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MACRO AND HOUSING

Housing Market Recovery?

The Mortgage Bankers Association [MBA] reported that mortgage applications, which include loans for home purchases and refinancings, increased 11.4% last week over the prior week, and now stand 22.2% higher than the same week a year ago and at their highest since October 2005. Applications for loans to purchase a new home rose 8.7% over the prior week, down 3% over the same week last year but at the highest level since January. Refi applications are up 60% from a year ago, and accounted for 53.6% of all applications. Average mortgage interest rates have fallen about 0.8 percentage points since the early summer. The average rate for an adjustable rate mortgage is now 5.79%, the lowest since March. Doug Duncan, chief economist of the MBA said of the housing slow-down "The end is in sight." Meanwhile, the delinquency rate on family residential mortgages rose to 4.67% in Q3, up 0.28 percentage points from Q2, implying that almost 1 in 20 mortgage holders is at least 30 days behind on payments.
• Sources: Business Week, Bloomberg, Wall Street Journal, MarketWatch
• Related commentary: Housing Bubble and Real Estate Market Tracker, Mortgage Lenders and the Deflating Housing Bubble, Toll Brothers' Upbeat Guidance Lacks Support - Credit Suisse.
• Potentially impacted stocks and ETFs: Toll Brothers Inc. (NYSE:TOL), Beazer Homes USA Inc. (NYSE:BZH), Lennar Corporation (NYSE:LEN), Centex Corp (CTX), KB Home (NYSE:KBH). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB).

November Retail Sales Up 1%, Beating Expectations

The Commerce Department reported that retail sales rose 1% (seasonally adjusted) in November, beating the Wall St. consensus of 0.2% growth. October's number was also revised to a 0.1% drop, also better than previously thought. Automobile dealerships and parts stores' sales rose 0.9% and building-materials retailers' sales rose 1.8%; strength in these areas surprised economists. Otherwise, sales rose 4.6% at electronics and appliances stores, 0.9% at health and personal care stores, 0.7% at restaurants and bars, 0.9% and food and beverage stores, 0.4% at general merchandise stores, 1.3% at mail order and Internet retailers, and 0.8% at sporting goods, hobby and book stores. They fell 0.1% at furniture stores and were flat at apparel stores. While important, the Commerce Department data were preceded by stores' own publication of same store sales and are thus priced-in to stocks in many cases.
• Sources: Bloomberg, Wall Street Journal.
• Related commentary: Retail Strength: Sustained Demand Or Deal-Hunting?, November Retail Sales Disappoint; Federated and Target Are Bright Spots, Expecting Continued Weakness From Kohl's And Other Department Stores.
• Potentially impacted ETFs: Retail HOLDRs (NYSEARCA:RTH), Consumer Discretionary SPDR (NYSEARCA:XLY)

TECHNOLOGY AND INTERNET

United Technologies Forecasts Strong 2007 on Strong Defense Sector, Falling Commodities

Tech behemoth United Technologies Corporation expects earnings to increase by 10-14% in 2007 according to Chairman and CEO George David.utx EPS is expected in the $4.05 to $4.20 range; this year the expectation is for EPS of $3.68 or $3.69. The reason for the increased earnings projection is twofold: a strong aerospace and defense market and less (though continued) downward pressure on margins from raw metal commodities next year than this year as the price of most commodities is expected to fall. David also sees the housing market bottoming next year and beginning its turnaround, meaning additional revenue for United Technologies. Its shares are up 15% this year, largely on par with the DJIA of which it's a member. In addition, the company recently announced a 60 million share buyback.
• Sources: Press Release, Reuters, CNN Money
• Related commentary: United Technologies Up On Strong Earnings: Past Stock Action Following Gap-Ups, On a New High and an Old Price: Most Investors Are 6 Years Closer to Death–And None the Richer, Cramer's Take on UTX
• Potentially impacted stocks and ETFs: United Technologies Corporation (NYSE:UTX). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), iShares Dow Jones US Industrial (NYSEARCA:IYJ), PowerShares Aerospace & Defense (NYSEARCA:PPA), Vanguard Industrials (NYSEARCA:VIS)

