Friday Watch

Late-Night Headlines
Bloomberg:
- Standard & Poor's ended a review of its ratings on MBIA Inc.(MBI) and Ambac Financial Corp.(ABK), the two largest bond insurers, without changing their ratings. MBIA's MBIA Insurance Corp. and Ambac's Ambac Assurance Corp. remain AA rated, New York-based S&P said today in separate statements. MBIA Insurance's capital levels remain ``well above the level required for a 'AA' rating,'' S&P said. Ambac Assurance's efforts to cancel protection on mortgage-linked CDOs also ``are starting to bear fruit,'' the firm said. MBIA jumped 10.4% in after-hours trading, while Ambac rose 14.0%.
- Gold dropped below $800 an ounce in Asian trading amid speculation the U.S. currency will gain, damping demand for a haven against a weakening dollar. Gold for immediate-delivery fell $8.38 to $798.25 an ounce in Asian trading, a 1 percent decline from yesterday in New York.
- Crude oil fell for a second day on speculation that fuel-consumption declines in the U.S. will spread to other countries as their economies slow. Gasoline demand was down 2.1 percent through July as record prices and slower economic growth cut consumer spending, an American Petroleum Institute report showed Aug. 13. Europe's economy contracted for the first time since the introduction of the euro almost a decade ago, a report showed yesterday. ``The market is much more focused on demand destruction than on supply concerns,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The concern now is that the demand destruction in the U.S. will spread like a virus to other countries.'' Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said in an ABC News interview Aug. 13 that oil prices don't reflect supply and demand, and are being influenced by such factors as a weak dollar.
- Goldman Sachs Group Inc.(GS) reversed course on its dollar forecast, saying the greenback has `bottomed'' as global growth weakens, oil prices decline and the U.S. trade balance improves. The U.S. currency, after reaching a 5 1/2 month high of $1.48 per euro, will climb to $1.45 per euro in three months, analysts led by Thomas Stolper wrote in a research note. Goldman had forecast a decline to $1.56 for the same period. From today's 109.8 yen, the dollar will strengthen to 110 yen in three months, up from a previous forecast of 106. ``The most important driver is clearly much weaker growth outside the U.S., particularly in the euro zone, the U.K. and Australia,'' said Jens Nordvig, a strategist at Goldman in New York, in an interview. ``We have seen a massive move in European rate expectations. This shows that the dollar can gain even with the Federal Reserve on hold.''
- Australia's dollar headed for its fourth consecutive weekly decline, the longest losing streak since October 2006, as prices of commodities dropped and traders added to bets the central bank will reduce interest rates. The currency slid 2 percent this week after gold, its third most valuable raw material export, dropped 5.8 percent. Reserve Bank of Australia Deputy Governor Ric Battellino said yesterday the central bank ``is in a position to consider'' cutting interest rates even before inflation slows. ``With the RBA reinforcing market expectations that they are likely to start lowering the official cash rate as soon as September, we remain bearish,'' Deutsche Bank AG currency strategists including London-based Bilal Hafeez and Sydney-based John Horner, wrote in a research note yesterday. ``We continue to target a fall to 85 U.S. cents on this move.'' Goldman Sachs Group Inc. revised its forecast for the Aussie yesterday, saying that the Australian and New Zealand dollars faced challenges on the ``domestic front from slowing activity.'' The firm now expects the currency to buy 86 cents in three months, compared with a pervious forecast of 96 cents.
- Soros Fund Management LLC, led by billionaire investor George Soros, bought an $811 million stake in Petroleo Brasileiro SA(PBR) in the second quarter, making the Brazilian state-controlled oil company its largest holding. As of June 30, the stake made up 22 percent of the $3.68 billion of stocks and American depositary receipts held by the fund, according to a filing with the U.S. Securities and Exchange Commission. Petrobras has plunged 28.4% since June 30.
- New Zealand's retail sales fell by the most in at least 13 years in the second quarter, when adjusted for inflation, as spiraling food and fuel prices left consumers with less to spend on dining out and clothes.
- OPEC is pulling in more money from oil sales than the U.S. government is raising from individual taxpayers. The cartel's revenue may reach $1.174 trillion this year, edging U.S. personal income tax receipts for the first time since 1980, when gasoline shortages and the Iranian hostage crisis transfixed the country. The scale of wealth at stake helps explain why offshore oil drilling is the subject of renewed debate in Congress, while business leaders including oil billionaire T. Boone Pickens back crash courses in renewable energy. As rising gasoline prices hobble U.S. companies from General Motors Corp. to Starbucks Corp., Middle East investors are accumulating stakes in global banks and purchasing icons like the Chrysler Building in New York. ``This is potentially an empire-ending problem,'' said Robert Zubrin, author of ``Energy Victory,'' a prescription for achieving U.S. energy independence. ``We're being brought low, and at the same time, someone else is being built up.'' Over three years, the 13 OPEC members, including Saudi Arabia, Iran and Venezuela, might bring in $3.5 trillion. That's almost equal to the market value of the Dow Jones Industrial Average, the benchmark U.S. stock index.
- Autodesk Inc.(ADSK), the biggest maker of engineering-design software, advanced 8.9% in late trading after the company forecast third-quarter and full-year revenue that topped some analysts' estimates.
- Kohl's Corp.(KSS), the fourth-largest U.S. department-store chain, reported second-quarter profit that fell less than analysts' estimates after the company slowed new orders and reduced the amount of goods it had to sell on clearance. Full-year profit may decline less than it previously expected, Kohl's said, sending its shares 4.0% higher in late New York trading.
- The Taiwan dollar's decline this month was caused by foreign fund outflows, including those made by Royal Philips Electronics NV, the Commercial Times reported, citing an unidentified central bank official.
- Copper prices may fall a further 10% to 15% in the short term amid economic growth concerns and weaker demand from China, the world’s largest consumer of the metal, UBS AG said today.

