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Thursday Watch

Late-Night Headlines
Bloomberg:
- Companies in the S&P 500 may still be a bargain after the benchmark for US equities surpassed its 2000 record. The index's 500 members are 45% less expensive relative to historical profits than when the index last peaked.
- China’s stocks fell, extending a slide that wiped out $161 billion of the market value yesterday after the tax on securities trades was tripled. About 15 of the CSI 300 Index’s members fell by the 10% daily limit.
- Thomas H. Lee Partners LP and Fidelity National Financial agreed to buy Ceridian Corp.(CEN) for $5.3 billion after shareholders pressed the company for changes.
- Fred Thompson, a star of NBC’s “Law & Order” since 2002, told the show’s producer Dick Wolf that he won’t return for the new season in September, the latest sign that he may run for president next year.
- Japan’s wages unexpectedly fell in April, a fifth month of declines that may hamper a recovery in consumer spending.
- A California appeals court refused to throw out a suit accusing Gradient Analytics Inc., a research firm, and Rocker Partners LLC, a hedge fund, of driving down the price of Overstock.com Inc.(OSTK) shares.
- Daily average US ethanol production increased 1,000 barrels a day in March over February and the increased output is likely to spur discretionary blending.
- David Humphreys, chief economist of OAO GMK Norilsk Nickel, the word’s biggest nickel producer, said China’s production of nickel pig iron is a “significant” addition to global supplies and the market is moving into surplus.
- Peru’s main stock index fell the most in 12 years today, plunging 7.6%, led by miner Sociedad Minera Cerro Verde SA, on concern that Chinese demand for commodities may slow.

Financial Times:
- Man Group Plc is poised to start a “true” NY-listed hedge fund. The listing, which would be underwritten by Morgan Stanley(MS), may raise several hundred million dollars.
- Postnuptial agreements are gaining popularity among wealthy hedge fund managers and executives who want to safeguard their fortunes in case of divorce.
- Google(GOOG) will announce an initiative on Thursday that will take its applications beyond the web and challenge Microsoft(MSFT) on its home turf of the computer hard-drive.

Korea Economic Daily:
- An oil field OAO Rosneft is developing with South Korean companies may hold 10 billion barrels of oil, almost 300% more than initial estimates, citing South Korean government officials.

Commercial Times:
- Taiwan retail investors have stepped up buying of US dollars as the local currency gained following attempts by the island’s central bank to shore up its value. Taiwan banks have had 20 or 30 percent more than usual retail customers in the past few days wanting to exchange local dollars into the US currency.

21^st Century Business Herald:
- China is to start a tracking system in June to crack down on stock market speculation by state-owned enterprises, citing an official at the nation’s state assets agency. The nation’s state assets supervisor will also step up crackdowns on insider trading and share price manipulation, starting next month.

Xinhua News Agency:
- Eastmoney.com, a Chinese Web site that provides financial news and information, may raise $500 million in an IPO on the Nasdaq Stock Exchange.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ADBE), target $50.

Night Trading
Asian Indices are +1.0% to +1.50% on average.
S&P 500 indicated +01%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
Company/EPS Estimate
- (ATVI)/-.03
- (BIG)/.19
- (BTH)/.19
- (BRCD)/.09
- (CIEN)/.25
- (CSC)/1.48
- (CPRT)/.41
- (COST)/.56
- (DELL)/.27
- (DG)/.08
- (ESL)/.64
- (FOSL)/.30
- (FRED)/.19
- (GCO)/.26
- (HNZ)/.56
- (IRF)/.58
- (JCG)/.29
- (JTX)/1.94
- (OVTI)/-.01
- (PLL)/.43
- (NX)/.76
- (SHLD)/1.21
- (TIF)/.35

Upcoming Splits
- (GEO) 2-for-1

Economic Releases
8:30 am EST
- Preliminary 1Q GDP is estimated to rise .8% versus a prior estimate of a 1.3% gain.
- Preliminary 1Q Personal Consumption is estimated to rise 4.1% versus a prior estimate of a 3.8% gain.
- Preliminary 1Q GDP Price Index is estimated to rise 4.0% versus a prior estimate of a 4.0% gain.
- Preliminary 1Q Core PCE is estimated to rise 2.2% versus a prior estimate of a 2.2% gain.
- Initial Jobless Claims are estimated to rise to 314K versus 311K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2529K prior.

9:45 am EST
- Chicago Purchasing Manager for May is estimated to rise to 54.0 versus 52.9 in April.