Sony to Make Revised PS3 Production and Delivery Targets

Sony may finally be coming out from under one of its worst years in memory. Two weeks after laying off the designer of the PS3 because of deep production delays, Sony President Ryoji Chubachi told reporters in Tokyo today Sony was going to be able to meet its revised target of having 2 million PS3s shipped by year's end to Japan and the U.S.sne Sony had initially hoped to ship 4 million of the world's most expensive game console ever by Dec. 31 but that proved to be an impossibility after production was heavily delayed. Sony has been forced to cut its profit target from 130 billion to a five year low of 80 billion yen, a result of the PS3 shortfall and the largest notebook battery recall in history at 9.6 million units. Sony shares were up nearly 2% in Japanese trading.
• Sources: Bloomberg, MSN/Reuters
• Related commentary: Sony: Holiday Sales Look Strong, Nintendo's Wii Setting the Pace for Next-Gen Game Consoles this Christmas, Sony's PS3 Launch Shortfall: Who It Affects Most, An Ugly Firsthand Account of Sony's PS3 Launch in Tokyo, Sony's Battery Production Capacity Strained, Sanyo to Benefit. Conference call transcripts: Sony F2Q06 (Qtr End 9/30/06)
• Potentially impacted stocks and ETFs: Sony (NYSE:SNE). Competitors: Nintendo (OTCPK:NTDOY), Microsoft (NASDAQ:MSFT). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)

Free 411? AT&T Launches Ad-Supported Directory Assistance

AT&T has launched a free directory assistance service on a trial basis in three markets: Bakersfield, California, Oklahoma City and Columbus, Ohio.t The catch: users will have to listen to an ad before they receive their free information. The ads will feature competitors whenever possible so that in the crucial moments before a purchasing decision, competitors will be able to snatch away business. The free service, which AT&T-owned Cingular Wireless charges $1.50 for, will be available at 1-800-YellowPages. David Goddard, a telephone directory analyst at Simba Information, expects the service to be most popular among cell phone users who don't have a Yellow Pages handy and who were reluctant to call information in the past due to its heavy costs.
• Sources: Press Release, Reuters, San Antonio Business Journal
• Related commentary: AT&T: Unfulfilled Innovations Since 1993, Will AT&T Let Its Bid To Acquire BellSouth Die?. Conference call transcripts: AT&T Q3 2006
• Potentially impacted stocks and ETFs: AT&T (NYSE:T). Competitors: BellSouth (BLS), Verizon (NYSE:VZ), Sprint Nextel (NYSE:S), Qwest Communications (NYSE:Q). ETFs: iShares S&P Global Telecommunications (NYSEARCA:IXP), iShares Dow Jones US Telecom (NYSEARCA:IYZ), Telecom HOLDRs (NYSEARCA:TTH) and Vanguard Telecom Services (NYSEARCA:VOX)

Monster Admits Overstating Profits by $271.9 Million

Monster.com admitted to having overstated its profits by $271.9 million for the years between 1997 and 2005, and is one Monster Dec 13 06of the at least 80 companies which are currently restating their earnings in the wake of options backdating scandals. The most popular online job-listing service also made improper payments of over $500, 000 to its founder and former CEO Andrew J. McKelvey who recently has paid $533,000 in compensation, and may have to pay more. Beginning in 1997, options grants were given erroneous dates, “intentionally, by persons formerly in positions of responsibility,” to increase their value, Monster said. USB analyst Kelly Flynn said that Monster's backdating scandal was "troubling" and might harm the company's reputation, but Glenn Greene of ThinkEquity Partners in Chicago comments, “This puts the issue behind them, and it doesn’t impact the fundamentals of the business going forward.” On Wednesday, Monster’s stock dropped 31 cents, to $44.18.
• Sources: Reuters , New York Times, Wall Street Journal.
• Related commentary:
Monster Takes a Long Look Back at Options, Monster Expands its Traditional Media Partnerships, Monster Admits Options Manipulation, Options Backdating: a Comprehensive List. Conference call transcripts: Monster Q3 2006
• Potentially impacted stocks and ETFs: Monster (NASDAQ:MNST). Competitors: Yahoo (NASDAQ:YHOO)

ENERGY AND MATERIALS

OPEC Will Likely Delay Further Production Cuts

OPEC, apparently satisfied that crude oil prices have stabilized, is likely to opt for tighter compliance with the production cut set in motion in November than it is to institute a further cut. The 11-member cartel decided on October 20 to stem production by 1.2 million barrels a day in response to the slide in oil prices from their July high of $78.40. Crude has now settled at about $61 a barrel. OPEC is reassured by several factors: 1) the expected rise in demand that should come in the winter months; 2) a 40 million barrel decline in oil stockpiles among industrialized nations in October; and 3) a larger-than-expected weekly decline in U.S. crude.
• Sources: Bloomberg
• Related commentary: Oil Traders Testing the OPEC Cartel, Oil Rises to Over $60/Barrel on OPEC Production Cut, OPEC Waffles on Production Cut
• Potentially impacted ETFs: United States Oil Fund LP (NYSEARCA:USO) , WisdomTree International Energy Sector Fund (DKA), Vanguard Energy ETF (NYSEARCA:VDE), iShares S&P Global Energy Sector Index Fund (NYSEARCA:IXC), PowerShares Dynamic Oil Services Portfolio (NYSEARCA:PXJ), Energy Select Sector SPDR (NYSEARCA:XLE)