Barron’s:
- Oil Seen Dropping Under $90 by Year End. First Global OIL AT $30-$50 A BARREL? We don't know about you, but this wouldn't surprise us at all. Our Quant side flagged the move in crude oil prices on May 30. They were, as nearly always, right on the money. And now it's time for the data crunchers like us to get into action. It is our firm belief that crude oil represents a true bubble. The tests of a true bubble are that it should have little connection with fundamental data; that the bubble's very existence should create ample nonsensical stories as to why the bubble is for ...

Wall Street Journal:
- The two-year-old hedge fund founded by Jonathan Wood, a former UBS AG trader, is down about 85% from its inception through July, according to a person familiar with the matter. Mr. Wood, known as an outspoken investor, has seen his investments in several high-profile casualties of the global financial crisis sour including Bear Stearns Cos., Countrywide Financial Corp., and U.K. bank Northern Rock. An added sting for investors: They haven't been able to cash out because they agreed not to withdraw money for up to five years from when they signed up.
- Data emerging on players in the commodities markets show that speculators are a larger piece of the oil market than previously known, a development enlivening an already tense election-year debate about traders' influence. Last month, the main U.S. regulator of commodities trading, the Commodity Futures Trading Commission, reclassified a large unidentified oil trader as a "noncommercial" speculator. The move changed many analysts' perceptions of the oil market from a more diversified marketplace to one with a heavier-than-thought concentration of financial players who punt on big bets.
- Apple Inc.(AAPL) is working on a software update for the iPhone that would address problems causing the handset to drop some calls. Hundreds of users of the iPhone 3G have posted complaints online about disconnected calls. A software fix will be available in coming weeks. AT&T(T), the exclusive provider of iPhone service in the US, declined to say whether the device drops more calls than other phones that work with its network.
- China Property Stocks Recovery May be a Way Off. China's property market is sputtering through its roughest patch in a decade, and developers' share prices have suffered a prolonged drubbing.
- Yahoo(YHOO) and Microsoft(MSFT) executives seeking signs of success in their chase again Google(GOOG) will have to keep waiting. The Mountain View search giant remains far bigger – and it is growing far faster. EMarketer’s 2008 online advertising forecasts show Google growing U.S. online ad revenue 27% in 2008 to $7.6 billion. That’s nearly twice the estimated growth rate for the next fastest gainer, Microsoft, which will grow 14% to $1.6 billion. The numbers, expected to be released Friday, underscore just what this year’s dance between Yahoo and Microsoft has been about. Alone, each player looks increasingly marginalized. Even together, their overall ad revenues seriously trail Google’s.