10:00 am EST
- Construction Spending for April is estimated to remain unch. versus a .2% rise in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,000,000 barrels versus a 1,969,000 barrel increase the prior week. Gasoline supplies are expected to rise by 1,500,000 barrels versus a 1,431,000 barrel increase the prior week. Distillate inventories are estimated to rise by 700,000 barrels versus a 512,000 barrel increase the prior week. Refinery Utilization is estimated to rise .50% versus a 1.60% increase the prior week. Finally, Natural Gas supplies are expected to rise by 105 bcf versus a 104 bcf increase the prior week.

Other Potential Market Movers
- The (HNZ) analyst day, (NVLS) 2Q mid-quarter update, (MA) Investment Community Day, (AIG) Financial Services Presentation, FBR Growth Conference, Bank of American Healthcare Conference, Deutsche Bank Energy/Utilities Conference, Sanford Bernstein Strategic Decisions Conference, Cowen Tech Conference and Lehman Wireless/Wireline Conference could also impact trading today.

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

S&P 500 Closes at New All-Time High, Joining the DJIA and Russell 2000 in Record Territory

Indices
S&P 500 1,530.23 +.80%
DJIA 13,633.08 +.83%
NASDAQ 2,592.59 +.80%
Russell 2000 843.35 +.69%
Wilshire 5000 15,411.91 +.82%
Russell 1000 Growth 602.89 +.85%
Russell 1000 Value 881.83 +.79%
Morgan Stanley Consumer 747.20 +.33%
Morgan Stanley Cyclical 1,073.82 +1.05%
Morgan Stanley Technology 613.61 +.45%
Transports 5,233.78 +.52%
Utilities 520.04 +.81%
MSCI Emerging Markets 125.18 -.17%

Sentiment/Internals
Total Put/Call .90 -3.23%
NYSE Arms .59 -50.83%
Volatility(VIX) 12.83 -5.17%
ISE Sentiment 139.0 +8.59%

Futures Spot Prices
Crude Oil 63.40 +.40%
Reformulated Gasoline 227.0 -1.21%
Natural Gas 7.96 +2.99%
Heating Oil 186.84 -.03%
Gold 659.10 -.65%
Base Metals 262.54 -.48%
Copper 330.50 -.45%

Economy
10-year US Treasury Yield 4.87% -1 basis point
US Dollar 82.43 +.15%
CRB Index 309.25 +.58%

Leading Sectors
REITs +2.59%
Oil Service +2.32%
Engineering & Construction +2.03%

Lagging Sectors
HMOs -.14%
Restaurants -.27%
Semis -.36%

Evening Review
Market Performance Summary
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In Play

Afternoon Recommendations
Bank of America:
- Rated (HTZ) Buy.

Afternoon/Evening Headlines
Bloomberg:
- US stocks surged for a third day, sweeping the S&P 500 past its 2000 closing record, despite a 6.5% plunge in Chinese stocks overnight.
- Yahoo! Inc.(YHOO) said Chief Technology Officer Farzad Nazem resigned, leaving two of the top executive posts at the company unfilled.
- Intel Corp.(INTC) said it will join with Microsoft Corp.(MSFT) and Dell Inc.(DELL) to develop technology that helps flash memory speed up personal computers.
- WR Hambrecht Chairman Bill Hambrecht plans to form a professional football league in North American cities where there are no NFL teams.
- President Bush asked Congress today to approve $30 billion over the next five years to mount a more aggressive campaign against the spread of AIDS worldwide.
- Apple Inc.(AAPL) agreed to carry clips from Google’s(GOOG) YouTube starting in June, using the world’s most popular online video service to attract customers for its two-month-old digital-television box.
- Apple Inc.(AAPL) will replace MedImmune in the S&P 100.
- US steel imports fell 26% in April as domestic prices dropped and service centers held off on new orders, an industry group said.
- Gasoline futures fell to a three-week low on estimates a US Energy Department report tomorrow will show a fourth consecutive week of rising inventories, as some refineries increase production.
- Jim Rogers, CEO of Beeland Interests Inc., sees more China measures to pop their stock “bubble.”
- The Group of Eight leading industrial nations said they are ready to back tougher sanctions against Iran if the country fails to suspend uranium enrichment.

