Friday Watch

Late-Night Headlines
Bloomberg:
- NYSE Group(NYX) plans to remove a monthly limit on fees it charges brokers to complete trades at the NYSE as it seeks to benefit from increased trading.
- Lazard Ltd. and a group of its current and former managing directors raised $590 million by selling 13 million shares, more than originally planned, to help pay off debt and fund expansion.
- Japanese inflation unexpectedly slowed in October as oil prices dropped, giving the central bank room to delay an increase in interest rates to support a recovery in the world’s second-largest economy.
- Crude oil fell from a two-month high in NY on speculation recent gains have reduced the risk that OPEC will cut output a second time later this month.
- Billionaire Kirk Kerkorian sold his remaining stake in GM(GM) almost two months after the automaker rejected his plan to ally with Renault SA and Nissan Motor, a person briefed on the matter said.
- China started operating its first biomass-fired power plant in the eastern province of Shandong as the world’s second-largest energy consumer looks to increase the use of cleaner fuels and cut reliance on coal and oil.

Wall Street Journal:
- China’s companies are importing more scrap copper as a cheaper source of the metal for cathode production as prices rise. China’s copper-cathode output in the first nine months this year reached 2.2 million metric tons, of which 27% was made from scrap. In the same period in 2005, 16% came from scrap. Refineries and makers of semi-fabricated cable and wire are also using more scrap. China’s imports of copper concentrate have plunged 46% over the last 12 months.
- AirTran Holdings CEO Leonard said he’s interested in buying airport gates sold by US Airways Group or Delta Air Lines if those two merge.

Reuters:
- Netflix(NFLX) has had discussions with Amazon.com(AMZN) about selling its online DVD rental subscriptions to Amazon customers.
- A US Homeland Security Dept. unit issued an advisory about a potential attack on US financial institutions’ computers.
- Sirius Satellite Radi(SIRI) plans to offer a live television service next year.

Financial Times:
- Providence Equity Partners, a US buy-out group, is raising a fund worth at least $8 billion for acquisitions.

Australian:
- BHP Billiton(BHP) and Royal Dutch Shell Plc may next week force Tigris Petroleum Corp. from their venture at Iraq’s Halfayah oil field following the findings of an inquiry into kickbacks paid to ousted dictator Saddam Hussein’s regime.

Late Buy/Sell Recommendations
Business Week:
- Liberty Global’s(LBTYA) stock will rise as investors are drawn to the “triple play services” offered by the company, citing John Maloney, president of M&R Capital Management.
- Duke Energy(DUK) may rise to $35 a share because of earnings growth and investment opportunities for both Duke and the spin-off of its natural gas unit.
- Allos Therapeutics(ALTH), an anti-cancer drug developer, may rise on trial results for two drugs to be announced at an American Society of Hematology meeting next month. The stock may advance to $9 within the next year because the company will publicize “encouraging” data on its brain-cancer and lymphoma treatments, citing Needham’s Mark Monane.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.06%.

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Economic Releases
10:00 am EST
- Construction spending for October is estimated to fall .4% versus a .3% decline in September.
- ISM Manufacturing for November is estimated to rise to 51.8 versus 51.2 in October.
- ISM Prices Paid for November is estimated to rise to 49.8 versus 47.0 in October.

Afternoon:
- Total Vehicle Sales for November are estimated to rise to 16.4M versus 16.2M in October.
- Domestic Vehicle Sales for November are estimated to rise to 12.5M versus 12.4M in October.

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

Stocks Finish Mixed as Short-covering and Lower Long-term Rates Offset Economic Worries

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Stocks at Session Highs on Falling Long-Term Rates and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs and Semi 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, most sectors are rising and volume is above average. Bloomberg is reporting that Apple Computer (AAPL) just filed for patent protection for a cell phone that also works as a media player. Theflyonthewall.com is saying that Attorney Michael Starkweather said, "I believe that, with this patent in hand, Apple will eventually be after every phone company, film maker, computer maker and video producer to pay royalties of every download of not just music but also movies and videos." He also said, "This is one of the most important patents in years." Apple rallied to session highs on the report. I continue to believe analysts are vastly underestimating the earnings potential of this company. It remains my second-largest long position behind Google (GOOG). I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting.

Today's Headlines

Bloomberg:
- Cardinal Health(CAH) plans to sell its manufacturing and packaging unit, the source of $1.8 billion in annual revenue, to focus on hospital and pharmacy customers.
- Attacks on eastern Chad last week were conducted by mercenaries with ties to al-Qaeda and support from Sudan’s government and people close to Saudi Arabia’s royal family, Chad’s ambassador to the UN said.
- The bankers, traders and residents of Lower Manhattan are about to find out what it’s like to be in the vortex of the most concentrated construction zone in NYC’s history as construction at Ground Zero takes hold.
- Intuit(INTU) agreed to buy Digital Insight(DGIN) for $1.35 billion, adding a provider of Internet services to banks and expanding beyond its TurboTax and QuickBooks accounting products.
- Shares of US homebuilders jumped after Banc of America Securities upgraded the stocks, citing signs that the outlook for the housing market is improving.
- US Treasuries are rising, pushing the 10-year yield to the lowest since January on growth worries and diminishing inflation concerns.
- Oil is rising .54 as a cold weather system moved into the US and large funds raised bets to try and help performance before year-end.
- The US dollar is falling and is poised for its biggest monthly loss against the euro since April.
- US retailers’ sales rose in November as consumers shopped at department stores and bought luxury goods at the start of the holiday gift-giving season. Federated Dept. Stores(FD), the second-biggest US dept. store company, said sales surged 8.5%.
- OPEC considers $50/bbl. a fair price for oil, Venezuelan President Chavez said.
- Global crude oil prices are “stable” and OPEC does not need to cut supplies in the first quarter of next year, Algerian Oil Minister Khelil said. Global oil demand will fall by 2 million barrels per day in the second quarter of next year, posing a risk of rising inventories and falling oil prices, he said.

