, a Quinnipiac University poll found. Giuliani leads NY Senator Hillary Clinton by 49% to 40% and is favored over Illinois Senator Barack Obama 44% to 41%.
- About 50 countries adopted a UN-sponsored plan to boost Iraq’s economy on the first day of a conference on the country’s security and economic future.
- Intel Corp.(INTC) CEO Otellini said profit will increase at a faster rate than sales this year as the chipmaker pushes ahead with its plan to lower costs by $2 billion.
- Prime Minister Nuri al-Maliki told a major conference on Iraq’s economy and security that there has been progress toward reconciling his country’s warring factions and appealed for debt deduction to help jump-start the economy.
- US Secretary of State Condoleezza Rice will meet with Syria’s foreign minister one-on-one about quelling violence in Iraq, a senior State Department official said.
- UBS AG, the world’s biggest money manager, reported a third straight decline in quarterly profit and said it plans to scrap the hedge fund run by John Costas after losses in the US mortgage market.
- Democratic Senator Charles Schumer introduced legislation that would hold lenders liable for brokers and appraisers who make bad mortgage loans and called on banks to match $300 million in federal funds to prevent foreclosures.

Wall Street Journal:
- T-Mobile USA Inc. will introduce a line of cell phones this summer that can roam on so-called Wi-Fi hotspots, carrying calls on the Internet to reduce the cost of mobile phone use.
- Michael Elefante, a Boston-based trust and estates attorney, is at the center of the decision over News Corp.’s(NWS/A) $5 billion offer for Dow Jones(DJ).
- JPMorgan Chase(JPM) is developing a pilot project to sell mortgages to illegal immigrants in Maricopa Country, Arizona.

USA Today:
- The US government need to do more to stop terrorists from using the Internet and video games to recruit young people.

Washington Post:
- The Democrat-led US Congress is considering legislation to protect reporters from being forced to disclose the identities of their sources.

Market News Intl.:
- The European Central Bank may have less of a reason to raise interest rates further after Juen if the euro continues to appreciate, citing “well-informed central bank sources.”

Dagens Nyheter:
- Czech lawmakers approved a bill that would mandate the addition of biofuels to gasoline and diesel.

China Central TV:
- China National Petroleum Corp., the nation’s biggest oil producer, said it discovered a field in Bohai Bay that may contain 1 billion tons of oil reserves. A discovery by PetroChina in Bohai Bay may hold as much as 2.2 billion barrels of oil. China is encouraging its oil companies to step up efforts to drill off the country’s coast and in the remote deserts of Xinjiang in the west.

Sarmayeh:
- China may sign a $2 billion contract with Iran to build several dams, citing an energy official.

Productivity Accelerates, Labor Costs Decelerate Substantially, Jobless Claims Fall, Service Sector Healthy

- Preliminary 1Q Non-farm Productivity rose 1.7% versus estimates of a .7% gain and an upwardly revised 2.1% increase in 4Q.
- Preliminary 1Q Unit Labor Costs rose .6% versus estimates of a 3.8% gain and a downwardly revised 6.2% increase in 4Q.
- Initial Jobless Claims fell to 305K versus estimates of 325K and 326K the prior week.
- Continuing Claims fell to 2495K versus estimates of 2550K and 2588K prior.
- ISM Non-Manufacturing for April rose to 56.0 versus estimates of 53.0 and a reading of 52.4 in March.

BOTTOM LINE: US worker productivity last quarter grew faster than forecast and labor costs moderated, raising speculation the labor market won’t fuel inflation, Bloomberg said. As well, manufacturing productivity rose at a 2.7% pace and non-financial corporate productivity rose at a 1% pace during the fourth quarter, which was just reported today. Unit labor costs, the main driver of inflation, are now rising below the 20-year average of 1.9%, which is a big positive. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

The number of US workers filing first-time claims for unemployment benefits fell to a three-month low last week, signaling the jobless rate may not rise in coming months, Bloomberg said. The four-week moving-average of jobless claims fell to 328,750 from 333,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, fell to 1.9% from 2.0% the prior week. I suspect Friday’s jobs report will show non-farm payrolls came in around estimates of 100,000, which should be viewed positively by investors.

