MAJOR PAPERS:

• Northrop Grumman Corporation (NYSE: NOC) won a $40B contract to turn Airbus jets into "flying gas stations" for U.S. military aircrafts, the Wall Street Journal reported, breaking The Boeing Company's (NYSE: BA) lock on the market.
• Royal Bank of Canada (NYSE: RY) is expected to launch the first covered bond from the country next week, the Financial Times reported. The bank is targeting a benchmark-sized issue worth $1.4B-$4.2B.
• The Financial Times also reported that Indian conglomerate Tata has concluded an agreement with Virgin Mobile USA Inc (NYSE: VM) to launch a cellular phone brand in India. The brand, called Virgin Mobile in India, would target young Indians under a franchise agreement with Tata Teleservices.

WEB SITES:

• Bloomberg reported that former JP Morgan Chase & Co (NYSE: JPM) Vice Chairman Donald Layton is expected to be named E*Trade Financial Corporation's (NASDAQ: ETFC) new CEO. In an interview, Layton said he may consider a sale of the troubled online brokerage if it "made sense" for shareholders.

President Bush recently submitted a $3.1 trillion dollar budget to congress with the biggest proposed increases in defense spending, and homeland security. The Pentagon would get a $35 billion increase to $515 billion for core programs, about 7% with war costs additional (but how much is additional?) This further supports my investment posture for this year and next that the defense sector is the place to be as I posted earlier today and many times over the past few months -- the BIG BUYS.

Some of our big defense contractors, all of which should benefit to some degree include: Boeing (NYSE: BA), General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), Raytheon Company (NYSE: RTN), and United Technologies (NYSE: UTX). I am not suggesting that you jump into these stocks immediately, but you should add them to your watch list. Perhaps, for some investors dollar cost averaging into them over six months would make sense. Each has a varying degree of exposure to defense spending. For example, United Technologies is the parent of Sikorsky helicopters which makes the Black Hawk. Lockheed Martin and Boeing make fighter jets. Raytheon makes defense electronics and missile while General Dynamics and Northrop Grumman supply warships to the US Navy. Northrop also makes aerial vehicles that are being used in the Iraq War.

MAJOR PAPERS:

• According to people familiar with the matter, The Bear Stearns Companies Inc (NYSE: BSC) CEO James Cayne is expected to step down, but is expected to remain as chairman, the Wall Street Journal reported.
• Northrop Grumman Corporation (NYSE: NOC), in a bid to diversify as a aerospace and naval contractor, is teaming with Oshkosh Truck Corporation (NYSE: OSK) to bid on a contract to build Humvees for the Army and Marine Corps, reported the Wall Street Journal.

OTHER PAPERS:

• The New York Times reported that court records have shown that troubled mortgage lender Countrywide Financial Corporation (NYSE: CFC) fabricated documents related to a Pennsylvania homeowner bankruptcy case.
• Alleging that its lending practices discriminated against minorities, leading to foreclosures, the Baltimore City Council is suing Wells Fargo Bank and Company (NYSE: WFC), the New York Times reported.

MOST NOTEWORTHY: UBS AG, Commerzbank , Trico Marine Services, Optimal Group and Mediacom were today's noteworthy upgrades:

• JP Morgan upgraded shares of UBS AG (NYSE: UBS) to Overweight from Neutral on valuation, as they believe the risk/reward is now attractive.
• Commerzbank AG (OTC: CRZBY) was upgraded to Equal Weight from Underweight at Morgan Stanley, as they believe the company has eliminated much of the uncertainty on asset quality.
• Jefferies upgraded shares of Trico Marine Services Inc (NASDAQ: TRMA) to Buy from Hold and raised their target to $46 from $40 to reflect the growth potential brought on by the company's purchase of Active Subsea ASA.
• B. Riley raised its rating on Optimal Group Inc (NASDAQ: OPMR) to Buy from Neutral to reflect the company's proven management team, acquisition of WowWee and strong balance sheet.
• Citigroup upgraded shares of Mediacom Communications Corporation (NASDAQ: MCCC) to Buy from Hold on valuation following the recent pullback, as they now think the stock is oversold. Citigroup thinks Mediacom will generate free cash in 2008 and they like the pace of buybacks.