MarketWatch.com:
- Fraud allegations reportedly deter giant China IPO. ITAT Group Ltd., China's fast-growing retail giant, may be suspending plans for a $1 billion initial public offering in Hong Kong due to allegations of doctored sales figures and other improper accounting, according to a Wall Street Journal report.
- You can actually see this process of trend-testing underway in the Adens' discussion of gold: "As we write, for one of the first times in seven years, gold is seriously testing its major trend. It's slipping below its key 65-week moving average at $819. The only other two times this temporarily happened was in 2004 and 2005. This is now important to watch because if December gold stays clearly below $819 this week, the major trend will turn bearish for the first time since 2001. This is an alert!
- General Motors Corp.(GM) flashed the first production photos of its Chevy Volt Thursday and said the much-anticipated plug-in hybrid continues to roll toward its planned debut in late 2010.

CNBC.com:
- Billionaire investor Carl Icahn reported on Thursday that he owned 55 million shares in Yahoo (YHOO) as of June 30, and that he had increased his stake in Motorola (MOT) to 144.1 million shares from 115.6 million shares the prior quarter. Meanwhile, billionaire investor George Soros raised his stake in Wall Street firm Lehman Brothers (LEH) and Bill Gates' charitable foundation revealed holdings in Crocs(CROX) and Dick's Sporting Goods(DKS), among others.

NY Times:
- As a military conflict between Russian and Georgia ends its first week, a number of big Wall Street banks are beginning to reassess the stability of their businesses in Russia.
- T-Mobile will be the first carrier to offer a mobile phone powered by Google’s(GOOG) Android software, according to people briefed on the company’s plans. The phone will be made by HTC, one of the largest makers of mobile phones in the world, and is expected to go on sale in the United States before Christmas, perhaps as early as October.

IBD:
- Buffalo Wild Wings(BWLD): Taking Good Care Of Customers Helps Avoid Restaurant Slowdown.

SI.com:
- Just nine months before the Beijing Olympics, the Chinese government's news agency, Xinhua, reported that gymnast He Kexin was 13, which would have made her ineligible to be on the team that won a gold medal this week. The Associated Press found the Xinhua report on the site Thursday morning and saved a copy of the page. Later that afternoon, the Web site was still working but the page was no longer accessible. Sports editors at the state-run news agency would not comment for publication. If the age reported by Xinhua was correct, that would have meant He was too young to be on the Chinese team that beat the United States on Wednesday and clinched China's first women's team Olympic gold in gymnastics. He is also a favorite for gold in Monday's uneven bars final.

