Friday, December 31, 2004

Year-end Scoreboard*

Indices
S&P 500 1,211.92 +8.99%
Dow 10,783.01 +3.15%
NASDAQ 2,175.44 +8.59%
Russell 2000 651.57 +17.0%
DJ Wilshire 5000 11,951.47 +10.67%
Morgan Stanley Consumer 590.79 +7.76%
MS Cyclical 784.10 +15.36%
MS Technology 507.67 +6.69%
Transports 177.61 +28.22%
Utilities 334.95 +25.5%
Put/Call .62 -50.0%
NYSE Arms 1.20 +57.9%
Volatility(VIX) 13.29 -27.42%
AAII % Bulls 57.66 -12.0%
US Dollar 80.85 -6.83%
CRB 283.90 +11.21%

Futures Spot Prices
Gold 438.40 +4.13%
Crude Oil 43.45 +52.46%
Natural Gas 6.15 +9.8%
Base Metals 125.66 +24.35%
10-year US Treasury Yield 4.22% -.71%
Average 30-year Mortgage Rate 5.81% unch.

Leading Sectors
Gaming +64.63%
HMOs +46.27%
Iron/Steel +35.32%

Lagging Sectors
Airlines -2.10%
Drugs -5.65%
Semis -14.72%

*% Gain or loss for the year

Friday Watch

Earnings of Note
Company/Estimate
None of note

Splits
None of note.

Economic Data
None of note

Recommendations
Goldman Sachs reiterated Outperform on BSX and Underperform on PPS, TCO.

Late-Night News
Asian indices are mostly higher on optimism for exporters in the region. Saudi forces killed the suspected leader of the al-Qaeda terrorist network in Saudi Arabia, along with nine other members of the group, in separate gun battles, Agence-France Presse reported. A free trade agreement with China would boost Japan’s GDP by .5%, the Nihon Keizai newspaper reported. Oracle fired PeopleSoft’s Co-President and CFO and three other top executives, putting Oracle officials in their places as part of the $10.3 billion takeover, Bloomberg reported. Huawei Technologies, China’s largest phone-equipment maker, said it received a $10 billion credit line from China Development Bank to finance overseas expansion, Bloomberg said.

Late-Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.18%.

BOTTOM LINE: I expect U.S. equities to open modestly higher in the morning on short-covering and window-dressing. The Portfolio is at its highs for the year and 125% net long heading into tomorrow.

Thursday, December 30, 2004

Thursday Close

S&P 500 1,213.55 +.01%
NASDAQ 2,178.34 +.06%


Leading Sectors
Airlines +1.07%
Hospitals +.74%
Networking +.64%

Lagging Sectors
Restaurants -.45%
Oil Service -.65%
Iron/Steel -2.50%

Other
Crude Oil 43.45 -.23%
Natural Gas 6.15 unch.
Gold 438.40 +.32%
Base Metals 124.97 +.63%
U.S. Dollar 80.62 -.28%
10-Yr. T-note Yield 4.25% -1.59%.
VIX 12.56 +8.09%
Put/Call .86 -24.56%
NYSE Arms 1.20 +33.33%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my security, internet, Chinese ADR and software longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The overall tone of the market was mildly positive today. Volume fell slightly as stocks continue to consolidate recent gains. The declines in base metal stocks likely mark the beginning of a period of underperformance for this sector through the first half of 05. However, one more test of recent highs may occur in January. I continue to believe all commodity-related stocks will underperform through this period as demand decelerates, supply increases and the US dollar stabilizes.

***Alert***

There will not be a mid-day report today due to a scheduling conflict.

Bottom Line: The Portfolio is higher mid-day on gains in my internet, security and software longs. I added a few new longs from various sectors this morning, thus bringing the Portfolio to 125% net long exposure. One of my new longs is AUDC and I am using a $15.25 stop-loss on this new position. The tone of the market is slightly positive today and I expect stocks to rise into the afternoon on falling energy prices/interest rates, short-covering, more optimism and year-end positioning.

Thursday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
BEBE 3-for-2

Economic Data
Initial Jobless Claims for last week estimated at 335K versus 333K the prior week.
Continuing Claims estimated at 2729K versus 2721 prior.
Chicago Purchasing Manager for December estimated at 63.0 versus 65.2 in November.

Recommendations
Affiliated Managers Group(AMG), a US company that owns stakes in 30 money management firms, will benefit from cash it invests in new companies, Business Week reported. Barr Pharmaceuticals(BRL) may benefit from $30 billion in patents that will expire by the end of 2007, Business Week reported.

Late-Night News
Asian indices are higher on optimism for exporters in the region. Lockheed Martin and Kerr McGee have set aside funds to pay for possible cleanups of perchlorate, an ingredient in rocket fuel and fireworks, Business Week reported. China's top planning agency set an 8% ceiling on coal price increases next year amid an electricity shortage that's fueling demand for the commodity, the China Securities Journal reported. Tyco Intl.'s CEO Breen and Xerox Corp.'s CEO Mulcahy are among the best managers of 2004, Business Week said, after surveying its more than 130 writers and editors worldwide. China Life Insurance faces a formal investigation into its IPO by the US SEC, after the regulator stepped up its probe from an informal inquiry, the Financial Times reported. China will destroy imports from Taiwan with labels that designate the island as a nation, the Commercial Times reported. New prescriptions of Pfizer's painkiller Celebrex fell 56% last week, the Wall Street Journal reported. Bankruptcy filings by US public companies reached a 10-year low in 2004 as low interest rates, a strong economy and better access to financing helped troubled businesses amass cash and pay debts, Bloomberg reported. The Australian dollar is poised for its biggest drop in almost three weeks against the US dollar, tracking declines in the price of gold, copper and other commodity exports the currency is closely correlated with, Bloomberg said. Fannie Mae sold $5 billion of preferred stock after its regulator said it broke accounting rules and is "significantly undercapitalized," Bloomberg reported. Amazon.com, Starbucks, Coca-Cola, FedEx and Pfizer are among US companies that have taken steps to provide aid to the survivors of the earthquake and tsunamis that struck South Asia on Dec. 26, Bloomberg said. India put coastal states and islands on alert against a "possible" tsunami and asked residents of low-lying areas to move to safer areas, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.03%.

BOTTOM LINE: I expect U.S. equities to open mixed and move modestly higher throughout the day on strong economic reports, lower energy prices, strength in Asia, stabilizing US dollar/interest rates, short-covering, year-end positioning and more optimism. The Portfolio is 100% net long heading into tomorrow.

Wednesday, December 29, 2004

Wednesday Close

S&P 500 1,213.45 -.01%
NASDAQ 2,177.19 -.01%


Leading Sectors
Oil Service +1.39%
Semis +.89%
Disk Drives +.70%

Lagging Sectors
Wireless -.54%
I-Banks -.55%
Defense -1.62%

Other
Crude Oil 43.65 +.02%
Natural Gas 6.44 +.67%
Gold 437.30 +.07%
Base Metals 124.19 +1.35%
U.S. Dollar 80.88 +.20
10-Yr. T-note Yield 4.32% +.73%.
VIX 11.62 -3.17%
Put/Call 1.14 +67.65%
NYSE Arms .90 +47.54%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished higher today on gains in my security and semi-equipment longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The overall tone of the market improved throughout the day with the advance/decline line finishing at its daily highs. Volume fell slightly as stocks consolidated recent gains. Considering the rise in energy prices and interest rates, today's action was positive.

Mid-day Report

S&P 500 1,212.20 -.11%
NASDAQ 2,175.81 -.06%


Leading Sectors
Oil Service +1.02%
Semis +.82%
Disk Drives +.61%

Lagging Sectors
Wireless -.62%
Gaming -.72%
Defense -1.63%

Other
Crude Oil 42.00 +.55%
Natural Gas 6.38 +.54%
Gold 436.00 -2.09%
Base Metals 123.48 +.78%
U.S. Dollar 81.10 +.47%
10-Yr. T-note Yield 4.32% +.59%
VIX 11.77 -1.92%
Put/Call 1.36 +100%
NYSE Arms .90 +47.54%

Market Movers
TASR +4.1% on positive comments from President yesterday.
BIVN +9.8% after US regulators approved a cancer drug the company licensed to Genzyme, the first new medicine for children with leukemia in more than a decade.
CSPI +27.5% after reporting strong 4Q results.
SNDA +7.0% on no news.
PKZ +8.6% on bargain-hunting after saying oil production at Turgai Petroleum was curtailed by a dispute over marketing.
VIP +7.4% after the company received a 2002 tax claim that was less than analysts expected.
VSAT +8.5% after saying it won an order from the Space and Naval Warfare Systems Command expected to be valued at about $60 million.
REY +6.0% after raising its 1Q profit forecast because of stronger cost management and foreign exchange gains.
MSO -6.2% after reporting top shareholders have sold 4 million shares since mid-November.
*Oil Tanker stocks down across the board after supertanker rates fell to their lowest in more than three months, pushing shipowner's earnings below the $100,000/day mark.

Economic Data
Existing Home Sales for November rose to 6.94M versus estimates of 6.75M and 6.76M in October.

Recommendations
None of note.

Mid-day News
U.S. stocks are quietly lower mid-day on a slight rise in energy prices and interest rates. Lockheed Martin faces cuts in the production of F/A-22 Raptor stealth fighter-bombers as the Dept. of Defense seeks to lower costs, the NY Times reported. Manhattan District Attorney Morgenthau's office created a unit to target identity theft last month, Dow Jones Newswires reported. A US court upheld a ruling that barred Minnesota from regulating Internet-based phone calls, the NY Times reported. Resource Connection has gained from demand by companies seeking to comply with US accounting governance laws, the Wall Street Journal reported. Nucor may offer to buy Vitkovice Steel from the Czech government, Reuters reported. Ukrainian Prime Minister Yanukovych appealed his loss to rival Yushchenko in the Dec. 26 presidential election, as the winner met advisers for the first time to discuss forming a new government, Bloomberg reported. Oracle has taken control of PeopleSoft, ending an 18-month fight and making Oracle the world's No. 2 maker of business-management software, Bloomberg said. Time Warner's cable-tv unit said it may start offering mobile phone service through an agreement with Sprint, Bloomberg reported. Fannie Mae is considering two sales of preferred stock totaling up to $4 billion, Bloomberg said. Gold prices in New York fell the most in three weeks as a gain in the dollar's value against the euro eroded the appeal of the precious metal as an alternative to US stocks and bonds, Bloomberg reported. Relief agencies struggled to combat disease and homelessness as the death toll from the weekend's earthquake and tsunamis in Asia approached 80,000, Bloomberg reported. Crude oil is rising modestly after the Energy Dept. reported that US inventories of distillate fuels fell last week, Bloomberg said. US sales of previously owned homes rose to a record in November, buoyed by job and income growth, making 2004 the best year ever for the industry, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my security and semi longs are offsetting losses in my internet and software longs. I took profits in a few longs from various sectors this morning, thus leaving the Portfolio 100% net long. The overall tone is a bit weaker today, however mild losses appear to be the result of a lack of buyers rather than significant selling. The Put/Call and Arms readings are spiking. The better-than-expected existing home sales report should put to rest the notion of an imminent decline in the housing market. I expect US stocks to trade modestly higher into the close.