OTHER UPGRADES:

• Citigroup upgraded shares of The Allstate Corporation (NYSE: ALL) to Buy from Hold.
• UBS upgraded UnitedHealth Group Incorporated (NYSE: UNH) and Northrop Grumman Corporation (NYSE: NOC) to Buy from Neutral.
  
• Wachovia raised Performance Food Group Company (NASDAQ: PFGC) to Outperform from Market Perform.

Let me introduce my Yankee Doodle Dandy portfolio, a compilation of red, white and blue stocks for investors to consider as they celebrate our nation's independence.

Regardless of your views on the Iraq war, there's no denying that defense stocks including Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman Co. (NYSE: NOC), Raytheon Co. (NYSE: RTN) and General Dynamics Corp. (NYSE: GD) are reasonably valued. This is especially noteworthy considering that defense spending will need to be maintained at pretty high levels for years to come in order to replace equipment that's been worn out from combat. President Bush is proposing to spend a record $439 billion in fiscal 2007 on defense and another $42.7 billion on homeland security.

Lockheed, the maker of the F-16, seems especially cheap, trading at a forward multiple of 14.6. Its shares have only gained 4.6% this year even though the company reported better-than-expected first-quarter results and raised earnings guidance. Missile and defense electronics company Raytheon, up less than 3%, is in the same situation.

Investors often overlook the huge businesses that Lockheed and Raytheon have in areas outside of defense, including computer systems and air-traffic control. The managements of both companies also have vastly improved over the past few years. Northrop and General Dynamics have always been pretty well run.

Boeing Co. (NYSE:BA), notably the second-largest defense contractor, also looks worth snapping up. Its stock is up less than 3% this year, which is surprising considering how well it's rebounded against European rival Airbus. The company trades at a forward multiple of 17.7.

Monday April 23

• CA World 2007 to be held in Las Vegas
• L-3 Communications Holdings, Inc. (NYSE: LLL) to report Q1 earnings, conference call at 10 a.m.

Tuesday April 24

• Defense companies Lockheed Martin Corp. (NYSE: LMT) and Northrop Grumman Corp. (NYSE: NOC) to report Q1 earnings.
• Low-cost airline Jetblue Airways Corp. (NASDAQ: JBLU) to report Q1 earnings. Will Jetblue follow Southwest Airlines Co.'s (NYSE: LUV) disappointing report (which caused two analyst downgrades)? Or is the recent increased investment buy George Soros a sign that Jetblue is doing better?
• Alternative Energy Conference, hosted by Friedland Investment Events, to be held in NY.

Wednesday April 25

• The Boeing Co. (NYSE: BA) to report Q1 earnings; conference call at 10:30 a.m. Will Boeing discuss Airbus's decision to halve the price of its A350 planes in order to become more competitive with Boeing's 787 Dreamliner?
• Market darling Apple Inc. (NASDAQ: AAPL) will also report Q2 earnings, conference call at 5 p.m.

Thursday April 26

• XM Satellite Radio Holdings, Inc. (NASDAQ: XMSR) to report Q1 earnings; conference call at 10 a.m. Investors will look for any comments relating to the state of the potential merger with Sirius Satellite Radio Inc. (NASDAQ: SIRI).

Friday April 27

• YRC Worldwide, Inc. (NASDAQ: YRCW) to report Q1 earnings; conference call at 9:30 a.m.

In yet another bout in the Boeing Co.(NYSE: BA)-Airbus slugfest, both are involved in bids to supply the U.S. Air Force with 12-18 refueling tanker planes annually. The contract value is estimated at $40 billion.

Airbus (EADS) is partnering with Northrop Grumman Corp. (NYSE: NOC) to offer the Northrop-Grumman KC-30, a version of EADS' A330. To counter the protests already being voiced by American workers about defense jobs being lost overseas, EADS would assemble the planes at Northrop's facility in Mobile, Alabama. EADS estimates 52% of the work would be done on U.S. soil, providing 25,000 jobs.

Boeing's proposal will offer the tanker version of its 767, the KC-767, which it claims will be 85% American-made and provide up to 44,000 jobs. The plane is already being used by the Italian Air Force and Japanese Air Self-defense Force.

The Air Force is expected to announce the winner of this competition by the end of the year.

