Both General Electric and Pfizer said they expects to meet earnings growth targets in 2002 and beyond. GE said it remains comfortable with analysts' fourth-quarter estimates and expects profit growth in 2002 of 17% to 18%; Pfizer affirmed its earnings forecasts for this year and next and said results should remain strong through 2004.

Closing Summary

Index	Last	Change	% Change
Dow Jones Industrial Avg.	9892	+80.90	+0.82%
S&P 500	1134.36	+11.29	+1.01%
Nasdaq Comp	1987.4	+34.30	+1.76%
Russell 2000 Index	479.94	+8.65	+1.84%

Happy Shopping! Discounts abound as retailers slash prices . . .
Gap, U.S. Clothing Stores Accelerate Markdowns in Week Before Christmas

Gap Inc., Federated Department Stores Inc. and Kmart Corp., slogging through the worst holiday shopping season in decades, are slashing prices and staying open longer to try to clear shelves before Christmas. Gap cut prices on 543 items last week, almost three times as many as the 189 products discounted in the same period a year ago, analyst Stacy Pak of Prudential Securities said. The number of goods marked down at clothing chains almost doubled, she said. Wal-Mart Stores Inc. said its sales were less than forecast. ``It's ugly,'' said Pak, who doesn't own shares of any clothing chains. ``The markdowns are accelerating." Kmart will keep stores open for 110 hours straight from Thursday through Christmas Eve. Other chains may accelerate discounts this week, as retailers make last-ditch efforts to gain sales in what may be the bleakest holiday season in at least 16 years, analysts said. With many U.S. consumers saying they've finished shopping, the attempts may be in vain, analysts said.

- GE General Electric Expects to Meet Earnings Estimate
GE said it remains comfortable with analysts' fourth-quarter estimates and expects profit growth in 2002 of 17% to 18%

- PFE Pfizer Sees Growth Through 2004
Pfizer affirmed its earnings forecasts for this year and next and said results should remain strong through 2004.

- CD Cendant Will Buy Equivest Finance for $158 Mln in Cash, Debt to expand its timeshare business. Cendant said it will pay about $85 million, or $3 a share -- more than double Equivest's closing price of $1.25 on Friday. CD said it wanted to buy more hotel and timeshare-related companies to take advantage of an aging U.S. population, which is expected to have more disposable income and travel more than ever. Equivest markets timeshare resort interests to consumers and helps to finance those purchases, will be merged with Cendant's timeshare unit (Bloomberg).
- DYN Dynegy unveiled a $1.25 billion plan aimed at strengthening the energy trader's balance sheet in the wake of its abandoned bid for Enron. The plan includes asset sales, cost cuts and a stock offering.

- AOL Bertelsmann to call $5.3 Bln From AOL
As Kirch Holding GmbH, Germany's No. 2 media company, struggles to cut debt and sell assets, arch-rival Bertelsmann AG is set to cash in on one of Chief Executive Thomas Middelhoff's smartest investments. Bertelsmann will this month get $5.3 billion by selling 80 percent of AOL Europe to AOL Time Warner Inc. and another $1.4 billion when it sells the rest by July. The price, fixed a year ago, is above the stake's current value, AOL has said. The cash will bring Bertelsmann's war-chest to about $10 billion, more than enough for the controlling shareholder in RTL Group to buy a rival or to find a partner for its unprofitable music unit BMG. It will also strengthen Bertelsmann's hand in the battle with Kirch for supremacy in the German media market. (Bloomberg)

- BA Moody's Downgrades Boeing's Debt
Boeing's long-term debt rating was downgraded by Moody's, which cited the effect of the current aviation crisis on the aerospace company's earnings and cash flow (WSJ).

- Strong Market Rebound
The market rebounded strongly today off the major trend line that we've had for the last 90 days and also was an extension of the late rally we had last Friday. It started off from the get-go with a move up, then it went into about a three-hour consolidation that resulted in another leg up, before pulling back in the last hour or so.

Even though the advance-declines and technicals were not good early, they did improve to get to about 17-13 positive on both exchanges. Up/down volume, however, was much better, about 3-2 advantage on New York and about 2 ? -1 on Nasdaq.

It was a constructive day. The Nasdaq 100 ran up against its declining tops line of the last seven days and backed off late, but the S&P has broken out of its minor downtrend of the last seven days and through its declining tops line and moving averages and may be in a bottoming mode.

We had a crossover buy signal on both indices late in the day that could auger well for the next several days, and I would say that tomorrow could be critical. If the market follows through to the upside we may have more left to this market rally of the last 90 days and perhaps a year-end rally as well.

If it ends up being a down day, and sharply so, it could still reverse the entire up trend since the September lows, so we're in a very critical posture now in the market, and the next day or two are going to be very telltale in terms of the short-term market direction. Source: The Technical Trader, [www.thetechtrader.com] .

Market Stats

Market	NYSE	Nasdaq
Total Volume	1239.92m	1812.18m
Up Volume	728.19m	1,259.70m
Down Volume	489.34m	534.58m
Advancers	1783	2077
Decliners	1368	1594
New Highs	94	105
New Lows	48	41

- Merrill Lynch: Re-Test the Lows or 5% Growth? How about both!
Two seemingly contradictory headlines Monday raised some eyebrows as to what's going on in the Research Department of Merrill Lynch.