Wednesday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
None of note.

Economic Data
Existing Home Sales for November estimated at 6.75M versus 6.75M in October.

Recommendations
None of note.

Late-Night News
Asian indices are mixed as strength in Taiwan is being offset by weakness in China and Japan. Thai tourist arrivals may fall by as much as 3.2 million next year should travelers not visit tsunami-hit areas until March, the end of the peak tourist season, the Bangkok Post reported. China's economy will grow by between 8% and 8.5% in 2005, from 9.1% this year, because investment and exports may slow, China Securities Journal said. Merrill Lynch, which is trying to catch up with Goldman Sachs setting up a Chinese investment banking venture, is in talks with Huaan Securities and other mainland firms, Bloomberg said. The US Postal Service said delays and problems that beset US airlines this past week also disrupted the delivery of thousands of letters and packages, the NY Times reported. Top stockholders of Martha Stewart Living Omnimedia have reported selling more than 4 million company shares since mid-November, valued at $90 million, the Wall Street Journal said. Goldman Sachs and JP Morgan are among banks financing buyouts that have left some European companies with debt levels that haven't been seen since the days of Michael Milken, Bloomberg reported. The Tel Aviv Stock Exchange will probably attract foreign investors because of better prospects for Israeli-Palestinian peace talks and economic "stabilization," Bloomberg said. Morgan Stanley and Lone Star Funds bought $2.5 billion worth of Tokyo office space in the second half of 2004, betting the country's three-year economic recovery will halt a decline in property values of 80% since 1990, Bloomberg reported. News Corp.'s Fox television network is charging a record average of $2.4 million for advertisements on the Super Bowl in February, 6.7% more than last season's NFL championship game, Bloomberg said.

Late-Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.12%.

BOTTOM LINE: I expect U.S. equities to open modestly higher and stay firm throughout the day on a decrease in energy prices, more optimism, short-covering, year-end positioning and a stabilizing US dollar/interest rates. The Portfolio is 125% net long heading into tomorrow.

Tuesday, December 28, 2004

Tuesday Close

S&P 500 1,213.54 +.72%
NASDAQ 2,177.19 +1.07%


Leading Sectors
Homebuilders +2.36%
Restaurants +1.8%
Biotech +1.71%

Lagging Sectors
Wireless +.37%
Disk Drives +.36%
Telecom +.31%

Other
Crude Oil 41.88 +1.36%
Natural Gas 6.6.21 +.86%
Gold 444.80 -.31%
Base Metals 122.53 +.76%
U.S. Dollar 80.72 unch.
10-Yr. T-note Yield 4.29% -.14%.
VIX 12.0 -1.15%
Put/Call .68 -19.05%
NYSE Arms .61 -45.05%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my security, restaurant and internet longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. The tone of the market improved throughout the day as volume improved and the advance/decline line finished at its daily highs. Every major sector was higher today with several making ALL-TIME highs again. As well, long-term interest rates fell in the afternoon and energy prices/US dollar stabilized. On the negative side, measures of investor anxiety fell again.

Mid-day Report

S&P 500 1,211.50 +.55%
NASDAQ 2,168.65 +.67%


Leading Sectors
Homebuilders +1.39%
Restaurants +1.19%
Biotech +1.19%

Lagging Sectors
Gaming +.05%
Hospitals -.17%
Airlines -.20%

Other
Crude Oil 42.10 +1.98%
Natural Gas 6.30 +2.27%
Gold 445.10 -.25%
Base Metals 122.53 +.76%
U.S. Dollar 80.70 -.02%
10-Yr. T-note Yield 4.32% +.50%
VIX 12.09 -.41%
Put/Call .73 -13.10%
NYSE Arms .70 -36.94%

Market Movers
AMZN +6.2% on Bear Stearns upgrade to Outperform.
JUPM +10.7% on optimism over internet stocks.
UNFI +9.6% after announcing a definitive 3-year distribution agreement with Whole Foods Market(WFMI).
UHS -3.7% after cutting 4Q forecast.
*Providers of equipment and technology that help protect against the effects of earthquakes are up across the board.

Economic Data
Consumer Confidence for December soared to 102.3 versus estimates of 94.0 and an upwardly revised reading of 92.6 in November.

Recommendations
-Goldman Sachs reiterated Outperform on JNJ.
-JP Morgan rated ENR Underweight.
-Bear Stearns raised AMZN to Outperform, target $55.

Mid-day News
U.S. stocks are higher mid-day on a strong consumer confidence report. President Bush is likely to delay his proposed overhaul of the US tax code until at least 2006 as his administration focuses on social security and cutting the deficit, the Washington Post reported. US companies plan to boost hiring next year as economic conditions continue to improve, the Wall Street Journal reported, citing a survey by TEC Intl. of small and medium-sized businesses. US culinary schools have boosted enrollment by 40% since 2000, as aspiring chefs hope to duplicate the success of stars such as Emeril Lagasse, the Wall Street Journal reported. Year-end bonuses on Wall Street will likely rise to $15.9 billion this year, the highest amount since $19.5 billion in 2000 at the height of the bubble, the NY Times reported. PSS World Medical, which sells medical supplies to doctors, looks increasingly likely to go on hitting its target of 20% profit growth a year, the Wall Street Journal said. Texas Pacific Group, a buyout firm, expects to make at least three times what it paid for restaurant chain Burger King in the next three years, the Wall Street Journal reported. US Airways' weekend passenger delays and stranded luggage could put the company at risk, as passengers vowed to never again fly on the airline, the Philadelphia Inquirer reported. Home Depot and Lowe's are increasingly selling installation services, as time-constrained homeowners pay the stores to lay carpet and connect appliances, the Wall Street Journal Reported. OAO Yukos Oil missed interest payments yesterday on a $1 billion loan, leading S&P to cut its grade for the oil producer's debt to default, Bloomberg said. Sales at US retailers surged 4.3% during Christmas week, Bloomberg said, citing the Intl. Council of Shopping Centers. Lobbyists spent a record $1.1 billion in the first half of 2004 to influence US politicians, Bloomberg reported. The death toll from the weekend's earthquake and tsunamis in Asia crossed 50,000, making it the deadliest natural disaster in more than a decade, Bloomberg said. The Ukrainian Central Electoral Committee declared Viktor Yushchenko the winner of the Dec. 26 presidential election, Bloomberg said. Blockbuster threatened to make a $700 million hostile takeover offer for Hollywood Entertainment after saying the board refused to cooperate in negotiations, Bloomberg reported. US consumer confidence soared in December, reaching a five-month high and reflecting increased optimism about jobs and incomes, Bloomberg reported. The index of consumer expectations for the next six months rose to 99.9 from 90.2 in November, marking the biggest increase since the liberation of Iraq in May 2003, Bloomberg said.

Bottom Line: The Portfolio is higher mid-day on gains in my internet, biotech and security longs. I added a few new longs from various sectors this morning, thus leaving the Portfolio 125% net long. One of my new longs is NANO and I am using a $14 stop-loss on this new position. As I forecasted a few months ago, Consumer confidence is moving significantly higher on an end to the bitterly negative election, falling energy prices, better labor market, rising stock market, low interest rates, strong housing market and diminishing domestic terrorism fears. This trend should continue in 05 as confidence reaches cycle highs. I expect US stocks to rise modestly into the close on short-covering, year-end positioning and more optimism. I also expect energy prices to resume their fall tomorrow on a better inventory report, decelerating demand from Europe and Asia and mild weather.

Tuesday Watch

Earnings of Note
Company/Estimate
None of note.

Splits
None of note.

Economic Data
Consumer Confidence for December estimated at 94.0 versus 90.5 in November.

Recommendations
None of note.

Late-Night News
Asian indices are higher on a better-than-expected industrial production report from Japan and declining energy prices. Deutsche Telekom AG, Europe's biggest telephone company, has ruled out buying regional US companies to expand its T-Mobile USA business, even as two rivals plan to merge, the Financial Times reported. China will take measures to restrict construction of commercial and high-end residential properties, the official Xinhua news agency reported. China Telecom and China Netcom have begun to form strategic alliances with overseas equipment and networking companies including Motorola and Nokia, Beijing Morning Post reported. The US Transportation Dept. Inspector General will begin a review of the nation's airline service triggered by flight and baggage disruptions at US Airways and Comair during Christmas weekend, Bloomberg said. Ford Motor expects to sell a record number of its F-Series large pickup trucks this year, fending off a challenge from Nissan Motor and Toyota Motor in a market that accounts for more than a quarter of the No. 2 US automaker's domestic sales, Bloomberg said. The death toll from the weekend's earthquake and tsunamis in Asia may rise to more than double the current 23,000 estimates as devastation to more remote areas is uncovered and diseases spread, Bloomberg reported.

Late-Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated +.13%.
NASDAQ 100 indicated +.12%.

BOTTOM LINE: I expect U.S. equities to open modestly higher on a better consumer confidence reading, declining energy prices, stabilizing US dollar/interest rates, short-covering and year-end positioning. The Portfolio is 100% net long heading into tomorrow.

Monday, December 27, 2004

Monday Close

S&P 500 1,204.92 -.43%
NASDAQ 2,154.22 -.30%


Leading Sectors
Broadcasting +2.17%
Airlines +.64%
Internet +.56%

Lagging Sectors
Homebuilders -1.32%
Energy -1.78%
Oil Service -2.34%

Other
Crude Oil 41.20 -.29%
Natural Gas 6.16 +.02%
Gold 446.40 +.04%
Base Metals 122.53 +.76%
U.S. Dollar 80.72 -.69%
10-Yr. T-note Yield 4.29% +1.81%
VIX 12.14 +8.10%
Put/Call .84 unch.
NYSE Arms .84 +18.09%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my software and internet longs. I took profits in a few technology longs in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was mildly weaker today as stocks consolidated recent gains. Measures of investor anxiety rose and energy prices plunged, likely setting the stage for another push higher into year-end on Wed. and Thur. I do not expect the yield on the 10-yr. T-note to rise above the 4.92% hit in June during the first half of 05.