Growth in US service industries accelerated more than forecast last month, a sign the economy may be picking up after slowing in the first quarter, Bloomberg said. The New Orders component of the index rose to 55.5 versus 53.8 the prior month. The Prices Paid component was 63.5 versus 63.3 the prior month. The Employment Component of the index rose to 51.9 from 50.8 the prior month. Strength in this index, which measures sectors that account for almost 90% of economic growth, is surprising and a big positive. After today’s data, the imminent US recession hypothesis has lost all credibility, in my opinion. I continue to believe that after a sluggish 1Q, US growth is in the beginning stages of accelerating back to around average rates.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Morgan Stanley(MS) said investors should bet the US dollar will rise against the Australian dollar and overcome its recent economic-related weakness. Dollar “valuations already reflect a lot of bad news,” wrote Morgan Stanley currency strategists Sophia Drossos and Yilin Nie in New York in a note to clients today. “While the possibility for further weakness remains, the bulk of depreciation is behind us.”
- The yen declined to a record low against the euro as traders took advantage of the lowest borrowing costs among major economies to buy higher-yielding currencies.
- In the end, it was Segolene Royal who lost her cool. The French Socialist presidential candidate raised her voice and accused her opponent Nicolas Sarkozy of “immorality” for presenting himself as a defender of handicapped children.
- Gold traded near a three-week low in Asia amid speculation physical demand from India will slow in the months ahead. India uses more gold than the US and China combined.
- Israeli Prime Minister Ehud Olmert’s prospects of staying in office are fading after Foreign Minister Tzipi Livni offered herself as a candidate to lead their Kadima Party, allowing the ruling coalition to retain power.
- China’s property developers invested 22% more in projects last year, citing the Chinese Academy of Social Sciences. The surge in investment last year came even as China’s government tried to cool the real-estate market to prevent a price bubble.
- Chris de Lavigne, global vice president of consulting at Frost & Sullivan, says the ability to make ethanol from waster “is here” now.

Wall Street Journal:
- The United Auto Workers union is preparing a final counteroffer to wage and benefit cuts proposed by bankrupt auto supplier Delphi Corp.
- PepsiCo Inc.(PEP) is starting a new advertising campaign to boost sales of Diet Pepsi as it competes with Coca-Cola’s(KO) Diet Coke.

Dow Jones:
- Dow Jones’(DJ) board won’t act on News Corp.’s $5 billion takeover bid. 52% of shareholders with voting power in the company oppose the takeover, citing a survey of the company’s controlling family, the Bancrofts.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SYMC), target $22.
- Reiterated Buy on (WXS), target $38.
- Reiterated Buy on (S), target $25.

Night Trading
Asian Indices are +.25% to +.75% on average.
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NASDAQ 100 indicated +.08%.

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Earnings of Note
Company/EPS Estimate
- (ANDW)/.08
- (BEBE)/.13
- (CVC)/-.11
- (ELY)/.46
- (CECO)/.35
- (CBS)/.32
- (CELG)/.20
- (CKP)/.08
- (CHK)/.78
- (CXW)/.47
- (CROX)/.48
- (DF)/.45
- (DNB)/.96
- (EDS)/.21
- (EL)/.46
- (FAF)/.78
- (FSLR)/.00
- (GMST)/.05
- (GM)/.83
- (IACI)/.32
- (IP)/.40
- (IFF)/.66
- (ITG)/.54
- (JSDA)/.03
- (LF)/-.40
- (CLI)/.25
- (MSO)/-.17
- (MDR)/.75
- (MGM)/.63
- (MORN)/.36
- (NBR)/.85
- (NBL)/.99
- (OMX)/.91
- (PTEN)/.71
- (PPL)/.70
- (PSA)/1.12
- (QLGC)/.23
- (SBUX)/.19
- (STRA)/1.29
- (TK)/1.07
- (TKLC)/-.04
- (TSO)/1.88
- (TIE)/.37
- (WTW)/.63
- (WMB)/.33
- (WMS)/.34

Upcoming Splits
- (AZZ) 2-for-1

Economic Releases
8:30 am EST
- Preliminary 1Q Non-farm Productivity is estimated to rise .7% versus a 1.6% gain in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 3.8% versus a 6.6% gain in 4Q.
- Initial Jobless Claims are estimated to rise to 325K versus 321K the prior week.
- Continuing Claims are estimated to fall to 2550K versus 2594K prior.

10:00 am EST
- ISM Non-Manufacturing for April is estimated to rise to 53.0 versus a reading of 52.4 in March.

BOTTOM LINE: Asian indices are higher, boosted by utility and technology stocks 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, S&P 500 at 6-year High on Positive Earnings, Better Economic Data, Buyout Speculation

Indices
S&P 500 1,495.92 +.65%
DJIA 13,211.88 +.58%
NASDAQ 2,557.84 +1.04%
Russell 2000 828.46 +1.50%
Wilshire 5000 15,066.46 +.78%
Russell 1000 Growth 591.28 +.82%
Russell 1000 Value 859.03 +.60%
Morgan Stanley Consumer 738.13 +.43%
Morgan Stanley Cyclical 1,033.17 +1.24%
Morgan Stanley Technology 601.17 +.84%
Transports 5,086.14 +1.03%
Utilities 527.27 +.52%
MSCI Emerging Markets 123.0 +1.03%

Sentiment/Internals
Total Put/Call .79 -29.46%
NYSE Arms .63 -32.66%
Volatility(VIX) 13.08 -3.18%
ISE Sentiment 122.0 +7.02%