BP Under Investigation -- Again

The U.S. Commodity Futures Trading Commission is filing charges against BP in connection with trades made in unleaded gas futures on a single day four years ago. This is the latest in a series of investigations into BP's U.S. business that have been conducted by regulators over the past two years. The company's trading desk has come under particularly close scrutiny. BP is cooperating with the investigation and denies any wrongdoing. It is also under investigation for an oil spill in Alaska this year, an explosion last year at a Texas refinery that killed 15 people, and an alleged manipulation of propane prices in 2004. BP is also suspected of "trading irregularities" in over-the-counter crude.
• Sources: New York Times
• Related commentary: Down in the Dumps with BP, BP's Budget Cuts and Ignored Warnings May Have Played Role in Explosion, Fuel For Thought: Which Integrated Oil Company Should You Own?
• Potentially impacted stocks and ETFs: BP plc (NYSE:BP), BLDRS Europe 100 ADR Index (NASDAQ:ADRU), iShares NYSE Composite Index (NYSEARCA:NYC)

TRANSPORTATION

Chrysler Extending Plant Closures Over Christmas in Bid to Shrink Inventory

DaimlerChrysler AG will halt production at several U.S. plants over the holidays, in some cases for as long as a month, in an attempt to reduce the Chrysler division's swollen inventory level. The closures could hurt revenues, since revenues are based on new vehicles shipped to dealers. But the closures could ease relations with dealers, many of whom had stopped placing orders in view of the oversupply. Chrysler is trying to reduce its supply of "unassigned" vehicles, meaning cars that have been built without orders in hand. Earlier in the year, the company was burdened with over 100,000 such vehicles, but the figure is now closer to 20,000. All the Big Three automakers -- Chrysler, GM and Ford -- have enough inventory to last 70-90 days, unlike competitor Toyota, which has a 41-day inventory. This inefficiency forces the Big Three to discount their vehicles, which hurts the brand and cuts into profits. Many dealers are fed up with the cycle of oversupply and deep discounting, and Chrysler's plant closures are as much an attempt to appease them as they are to reduce inventory.
• Sources: Wall Street Journal
• Related commentary: Chrysler's Woes Continue To Weigh on DaimlerChrysler Stock, Chrysler's Attempt to Lower Inventory Hits Roadblock, Top 5 Things the Auto Industry Has to be Thankful For
• Potentially impacted stocks and ETFs: DaimlerChrysler AG (DCX), Ford Motor Company (NYSE:F), General Motors Inc. (NYSE:GM), Toyota Motor Corp. (NYSE:TM), iShares MSCI Germany Index (NYSEARCA:EWG)

FINANCIAL

SEC Votes to Save Companies Money; Hedge Fund Investor Qualifications Increased

The SEC held an open meeting yesterday covering a number of topics, with its action votes viewed as mostly positive in support of saving companies money, protecting investors better and keeping markets competitive. The following actions were voted on: (1) adoption of e-proxy rule allowing for Internet communications between companies and investors; saving mailing expenses, (2) increased hedge fund investor requirements deemed in-line with inflation and to protect investors, among other things, minimum net worth now at $2.5m vs. $1m prior, (3) easier de-listing for foreign companies, seen attracting more listings, (4) proposed interpretive guidance to improve Section 404 of Sarbanes-Oxley reporting requirements -- no exemptions, but new ability to limit extent of audit depending on size and type of business, and (5) implementation of bank broker provisions allowing banks to more easily and inexpensively provide brokerage services. SEC chairman Christopher Cox commented, "If America’s markets aren’t competitive, investors lose. If America’s markets are not transparent and open, investors lose."
• Sources: SEC action item votes in same order as above [I, II, III, IV, V], BusinessWeek, NY Times
• Related commentary: Ins and Outs of eXtensible Business Reporting Language, Database Eases ' SEC Love Letter' Search, The Princeton Review Needs a Course in SEC Filing, Overlooked Angles in the SEC ’s New Comp Disclosures, An Open Letter to the SEC About Companies That Pre-Announce Dividends
• Potentially impacted stocks and ETFs: E-proxy and proposed interpretive guidance re. Section 404 of Sarbox, seen benefiting small-cap firms the most. ETFs: Small and micro cap offerings by PowerShares: (NYSEARCA:PZI), (PZJ), (PWT), (PWY), iShares Morningstar: (NYSEARCA:JKJ), (NYSEARCA:JKK), (NYSEARCA:JKL), iShares Russell: (NYSEARCA:IWC), (NYSEARCA:IWM), iShares S&P: (NYSEARCA:IJR), (NYSEARCA:IJS), (NYSEARCA:IJT), streetTRACKS DJ Wilshire: (Pending:DSG), (DSV), Vanguard: (NYSEARCA:VB), (NYSEARCA:VBK), (NYSEARCA:VBR), WisdomTree: (NYSEARCA:DES)