Merrill's Market Startegist, Christine Callies, either left or was let go after a year of somewhat high-profile dispute with Merrill's longtime quant guru, Richard Bernstein.

Merrill sees on the one hand, a "Re-Testing Of September Lows. " Dow Jones news reported that about a half hour after they noted "5% U.S. Economic Growth? Merrill Says Yes."

   These apparently conflicting views can be partly reconciled: "Any advance for stocks in 2002 will come in the back end, says Merrill Lynch market analyst Richard McCabe. "We expect the market averages to re-test their September lows in the first 3-6 months of next year and then move into a more consistent major advance for the remainder of 2002 and into 2003-2004," he says, with small caps outperforming their larger cousins.

  When will the economic growth occur? According to the earlier story, by the 2nd half, "the U.S. economy should be growing at 5% annualized pace, with the euro-zone growing at 3.5%. Even Japan should be growing - at 2% - by 2003." The report, written by economists Bruce Steinberg and Matthew Higgins, suggested "Central banks' current global easing campaign should have run its course by spring, while the stimulative effects will continue into early 2003. "The result will be a vigorous global economy."

That the different conclusions come from commentators following different disciplines also partly explain the friction: Market Analysis relies on more technically oriented indicators, while the work done by the Economists focuses on more macro, global issues of Central Bank policies . . .

German Business Confidence Rises
Munich: German business confidence rose for the first time in four months in November, the Ifo institute's survey of 7,000 executives showed, a sign Europe's largest economy may recover next year. Executives said they expect a U.S. economic revival to spur orders at factories in Germany, where the economy shrank last quarter. Companies from Siemens AG to truckmaker MAN AG said this year they will eliminate about 125,000 jobs, according to data compiled by Bloomberg News.

"A recovering U.S. market will spur our exports,'' said Juergen Zapf, chief executive officer of SZ Testsysteme AG, a maker of semiconductor-testing equipment. ``We see that the mood in the U.S. has improved.'' Ifo's index of western German business confidence rose to 84.9 from October's eight year low of 84.7. A future expectations index climbed to 90.9 from 89.6, the biggest gain in two years. (Bloomberg)

"More than anything else, Windows XP reminds one of a tourist trap. You arrive in a foreign city, and a handsome stranger walks up to you and says he will show you around the city. He offers to take you to the very best shops and restaurants. But you soon realize that he is taking you only to places that are owned by his relatives or by someone who gives him a kickback."

-Tom Regan, writing in the Christian Science Monitor
http://www.csmonitor.com/2001/1025/p11s1-stct.html

Short Memories and Even Shorter Attention Span
The more things change, the more the remain the same

The single most repeated issue coming from the skeptics of this market is the Fed’s lack of efficacy. We keep hearing the same 'ole Bear refrain: "11 interest rate cuts, and still no sign of improvement.”

In my humble opinion, this lack of faith is due to a combination of short attention spans and even shorter memories.

Recall the December - January rally of nearly a year ago. The Fed had just begun the rate cutting cycle, and many jumped onto the oversold rally as if it was the end of the Bear Market; After only one rate cut!

Unless they were nimble, investor’s impatience was not rewarded as the rally fizzled within a few weeks. And with good reason: History shows that when the Fed cuts three times in rapid succession, the market is higher 6 - 12 months after the 3rd cut. The Fed's policy making takes several quarters to actually be felt in the economy. Thw value of that 1st rate cut is little more than an acknowledgement that the Fed recognizes things are going to get worse before they get better.

Investing requires both patience and a long term memory. Reall the last time the Fed cut rates 10 times. The same chorus of "ineffective policy making" and "poor government intervention" was heard from the some quarters. A few misguided economists were even calling for a return to the gold standard!

When was that last, "ineffective" rate cutting period? Here's a hint: We were in the midst of an ugly recession after a long period of a booming market; The country was about to go to war in the Middle East, the doomsayers were in full throat, and the Bears ruled the Market. When was the last time the Fed cut rates 10 times in a year? 1990 -- and I think we all know what happened after that . . .

Unfortunately, many of today's market professionals had not yet gotten out of high school yet.

Minding your QQQs
by David Futrelle

The Nasdaq's rejiggering of the Nasdaq 100 makes the index an even less reliable proxy for tech than it already was.

EXCERPT: NEW YORK (CNN/Money) - It's official: Investing in the QQQs is now almost completely beside the point. 

On Monday, the Nasdaq announced that it would be kicking 13 slumping tech firms out of the much-followed Nasdaq 100 index, on which the exchange-traded fund called the QQQ is based. Of the replacements, 8 are health-care and biotech companies.

The move, to be sure, came as no surprise. The Nasdaq Stock Market regularly rebalances its Nasdaq 100 index at the end of each year to make sure the index accurately represents the largest 100 non-financial firms that trade on the Nasdaq Composite (which counts more than 5,500 companies among its members). According to John L. Jacobs, president and chief executive officer of Nasdaq Financial Products Services, the rebalancing ensures that the index "reflects the current economy" and improves the index's "value as a benchmark for investors."

He's right on the first point. But he's wrong about the second.

The QQQs have become insanely popular in the past few years because they provide day traders and long-term investors alike a quick, cheap and dirty way to get exposure to the tech sector. Traders especially like the QQQs, which can be traded all day as a stock -- and which can be shorted as well.

--Barry Ritholtz
December 18, 2001

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