Mid-day Update

S&P 500 1,083.26 +.36%
NASDAQ 1,799.50 +.93%

Leading Sectors
Homebuilders +2.49%
Semis +2.27%
I-Banks +2.12%

Lagging Sectors
Telecom -.43%
Oil Service -1.93%
Energy -1.98%

Other
Crude Oil 46.33 +1.34%
Natural Gas 5.42 +.78%
Gold 406.40 +.30%
Base Metals 111.29 -.37%
U.S. Dollar 88.05 +.10%
10-Yr. T-note Yield 4.22% -.95%
VIX 16.94 -3.59%
Put/Call .93 +10.71%
NYSE Arms .77 +108.11%

Market Movers
HD +3.5% after beating 2Q estimates and raising 04 guidance.
HAL -3.5% after saying the U.S. Army will withhold 15% of payments for feeding and housing U.S. troops in Iraq.
NVEC +24.6% after announcing it has been notified by the U.S. Patent and Trademark Office of the expected grant of a key MRAM patent.
WIND +18.5% after beating 2Q estimates substantially and raising 3Q/4Q guidance.
DKS+14.0% after beating 2Q estimates and raising 3Q/4Q outlook.
*Homebuilders are up across the board on better-than-expected Housing Starts and falling interest rates.
*Energy stocks are down across the board on speculation energy prices are topping.
EL -8.3% after missing 4Q estimates and lowering 05 outlook.

Economic Data
Consumer Price Index for July fell .1% versus estimates of a .2% rise and an increase of .3% in June.
CPI Ex Food & Energy for July rose .1% versus estimates of a .2% rise and a .1% increase in June.
Housing Starts for July were 1978K versus estimates of 1898K and an upwardly revised 1826K in June.
Building Permits for July were 2055K versus estimates of 1950K and an upwardly revised 1945K in June.
Industrial Production for July rose .4% versus estimates of a .5% increase and a downwardly revised decrease of .5% in June.
Capacity Utilization for July was 77.1% versus estimates of 77.5% and 76.9% in June.

Recommendations
CIBC rated EMR Sector Outperform, target $72. CIBC rated GE Sector Outperform, target $38. FCX rated Buy at Legg Mason, target $42. PD rated Buy at Legg Mason, target $100. FILE rated Overweight at Prudential, target $25. Goldman Sachs reiterated Outperform on BAX, KSS, IR, AMT, ETN and HD. Goldman reiterated Underperform on VRTX, AG, CNH and SGP. Citi SmithBarney reiterated Buy on SSI, target $54.

Mid-day News
U.S. stocks are higher mid-day on better-than-expected economic data and strong earnings reports. Moody's Investors Service yesterday gave the U.S. its top Aaa rating on its debt, Bloomberg reported. U.S. Homeland Security officials said they plan to begin screening airline passengers against a list of potential terror suspects, taking over the duty from the airlines, the NY Times reported. Bond investors are buying more non-conventional mortgage-backed securities, including loans to borrowers with low credit scores and home-equity loans, as interest rates rise, the Wall Street Journal reported. Thefts from luggage at airports have been increasing, in part because of a federal security requirement that all checked bags can be inspected by security screeners, the NY Times reported. New York state lawmakers have approved the first tax credit for film and tv productions in the state to counter the flight of industry jobs to Vancouver, Montreal and Toronto, the NY Times reported. OAO Yukos Oil lost its appeal to suspend an enforcement order on a $3.4 billion tax bill, Interfax reported. Shares of Motorola are rising after Reuters quoted an executive in Singapore as saying the company will have strong sales growth for the rest of the year. California Governor Schwarzenegger is preparing to sign new gambling agreements with several Indian tribes, including one that will create a casino near San Francisco, the LA Times reported. Costco is test-marketing caskets at two of its Chicago-area stores, the AP said. Staples said second-quarter earnings climbed 39%, beating analysts' estimates, Bloomberg said. RealNetworks will begin selling Internet music at half price today as it steps up efforts to draw customers from Apple Computer's iTunes site, Bloomberg reported. Home Depot said second-quarter earnings climbed 19%, beating estimates, helped by strong appliance sales and home installation services, Bloomberg said. U.S. consumer prices unexpectedly fell in July, the first decline is eight months, as shoppers paid less for gasoline, clothing and transportation, Bloomberg reported. U.S. housing starts rose more than forecast in July as builders responded to the best two months of home sales on record, Bloomberg said. Deere & Co. said third-quarter profit climbed 62% as farmers boosted spending on tractors and combines, and demand for construction and forestry machines increased, Bloomberg said. Money managers this month boosted the proportion of assets held in cash to the highest since March 2003, when a major global stock rally began, Merrill Lynch said. Fidelity increased stakes in Elan and Cisco and cut those of Motorola and Texas Instruments, Bloomberg reported. Berkshire Hathaway bought 5 million shares of Comcast in April, Bloomberg said.

BOTTOM LINE: The Portfolio is substantially higher mid-day as my homebuilding, retail and semi longs are rising and my shorts are mixed. I took profits in one of my computer longs this morning and added a small long position in homebuilder OHB. I am using a $16.25 stop-loss on this position. The Portfolio is still 75% net long. The tone of the market and psychology is improving today. It appears that investors are finally paying attention to the better inflation readings I have been talking about for weeks and interest rates are dropping. As well, the sell-off in the energy stocks is a result of speculation that oil is very close to a top. A rotation from this sector into interest-rates sensitive groups, such as homebuilders, is currently underway. It is also positive that the Arms and Put/Call readings are rising. I am a bit concerned about the market's reception of Google's IPO and this could pressure the tech sector again short-term. As well, terrorism worries will likely take front stage again early next week ahead of the Republican convention.