Reuters:
- Hedge fund Turnberry Capital Management LP, which specializes in distressed debt, is telling investors that it plans to shut down and return their money after many asked for it back.
- U.S. video game sales rose 28 percent in July from a year earlier, boosted by continued strong demand for Nintendo Co Ltd's Wii console, according to data from research firm NPD on Thursday. U.S. sales of video game hardware, software and accessories totaled $1.19 billion in July, with software sales growing 41 percent and hardware sales rising 17 percent, NPD said.
- Many players snapped up call options in Onyx Pharmaceuticals Inc (ONXX) on Thursday in hopes that the strength in the drugmaker's stock would continue after it broke through a key technical level. Onyx shares jumped 9.5 percent to close at $44.79 on the Nasdaq, its highest level since mid-February. Its option volume was also brisk, running six times the normal level.
- U.S. presidential hopeful Sen. John McCain said Thursday he supports a strong dollar and said the currency would respond to the economy if the right policies were implemented to make it grow faster. "I'm for strengthening the dollar. But I also think we've got to have the economic policies in place for a stronger economy that will, over time, make sure that the dollar will be stronger," McCain, the presumptive Republican nominee, said during a talk at the Aspen Institute. Noting that there are a number of economists worried by the dollar's decline who want it to strengthen, McCain said: "I'm all for it. And I love to talk it up, talk up the strong dollar, and I will."

Financial Times:
- Wal-Mart(WMT), the world’s largest retailer, said yesterday it was seeing evidence of the slowdown in US consumer demand spreading to developing markets as customers deal with growing food and energy costs. The retailer also highlighted concerns over inflation in China, where it was running at approximately 8 per cent during the second quarter.

TimesOnline:
- Western oil demand set for biggest fall in 25 years. Demand in the economies of the Organization of Economic Co-operation and Development (OECD) countries is set to average 48.6 million barrels per day this year, a decline of 1.3 per cent or 620,000 barrels from 49.2 million in 2007, the International Energy Agency says. Globally, oil consumption is expected to grow slightly this year by 760,000 barrels per day to an average of 86.8 million barrels, the weakest global growth rate since 2002. Some analysts believe that oil demand in non-OECD countries will fall to its weakest level for years and could brush close to zero. Beijing's push to stockpile fuel in the run-up to the Games to ensure there are no shortages is likely to lead to a fall in demand over the next few months as those supplies are used up. Weaker economic growth driven by falling demand for manufactured goods from developed countries is likely to be another factor dragging on non-OECD oil demand for the remainder of this year.

International Herald Tribune:
- Two California companies said Thursday that they would each build solar power plants that were 10 times bigger than the largest now in service, creating the first true utility-scale use of a technology now mostly confined to rooftop supplements to conventional power supplies. The solar power will be sold to Pacific Gas & Electric, which is under a state mandate to get 20 percent of its electricity from renewable sources by 2010.

China Daily:
- Growth in China Exports to US Halves. The growth of China exports to the United States, the country's second-largest trading partner, slowed in the first half of the year, the General Administration of Customs said on its website Thursday. China's exports to the US in the first six months totaled $116.79 billion, up 8.9 percent from the same period last year. The growth rate was 9 percentage points lower than a year earlier.

South China Morning Post:
- Hongkongers are tightening their purse strings as consumer confidence has plunged to a near three-year low amid rising inflation, a survey indicates.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (URBN), raised estimates, target $39.
- Reiterated Buy on (GME), target $66.
- Upgraded (PCLN) to Buy, target $130.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures +.26%.
NASDAQ 100 futures +.18%.

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Earnings of Note
Company/EPS Estimate
- (ANF)/.87
- (JCP)/.50

Upcoming Splits
- (ALXN) 2-for-1

Economic Releases
8:30 am EST
- The Empire Manufacturing Index for August is estimated to rise to -4.2 versus -4.9 in July.

9:00 am EST
- Net Long-term TIC Flows for June are estimated to fall to $60.0 billion versus $67.0 billion in May.

9:15 am EST
- Industrial Production for July is estimated unch. versus a .5% increase in June.
- Capacity Utilization for July is expected to fall to 79.8% versus 79.9% in June.

10:00 am EST
- Preliminary Univ. of Mich. Consumer Confidence for August is estimated to rise to 62.0 versus a reading of 61.2 in July.

Other Potential Market Movers
- The Fed’s Evans speaking could also impact trading today.

BOTTOM LINE: Asian indices are slightly lower, weighed down by commodity shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.