Stocks Finish Mixed as Investors Anticipate More Hawkish Fed

Indices
S&P 500 1,257.48 unch.
DJIA 10,888.16 -.02%
NASDAQ 2,232.71 -.30%
Russell 2000 673.69 +.33%
DJ Wilshire 5000 12,552.71 +.04%
S&P Barra Growth 600.86 -.12%
S&P Barra Value 652.29 +.12%
Morgan Stanley Consumer 592.52 +.04%
Morgan Stanley Cyclical 776.99 +.68%
Morgan Stanley Technology 528.57 -.62%
Transports 4,129.89 +.20%
Utilities 403.57 +.40%
Put/Call 1.08 +6.93%
NYSE Arms 1.30 -2.96%
Volatility(VIX) 11.89 +.42%
ISE Sentiment 127.00 -16.99%
US Dollar 91.65 +.74%
CRB 311.23 -.48%

Futures Spot Prices
Crude Oil 56.24 -.46%
Unleaded Gasoline 139.50 -.01%
Natural Gas 11.81 +.63%
Heating Oil 160.60 -.23%
Gold 503.50 unch.
Base Metals 144.73 +.37%
Copper 191.10 -.03%
10-year US Treasury Yield 4.47% +1.60%

Leading Sectors
Steel +2.30%
HMOs +1.31%
Papers +1.19%

Lagging Sectors
Internet -.77%
Alternative Energy -.86%
Airlines -1.36%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on USB and ADP.

Afternoon/Evening Headlines
Bloomberg:
- The government must show probable cause to obtain information from Cingular Wireless LLC, Verizon Wireless and other providers of cell phone services in the US on the physical location of a user, a federal court ruled.
- Billionaire investor Carl Icahn hired investment bank Lazard Ltd. to conduct an “in-depth strategic analysis” of Time Warner and develop a plan to boost the company’s share prices.
- Crude oil fell and heating oil slipped to a four-month low on speculation that US inventories are sufficient to meet demand. Gasoline plunged to a nine-month low.
- The US dollar rose against the euro and the yen and Treasuries fell after a bigger-than-expected jump in US consumer confidence damped speculation the Fed may be nearing the end of its interest-rate increases.

Financial Times:
- Huawei Technologies, China’s biggest telecom-equipment company, said overseas sales will be about $4 billion this year, exceeding domestic revenue for the first time.

AP:
- New Orleans, devastated by Hurricane Katrina, has started free wireless Internet service in an effort to help its economy.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Retail longs and Computer longs. I did not trade in the afternoon, thus leaving the Portfolio 25% net long. The tone of the market was slightly negative today as the advance/decline line finished mixed, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly higher into the close. Overall, today's market action was negative given the sell-off in many market leaders. The Oil Service Index has risen 14.2% since Oct. 20 as investors anticipated a bottom in oil prices in the upper $50s. I suspect a drop in oil below $55 per barrel will spur another round of selling in the stocks, which could temporarily pressure the overall market. However, I continue to view the drop in energy prices as a huge positive for equities over the intermediate-term.

Stocks Mixed Mid-day as Rising Long-term Rates and Profit-taking Offsets Lower Energy Prices and Strong Economic Data

Indices
S&P 500 1,259.60 +.16%
DJIA 10,900.79 +.09%
NASDAQ 2,236.90 -.11%
Russell 2000 674.03 +.38%
DJ Wilshire 5000 12,567.47 +.16%
S&P Barra Growth 601.71 +.02%
S&P Barra Value 653.13 +.25%
Morgan Stanley Consumer 593.29 +.17%
Morgan Stanley Cyclical 777.58 +.76%
Morgan Stanley Technology 529.48 -.44%
Transports 4,136.93 +.36%
Utilities 403.18 +.30%
Put/Call 1.13 +11.88%
NYSE Arms 1.11 -18.76%
Volatility(VIX) 11.88 +.34%
ISE Sentiment 120.00 -21.57%
US Dollar 91.66 +.74%
CRB 312.14 -.19%

