Stocks Finish Higher on Stable Rates, Bargain-hunting, Short-Covering

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Stocks Jumping into Final Hour on Stable Long-term Rates, Short-Covering, Bargain-hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Computer longs, Medical longs and Retail 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, almost every sector is rising and volume is above average. Intel (INTC) is hitting a 17-month high today. DRAM prices appear to be turning up. As well, I have read several stories about an impending shortage of some flat-panel television components this fall as sales soar. This is very significant. The Morgan Stanley Tech Index is already 9% higher year-to-date, slightly outperforming the broad market, even with cyclical tech dragging. These stocks have large weightings in the tech indices. Growth tech is on fire and will remain so through year-end. I continue to believe a substantial downturn in inventories and a pick-up in sales will lead to a strong second-half for cyclical tech. Get ready now for a barn-burner of a second-half for all of tech. I will be surprised if the Morgan Stanley Tech Index isn't up at least 20% by year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting ahead of tomorrow’s CPI report.

Today's Headlines

Bloomberg:
- China boosted production of copper to a record in May, increasing concern domestic stockpiles will keep rising.
- Seven convicted sex offenders wee arrested in Texas for violating parole restrictions after MySpace.com provided police with their subscriber information.
- OPEC said world oil markets are “well-supplied” and there’s no need to put more oil on the market at this time.
- Crude oil is rising to an 11-week high in NY on concern that US refineries are failing to keep up with gasoline demand amid a rash of ongoing “outages” and after canceling plans to increase production by 500,000 barrels per day earlier in the year.
- The US dollar rose to the highest against yen in more than four years as the extra yield investors earn on Treasuries over Japanese debt widened.

Wall Street Journal:
- Liberty Media Corp. and EchoStar Communications may make a joint offer for satellite-communications company Intelsat Ltd.
- France’s President Nicolas Sarkozy met yesterday with Georgian President Mikheil Saakashvili, demonstrating a different approach to that of his predecessor Jacques Chirac. Chirac sought to counter US power and courted Russia, with which Georgia has a troubled relationship, as a way to do that.
- American Electric Power(AEP), the biggest US producer of electricity from coal, plans to capture methane gas released from cow manure to collect carbon “credits.” The extra credits would help the utility to offset its obligation to clean up its power plants if Congress sets a cap on carbon emissions.
- The US FDA will probably move to a so-called “risk-based” system of inspecting food imports.
- SolFocus Inc. and other makers of solar energy equipment are subjecting their newest panels to extreme heat and cold, wind, sand and hail to help develop models that are cheaper and more efficient.
- Chicago Merc(CME) plans to boost the value of its $10 billion offer for the Chicago Board of Trade(BOT) with a special dividend to owners of CBOT Holdings.
- The new operating systems from Microsoft Corp.(MSFT) and Apple Inc.(AAPL) include parental controls that allow adults to decide which Web sites or programs that children can access.
- The Fed’s Moskow said that “inflation may be slowing more quickly than thought” and that “inflation expectations are still generally contained.”

NY Times:
- NYSE Regulation and NASD, two Wall Street regulators, will propose guidelines today for regulating written electronic communication. They’ve taken the step amid concern that confidential information is being shared through electronic devices.
- EBay(EBAY) is expected to say that complaints from luxury goods makers about counterfeits being sold on the Internet auction site have declined 60% since the company began an initiative to combat fraud in January.

USA Today:
- Presidential candidate Senator Barack Obama received more campaign contributions during the first quarter of 2008 than rival Senator Hillary Clinton. Obama received more than double the number of contributions from areas with sizable concentrations of upper-income blacks than Clinton.

PPI Rises More Than Etimates on Energy, Job Market Still Healthy

- The Producer Price Index for May rose .9% versus estimates of a .6% gain and a .7% increase in April.

- PPI Ex Food & Energy for May rose .2% versus estimates of a .2% gain and unch. in April.

- Initial Jobless Claims for last week fell to 311K versus estimates of 312K and 311K the prior week.

- Continuing Claims are estimated at 2487K versus estimates of 2503K and 2530K prior.

BOTTOM LINE: Prices paid to US producers rose more than forecast in May, reflecting a fourth consecutive jump in fuel costs that threatens a broader pickup in inflation, Bloomberg reported. The core PPI rose 1.6% year-over-year in May versus a 1.5% gain in April. Energy prices jumped 4.1% in May versus a 3.4% gain in April. However, food prices fell .2% in May, led by the largest decline in vegetable prices in 5 years. Excluding food and energy, intermediate goods prices rose .4% in May versus a .8% gain in April. Passenger car prices fell .2% versus a 1% decline in April, while light truck prices fell .1% versus a .5% decline in April. Computer prices fell 2% versus a 1.8% decline. The Fed said in its Beige Book report yesterday that “District reports generally did not indicate an increase in overall price pressures.” I suspect the PPI is reaching its peak rate of increase for the year this month or next and will show substantial deceleration by year-end.

