Thursday Watch

Late-Night Headlines
Bloomberg:
- Massachusetts Senator John Kerry and Illinois Representative Rahm Emanuel said they plan to introduce legislation to tax the deferred compensation that hedge-fund managers place in offshore accounts.
- Farmers in India, the world’s third-biggest wheat importer last year, may plant the crop on a record area to take advantage of higher prices after supplies dwindled and demand increased.
- Lead fell to a two-week low after inventories tracked by the London Metal Exchange jumped 15%. Copper and nickel also declined.
- Chinese stocks trading in the US rose the most in more than six years after Beijing regulators said they may allow arbitrage between shares traded on the mainland and in Hong Kong.
- Turkey’s rage over a US congressional resolution accusing it of genocide against Armenians nearly a century ago is being felt in quarters far removed from Washington: its own Jewish community.

Wall Street Journal:
- Why Consolidation Storm Is Brewing in Beer Industry.

New York Times:
- Silicon Valley Start-Ups Awash in Dollars, Again.

CNNMoney.com:
- Facebook CEO hints that deal to sell stake is near.
- Americans turn off the TV in droves.

CNBC.com:
- Most S&P Companies Topping Earnings Estimates.

IBD:
- Slow RFID Market Gets Microsoft Push.

Reuters:
- Fed’s Hoenig says “wait and see” on rates.

USA Today.com:
- WiMax rides wave of surfing technology.
- Free TV shows may air on cellphones.

Financial Times:
- JPMorgan Chase(JPM) withstood the credit market turmoil better than its rival Citigroup, reporting record third-quarter earnings of $3.4 billion, up 2% on last year.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (UTX), target $86.
- Reiterated Buy on (PCLN), target raised to $111.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures -.09%.
NASDAQ 100 futures -.16%.

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Earnings of Note
Company/EPS Estimate
- (ASD)/.69
- (BAC)/1.06
- (BAX)/.65
- (BBT)/.84
- (LLY)/.88
- (FCS)/.20
- (MHP)/1.24
- (NUE)/1.15
- (PH)/1.23
- (PFE)/.52
- (PNC)/1.35
- (RS)/1.34
- (LUV)/.21
- (STI)/1.29
- (UNP)/1.77
- (UNH)/.92
- (WYE)/.89
- (BK)/.61
- (CAL)/2.18
- (STJ)/.45
- (RHI)/.46
- (COF)/-.28
- (GILD)/.41
- (AMD)/-.62
- (CERN)/.45
- (GOOG)/3.77
- (ISRG)/.79
- (SNDK)/.31
- (XLNX)/.28
- (HCA)/.82
- (HSY)/.71
- (MHK)/1.64
- (MEL)/.60
- (PPG)/1.37
- (SPWR)/.28

Upcoming Splits
- (DKS) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 312K versus 308K the prior week.
- Continuing Claims are estimated to rise to 2525K versus 2521K prior.

10:00 am EST
- Leading Indicators for September are estimated to rise .3% versus a .6% decline in August.

12:00 pm EST
- The Philly Fed for October is estimated to fall 7.0 versus 10.9 in September.

Other Potential Market Movers
- The Fed’s Bernanke speaking, Fed’s Pianalto speaking, Fed’s Plosser speaking, weekly EIA natural gas inventory report, (GM) Q3 Global Sales Conference Call, Wachovia Consumer Growth Conference, Needham Shareholder Conference and the Bear Stearns Retail Investor Outing could also impact trading today.

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

Stocks Finish Mostly Higher on Strength in Technology Shares

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Stocks Mixed into Final Hour as Positive Earnings Offset Economic Worries

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Restaurant longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Energy shares are lower, even when oil was rising earlier in the day, which could be routine profit-taking or investors anticipating a significant top in the commodity, similar to the ones seen during prior Mid-east conflict fear-spikes. The Fed's Beige Book report was more dovish than I had expected. Fed fund futures now imply a 58% chance for a cut at the upcoming meeting, up from 38% yesterday. The 10-year yield is at session lows, falling 10 basis points to 4.55%. Stocks are rebounding a bit. Market leaders are gaining some upside traction. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, rising fed rate cut odds and short-covering.

Today's Headlines

Bloomberg:
- JPMorgan(JPM), Lehman Brothers(LEH) and BNP Paribas SA say oil, wheat and metals traders are Wall Street’s hottest commodities.
- Metal and food prices will probably fall next year as supplies of the commodities increase, the IMF said.
- Apple Inc.(AAPL) will provide a development kit to let programmers create iPhone applications in February, in a bid to spur sales with new software such as games and a chat feature that the company doesn’t offer.
- The Fed said economic growth slowed since August in five of twelve regions, as consumer spending, manufacturing and service industries moderated.
- Democratic House Speaker Nancy Pelosi backed off her pledge to call a floor vote on a measure declaring the World War I-era killings of Armenians by Ottoman Turks an act of genocide after support for the resolution eroded.
- Crude oil rose to a record $89/bbl. in NY after Turkish lawmakers voted to allow the use of military force against Kurdish rebels in northern Iraq.

NY Observer:
- Murdoch’s Wall Street Journal Sets Sights on New York Times(NYT).

Reuters:
- President Bush’s job-approval rating sank to 24% this month, while Congress’s fell to 11%, according to a Reuters/Zogby poll release today.

Consumer Inflation Below Average, Housing Starts Fall

- The Consumer Price Index for September rose .3% versus estimates of a .2% gain and a -.1% decline in August.

- The CPI Ex Food and Energy for September rose .2% versus estimates of a .2% increase and a .2% gain in August.

- Housing Starts for September fell to 1191K versus estimates of 1280K and 1327K in August.

- Building Permits for September fell to 1226K versus estimates of 1285K and 1322K in August.

BOTTOM LINE: Prices paid by US consumers rose more than forecast in September, while the core measure showed inflation remains contained, Bloomberg reported. With inflation under control, the Fed has the leeway to cut the fed funds rate if necessary at the upcoming meeting later this month. The CPI is now rising at a 2.8% rate year-over-year versus the long-term average of 3.1%. As well, the core CPI is rising at a 2.1% rate, well below the long-term average of 3.0%. I continue to believe inflation has peaked for this cycle and that the secular trend of disinflation will eventually re-assert itself.

Housing starts in the US dropped more than forecast to a 14-year low in September, Bloomberg reported. Starts fell 28% in the Midwest, 12% in the South and 10% in the West. Starts jumped 45% in the Northeast. I continue view the decline in home construction as a positive as builders work down excessive inventories. Residential construction will likely remain weak through next year.

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