Mid-day Report

S&P 500 1,208.69 -.12%
NASDAQ 2,154.14 -.29%


Leading Sectors
Airlines +.96%
Drugs +.51%
Internet +.44%

Lagging Sectors
Homebuilders -1.28%
Disk Drives -1.38%
Oil Service -1.74%

Other
Crude Oil 42.00 -4.93%
Natural Gas 6.35 -4.77%
Gold 446.40 +.79%
Base Metals 122.53 +.76%
U.S. Dollar 80.63 -.80%
10-Yr. T-note Yield 4.29% +1.9%
VIX 12.04 +7.21%
Put/Call .81 -3.57%
NYSE Arms .94 unch.

Market Movers
AMZN +6.2% after saying it had its busiest holiday shopping season in its history during which time it set a single-day record with more than 2.8 million units orders, or 32 items per second.
DHB -7.9% on profit-taking after last Thur. rise.
WEB +20.1% on continuing optimism over demand for its tubing products.
NGPS +12.1% on continuing optimism over its GPS products.
DECK +5.22% on short-covering.
CRYP +4.98% on optimism over its on-line poker products.
SHRP -16.6% after cutting 4Q and 05 estimates substantially.
CALM -11.9% on disappointing 2Q results.
ALD -9.2% after saying it received letters from the US Attorney for the District of Columbia requesting information form the company and Business Loan Express in connection with a criminal investigation.
CTRP -5.7% on worries over travel in Asia.
*Oil Tanker stocks down across the board on worries over recent plunge in tanker rates.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Underperform on KSS.
-Citi SmithBarney reiterated Buy on NPSP, target $25.
-Deutsche Bank rated INPC Buy, target $32.

Mid-day News
U.S. stocks are quietly lower mid-day on profit-taking, concerns over the devastation in Asia and worries over rising interest rates. Computer terminals with a restricted number of functions that rely on servers and hard drives provided by companies such as Yahoo! are finding favor again with tech companies, the Wall Street Journal said. The number of leased local access telephone lines in the US rose 7% in the first half of this year as more carriers entered the market, the Wall Street Journal reported. Eastman Kodak's EasyShare digital camera brand has risen to almost 19% of US sales after the world's largest photography company designed and marketed products to women and first-time buyers, the NY Times reported. Plans to reduce pollution at the LA port complex, including fuel restrictions for ships and trucks, will be released this week, the LA Times said. Wal-Mart isn't close to getting its top 100 suppliers to ship goods with RFID tags, the NY Times reported. General Electric and MGM Mirage were among companies that sold $638.8 billion of debt in the US this year, little changed from 2003, as borrowing costs relative to Treasury notes shrank to the slimmest margin in eight years, Bloomberg reported. Amazon.com said consumer electronics outsold books for the first time during the holiday season, Bloomberg said. US Treasury notes are declining on signs holiday retail sales beat expectations, falling energy prices and a decline in the US dollar, Bloomberg reported. Shares of Sirius Satellite Radio and XM Satellite Radio are rising after both companies said they surpassed their subscriber goals for 2004, Bloomberg said. Natural disasters, including US hurricanes and Asian typhoons, made this year the costliest ever for the insurance industry, even before tsunamis struck tourist resorts in Thailand and Malaysia yesterday, Bloomberg said. Crude oil is plunging more than $2/bbl. in NY amid speculation that warmer temperatures in the eastern half of the US will limit heating oil needs, Bloomberg reported.

Bottom Line: The Portfolio is substantially higher mid-day on gains in my semi, software and internet longs. I have not traded today and the Portfolio is still 125% net long. Holiday shopping results, including internet sales and gift cards, were very strong and proved the bears' argument of a "spent-up" US consumer wrong again. Further declines in energy prices, free-elections in Iraq, decelerating inflation, relatively low interest rates, social security/tax reforms, an improving labor market and strong stock market should continue to boost sentiment and spending in 2005. I expect US stocks to rise modestly into the close on more optimism, declining energy prices, year-end positioning and short-covering.

Monday Watch

Earnings of Note
Company/Estimate
NT/-.04

Splits
None of note.

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on BBY, BSX and EBAY. Investors should buy Asian computer-related stocks such as Taiwan Semiconductor Manufacturing(TSM), and Japanese shares, said Merrill Lynch's Spencer White.

Late-Night News
Asian indices are mostly lower on concerns over the effects from the earthquake and tsunamis in the region. Stem cells, known for their potential to heal, also are one of the main forces behind cancer, the Boston Globe reported, citing researchers. Massachusetts was the only state in the US to lose residents in 2004, the Boston Globe reported today, citing US Census data. LG Electronics Inc. aims to take the largest share of Taiwan's flat-panel television market, the Commercial Times reported. More than 79% of Chinese individual investors lost money on the stock markets this year, the China Securities Journal reported. The death toll rose to at least 12,300 after the world's most powerful earthquake in 40 years, off the Indonesian island of Sumatra, unleashed waves that flooded coastal towns from Thailand to India, Bloomberg reported. Samsung Electronics, Canon Inc., Flextronics and other electronics makers in Asia said they're assessing whether yesterday's earthquake in Idonesia will hamper regional shipments, Bloomberg said. Brazil is ending its biggest year for IPOs since 1986, and more companies are lining up to go public next year as a rising stock market and a growing economy encourage investment, Bloomberg said. Viktor Yushchenko claimed victory in Ukraine's disputed presidential election before tens of thousands of cheering supporters after he took a clear lead over Prime Minister Viktor Yanukovych, Bloomberg reported. Shanda Interactive, China's biggest provider of Internet games, said it plans to increase its research staff by as much as 50% over the next year to develop more games in-house, Bloomberg reported. New York crude oil futures are falling, extending last week's 5.1% decline, on expectations warmer weather in the US will reduce demand on the country's fuel stockpiles, Bloomberg reported. US stocks are on pace for the largest post-election rally in more than 50 years, Bloomberg reported. US retailers holiday gift-card sales may have risen to more than $20 billion, topping forecasts and boosting after-Christmas shopping, Bloomberg said. US holiday spending this year was 8.1% more than last year, the Wall Street Journal reported. Sales of goods costing more than $1,000 jumped 13.5% while purchases between $500 and $999 rose 6.6%. Spending on apparel and home furnishings increased 9.8% and 9.7%, respectively. Consumer electronics and appliances purchases rose 4.2%, the paper reported. Regionally, spending increased the most in the Great Plains states.

Late-Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.15.

BOTTOM LINE: I expect U.S. equities to open modestly higher on better-than-expected holiday shopping results, falling energy prices, short-covering and year-end positioning. The Portfolio is 125% net long heading into tomorrow.

Friday, December 24, 2004

Thursday, December 23, 2004

Mid-day Report

S&P 500 1,211.20 +.14%
NASDAQ 2,162.00 +.23%


Leading Sectors
Oil Service +.87%
Drugs +.66%
Computer Service +.55%

Lagging Sectors
Homebuilders -.49%
Restaurants -.52%
Airlines -.65%

Other
Crude Oil 44.05 -.43%
Natural Gas 6.66 -2.35%
Gold 442.90 +.34%
Base Metals 121.73 -.36%
U.S. Dollar 81.48 -.55%
10-Yr. T-note Yield 4.21% +.46%
VIX 11.28 -1.48%
Put/Call .72 -27.27%
NYSE Arms .86 +2.38%

Market Movers

Economic Data
Personal Income for November rose .3% versus estimates of a .2% increase and a .6% rise in October.
Personal Spending for November rose .2% versus estimates of a .3% increase and a .8% rise in October.
PCE Deflator for November rose 2.6% versus estimates of a 2.5% increase and a 2.5% gain in October.
PCE Core for November rose 1.5% versus estimates of a 1.5% increase and a rise of 1.5% in October.
Durable Goods Orders for November rose 1.6% versus estimates of a .6% increase and a .9% decline in October.
Durable Goods Orders Less Transportation for November fell .8% versus estimates of a .8% increase and a 1.3% decline in October.
Initial Jobless Claims for last week were 333K versus estimates of 335K and 316K the prior week.
Continuing Claims were 2721K versus estimates of 2736K and 2730K prior.
Final Univ. of Mich. Consumer Confidence for December rose to 97.1 versus estimates of 95.7 and a prior estimate of 95.7.
New Home Sales for November were 1125K versus estimates of 1200K and 1278K in October.

Recommendations
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Mid-day News

Bottom Line: The Portfolio is substantially higher mid-day on gains in my software, semi and internet longs. I exited a Chinese ADR long this morning and bought ERES, thus leaving the Portfolio 125% net long. I am keeping a $14.75 stop-loss on this new position. The decline in New Home Sales is a bit worrisome, however I am not ready to conclude this is a trend, considering their recently elevated levels. The New Home Sales uptrend remains firmly in tact at this point. As well, I continue to expect Consumer Confidence will reach new cycle highs during 05. The overall tone of the market today is mildly positive. Measures of investor anxiety are reaching levels normally associated with a period of consolidation. However, year-end positioning, short-covering, falling energy prices, low interest rates, good corporate profitability, more optimism and reasonable valuations will likely result in strength through year-end. I expect US stocks to rise modestly into the close.

Thursday Watch

Earnings of Note
Company/Estimate
AM/.69

Splits
None of note.

Economic Data
Personal Income for November estimated up .2% versus a .6% increase in October.
Personal Spending for November estimated up .3% versus a .7% gain in October.
PCE Deflator for November estimated up 2.5% versus a 2.4% increase in October.
PCE Core for November estimated up 1.5% versus a 1.5% increase in October.
Durable Goods Orders for November estimated up .6% versus a 1.1% fall in October.
Durable Goods Orders Less Transportation for November estimated up .8% versus a 1.5% decline in October.
Initial Jobless Claims for last week are estimated at 335K versus 317K the prior week.
Continuing Claims estimated at 2736K versus 2737K prior.
Final Univ. of Mich. Consumer Confidence for December estimated at 95.7 versus a prior estimate of 95.7.
New Home Sales for November estimated at 1200K versus 1226K in October.

Recommendations
Goldman Sachs reiterated Outperform on MMM, FSL and underperform on FSS, SCS.