The number of Americans filing first-time claims for unemployment benefits held at 311,000 for a second week, pointing to a buoyant labor market, Bloomberg said. The four-week average of jobless claims rose to 311,250. Rising wages and job growth continue to support consumer spending. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The yen traded near the weakest against the dollar since December 2002 as investors were enticed by the yield advantage on US Treasuries over Japanese debt.
- The chief US negotiator on dismantling North Korea’s nuclear bomb program said he expects progress on the issue “very soon” and plans talks with Japan, South Korea and China next week.
- China’s Premier Wen Jiabao said monetary policy needs a “moderate tightening” to prevent the economy from overheating, suggesting the central bank may raise interest rates.
- Brazil, the world’s biggest producer of sugarcane-based ethanol, plans to increase the required blend of the biofuel in domestic gasoline to 25% from 23% as farmers harvest a record crop and prices fall.
- Hyperion Resources Inc., a closely held Dallas-based investment firm, said it may build an oil refinery in South Dakota to capitalize on record gasoline prices.
- Teck Cominco Ltd., the world’s second-largest zinc producer, expects to triple gold output and double copper production in five years as it opens new mines.
- A US congressional panel narrowly approved a measure that delays permits for drilling for oil and gas on federal lands. “We believe that the net effect of this bill will be to make it much more difficult to produce oil and natural gas in the United States at a time when global demand is driving prices higher,” said Richard Ranger, upstream manager for the American Petroleum Institute.
- Crude steel output in China, supplier of a third of the world’s steel, rose 15.7% in May to a record. Output of steel products, including cold-rolled coils, rose 19.6% from a year earlier.
- New Zealand retail sales fell the most since February 2004, suggesting the central bank’s three-year battle to quell inflation by raising interest rates is starting to cool demand.

Wall Street Journal:
- JPMorgan Chase(JPM) agreed to move some operations and possibly it headquarters to the World Trade Center site.
- Sprint Nextel(S) is looking at new ways to fund its WiMax wireless broadband network, including teaming up with Clearwire Corp.

NY Times:
- Kellogg Co.(K) said it plans to stop advertising its products to children younger than 12 unless the foods meet nutritional guidelines.

Informa Global Markets:
- Bear Stearns(BSC) is seeking bids on $3.8 billion of residential mortgage-backed securities. The bonds are rated AAA to AA. The list is considered “mammoth” by industry standards and may be the result of an “unwind of mortgage exposure” by some investor.

Financial Times:
- Third Point LLC, a NY hedge fund run by Daniel S. Loeb, will today announce plans to list a $665-931 million fund in London. The listing of Third Point Offshore Investors, which will be based in Guernsey and invest exclusively in Third Point’s main hedge fund, is expected to attract mostly new European equity investors.

Shanghai Securities News:
- The People’s Bank of China should increase deposit rates and push up money market rates to mop up cash in the financial system, citing a State Council researcher. The central bank should raise the one-year deposit rate by between .27 percentage points and .54 percentage points, Chen Daofu wrote.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MSFT), target $36.
- Reiterated Buy on (SKS), target $24.
- We view eBay(EBAY) and Google(GOOG) as relatively interdependent. eBay has consistently been one of GOOG’s largest customers, accounting for perhaps 2% of Google’s gross revenue and profits in 2006. And Google has been one of eBay’s largest providers of leads, currently accounting for 5% of its traffic. We anticipate current tensions subsiding, but acknowledge long-term competitive/cooperative dynamics.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated +.08%.

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Earnings of Note
Company/EPS Estimate
- (ADBE)/.35
- (BSC)/3.51
- (DLM)/.21
- (EFX)/.54
- (FORR)/.13
- (FRE)/1.14
- (GS)/4.78
- (PIR)/-.28
- (TBL)/.15

Upcoming Splits
- (ADVNA) 3-for-2
- (BNHN) 3-for-2
- (BWLD) 2-for-1
- (MIDD) 2-for-1
- (PEBK) 3-for-2

Economic Releases
8:30 am EST
- The Producer Price Index for May is estimated to rise .6% versus a .7% gain in April.
- The PPI Ex Food & Energy for May is estimated to rise .2% versus unch. in April.
- Initial Jobless Claims for last week are estimated to rise to 312K versus 309K the prior week.
- Continuing Claims are estimated to fall to 2503K versus 2535K prior

Other Potential Market Movers
- The weekly EIA natural gas inventory report, (SYMC) Analyst Meeting, (MAT) Analyst Meeting, (GD) Analyst Meeting, BOJ Policy Meeting, Bank of America Homebuilders Conference, Morgan Stanley Small-cap Executive Conference, RBC Global Mining/Materials Conference, Needham Biotech/Medical Tech Conference, CSFB Software Conference, Merrill Lynch Global Transport Conference, Thomas Weisel Alternative Energy Conference and Goldman Sachs Global Healthcare Conference could also impact trading today.

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