Wall Street Journal:
- Vodafone Group Plc is working with Yahoo! Inc.(YHOO) to start a mobile-phone advertising service that it hopes will boost sales in Europe.
- Electronic Arts(ERTS) will gain between $4 million and $5 million from in-game ads in the company’s “Need for Speed: Carbon” game over the holiday quarter.
- US and Latin American law enforcement agencies are concerned about a possible spread in the use of submarines to smuggle drugs into the US.
- BMW AG plans to offer two new vehicles with interior room similar to that of a sport utility vehicle but with better fuel efficiency.
- Automakers presenting new models and concept cars at the Greater LA Auto Show are focusing on fuel efficiency and smaller yet roomier vehicles.

NY Times:
- More doctors are switching to cosmetic medicine or adding the specialty to their practices as a way to earn extra income and cut hours.
- A $150 laptop designed for children in Third World countries has sparked a debate among educators and philanthropists about the role of computers in education and economic development. The laptop, developed by the nonprofit One Laptop Per Child project, will enter production in Taiwan in 2007. Five countries—Argentina, Brazil, Libya, Nigeria and Thailand—have said they will put the laptop in the hands of millions of students. Microsoft chairman Bill Gates opposes the project.

AP:
- Toyota Motor’s(TM) North American president, Jim Press, asked the US Congress to enlarge tax credits for hybrid gas-electric automobiles to speed buying of the energy-saving vehicles.

NY Post:
- Citigroup(C) Chairman and CEO Prince should consider breaking up the company to help boost its stock price, CreditSights analyst David Hendler said.

Washington Post:
- Democratic leaders decided not to introduce plans to improve oversight and funding for intelligence agencies, a proposal they campaigned to implement, citing House and Senate aides.

LA Times:
- Billionaire philanthropist Eli Broad donated $10.5 million to a Los Angeles charter school organization to fund expansion and help efforts to lure students from traditional public schools.

Gulf News:
- Dubai Aluminum, known as Dubal, will add 60,000 tons of production capacity to its plant in Jebel Ali in Dubai, United Arab Emirates, to make the factory the largest in the world.

Personal Incomes Rise, Spending Bounces Back, Jobless Claims Rise, Chicago Manufacturing Falls, Prices Paid Declines

- Personal Income for October rose .4% versus estimates of a .5% gain and a .5% increase in September.
- Personal Spending for October rose .2% versus estimates of a .1% increase and a downwardly revised -.2% in September.
- The PCE Core for October rose .2% versus estimates of a .1% increase and a .2% gain in September.
- Initial Jobless Claims for last week rose to 357K versus estimates of 315K and 323K the prior week.
- Continuing Claims rose to 2480K versus estimates of 2440K and 2435K prior.
- The Chicago Purchasing Manager Index for November fell to 49.9 versus estimates of 54.4 and a reading of 53.5 in October.

BOTTOM LINE: Incomes rose and personal spending rebounded in the US last month, suggesting consumers may prevent the economy from slowing too much, Bloomberg said. Adjusted for inflation, spending increased the most in three months. The PCE core, the Fed’s favorite inflation gauge, rose 2.4% year-over-year, the same increase as the prior month. Adjusted for inflation, disposable income rose .3% versus a .5% gain the prior month. I continue to expect a healthy labor market will continue to propel consumer spending, while inflation continues to decelerate over the intermediate-term.

The number of US workers filing first-time applications for state unemployment benefits unexpectedly rose last week to the highest in more than a year, Bloomberg reported. The four-week moving-average rose to 325,000 from 317,750 the prior week. Jobless claims were artificially magnified this week due to the Thanksgiving holiday last week. The unemployment rate for those eligible to collect benefits, which tracks the US jobless rate, held steady at 1.9%. I expect jobless claims to trend a bit higher over the coming weeks before rebounding as auto production and housing-related cutbacks subside over the intermediate-term.

A gauge of manufacturing activity in the Chicago region unexpectedly showed a contraction in November as production and orders slowed, Bloomberg reported. This conflicts with the Chicago Fed’s Beige book comments yesterday that “manufacturing expanded at a modest pace” last month. Manufacturing now accounts for only 12% of the US economy. The new orders component of the index fell to 52 versus 54.1 the prior month. The employment component dropped to 49.4 versus 57 the prior month. The prices paid component of the index fell to 60.2 from 62.5 the prior month. I expect manufacturing to improve over the intermediate-term as auto production cutbacks subside and housing stabilizes at relatively high levels.

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