HEALTHCARE

Progen Stock Boosted By Positive Trial Results

Progen Industries announced on Wednesday positive preliminary results from its Phase II clinical trial of PI-88 for the treatment of patients with primary liver cancer after surgical tumor removal. Recipients of the drug remained PGLA 14 12 06cancer free 76% longer than patients who didn't receive the drug, 30 weeks rather than 17 weeks. The final results of Phase II will be available in 2Q07. The company is now preparing for the Phase III trial which will take place in the US, Taiwan, Singapore, China, Hong Kong and South Korea. Progen's stock rose $1.80 to $4.75 on Wednesday.
• Sources: TheStreet.com, DrugNewswire.com, TradingMarkets.com.
• Related commentary: Australian Biotech Progen Industries Jumps 100%
• Potentially impacted stocks Progen Industries (OTCQB:PGLA) Competitors: ImClone Inc (OTCQB:IMCL), Celgene Corp (CEGL), Onyx Pharmaceuticals (NASDAQ:ONXX)

Nestle to Purchase Novartis Medical Nutrition Unit

Nestle SA will acquire Novartis AG's medical nutrition unit for $2.5 billion. The chocolate company is looking to expand into the high margin specialized hospital nutrition market, which is estimated to be expanding at a rate of 7% a year, compared to the general food market's 1 to 2%. This unit, which has sales of about $950 million, focuses on high protein food for cancer and post surgical patients as well as devices such as stomach pumps. The deal will officially close during the second half of next year and will put Nestle in second place medical nutrition segment, where until now it has not had significant impact. This acquisition complements its recent purchase of U.S. weight loss company Jenny Craig for $600 million. Analysts are generally pleased with the move, but concerned that Nestle might have overpaid. Some are also unhappy with the division's profitability.
• Sources: Bloomberg, MarketWatch.com, Reuters
• Related commentary: Novartis May Sell Gerber Unit To Nestle, Big Pharma's Big Decision: Diversify Or Focus?, Novartis: Strong Growth and Reasonable Valuation
• Potentially impacted stocks and ETFs: Novartis (NYSE:NVS), Nestle SA (OTCPK:NSRGY) ETFs: Europe 2001 HOLDRs (NASDAQ:EKH) , BLDRS Europe 100 ADR Index (ADRU)

Antidepressant Drug Market: New FDA Warning To Have Limited Impact

Antidepressant drug makers including Pfizer, Wyeth, Eli Lilly and GlaxoSmithKline will be required to apply a suicide warning label to these medications for patients up to age 25, extending the previous FDA mandate on the 'black box warning' sticker that applied until age 18. While the majority of patients taking the mood-altering drugs are above age 25, prescriptions for the youth bracket dropped fully 20% following the initial FDA recommendation of the warning in early 2005 - a falloff that's likely to occur now in the 18-25 age group as well. The FDA panel found that men and women under 25 who took antidepressants were twice as likely to attempt suicide or prepare for a suicide attempt than those who took placebos. Data did not support extending the warning to patients over this age. The antidepressant market was $17 billion last year, with Pfizer's Zoloft, Wyeth's Effexor and Lilly's Prozac leading in sales.
• Sources: Associated Press, New York Times, Reuters
• Related commentary: Wall Street Unhappy With Eli Lilly's Forecast for 2007, Searching for Value Investments in the Drug Stock Universe, Big Pharma's Big Decision: Diversify Or Focus?, Pfizer Setback: Disappointing, But Not Catastrophic
• Potentially impacted stocks: Eli Lilly (NYSE:LLY), GlaxoSmithKline (NYSE:GSK), Wyeth (WYE), Pfizer (NYSE:PFE)