Late-Night News
Asian indices are mostly lower on declines in commodity-related shares. The value of hostile bids globally almost tripled in 2004 to its highest since 1999, the London-based Times said, citing a report by capital-markets data provider Dealogic Holdings Plc. DaimlerChrysler AG is seeking the Indian government's approval to sell trucks and buses in the country, the Times of India reported today. Opportunity Partners LP fund manager Phillip Goldstein filed a lawsuit to block a US SEC rule that requires hedge-fund managers to register with regulators, the Wall Street Journal reported. The number of Japanese companies at least 30% owned by foreign investors rose more than 70% to a total of 82 as of Sept. 30 from the same date last year, the Nihon Keizai newspaper reported. More than 140,000 Palestinians will vote today for local councils in the West Bank, in the first such elections since 1976, Agence France-Presse reported. Kohlberg, Kravis, Roberts & Co., the world's biggest buyout firm, agreed to buy Canadian building-products maker Masonite International for $2.5 billion, Bloomberg reported. CapitalLand, Southeast Asia's biggest developer by sales, said it will join a Chinese state-owned partner of Wal-Mart Stores to buy and manage retail malls in China, Bloomberg said.

Late-Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.06.

BOTTOM LINE: I expect U.S. equities to open modestly higher on strong economic reports, short-covering and year-end positioning. The Portfolio is 125% net long heading into tomorrow.

Wednesday, December 22, 2004

Wednesday Close

S&P 500 1,209.57 +.34%
NASDAQ 2,157.03 +.28%


Leading Sectors
Airlines +2.56%
Gaming +1.4%
Retail +1.32%

Lagging Sectors
Iron/Steel -1.16%
Energy -1.39%
Oil Service -1.59%

Other
Crude Oil 44.15 -.20%
Natural Gas 6.84 +.29%
Gold 440.90 -.11%
Base Metals 122.17 +.36%
U.S. Dollar 81.96 +.02%
10-Yr. T-note Yield 4.19% +.05%.
VIX 11.45 -.87%
Put/Call .99 +23.75%
NYSE Arms .84 +23.53%

After-hours Movers

Recommendations

After-hours News

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my security, software, restaurant and semi equipment longs. I did not trade in the afternoon, thus leaving the Portfolio 125% net long. Several indices are now hitting ALL-TIME highs, making the bears' argument that the US markets are in a secular decline much tougher to make. I expect gains again tomorrow on favorable economic reports.

Mid-day Report

S&P 500 1,209.38 +.33%
NASDAQ 2,155.83 +.23%


Leading Sectors
Airlines +2.20%
Gaming +1.49%
Defense +1.36%

Lagging Sectors
Energy -1.21%
Iron/Steel -1.27%
Oil Service -1.42%

Other
Crude Oil 44.13 -3.56%
Natural Gas 6.82 -.53%
Gold 440.60 -.52
Base Metals 122.17 +.36%
U.S. Dollar 82.05 +.13%
10-Yr. T-note Yield 4.19% +.79%
VIX 11.43 -.87%
Put/Call .95 +18.75%
NYSE Arms .83 +22.06%

Market Movers

Economic Data
Final 3Q GDP rose 4.0% versus estimates of 3.9% and a prior estimate of 3.9%.
Final 3Q Personal Consumption rose 5.1% versus estimates of 5.1% and a prior estimate 5.51%.
Final 3Q GDP Price Deflator rose 1.4% versus estimates of 1.3% and a prior estimate of 1.3%.

Recommendations
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Mid-day News

Bottom Line: The Portfolio is higher mid-day on gains in my software, semi-equipment and RFID longs. I have not traded today and the Portfolio is still 125% net long. The tone of the market is pretty good and Banks are hitting ALL-TIME highs. Energy prices are falling, tech is outperforming and commodity-related stocks are underperforming. I expect this trend to continue in the intermediate-term. US stocks will likely move modestly higher into the close on optimism over economic growth, falling energy prices, short-covering and year-end positioning.

Wednesday Watch

Earnings of Note
Company/Estimate
CAG/.46
MU/.22
RHAT/.46

Splits
None of note.

Economic Data
Final 3Q GDP estimated to rise 3.9% versus a prior estimate of 3.9%.
Final 3Q Personal Consumption estimated to rise 5.1% versus a prior estimate of 5.1%
Final 3Q Price Deflator estimated to rise 1.3% versus a prior estimate of 1.3%.

Recommendations
Goldman Sachs reiterated Outperform on PAYX and RIMM.

Late-Night News
Asian indices are mostly higher on gains in semiconductor shares after Lehman Brothers' upgrade of Intel. Taiwan imposed a temporary ban on imports of US apples after a codling moth larvae was found in a consignment, the China Times reported. BNP Paribas SA and Morgan Stanley are in talks with Suzhou City Commercial Bank to buy a stake in the Chinese lender, China Business News reported. Nextel Communications may get more than $2 billion to vacate airwaves in order to improve communications for emergency services, Reuters reported.

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

BOTTOM LINE: I expect U.S. equities to open mixed-to-higher and rise modestly throughout the day on a decline in energy prices, short-covering and year-end positioning. The Portfolio is 125% net long heading into tomorrow.

Tuesday, December 21, 2004

Tuesday Close

S&P 500 1,205.45 +.90%
NASDAQ 2,150.91 +1.08%


Leading Sectors
Airlines +2.83%
Broadcasting +2.48%
Gaming +1.96%

Lagging Sectors
Homebuilders +.28%
Papers +.26%
Defense -.03%

Other
Crude Oil 45.70 -.13%
Natural Gas 6.93 +1.02%
Gold 442.90 unch.
Base Metals 121.73 +.94%
U.S. Dollar 81.97 +.04%
10-Yr. T-note Yield 4.17% unch.
VIX 11.55 -2.37%
Put/Call .80 -13.98%
NYSE Arms .68 -35.24%

After-hours Movers
RENT +18.5% after saying Mark Cuban bought 500,000 shares of it for $4.5M.
INTV +5.4% after beating 3Q estimates substantially.
RIMM -4.1% on profit-taking after beating 3Q estimates and reiterated 4Q outlook.
SLR -6.5% after missing 1Q estimates and lowering 2Q guidance.
MERX -15.3% after missing 2Q estimates and lowering 3Q guidance.

Recommendations
Goldman Sachs reiterated Underperform on BSC and UAL.

After-hours News
U.S. stocks finished higher today as the DJIA reached its highest level in 3 ½ years on short-covering and year-end positioning. After the close, Sony Corp. found parts for its PlayStation game consoles were being assembled in a Chinese prison during a five-year investigation to combat large-scale piracy, the Financial Times reported. Japan Airlines, the country's largest carrier, may buy as many as 58 Boeing airplanes to replace older planes in its fleet, the Wall Street Journal reported. Fannie Mae's board accepted the resignations of CEO Raines and CFO Howard, Market News reported. Importing drugs from Canada and other nations where prices are lower wouldn't generate enough savings for US consumers to justify the risks, regulatory costs or harm to the drug industry, a federal task force found. Research In Motion said third-quarter profit rose to $90.4 million and sales surges as it enlisted mobile-phone service providers in Europe and Asia to offer its products, Bloomberg reported. Nintendo boosted its shipment forecast for its new console amid high demand in the US and Japan, Bloomberg said. Qualcomm raised its fiscal first-quarter profit forecast amid rising demand for handsets that deliver Internet access and take photos, Bloomberg reported. Japanese export growth accelerated to 13.4% in November, easing concern overseas demand for goods made in the world's second-largest economy is faltering, Bloomberg said.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my semi equip., software and biotech longs. I added a few new longs from various sectors in the afternoon, bringing the Portfolio's market exposure to 125% net long. One of my new positions is SIMG and I am using a $16 stop-loss on this long. The tone of the market improved throughout the afternoon as most sectors rose, the advance/decline line finished near its daily highs and volume was healthy. Measures of investor anxiety fell again. The VIX is now near levels last seen in 1995. This is likely a result of the fact that the overall market appears the healthiest to me since 1995.

Mid-day Report

S&P 500 1,200.58 +.50%
NASDAQ 2,142.83 +.70%


Leading Sectors
Transports +1.64%
Airlines +1.53%
Software +1.51%

Lagging Sectors
Foods +.16%
Energy +.13%
Defense -.24%

Other
Crude Oil 45.70 -.17%
Natural Gas 6.78 -2.40%
Gold 443.00 -.14%
Base Metals 121.19 +.49%
U.S. Dollar 81.89 +.27%
10-Yr. T-note Yield 4.17% -.32%
VIX 11.57 -2.20%
Put/Call .79 -15.05%
NYSE Arms .81 -22.86%

Market Movers
IACI +7.8% after saying it will spin off its travel-related assets into a new business named Expedia.
RMBS -14.28% after Infineon Technologies AG filed a motion to dismiss one case and said Rambus destroyed evidence.
ATYT -5.0% after missing 1Q estimates and raising 2Q outlook.
ANGO +17.7% after beating 2Q estimates and raising 05 guidance.
CMC +8.5% on continuing optimism over 1Q results.
UNP +5.1% after boosting 4Q estimates.
CVC +11.6% after suspending the spin-off of its Rainbow Media Enterprises unit.
YRK -12.15% after lowering 05 estimates and multiple downgrades.
LFUS -10.1% after lowering 4Q guidance substantially.
IVC -10.7% after lowering 4Q and 05 guidance.

Economic Data
None of note.

Recommendations
-Goldman Sachs reiterated Underperform on CVC.
-Citi SmithBarney reiterated Buy on HYGS, target $7.50. Citi reiterated Buy on SYY, target $42. Citi reiterated Buy on ACI, target $43. Citi reiterated Buy on CNX, target $49. Citi reiterated Buy on ILSE, target $24. Citi reiterated Buy on JBL, target $33. Citi reiterated Buy on NRG, target $45. Citi reiterated Buy on JNJ, target $72.
-UBS raised NEM to Buy, target $54.25. UBS raised ABX to Buy, target $27.50. UBS raised KGC to Buy, target $9. UBS rated ASCL Buy, target $18. UBS raised BVN to Buy, target $27.50. UBS raised PDG to Buy, target $22. UBS rated TIBX Buy, target $15.
-Lehman Brothers raised INTC to Overweight.
-JP Morgan rated MDC Underweight. JPM rated HOV Overweight. JPM rated RYL Overweight. JPM rated PIR Underweight. JPM rated PVN Underweight. JPM rated TOC Overweight. JPM rated COF Overweight. JPM rated AXP Overweight. JPM rated TSN Overweight. JPM rated PPC Overweight. JPM rated BZH Underweight.
-Moran Stanley downgraded HRB to Underweight.
-Legg Mason rated NILE Buy, target $34. Legg rated GSIC Buy, target $20.
-Prudential rated RBK Overweight, target $47.
-CSFB raised NXTL to Outperform, target $26. CSFB raised RIG to Outperform, target $53.
-Oppenheimer rated ENDP Buy, target $26. Oppenheimer rated MOT Buy, target $22. Oppenheimer raised CMA to Buy, target $68. Oppenheimer raised SMDI to Buy, target $8.
-Deutsche Bank rated NWL Buy, target $28. Deutsche rated DRL Buy, target $55. Deutsche rated NDE Buy, target $38.