Boeing Co. (NYSE:BA): Rival Airbus booked its first firm order for the A350 XWB. Finnair converted an order for nine of the old A350s to the new version and added two more. The first planes are booked for delivery beginning in 2014.

Continental Airlines ordered five 787-9 Dreamliners from Boeing this week, bringing its total order from the 787 line to 25 planes. Delivery of their first 787-9s is scheduled for 2009.

L-3 Communications Holdings (NYSE:LLL): L-3 Communications received a $43 million, five-year contract from the U.S. Army to develop software technology for networked warfare.

Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC): A $600 million combined project of Lockheed Martin and Northrop Grumman Corp. to build a dozen fast-response cutters was canceled last week. The project, on hold for the last year, was beset with cost overruns and had come under sharp criticism from Sen. John Kerry. The Coast Guard plans to re-bid the project.

As unpleasant as it may be to consider the business of war, the War on Terrorism has had a significant impact on our economy. The Defense Department today released figures showing which companies are garnering the largest portions of the military spending to support both the war and ongoing operations.

The Pentagon's Top 10 Prime Contact award winners for 2006 are:

1. Lockheed Martin (NYSE:LMT), $26.6 billion, up from $19.4b in 2005.
2. Boeing (NYSE:BA) $20.3b, up from $18.3b in '05.
3. Northrop Grumman (NYSE:NOC) $16.6b, up from $13.5b.
4. General Dynamics (NYSE:GD) $10.5b, down from $10.6b
5. Raytheon (NYSE:RTN) $10.1b, up from $9.1b
6. Halliburton (NYSE:HAL) $6.1b, up from $5.8b
7. L-3 Communications Holdings (NYSE:LLL) $5.2b, up from $4.7b
8. BAE Systems (BAESY) $4.7b, down from $5.6b
9. United Technologies (NYSE:UTX) $4.5b, down from $5.0b
10. Science Applications Int'l (NYSE:SAI) $3.2b, up from $2.8b

The full report can be found here.

MAJOR PAPERS:

• The Wall Street Journal (subscription required) reported that Texas has little authority to challenge the private equity buyout of TXU Corp (NYSE: TXU) which was announced yesterday.
• According to individuals familiar with the plan, wrote the Wall Street Journal, Toyota Motor Corporation (NYSE: TM) is expected to pick Tupelo, Miss., as its site for an eighth North American assembly plant.
• According to the Wall Street Journal, a large Boeing Company (NYSE: BA) contract win could be reversed because the Government Accountability Office advised the Air Force to reopen competition for a $15B rescue helicopter program due to improper cost evaluations.

OTHER PAPERS:

• The Financial Times (subscription required) reported that International Business Machines Corporation (NYSE: IBM) will offer its in-house "jamming" technology to outside corporations and organizations.
• India's Economic Times reported that Satyam Computer Services Limited (NYSE: SAY) has signed a deal with Northrop Grumman (NYSE: NOC) to expand "its footprint in the global aerospace and defense market place.
• The Economic Times also reported that Google (NASDAQ: GOOG) will face a domain dispute for Gmail in China, where the Internet address www.gmail.cn is owned by ISM Technologies.

The current administration's stock market performance is likely to be a prouder legacy than the one which it will leave in Iraq. Nevertheless, as of yesterday, it is at the bottom of the last ten administrations -- just below that of Richard Nixon. Here are the presidents ranked from best to worst in terms of average annual S&P 500 returns during their tenure:

• Bill Clinton: +17.40%
• Gerald Ford: +17.00%
• Harry Truman: +15.60%
• Dwight Eisenhower: +14.90%
• Ronald Reagan: +14.40%
• George H. W. Bush: +14.40%
• John Kennedy: +12.40%
• Jimmy Carter: +11.20%
• Lyndon Johnson: +10.20%
• Richard Nixon: +0.60%
• George W. Bush: +0.56%

But this administration's S&P 500 performance masks the enormous stock market benefits resulting from its Industrial Policy -- the application of national leadership to favor specific industries. By betting correctly on which industries a new leader's policies will help, investment opportunities could emerge. To that end, in May 2001, I began to think about which industries would benefit from an oil man in the White House. This led to the W-Industrial Complex (WIC) Index which tracks stocks in the energy, defense, conservative media, and high-end retailing industries.