Futures Spot Prices
Crude Oil 56.80 -.98%
Unleaded Gasoline 141.50 -.23%
Natural Gas 11.82 +1.60%
Heating Oil 163.70 +.09%
Gold 504.10 +.34%
Base Metals 144.73 +.37%
Copper 191.15 +.03%
10-year US Treasury Yield 4.48% +1.77%

Leading Sectors
Steel +2.46%
HMOs +1.53%
Papers +1.40%

Lagging Sectors
Alternative Energy -.83%
Gold & Silver -.88%
Airlines -1.10%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet longs, Computer longs and Retail longs. I added to my IWM and QQQQ shorts and added SNDK short this morning, thus leaving the Portfolio 25% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Measures of investor anxiety are mostly higher. Overall, today’s market action is negative considering the better-than-expected economic data and losses in market-leading stocks. The Johnson Redbook same-store sales index rose 3.9% year-over-year last week vs. a 3.8% rise the prior week. This week's gain is up from a 1.5% increase in late April and the 30th week in a row the index has risen 3% or more. Since Oct. 4, when many at the time were calling for a horrible holiday shopping season and a collapse in retail stocks, the Morgan Stanley Retail Index(MVRX) has returned 6.6%, twice the gain of the S&P 500. I continue to expect retailers to outperform through year-end. I expect US stocks to trade mixed-to-lower from current levels into the close on profit-taking and worries over rising long-term rates.

Today's Headlines

Bloomberg:
- Las Vegas Sands is seeking $2.5 billion of loans to expand in the Chinese city of Macau, which may become the world’s largest gambling cent by revenue this year.
- Harrah’s Entertainment is entering Europe with a Caesars hotel in Spain and a $700 million resort project in Slovenia.
- US Treasuries are falling and the US dollar is rising after consumer confidence rose more than forecast and sales of new homes unexpectedly increased to a record, dashing speculation the Fed is about finished raising interest rates.
- Crude oil is falling for a third session on speculation that US inventories are sufficient to meet demand and as OPEC ministers said they don’t expect the group to cut production quotas at a meeting next month.
- BP Plc’s CEO said oil prices today are “unsustainably high” and that natural gas demand is being cut by high prices.

Wall Street Journal:
- Harrah’s Entertainment is likely to announce this week that it’s starting two casino-resort projects in Spain and Slovenia valued together at $1.37 billion.
- The FCC may today suggest that consumers could be helped by letting them buy cable channels individually rather than forcing them to buy packages.
- Exxon Mobil, BP and Royal Dutch Shell are joining the hunt for natural gas in the US as high prices attract drilling in locations once considered uneconomic.
- Worldwide demand for business jets is causing waiting lists, yet manufacturers such as Bombardier, General Dynamics and Textron’s Cessna Aircraft unit are reluctant to boost production.
- The arrival of Airbus SAS’s jumbo A380 jet may create bottlenecks at airports around the world and especially at Los Angeles International Airport.
- Timberland and Overstock.com reported record sales yesterday on their Web sites as US consumers flocked to the Internet on the Monday after Thanksgiving.
- Premiere Radio Networks, a syndication arm of Clear Channel Communications, will offer video “podcasts” of its radio shows next month.
- The NYSE’s share of trading in stocks listed on the exchange fell to its lowest level in 29 years last month, as investors such as hedge funds made electronic trades instead.
- Additional progress in stabilizing Iraq may depend on the continued presence of US forces, Democratic Senator Joe Lieberman wrote.
- Samsung Electronics admitted to conspiring with companies to fix the price of computer chips that use Rambus technology, which may help Rambus’ antitrust case against the chipmaker.

NY Post:
- TiVo Inc. will announce plans today to sell digital-video recorders in Taiwan as part of its strategy to expand overseas.

LA Times:
- Walt Disney this month began selling Mobile ESPN, a cell-phone service that also offers sports news, scores and video clips.
- The California film and tv industries, which employ about 250,000 people in Los Angeles County, are being hurt by the movement of production out of the state.

Fortune:
- Janus Capital Group is considering a management takeover offer of about $17 a share, and hired Morgan Stanley for advice.

NY Times:
- A New Orleans flood protection system designed to bear Category 5 hurricanes may cost $32 billion and take years to complete.