Mid-day News
U.S. stocks are quietly higher mid-day on strength in transportation and software stocks. Comcast will boost the speeds of its broadband service in the first quarter of 2005 at no extra cost to customers, the NY Times reported. Acupuncture relieves knee pain in patients with osteoarthritis, the Wall Street Journal reported, citing a study published today in the Annals of Internal Medicine. Several popular Internet file-sharing sites shut down a week after movie studios sued more than 100 operators of sites in the US and Europe that host links to downloadable music, movies and books, the AP reported. Russian President Putin said state-owned companies may buy the former main oil-producing unit of OAO Yukos Oil from the company that acquired it in a government auction held on Sunday, Bloomberg reported. Morgan Stanley said fiscal fourth-quarter profit rose 18%, boosted by stock underwriting and a surge in fees for advising companies on takeovers, Bloomberg said. Tenet Healthcare agreed to establish a $395 million fund to settle litigation over allegedly unnecessary medical procedures performed at Redding Medical Center in California, Bloomberg reported. Iran will continue to enrich raw "yellowcake" uranium, a process that can be used to derive fuel for a nuclear weapon, through February, after signing a pledge to suspend all such activities, Reuters reported. Washington Post said it reached an agreement with Microsoft to acquire online magazine Slate, Bloomberg said. Pfizer's bid to head off a Celebrex recall may get a boost from new government data showing the painkiller didn't raise heart risks in a study, while naproxen, which is sold as Aleve, did, investors said.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my software and semi-equipment longs. I have not traded today and the Portfolio is still 100% net long. The tone of the market is pretty good and improving. It is good to see the Transports making another ALL-TIME high today. As well, declining long-term rates, falling energy prices and a stabilizing US dollar are boosting equities. I expect the major indices to rise into the close on short-covering and year-end repositioning.

Tuesday Watch

Earnings of Note
Company/Estimate
BSC/2.14
GIS/.87
GTK/.35
MWD/1.01
PAYX/.23
SLR/.05

Splits
ADSK 2-for-1

Economic Data
None of note.

Recommendations
Goldman Sachs reiterated Outperform on BSX, IP and SPP. Goldman reiterated Attractive View of the Internet sector.

Late-Night News
Asian indices are mostly higher, led by financial stocks in the region. A former American Online worker reached a tentative deal with federal prosecutors in a case accusing him of selling millions of stolen e-mail addresses to so-called spammers, the AP reported. China shouldn't rush to tighten its fiscal policy because there is not sign of higher inflation and the economy overall isn't overheated, the official Xinhua news agency said. Donald B. Marron, the former chief executive officer of Paine Webber Group, may be among the top candidates to replace Fannie Mae CEO Franklin Raines should the company decide to fire him, Bloomberg reported. U.S. stocks may rise more than expected next year amid speculation that President Bush's plan to privatize Social Security will spur cash inflows, according to Tobias Levkovich, chief US equity strategist for Citigroup Global Markets. Enron Corp. legal advisers led by NY law firm Weil Gotshal & Manges asked a judge to approve more than $780 million in fees, the most ever in a bankruptcy case, Bloomberg said. OAO Yukos Oil said it will sue to recover more than $20 billion of damages after the government confiscated its biggest unit, prompting concern cargoes may be seized by foreign courts, Bloomberg reported.

Late-Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated unch.

BOTTOM LINE: I expect U.S. equities to open modestly lower and to rise later in the afternoon ahead of a number of economic reports. The Hennessee Hedge Fund Short-Biased Index, which was up 15.81% at the end of August, is now only ahead by 1.57% this year. I suspect many short-biased funds and "market neutral" funds that are hovering near breakeven for the year will be quick to cover into year-end to keep their performance positive for the year. The Portfolio is 100% net long heading into tomorrow.

Monday, December 20, 2004

Monday Close

S&P 500 1,194.65 +.04%
NASDAQ 2,127.85 -.34%


Leading Sectors
Utilities +1.25%
Energy +1.10%
Tobacco +.65%

Lagging Sectors
Hospitals -1.04%
Drugs -1.10%
Software -1.43%

Other
Crude Oil 45.62 -.35%
Natural Gas 6.93 -.32%
Gold 444.00 +.09%
Base Metals 120.60 +1.96%
U.S. Dollar 81.65 -.02%
10-Yr. T-note Yield 4.19% +.09%.
VIX 11.83 -1.0%
Put/Call .93 +12.05%
NYSE Arms 1.05 -26.57%

After-hours Movers
SSTI -10.2% after cutting 4Q estimates.
CTIC -11.0% after saying it agreed to sell approximately 2.6M shares of its common stock to several institutional investors at $7.10/share.
ENCY -9.5% after saying a study on using the Thelin treatment for patients with pulmonary arterial hypertension at a small dose showed "no meaningful efficacy trends."

Recommendations
Goldman Sachs rated TRI and HMA Outperform. Goldman rated THC Underperform. UBS rated FSH Buy, target $74. CSFB reiterated Outperform on SYMC and MFE.

After-hours News
U.S. stocks finished quietly mixed today as declines in pharmaceutical and software stocks were offset by gains in energy shares. After the close, Toyota Motor will release a car with no lead, mercury, cadmium or hexavalent chromium in 2006 as part of its plan to reduce environmental waste disposals, Nikkei English News reported. Rio Tinto Group, BHP Billiton and Cia Vale do Rio Doce are seeking to raise iron ore prices by a record for 2005 during contract talks with Japanese steelmakers, the Tex report said. Pfizer's CEO McKinnell said the FDA's cardiology panel will review studies of the Celebrex painkiller on Feb. 15 and Feb. 16, CNBC reported. Consumer devices that measure blood pressure may be better able to predict heart disease than those at the doctor's, according to a recommendation published in Hypertension: Journal of the American Heart Association. Jabil Circuit, a designer and builder of electronics for Cisco Systems, NEC Corp. and Hewlett-Packard, said first-quarter profit rose 32% as it boosted consumer electronics sales, Bloomberg said. President Bush said he'd propose "a tough budget" to send a signal to financial markets that he's serious about reducing the federal budget deficit during his second term, Bloomberg reported. Liberty Media said it will end a stock swap agreement with Merrill Lynch early, boosting its voting stake in News Corp. to about 18%, Bloomberg said. Iraqi political parties were assigned positions on the Jan. 30 ballot as President Bush and UN Secretary-General Annan said they were confident the vote could be held, Bloomberg reported. PanAmsat Holding Corp., which owns and operates 24 satellites, filed to sell as much as $1.12 billion worth of shares in an IPO, Bloomberg said.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my internet and security longs were offset by losses in my retail and semi longs. I exited a retail long in the afternoon and added SYMC long, thus leaving the Portfolio 100% net long. I am using a $23.50 stop-loss on this position. The tone of the market was weak today as most sectors declined and the advance/decline line finished near its daily low. As well, most measures of investor anxiety fell. On the positive side, volume was lighter and energy prices fell. I continue to expect the major indices to mount anther push higher before year's end.

Mid-day Report

S&P 500 1,197.13 +.25%
NASDAQ 2,133.50 -.08%


Leading Sectors
Utilities +1.23%
Energy +.98%
Iron/Steel +.81%

Lagging Sectors
Drugs -.83%
Broadcasting -.99%
Software -1.26%

Other
Crude Oil 45.00 -2.77%
Natural Gas 6.88 -7.74%
Gold 443.00 +.05%
Base Metals 120.60 +1.96%
U.S. Dollar 81.70 -.56%
10-Yr. T-note Yield 4.18% -.51%
VIX 12.17 +1.84%
Put/Call .84 +1.20%
NYSE Arms 1.07 -25.17%

Market Movers
SYMC -4.5% on continuing worries over VRTS merger, TMIC news and slowing growth.
MFE -6.7% after MSFT said it would use TMIC's anti-virus computer technology for MSN Hotmail.
TASR +4.0% after saying it had entered into an exclusive distribution agreement with one of the largest firearm and accessory distributors in the US.
CATG +14.7% after winning a court ruling awarding it higher royalties from US partner Abbott Labs.
KRT +17.03% after Centro Properties and Watt Commercial Properties agreed to buy it for $610 million in cash.
CMC +9.42% after reporting strong 1Q and raising dividend.
TMIC +9.9% after announcing an agreement with MSN to provide anti-virus scanning and cleaning protection for Hotmail.
PEG +5.6% after Exelon Corp. agreed to buy it for about $12.8 billion to create the nation's biggest utility operator.
SMSC -16.5% after missing 3Q estimates substantially and lowering 4Q outlook.

Economic Data
Leading Indicators for November rose .2% versus estimates of a .1% gain and a .4% fall in October.

Recommendations
-Goldman Sachs reiterated Outperform on COH, TU, PFE, ACS, CCL, GILD and Underperform on SGP, PBG.
-Citi SmithBarney thinks semi equipment merger activity will accelerate in 05. Favorite combinations would be AMAT/VECO, KLAC/ORBK, MTSN/ACLS, AMAT/UTEK, LTXX/Eagle Test Systems, MYK/Celerity Group. Citi reiterated Buy on SANM, target $12. Citi reiterated Buy on WMT, target $65.
-UBS raised FCH to Buy, target $17. UBS cut COTT to Reduce, target $24.
-JP Morgan rated AGCC Underweight. JP Morgan cut BVN to Underweight.
-Banc of America rated CCRN Buy, target $21. BofA rated AHS Buy, target $19.
-Deutsche Bank rated ZIPR Buy, target $21.