INTERNATIONAL

Chinese Stocks Hit All-Time Highs

Chinese stocks continue to climb as 2006 has been a rewarding year for investors after years of frustration. Both the Shanghai and Shenzhen Composite Indices reach all-time new highs today. In AP's coverage, a Chinese securities analyst was quoted saying, "Investors keep putting money into the market and most of them believe that the long-term prospects of market are positive given the hopes for yuan gains and better corporate earnings." ShanghaiComposite-vs-Benchmarks-12-13-06 In fact, the market cap of both indices has surged by 130% this year to $945 billion. Earlier this week, Bloomberg quoted a Hong-Kong based UBS analyst who said, "A lot of investors are buying but at the same time, they're pretty cautious. Stock valuations are high and there is a problem finding value stocks." The yuan meanwhile, reached its highest level against the U.S. dollar today since its pegged ended in July '05.
• Sources: Newsday-AP, Bloomberg
• Related commentary: Chinese Stocks Outperform -- Watch The9 Ltd, Goldman Sachs Discusses China Opportunity, Capture China's Baby Boom With These Stock Ideas
• Potentially impacted stocks and ETFs: China Fund (NYSE:CHN), Greater China Fund (NYSE:GCH), iShares FTSE/Xinhua China 25 Index Fund (NYSEARCA:FXI), JF China Region Fund (NYSE:JFC), PowerShares Golden Dragon Halter USX China (NYSEARCA:PGJ)

Paulson & Co. in China: Much of the Same Rhetoric, But Dialogue Still Meaningful

The U.S. government and manufacturing sector have high hopes Treasury Secretary Paulson can pull some weight in China and persuade Beijing to allow more appreciation of the yuan. But currency is not the only item on the agenda. At the start of the first biannual talks among American and Chinese economic policy makers, Sec. Paulson said he's looking for "tangible results" that embrace the open market. USD-CHY-1year-chart-12-12-06 His Chinese counterpart acknowledged the need for currency and economic reforms, but her message emphasized China's gradualist approach, while also mentioning limited U.S. knowledge and misunderstanding of China. Paulson admitted, "It would be quite an amazing process if we had significant tangible results after the first meeting." Other areas Paulson discussed include "transparency, rule of law and property rights." The yuan is now trading at its highest levels against the dollar, but appreciation has been incremental at +3.6% since its peg ended in July '05, compared to the euro's 9.4% increase.
• Sources: U.S. Dept. of Treasury Secretary Paulson's Opening Statement and Introductory Remarks, Bloomberg, NY Times
• Related commentary: The Yuan Dilemma; Stocks, Not Economy Overheating?, China: What to Do with Foreign Reserves At $1 Trillion and Counting?, Investing in China: Rapid GDP Growth Rates Indicate Prosperous Future
• Potentially impacted stocks and ETFs: Home Depot (NYSE:HD), General Electric (NYSE:GE) and Oshkosh Truck (NYSE:OSK) announced deals in China yesterday. ETFs: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), iShares Lehman Aggregate Bond (NYSEARCA:AGG), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Year Treasury (NYSEARCA:IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT), iShares Lehman TIPS Bond (NYSEARCA:TIP)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: Can the U.S. Markets Break Loose?
Housing: Housing Bubble and Real Estate Market Tracker
Long Idea: Prostate Treatment for Elderly Good News for Intuitve Surgical
Short Idea: Netflix Faces These Six Challenges
Internet: How Google Can Put Salesforce.com Out of Business
Hardware: Hewlett-Packard Has Big Plans
Software: Is Video 'The Killer App'?
Consumer Electronics: Sony's Media Divisions May Be Sinking The Company
Media: Credit Suisse Suggests Cable Pair Trade: Long EchoStar, Short DirecTV
Healthcare: While Medtronic Recovers, Remember How Good It Can Be
Retail: SEC Sniffing Around The Pantry Inc.
Transport: FreightCar America Is Sooooo Twentieth Century
Energy: Chaparral Steel Uses Eco-friendly Methods In Steel Production
Financial: Expecting Upside From Morgan Stanley
Asia: Credit Suisse Maintains Rating on Japan's Mega Banks, Lowers Targets
ETFs: David Fry's Daily Market Outlook
Small-Caps: Microvision: Laser-Based Cellular Projector Has Serious Potential
IPO Analysis: Are There Too Few IPOs?
Sound Money Tips: Comparison Shopping Engines
Jim Cramer: Latest stock picks

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