AFP:
- One of Jordan’s most important tribes said in a statement today that it disowned Abu Musab al-Zarqawi, the Jordanian-born leader of the al-Qaeda in Iraq organization.

Durable Goods Orders Bounce Back, Consumer Confidence Jumps, New Home Sales Hit Another Record

- Durable Goods Orders for October rose 3.4% versus estimates of a 1.5% increase and a 2.0% decline in September.
- Durables Ex Transportation for October rose .3% versus estimates of a 1.0% increase and an upwardly revised .2% decline in September.
- Consumer Confidence for November rose to 98.9 versus estimates of 90.2 and a reading of 85.2 in October.
- New Home Sales for October rose to 1424K versus estimates of 1200K and 1260K in September.

BOTTOM LINE: US durable goods orders rose more than forecast in October as the Gulf Coast region recovered from two hurricanes, suggesting demand will encourage more production and help power the economy, Bloomberg said. Unfilled orders rose for a fifth straight month, which likely indicates pent-up demand and production increases into early next year. Bookings for commercial aircraft soared 50.4%. Bookings for non-defense capital goods excluding aircraft, a gauge of future business spending, rose 1.3%. Durable Goods Orders will remain healthy over the intermediate-term on hurricane-rebuilding and orders related to the highway bill.

Consumer confidence rose in November by the most in more than two years as falling gasoline prices encouraged shoppers before the start of the holiday season, Bloomberg reported. The component of the index that tracks consumers’ expectations for the next six months soared to 88.8 from 70.1, the biggest gain since April 2003. As well, the component of the index that measures consumers’ present situation jumped to 114 from 107.8, the largest gain since December 2004. The percentage of consumers that said jobs were hard to get fell to 23.2 from 25.3% the prior month. The percentage of consumers expecting to buy a home increased to 3.1% from 2.8% and the percentage that plan to purchase a major appliance rose to 29.1% from 25%. Retail spending on Visa credit and debit cards surged 11% the two days after Thanksgiving. As I predicted a couple of months ago, consumer sentiment is rebounding sharply. This trend should continue into at least early next year.

US new home sales unexpectedly rose to a record last month, surging the most since 1993, suggesting people bought houses in anticipation of higher mortgage rates, Bloomberg reported. The median price of a new home rose .9% to $231,300. The supply of new homes at the current sales pace fell to 4.3 months from 4.7 months in September. Sales rose 47% in the West, 43% in the Northeast and 1.9% in the South. Sales fell 9.5% in the Midwest. This is just more evidence that the housing market is just slowing not collapsing.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- DaimlerChrysler AG may spend as much as $1 billion to improve flexibility at two St. Louis-area assembly plants that build minivans and pickup trucks.
- Oil may fall below $55 a barrel, extending a 22% decline from August’s record, as warmer weather cuts fuel demand and inventories rise, said Mitsubishi Corp., Japan’s largest trading company.
- Delphi Corp. CEO Miller backed away from his threat to cancel union contracts by mid-December, averting a potential strike that could cripple production at its former parent, GM.
- A premature US troop withdrawal from Iraq might trigger a regional conflict in the Middle East that could draw in predominately Shiite Iran and Sunni Arab states, US Ambassador to Iraq Zalmay Khalilzad warns in a television interview.
- The yen declined in Asia after Japanese government reports showed industrial production last month was less than half what economists forecast.
- Merck, with one victory and one loss in Vioxx lawsuits tried in state courts, may win the first federal trial over the painkiller, lawyers said.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY, RE and GE

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

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Economic Releases
8:30 am EST
- Durable Goods Orders for October are estimated to rise 1.5% versus a 2.4% decline in September.
- Durables Ex Transportation for October are estimated to rise 1.0% versus a 1.1% decline in September.

10:00 am EST
- Consumer Confidence for November is estimated to rise to 90.1 versus a reading of 85.0 in October.

BOTTOM LINE: Asian indices are lower on weakness in exporters in the region. I expect US equities to trade modestly lower on the open and to rally slightly later in the day, finishing mixed. The Portfolio is 50% net long heading into the day.