Mid-day News
U.S. stocks are quietly mixed mid-day as weakness in the software and drug sectors is being offset by strength in energy shares. Sprint today will announce plans to add a radio service to its cell phones, allowing customers to listen to music for $5.99 a month, the NY Times reported. Cingular Wireless and other mobile-phone carriers are trying to not offer pornography and violent video games as more of this content is being adapted for wireless services, the NY Times said. Amazon.com and other Internet retailers are extending the cutoff date for last-minute orders to guarantee delivery of packages in time for Christmas, the NY Times reported. Campbell Soup is selling more of its products through food vendors at restaurants and college campuses to limit its dependency on grocery store sales, the Philadelphia Inquirer reported. US Steel Corp. plans to raise its prices on carbon flat-rolled steel products by $30 to $50 a ton on Jan. 3, American Metal Market reported. Wm. Wrigley Jr. Co. may consider buying Tootsie Roll Industries, Crain's Chicago Business reported. Bristol-Myers Squibb and biotechnology partner Gilead Sciences formed a venture to develop and market an HIV treatment that combines two of their drugs, Bloomberg reported. Crude oil is falling on expectations that temperatures in most of the US will rise, reducing demand for heating oil, Bloomberg said. The index of leading US economic indicators rose in November for the first time in six months, buoyed by higher stock prices, Bloomberg reported.

Bottom Line: The Portfolio is slightly higher mid-day on gains in my internet and security longs. I have not traded today and the Portfolio is still 100% net long. The underlying tone of the market is slightly negative. Given the positive news today with falling energy prices, declining interest rates and a better Leading Indicators report, today's action is disappointing for the bulls. I expect US stocks to rise modestly into the close.

Sunday, December 19, 2004

Monday Watch

Earnings of Note
Company/Estimate
AMHC/.21
JBL/.31
NAV/1.86

Splits
AIT 3-for-2
CNC 2-for-1

Economic Data
Leading Indicators for November estimated to rise .1% versus a .3% decline in October.

Weekend Recommendations
Rukeyser's Wall Street had guests that were positive on LU, PD, ITW, COH, UNH, TIF, HMA, HDI, CVD, PXP, CSH, CVX, COP and PFE. Forbes on Fox had guests that were positive on DRS and mixed on COO. Cashin' In had guests that were positive on GE, CIG, MAT and negative on AAPL, MU. Bulls and Bears had guests that were positive on GE, MER, GOOG, SAP, PPH, CTX, ABT, TIF and mixed on NVDA, COST, PAYX, BRCM. Wall St. Week w/Fortune had guests that were positive on BBY, TGT, JCP, AEOS, LTD, AAPL, mixed on WMT and negative on ZIXI, KKD. Barron's had positive comments on MOSY, TWX and negative comments on HSY. Goldman Sachs reiterated Outperform on MO, PFE, MDT, EBAY, DHR, INTC and underperform on UNM, RAI, MU, SGP.

Weekend News
Japan's crude steel production will likely reach a 30-year high this year, Nihon Keizai reported. AO VimpelCom's bill for $157 million of back taxes "appears exaggerated" and will be reviewed next week in talks between Russia's Finance Ministry and the tax service, Interfax reported. Germany will train more Iraqi military personnel, the daily newspaper Handelsblatt reported. The disclosure of problems in drugs from Pfizer, Eli Lilly and AstraZeneca shows that pharmaceutical companies are having trouble developing new drugs, the NY Times said. The ACLU is being criticized for using software to collect information about its members and donors, which goes against its support for privacy rights, the NY Times reported. Foxwoods Resort Casino and Las Vegas Sands will compete for a license to operated slot machines in Bethlehem, Pennsylvania, the Morning Call of Allentown reported. New Jersey will test a $1.5 million automatic road de-icing system on Route 78 this winter, the Morning Call reported. The UN reported it had found 150 allegations of sexual misconduct, including rape and sex with minors, by peacekeepers in the Congo, the NY Times reported. Xcel Energy has won approval form Colorado regulators to build a $1.35 billion coal-fired power plant in the state after agreeing to invest in pollution control and energy-efficiency programs, the Rocky Mountain News reported. Citigroup may buy Union State Bank for about $530 million to expand in Westchester and Rockland counties, New York, the NY Daily News reported. T-Mobile USA forecast growth to accelerate as the planned merger of two competitors helps it gain customers, Focus reported. BMW AG plans to modernize its factory in South Carolina to increase output there, Automobilwoche said. Vodafone Group Plc may back a bid by Verizon Communications for Sprint Corp. that would cost the British company at least $15 million, the Observer reported. Dell Inc. has sought to cut manufacturing costs by increasing productivity in its US operations instead of relying on overseas plants, the NY Times reported. Donations to major nonprofit organizations are on the rise nationally, Crain's NY Business reported. The Bush Administration is pressing the Pentagon to cut spending over the next several years to help cut the budget deficit, the LA Times reported. Microsoft lost market share to Firefox in Web browsers for the first time due in part to the outdated security programming of its Internet Explorer, the NY Times said. Pfizer agreed to suspend advertising of its Celebrex drug to consumers and change the way it markets the drug to doctors at the request of the US FDA, the Wall Street Journal reported. President Bush said Congress should seek to improve the US economy by making his tax cuts permanent, overhauling Social Security and limiting liability litigation to restrict junk lawsuits, Bloomberg reported. President Bush was named Time's "Person of the Year" in 2004, Time reported. Russia's property fund agreed to sell the largest oil unit of OAO Yukos Oil to OOO Baikalfinansgroup for $9.34 billion, Bloomberg reported. Centro Properties Group, Australia's fourth-largest real estate investment trust by market value, agreed to buy Kramont Realty Trust, a US shopping mall owner, for $610 million, Bloomberg reported. Honda Motor said its global sales of automobiles may rise 8% in 2005, on demand for new models like its Ridgeline light trucks, Bloomberg reported. Merrill Lynch plans to buy $400 million of asset-backed securities from LG Card Co. as South Korea's second-largest credit card company seeks a bailout to avoid collapse, Bloomberg reported. Nokia stands by its forecast that the global mobile phone market will grow by 10% next year, the Financial Times reported. A computer science professor at Rice Univ. and two of his students have found a security problem with Google's new desktop search program, the NY Times reported. The US FDA may soon issue a ruling on cox-2 painkiller drugs which could include a demand for their withdrawal, the Financial Times said.

Late-Night Trading
Asian indices are mostly higher, -.25% to +.50% on average.
S&P 500 indicated +.14%
NASDAQ 100 indicated +.31%.

BOTTOM LINE: I expect US stocks to open modestly higher in the morning on a decline in energy prices and a stronger Leading Indicators report. The Portfolio is 100% net long heading into tomorrow.

Weekly Outlook

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week. Economic reports include (Mon.)-Leading Indicators (Tues.)-None of note (Wed.)-Final 3Q GDP, Final 3Q Personal Consumption, Final 3Q Price Deflator (Thur.)-Personal Income, Personal Spending, PCE Deflator, Durable Goods Orders, Initial Jobless Claims, Final Univ. of Mich. Consumer Confidence, New Home Sales (Fri.)-Financial Market Closed. Leading Indicators, Personal Spending, Initial Jobless Claims and Consumer Confidence all have market-moving potential.

Tue.-Bear Stearns(BSC), General Mills(GIS), Morgan Stanley(MWD), Paychex(PAYX), Solectron Corp.(SLR) Wed.-Micron Technology(MU) are some of the more important companies that release quarterly earnings this week. The Fed's Lacker speaking Mon. could also impact trading.

Bottom Line: I expect U.S. stocks to finish the week higher on seasonal strength, strong economic reports, more optimism, a stabilizing US dollar and short-covering. My short-term trading indicators are still giving Buy signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,194.20 +.52%

Click here for the Weekly Wrap by Briefing.com.

Saturday, December 18, 2004

Economic Week in Review

ECRI Weekly Leading Index 133.60 +.45%

Advance Retail Sales for November rose .1% versus estimates of a .1% decline and a .8% increase in October. Retail Sales Less Autos for November rose .5% versus estimates of a .3% increase and a 1.1% gain in October. "There certainly appears to be no sign of a consumer retrenchment," said David Greenlaw, chief U.S. fixed income economist at Morgan Stanley, who raised his estimate for spending this quarter to a 3.7% annual rate. "Usually the holiday season isn't defined until the week leading into Christmas and the week after Christmas" when people start cashing in gift cards, said National Retail Federation spokesman Scott Krugman. Purchases excluding gasoline, building materials and cars, the category used by the Commerce Department to gauge personal consumption in its GDP report, rose .4% in November after rising .8% for two months in a row, Bloomberg reported. The economy has created an average of 185,450 jobs/month so far this year, the best since 1999, helping fuel incomes and spending, Bloomberg said.

Industrial Production for November rose .3% versus estimates of a .2% increase and a .6% gain in October. Capacity Utilization for November was 77.6% versus estimates of 77.8% and 77.5% in October. "Demand for industrial goods has gotten stronger," said Sandy Cutler, chief executive officer of Eaton Corp. "If you look at machine goods builders currently, you're seeing lead times spread out."

Federal Reserve policy makers raised the benchmark US interest rate a quarter point to 2.25% and restated a plan to carry out further increase at a "measured" pace to keep inflation in check, Bloomberg reported. "Labor market conditions continue to improve gradually," the Fed said. "Inflation and longer-term inflation expectations remain well contained" and "output appears to be growing at a moderate pace despite the earlier rise in energy prices." "It really looks good for the rate of inflation in 2005," said Wayne Angell, of Angell Economics. The Fed also said it will begin releasing minutes of meetings three weeks after they take place, instead of six.

Empire Manufacturing for December rose to 29.93 versus estimates of 20.0 and a reading of 18.86 in November. "Things are brightening up for the early part of next year," said Michael Gregory, a senior economist at BMO Nesbitt Burns. The bank's measure of new orders soared to 40.2 from 16.9, the highest level in the three-year history of the survey, Bloomberg said. As well, the index of unfilled orders rose to 10.4 from -1.4 the month before. "Shipments and orders are up, and we are seeing some companies hiring more to handle the increased demand," said Randall Wolken, president of the Manufacturers Assoc. of Central NY. Consumer demand and corporate spending to replace aging equipment are fueling production as inventories near historic lows, Bloomberg reported. "The economy is now in very good shape," said Harvard University economist Martin Feldstein.

The NAHB Housing Market Index for December rose to 71 versus estimates of 70 and a reading of 70 in November. The NAHB last week raised its forecasts for new home sales this year to an ALL-TIME record of 1.18 million, Bloomberg said. "The combination of an improving economy and historically low interest rates are sustaining housing activity," said Jayanth Nazareth, an economist at JP Morgan Chase. "We see very strong demand patterns across the country in most major housing markets," said Stuart Miller, CEO of homebuilder Lennar.