Futures Spot Prices
Crude Oil 63.50 -1.40%
Reformulated Gasoline 222.25 -.99%
Natural Gas 7.72 +.06%
Heating Oil 184.85 -1.83%
Gold 675.40 -.28%
Base Metals 274.82 +.92%
Copper 363.25 -.06%

Economy
10-year US Treasury Yield 4.64% unch.
US Dollar 81.76 +.20%
CRB Index 310.52 -.34%

Leading Sectors
Restaurants +1.79%
HMOs +1.76%
Gaming +1.75%

Lagging Sectors
Foods +.37%
Hospitals +.24%
Oil Tankers -.70%

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Afternoon Recommendations
Bank of America:
- Rated (CNET) Buy, target $11.

Afternoon/Evening Headlines
Bloomberg:
- US stocks rallied and the S&P 500 climbed to a six-year high, propelled by earnings that topped analysts’ forecasts at MasterCard Inc.(MA) and Time Warner(TWX).
- The US Energy Dept. has postponed plans to buy as much as 4 million barrels of crude oil for the nation’s emergency reserve until after the peak summer driving season.
- Symantec Corp.(SYMC) said fourth-quarter profit fell 49% as sales growth slackened to its slowest pace since 2000. The shares surged 6% after the earnings topped analysts’ estimates.
- Consuming more than 14 alcoholic drinks a week may be linked to a decrease in brain size, a potential sign of mental decline, according to a study.
- The US asked Arab countries to pres Sunni Muslims in Iraq to stop fighting the Shiite-led government, a senior State Dept. official said today on the eve of an international conference for Iraq.
- The House of Representatives failed to override President Bush’s veto of a war-funding measure that includes a deadline for withdrawal from Iraq, spurring new negotiations to find a compromise.
- JDS Uniphase(JDSU) posted a third-quarter loss because of increased stock-option expenses. The shares fell 8% after the company forecast sales that trailed analysts’ estimates.

Star-Ledger:
- James McGreevey, the New Jersey governor who quit after saying he’d had an affair with a male employee, is taking steps to become an Episcopal priest.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Medical longs, Networking longs and Semi longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was above-average. Measures of investor anxiety were about average into the close. Today's overall market action was very bullish. Small caps outperformed substantially, with the Russell 2000 rising 1.5%. With all the talk of how only large-cap multinationals are rising, it is interesting to note that the Morgan Stanley Multinational Index (NFT) is only 4.5% higher year-to-date. The best-performing style this year is mid-cap growth -- Russell Mid-cap Growth Index (RDG) -- which is already 10% higher year-to-date. Moreover, the average stock -- Value Line Geometric Index (VGY) -- is 7.3% higher year-to-date. The NYSE cumulative advance/decline line just hit an all-time high last week. This rally has been very powerful and broad-based. Sugar has continued its collapse since February of last year, falling 54%. At its peak, many were saying the commodity was the "new oil." I suspect oil will eventually become the new sugar. The Goldman Sachs Agricultural Commodity Index is down 8.9%, just since February of this year. Despite today's better-than-expected economic data, the 10-year yield was stable at 4.64%. The Financial Times reported today that China's pollution problem is rapidly worsening on their soaring investments in energy-intensive industries. According to the FT, China now accounts for almost half of the world's flat glass and cement production, more than one-a third of steel output and 28% of global aluminum production. In my opinion, China is building for the sake of building, such as the world's largest mall, to promote the appearance of even more exceptional growth than would otherwise be the case. This is giving a false sense of demand for most of the world's commodities. This is the main reason why I believe long-term interest rates remain exceptionally low. I continue to believe when the manias for emerging markets and commodities end, the mild bout of inflation we have experienced will turn into a mild bout of deflation. The iShares Lehman 20+ Year Treasury Bond (TLT) remains a core long position for me.

DJIA Surging to Another All-Time High on Falling Energy Prices, Positive Economic Data and Buyout Speculation

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs and Biotech longs. I covered my remaining (IWM)/(QQQQ) hedges this morning and added to a few existing longs, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Theflyonthewall.com is pointing to a story on Looprumers.com that says Apple's(AAPL) iPhone could gain as much as 6% of the U.S. mobile market by next year. This would surpass Windows Mobile's share. This is quite a different prediction than Steve Ballmer recently made that the iPhone has "no chance." I am quite sure that those that have a vested interest in seeing the product fail will attempt to paint a negative picture upon release, however I continue to believe Apple's future has never looked brighter. The iPhone will bring in many new customers to the stores that have never owned an Apple product. I suspect the "halo effect," which began with the iPod, will gain significant traction with the release of the iPhone. Apple Computer remains my second-largest long position, behind Google Inc.(GOOG). I expect US stocks to trade mixed into the close from current levels as positive earnings reports, short-covering, falling energy prices and buyout speculation offset profit-taking.