Financial Times:
- Dow Jones’(DJ) largest outside shareholder said News Corp.’s(NWS/A) $5 billion offer for the publisher is “fairly attractive” and may even been raised.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, I-Banking longs, Retail longs and Computer longs. I added an (AKAM) trading long and added to a few energy-related shorts in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished mildly higher, sector performance was mostly positive and volume was above average. Measures of investor anxiety were about average into the close. Today's overall market action was very bullish. Once again, many stocks trounced the major averages today. True "growth stocks" were especially strong, with quite a few exhibiting explosive action. I still expect Google (GOOG) to exceed $600 and Apple (AAPL) to exceed $150 this year. These two stocks remain my two largest long positions. Despite the recent housing data, the August home price futures ticked up today to $214,800 from $214,400. I suspect today's whipsaw market action resulted in more investors leaning the wrong way. Performance anxiety is likely back in play in a big way. The Nikkei futures are indicating a 100-point gain in Japan on the open. Gold is falling another $4.30 per ounce on worries over emerging market demand and a report last night from London-based Virtual Metals that gold supply will exceed demand by 250 metric tons this year. The precious metal continues to trade very poorly given the numerous potential upside catalysts over the last year. I still expect a complete technical breakdown in gold before year-end.

DJIA Surging Near Another Record into Final Hour, Despite 6.5% Plunge in Chinese Shares, on FOMC Minutes

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, I-Banking longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is about even, most sectors are higher and volume is above average. Why is the myth that there is no oil demand destruction continuously perpetuated? Over the last three years global oil demand has only risen a total of 2.4% to 83.9 million barrels per day (OPCBRTOT Index on Bloomberg), while global economic growth has been the highest in over three decades, averaging near 5% annually. Global supplies (OPCBTSUP Index on Bloomberg) have risen 5.0% during that period to 85.6 million barrels per day. Just last year, global oil demand rose a paltry 0.9% while global growth boomed 5.3%. Moreover, oil consumption in the 30 OECD (Organization for Economic Co-operation and Development)countries actually fell 0.6% in the last year for the first time in over 20 years! These facts aren't possible without significant and pervasive global demand destruction. I believe the reason why the "no demand destruction" myth goes unchallenged in the media is that there has never been a time in U.S. history that more investors, analysts and pundits perceived that they benefit from high oil prices and they are positioned accordingly. Commercial hedgers, historically the smart money, remain net short crude despite record crack spreads and the onset of driving season. I continue to believe we have already seen the highs for the year in oil and gasoline prices. I expect US stocks to trade mixed into the close from current levels as buyout speculation, short-covering and investment manager performance anxiety offsets China bubble worries.

Today's Headlines

Bloomberg:
- Clashes between Venezuelan police and marchers protesting the government’s shutdown of Radio Caracas Television left dozens detained or injured across the country.
- Goldman Sachs Group’s(GS) Global Alpha hedge fund fell -3.4% in the first four months of this year, according to a report sent to investors last week. Global Alpha has declined -12% since 2005. The $10 billion fund struggled in a 16-month stretch when the S&P 500 rose 22%.
- Gold is falling another $4.70/oz. on speculation the US economy does not need a Fed rate cut, thus boosting the dollar and reducing demand for the precious metal.
- Federal Reserve officials acknowledged they underestimated to length of the US housing slowdown, while continuing to view inflation as the biggest threat to the economy, the release of the FOMC minutes showed.
- CBS Corp.(CBS) bought the music-focused social-networking site Last.fm for $280 million in cash.
- News Corp.(NWS/A) agreed to buy Web site owners Photobucket Inc. and Flektor Inc. to add digital picture services that let users store, edit and share images.
- Palm Inc.(PALM) will start selling a portable computer in a bid to increase sales as its Treo mobile phone and e-mail device loses ground to the BlackBerry.
- China’s stocks plunged 6.8% last night, the most in three months, after the government tripled the tax on securities transactions to cool a rally that’s drawing more than 300,000 new investors a day.

Wall Street Journal:
- The SEC intends to review so-called 12b-1 fees, charged by mutual funds to compensate intermediaries such as brokers.
- Pizza chains in the US are losing market share as consumers seek more innovative products.
- Navistar International(NAVZ), the delisted parent of International Truck & Engine Co., may be a buyout target and its stock has risen as a result.

Politico:
- Former Tennessee Senator Fred Thompson is expected to announce his candidacy for the 2008 Republican presidential nomination in Nashville over the Fourth of July holiday, citing unidentified Thompson advisers.

CNBC:
- The NYSE will close one of four trading rooms later this year because of a drop in activity.

Economic Releases

- None of note