Housing Starts for November fell to 1771K versus estimates of 1980K and an upwardly revised 2039K in October. Building Permits for November fell to 1988K versus estimates of 2000K and an upwardly revised 2018K in October. The decline in housing starts is not the beginning of substantial weakness in housing, economists told Bloomberg. November's starts declined from the best month of the year in October, when builders kicked into high gear following summer hurricanes. Building permits fell just 1.5% in November and a recent survey showed builders are the most optimistic in five years, Bloomberg reported. "There definitely is a rising backlog and that is because demand and contracts are exceeding the ability to produce," said Robert Toll, CEO of Tolls Brothers.

Initial Jobless Claims fell to 317K last week versus estimates of 342K and 360K the prior week. Continuing Claims were 2737K versus 2787K prior. Initial Jobless Claims dropped to the lowest level since July 3 and showed the largest weekly drop in three years, Bloomberg said. Companies are holding onto more workers and increasing hiring to meet demand. "It's getting incredibly difficult for companies to squeeze more out of what they've got and so it's becoming increasingly important for companies to hire," said Chris Low, chief economist at FTN Financial. 24% of US employers surveyed by Manpower Inc. expect to add to their staff from January through March of 2005, up from 20% who said they would do the same during the first quarter of this year.

The Philadelphia Fed. for December rose to 29.6 versus estimates of 20.5 and 20.7 in November. Lean inventories and rising sales suggest factories will need to boost production in coming months, Bloomberg said. The US dollar's decline since its mid-May high is contributing to demand for US products, by making exports cheaper, economists told Bloomberg. "There's every reason and hope that manufacturing will be really strong in 2005" unless the US dollar strengthens considerably, said Joel Naroff, president of Naroff Economic Advisors. The Philly Fed's new orders index rose to 26.4 from 22.1. The measure of shipments rose to 32.0, the highest since August, from 24.5. The index of unfilled orders rose to 7.7, the first positive reading in three months, from minus 1.2, Bloomberg reported. The prices-paid component fell to 52.2 from 53.9. The prices-received index fell to 20.0 from 28.0, Bloomberg said. Finally, a gauge measuring the average workweek rose to 18.6, a 10-month high.

Consumer Price Index for November rose .2% versus estimates of a .2% rise and a .6% gain in October. CPI Ex Food and Energy rose .2% in November versus estimates of a .2% increase and a .2% rise in October. Economist project the CPI to rise 3.3% this year, below the 3.4% rate in 2000 and slightly higher than the long-term average rate of 3.0%, Bloomberg said. The cost of all goods including cars, apparel and food fell .1% last month. President Bush's economic advisors recently predicted the decline in energy prices will bring inflation down to about 2% in 2005, Bloomberg reported. UBS Securities' economists recently projected all consumer prices to rise 1.7% next year as energy prices decline, Bloomberg reported.

Bottom Line: Overall, last week's economic data were positive. The Weekly Leading Index is now at its highest level since the first week of May. Retail sales are solid and will likely improve over the next few weeks. Internet retail continues to exhibit exceptional strength. Industrial production is continuing at healthy levels. I expect the Fed to pause after a 25 basis point hike on Feb. 2 and to raise rates less than currently expected in 05. Measures of manufacturing continue to accelerate from their pre-election lull. Inventory rebuilding and strong demand will likely keep manufacturing at relatively high levels for the next few months. At this point, I am not worried about the decline in housing starts from record-high levels. I expect long-term rates to fall modestly during the first half of 05 which should help maintain brisk demand. The labor market is healthy and continues to improve at a modest rate. This results in a muted increase in unit labor costs, thus holding inflation in check. Consumer inflation, currently near long-term average levels, should decelerate next year as commodity prices fall.

Friday, December 17, 2004

Weekly Scoreboard*

Indices
S&P 500 1,194.20 +.52%
Dow 10,649.92 +1.01%
NASDAQ 2,135.20 +.33%
Russell 2000 642.08 +1.56%
S&P Equity Long/Short Index 1,007.77 +.83%
Put/Call .83 +33.87%
NYSE Arms 1.43 +3.62%
Volatility(VIX) 11.95 -6.35%
AAII % Bulls 52.53 +2.30%
US Dollar 82.16 -.53%
CRB 287.19 +3.82%

Futures Spot Prices
Gold 442.90 +1.68%
Crude Oil 46.28 +14.07%
Unleaded Gasoline 119.01 +10.4%
Natural Gas 7.46 +9.02%
Heating Oil 143.95 +17.41%
Base Metals 118.28 +3.57%
10-year US Treasury Yield 4.20% +1.20%
Average 30-year Mortgage Rate 5.68% -.53%

Leading Sectors
Iron/Steel +5.33%
Oil Service +4.38%
Utilities +2.94%

Lagging Sectors
Internet -.68%
Networking -1.80%
Airlines -1.81%

*% Gain or loss for the week

Mid-day Report

S&P 500 1,194.17 -.75%
NASDAQ 2,139.13 -.33%


Leading Sectors
Hospitals +.62%
Iron/Steel +.51%
Biotech +.29%

Lagging Sectors
Homebuilders -1.24%
Airlines -1.25%
Drugs -4.03%

Other
Crude Oil 45.80 +3.67%
Natural Gas 7.44 +6.29%
Gold 443.00 +1.07%
Base Metals 118.28 +.05%
U.S. Dollar 82.13 -.40%
10-Yr. T-note Yield 4.21% +.60%
VIX 12.24 -.24%
Put/Call .82 +22.39%
NYSE Arms 1.55 +124.64%

Market Movers
PFE -13.9% after saying Celebrex increased the risk of heart attacks in a study of cancer patients.
PLMO -19.7% after meeting 2Q estimates, but failing to give 3Q guidance.
OSIP +42.6% on AZN news.
ZOLT +19.5% after saying that it received a contract from Vestas Wind Systems A/S, the world's largest producer of wind turbine generators, to provide $80 million to $100 million of carbon fiber and materials during the next three years.
NKE +6.4% after beating 2Q estimates and giving strong 3Q/4Q guidance.
MATR +13.8% after boosting 05 guidance.
WLT +8.1% after announcing its Board approved up to $135 million for a capital investment program to significantly increase coal production capacity.
KMX +7.7% after beating 3Q estimates and raising 4Q outlook.
AHG +6.0% on multiple upgrades.
LF -11.55% after cutting 04 outlook substantially.
VIP -8.8% after denying a report it may receive a $322 million tax bill for 2002.
TELK -12.5% on AZN news.
AZN -8.8% after saying its Iressa lung cancer treatment didn’t help patients live longer in a study.
LEG -7.1% after lowering 4Q guidance.

Economic Data
Consumer Price Index for November rose .2% versus estimates of .2% and a .6% increase in October.
CPI Ex Food & Energy for November rose .2% versus estimates of .2% and a .2% increase in October.

Recommendations
-Goldman Sachs reiterated Outperform on DHR, DNA, PFE, NKE and Underperform on SCS.
-Citi SmithBarney reiterated Buy on PRE, target $71. Citi reiterated Buy on KBH, target $141. Citi reiterated Buy on DRS, target $52. Citi reiterated Buy on MXRE, target $24. Citi reiterated Sell on UST, target $38. Citi reiterated Buy on PBG, target $33. Citi reiterated Sell on GMR, target $35. Citi reiterated Sell on SEPR, target $40. Citi reiterated Sell on LF, target $10. Citi reiterated Buy on CCE, target $25. Citi reiterated Buy on GS, target $125. Citi reiterated Buy on CTAS, target $55.
-CSFB reiterated Outperform on DE.
-Banc of America rated SBSA Buy, target $12. BofA rated EVC Buy, target $10. BofA rated UVN Buy, target $33. BofA rated KWK Buy, target $43. BofA rated LNCR Buy, target $48. BofA rated AHG Buy, target $40.
-Bear Stearns downgraded PLMO to Underperform.
-JP Morgan rated LNG Overweight. JPM rated ONXX Overweight.

Mid-day News
U.S. stocks are modestly lower mid-day on worries over higher energy prices and weakness in the pharmaceutical sector. Oil prices will drop through March, losing as much as 25%, as inventories increase in industrialized countries, according to Merrill Lynch. Reuters Group is expected to buy Telerate, the bond data company, early next week, Financial News said. Cox Communications, Time Warner and Comcast are among cable companies laying their own fiber-optic networks or leasing them to offer new services combining telephone and the Internet as well as tv, the Wall Street Journal reported. Resistance to new financial regulations is rising in the US and Europe, the NY Times reported. The Los Angeles region likely attracted a record high number of visitors this year, thanks in part to a weaker US dollar providing bargains for foreign tourists, the LA Times reported. EBay agreed to buy privately held Rent.com for $415 million in cash and stock as it expands into classified listings, Bloomberg said. Pfizer said Celebrex posed a greater risk to the heart than a placebo in a long-term study of the painkiller, Bloomberg reported. AstraZeneca Plc's Iressa lung cancer treatment didn't help patients live longer in a study, Bloomberg said. Crude oil is rising, heading for its biggest weekly gain since March 2003, on expectations that below-normal temperatures will boost demand for heating oil, Bloomberg reported. President Bush signed into law a bill creating a director to oversee US intelligence gathering and making other changes the Sept. 11 commission said were needed to prevent future attacks, Bloomberg said. Eli Lilly said it added a safety warning to the label of its attention-deficit drug Strattera, Bloomberg reported.

Bottom Line: The Portfolio is slightly lower mid-day on losses in my semi and internet longs. I have not traded and the Portfolio is still 75% net long. Considering the news today, it is a mild positive that the major indices are only showing modest losses. Energy prices are spiking, interest rates are rising and the pharmaceutical sector is sustaining significant damage. Also on the positive side, the ARMS Index and Put/Call readings are soaring and the ECRI Weekly Leading Index rose again this week and is now at its highest level since the first week of May. I expect US stocks to trade mixed-to-higher into the close.

Thursday, December 16, 2004

Friday Watch

Earnings of Note
Company/Estimate
AGE/.56
KMX/.17
CC/-.08
FDO/.33
SCS/.04

Splits
None of note.

Economic Data
Consumer Price Index for November estimated to rise .2% versus a .6% increase in October.
CPI Ex Food & Energy for November estimated to rise .2% versus a .2% gain in October.

Recommendations
Goldman Sachs reiterated Outperform on AMGN, DNA and Underperform on FISV, VTS. Banc of America upgraded NBL to Buy. Shares of Keynote Systems(KEYN), which measures how well a company's web site can attract and service customers, are expected to rise following a recent price drop, Business Week reported.

Late-Night News
Asian indices are mostly higher, led by Japanese exporters. Adam Aron, chairman and chief executive officer of Vail Resorts, said the weaker US dollar is drawing more foreign visitors to the slopes, CNBC reported. Alltel, which sells wireless and local-telephone service, may be the next takeover target with the telecom industry, Business Week reported. Nissan Motor, Suzuki Motor Corp. and other Japanese carmakers face worsening shortages of steel next year as auto production reaches its seasonal peak, the Financial Times reported. The Standard & Poor's 500 Index will rise about 8% next year as corporate profit growth levels off, Business Week reported, citing a poll of strategists. Citigroup's consumer business profits from Asia may rise to about 20% within a few years, the Financial Times said. A US judge ordered a 10-day halt to the sale of OAO Yukos Oil's biggest unit, Agence France-Presse reported. The US, Europe and Arab countries may double aid for the Palestinians if they and Israel meet certain conditions aimed at calming their conflict, the NY Times reported.

Late-Night Trading
Asian Indices are unch. to +.75% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated -.06%

BOTTOM LINE: I expect U.S. equities to open modestly lower on declines in technology stocks. However, equities should rally later in the day on lower energy prices and interest rates. The Portfolio is 75% net long heading into tomorrow.

Thursday Close

S&P 500 1,203.21 -.21%
NASDAQ 2,146.15 -.76%


Leading Sectors
Drugs +2.35%
Consumer +.57%
Tobacco +.28%

Lagging Sectors
Semis -1.60%
Broadcasting -1.94%
Software -2.02%

Other
Crude Oil 44.29 +.25%
Natural Gas 7.04 +.51%
Gold 438.70 +.11%
Base Metals 118.22 +.54%
U.S. Dollar 82.45 +1.0%
10-Yr. T-note Yield 4.18% +2.65%.
VIX 12.27 -.65%
Put/Call .67 +9.84%
NYSE Arms .69 -33.01%

After-hours Movers
IFIN +4.3% after raising 04 guidance.
NKE +4.4% after beating 2Q estimates and giving strong 3Q/4Q guidance.
TEK -6.0% after beating 2Q estimates and lowering 3Q outlook.
LF -16.0% after cutting 04 outlook substantially.
EFII -11.6% after cutting 4Q forecast substantially.
PLMO -14.4% after meeting 2Q estimates, but failing to give 3Q guidance.
TTWO -9.4% after missing 4Q estimates and lowering outlook.

Recommendations
None of note.

After-hours News
U.S. stocks finished modestly lower today on rising interest rates and worries over growth in the tech sector. After the close, Fidelity Investments, the world's largest mutual fund company, dismissed two employees and disciplined 14 others amid an investigation into whether workers accepted gifts from brokers seeking to win trading business, Bloomberg reported. Adobe Systems, the world's largest maker of graphic-design software, said fourth-quarter net income jumped 36% as sales surged for its Creative Suite publishing and design programs, Bloomberg said. A unit of Spain's Grupo Ferrovial SA won a contract to invest $7.2 billion in Texas to develop the first leg of the Trans-Texas Corridor Project with a toll road, rail line and other infrastructure form Oklahoma to Mexico, Bloomberg said. Nike said second-quarter earnings surges to $261.9 million after the Shox line spurred demand in Asia and the US, Bloomberg reported. European Union leaders agreed to begin membership talks with Turkey next Oct. 3, vowing to promote Turkish economic growth and build a bridge to the wider Muslim world, Bloomberg said.

BOTTOM LINE: The Portfolio finished lower today on losses in my technology longs. I exited a number of long positions in the afternoon, thus leaving the Portfolio 75% net long. Considering the positive news today, the major indices' action was disheartening for the bulls. Merger news, a rebounding US dollar, lower energy prices, strong earnings reports, lower jobless claims and a strong Philly Fed report failed to boost shares. Volume increased and the advance/decline line was poor. The FASB decision to force companies to expense employee stock options by mid-05 likely pressured tech shares. Large-cap value stocks outperformed today.

Mid-day Report

S&P 500 1,2004.29 -.12%
NASDAQ 2,157.66 -.23%


Leading Sectors
Drugs +1.73%
Biotech +.42%
Boxmakers +.42%

Lagging Sectors
Transports -1.27%
Software -1.27%
HMOs -1.52%

Other
Crude Oil 43.65 -1.22%
Natural Gas 7.06 -2.43
Gold 439.20 -.68%
Base Metals 118.22 +.54%
U.S. Dollar 82.30 +.82%
10-Yr. T-note Yield 4.18% +2.50%
VIX 12.25 -.81%
Put/Call .66 +8.20%
NYSE Arms .60 -41.75%

Market Movers
SYMC -8.0% after agreeing to buy Veritas Software(VRTS) for $13.5 billion, the biggest software purchase in six years.
ISON +23.1% on optimism over 2Q report.
SEPR +9.7% after saying it won FDA approval for its Lunesta sleeping pill and positive comments by JP Morgan.
ARBX +44.3% on strong demand for IPO.
AEA +28% on strong demand for IPO.
HUBG +18.3% on Bear Stearns upgrade to Outperform.
POG +14.3% after Noble Energy(NBL) agreed to acquire it for $2.76 billion to expand in the Rockies.
WYNN +7.2% after Prudential raised its price target from $62 to $95.
JOYG +10.6% after announcing 3-for-2 split, beating 4Q estimates and raising 05 outlook.
LVS +7.3% on continuing strong demand for IPO.
FLIR +7.1% after announcing 2-for-1 split, raising 05 eps and lowering 05 sales outlook.
MFE -11.3% on worries over slowing growth in anti-virus biz.
APOL -5.1% after meeting 1Q estimates, lowering 05 guidance slightly and Merrill Lynch downgrade to Neutral.

Economic Data
Current Account Balance for 3Q was -$164.7B versus estimates of -$170.6B and -$164.4B in 2Q.
Housing Starts for November were 1771K versus estimates of 1980K and 2039K in October.
Building Permits for November were 1988K versus estimates of 2000K and 2018K in October.
Initial Jobless Claims for last week were 317K versus estimates of 342K and 360K the prior week.
Continuing Claims were 2737K versus estimates of N/A and 2787K prior.
Philadelphia Fed. rose to 29.6 in December versus estimates of 20.5 and a reading of 20.7 in November.

Recommendations
-Goldman Sachs reiterated Outperform on CEN, MSFT.
-Bank of America downgraded IPCC to Sell.
-Citi SmithBarney upgraded COO to Buy, target $84. Citi rated CD Buy, target $28. Citi rated INTU Buy, target $54. Citi rated SY Buy, target $22.50. Citi reiterated Buy on FNM, target $81. Citi rated CHK Buy, target $20. Citi reiterated Buy on BBY, target $73. Citi reiterated Buy on TWX, target $22. Citi reiterated Buy on AMGN, target $90. Citi reiterated Buy on LEN, target $80. Citi reiterated Sell on SEPR, target $40.
-JP Morgan rated VVTV Overweight. JPM rated UVN Underweight.
-UBS raised BKS to Buy, target $38.
-Thomas Weisel cut AW to Underperform.
-CSFB cut TER to Underperform, target $14. CSFB cut CMOS to Underperform, target $7.50. CSFB cut KLIC to Underperform, target $7.50.
-Deutsche Bank rated JBHT Buy, target $46. Deutsche rated SCST Buy, target $25.
-Bear Stearns raised HUBG to Buy, target $70. Bear cut MFC to Underperform, target $45.
-Oppenheimer rated IDBE Buy, target $23.

Mid-day News
U.S. stocks are modestly lower mid-day as rising interest rates are more than offsetting lower energy prices, merger activity and strong economic reports. U.S. retailers including Gap, Nike and Build-A-Bear Workshop have aligned themselves with charities during this year's holiday shopping season to help appeal to customers, the NY Times reported. The average Wall Street bonus is up 15-20% this year, said Tom Cleary, a partner at Rhodes Associates. Sepracor CFO Southwell told CNBC that its newly approved sleeping pill Lunesta has the potential to reach $1 billion or more in sales. Peninsular & Oriental Steam Navigation, the largest UK shipping company, has been picked to establish a "green terminal" for the Port of Los Angeles, the LA Times reported. Illinois Governor Blagojevich wants to make renting or selling violent and sexually explicit video games to people under 18 illegal, the Chicago Sun-Times reported. The US dollar is "a little undervalued," said Mark Mobius, a managing director at Templeton Asset Management. Cendant agreed to buy the UK's Gullivers Travel and Octopus Travel for about $1.1 billion, Bloomberg reported. United Technologies agreed to buy Kidde of the UK for $2.8 billion in cash, Bloomberg said. FedEx said second-quarter net income almost quadrupled as international air shipments rose, Bloomberg said. Goldman Sachs said quarterly profit rose 23%, spurred by revenue from fixed-income trading and fees from providing merger advice, Bloomberg reported. Symantec will buy Veritas Software for $13.5 billion in stock to add data-storage products, Bloomberg said. The number of Americans filing first-time claims for unemployment insurance benefits fell by 43,000 last week to a five-month low, suggesting that more US companies are retaining workers to meet rising demand, Bloomberg reported. Johnson & Johnson agreed to acquire Guidant for $25.4 billion, Bloomberg said. Glamis Gold, which produces gold in Nevada and Honduras, made a hostile $3.38 billion takeover bid for Goldcorp, Canada's fourth-biggest gold producer, Bloomberg reported. The Philly Fed Index soared to 29.6 from 20.7 in November, substantially topping economists' estimates, Bloomberg said. The US dollar rose the most in two months against the euro after a report showed the US current-account deficit grew less than forecast in the third quarter, Bloomberg said.

Bottom Line: The Portfolio is higher unchanged mid-day as gains in my semi and rfid longs are offsetting losses in my internet longs. I have not traded today and the Portfolio is still 125% net long. The underlying tone of the market is weaker today as interest rates rise on a better-than-expected Philly Fed report and lower jobless claims. Today's performance is a bit disappointing considering the merger activity, falling energy prices and strong economic/earnings reports. I do not view the weaker housing starts number as a problem, just a slowdown from scorching levels in October. I expect US stocks to trade mixed-to-weaker into the close.