Thursday Watch

Late-Night Headlines
Bloomberg:
- AIG Capital-Raise Concern ‘Overdone,’ Citigroup Says. ``The stock is experiencing downward pricing pressure that exceeds what we believe to be the bear case,'' analyst Joshua Shanker said in a note to investors about the largest U.S. insurer by assets.
- Yields on Fannie Mae(FNM) and Freddie Mac(FRE) debt versus benchmarks fell the most in a month as investors regained some confidence that the U.S. Treasury will prop up the mortgage-finance companies and spare bondholders from losses. The difference between yields on Fannie's 5-year debt and 5- year Treasuries fell 12.6 basis points to 87.6 basis points at 4:45 p.m., data complied by Bloomberg show. The drop was the largest since Treasury Secretary Henry Paulson said July 11 that he supports the companies ``in their current form.'' Freddie's 5- year debt spreads fell 12.9 basis points to 88.9 basis points.
- Stainless steel demand in China, the world's largest producer, will stay weak next month amid concerns of an economic slowdown, the country's three largest producers said. Shanxi Taigang Stainless Steel Co., the largest maker, won't lift output next month, Vice President Chai Zhiyong said in an interview late yesterday. Building demand normally picks up in September when the weather cools. China's economy expanded at the slowest pace since 2005 in the second quarter, and home prices rose at the lowest rate in 14 months in July. South Korea's Posco and India's Jindal Stainless Ltd. this month cut prices for the alloy. A stalled recovery for stainless steel may stop producers from buying nickel, used to make the alloy. Chinese mills expanded crude stainless steel capacity faster than demand growth in the past two years. Capacity has exceeded 8 million tons, compared with demand of 7.4 million tons, Taigang Chairman Li Xiaobo said July 24.
- For the first time since January 2007, Americans who say the economy will improve in the next six months outnumber people who say it will get worse, by 28-to-21 percent. A bigger group, 45 percent of those surveyed, says it will stay about the same, the latest Bloomberg/LA Times poll shows. ``Americans may be less gloomy because they're seeing gas prices fall below $4 in many places, giving them some hope the economy may be back on track,'' says Susan Pinkus, the Los Angeles Times polling director.
- Limited Brands Inc.(LTD), the owner of the Victoria's Secret lingerie chain, rose 6.3% in late New York trading after reporting profit that fell less than analysts estimated and saying full-year profit will exceed its earlier projections.
- Salesforce.com Inc.(CRM), the biggest seller of Internet-based customer-management software, fell 8.5 percent in extended trading after revenue growth slowed and the company said acquisition costs will trim profit.

Wall Street Journal:
- Iraq’s security situation has improved, allowing officials to focus on improving basic services, uniting political parties and agreeing on a timetable for US troop withdrawal, citing an interview with Army General David Petraeus.
- Andor Capital Management LLC, the $2 billion hedge fund spun off by Pequot Capital Management Inc. in 2001, is closing and returning money to investors, citing a letter to investors. The fund’s co-founder Daniel Benton is retiring from managing outside capital after 24 years. Investors will receive their money starting in October.
- Barack Obama's lead in the presidential race has nearly disappeared, a combination of news from abroad, Republican attacks at home and Hillary Clinton voters who have not rallied behind Sen. Obama. A new Wall Street Journal/NBC News poll shows that as Democrats prepare to gather in Denver for their national convention next week, the Obama campaign's biggest challenge may be attracting Sen. Clinton's supporters to his campaign. Only half the people who voted for Sen. Clinton in the primaries said they are now supporting Sen. Obama. One in five is supporting Sen. McCain.
- Ad targeting is coming to a store near you. In the latest effort to tailor ads to specific consumers, marketers are starting to personalize in-store promotions based on products the consumer recently picked off a shelf or purchased -- and in the near future, based on what the shopper looks like.
- A slump in nickel prices of more than 30% this year, combined with rising costs, has forced several operations to shut down or scale back output -- but that might not be enough to put a floor on prices.
- Russia moved closer to recognizing the independence of two breakaway republics that helped spark the current conflict in Georgia and outlined plans for a major military presence in and around the contested territories. The U.S. and Europe objected to the Russian moves but have little leverage over the Kremlin in the crisis, which escalated earlier this month when Russia sent troops into Georgia.

MarketWatch.com:
- The idea of the fully-connected digital home has been percolating for decades, but only recently has it begun to appear both practical and affordable.
- EBay Inc.(EBAY) said Wednesday that it would cut some listing fees "dramatically" as the online auction giant responds to increasing competitive pressure from such rivals as Amazon.com.

NY Times:
- Taking a step that professors may view as a bit counterproductive, some universities are doling out Apple(AAPL) iPhones and Internet-capable iPods to students. The always-on Internet devices raise some novel possibilities, like tracking where students congregate. With far less controversy, colleges could send messages about canceled classes, delayed buses, campus crises or just the cafeteria menu.
- Intel(INTC) has made progress in a technology that could lead to the wireless recharging of gadgets and the end of the power-cord spaghetti behind electronic devices.

IBD:
- AerVironment(AVAV): Unmanned Aircraft Helps Soldiers See Where The Enemy Is.

CNNMoney.com:
- Hedge fund Third Point Management faces an investigation into its outspoken manager’s conversations with other hedge funds. The $5.6 billion fund, whose founder Daniel Loeb is well known for his pointed regulatory filings targeting chief executives he deems underperforming, informed investors in a letter last month that it has been notified that the SEC has commenced a formal investigation into its communications with other hedge funds. The SEC's investigation into Third Point comes at a time when hedge funds are being criticized for playing a key role in the trading of various companies as well as in the continuing financial crisis. The SEC is investigating the actions of up to 50 hedge funds in the collapse of Bear Stearns and in the continuing troubles of Lehman Brothers (LEH) and mortgage guarantors Fannie Mae (FNM) and Freddie Mac (FRE). According to reports, the SEC is investigating whether hedge funds knowingly and intentionally spread falsehoods about the financial strength of these - and other - brokers and banks. Even former Bear Stearns CEO Jimmy Cayne is claiming the shorts are behind his problems. He recently told Fortune that the so-called run on Bear last March was largely brought about by a slew of hedge funds that conspired to sow doubts about the company's health. Hedge funds, it seems, are becoming public enemy No. 1. Loeb didn't return a call seeking comment. But he reportedly has told colleagues and investors that he sees the SEC investigation as "a badge of honor."
- Gas price decline nears 40 cents. Retail prices drop for 34^th straight day to a national average of $3.717 a gallon. The Energy Department reported Wednesday that gasoline demand has averaged about 9.5 million barrels per day over the past four weeks, which is 1.6% lower than the same period last year. Meanwhile, a MasterCard SpendingPulse report released Tuesday showed demand for gas has dropped more than 4% from year-ago levels.

Chicago Sun-Times:
- Reuters.com is reporting that a new poll shows John McCain has taken a five-point lead over Barack Obama in the race for President. The poll, conducted by Reuters/Zogby Thursday through Saturday, shows McCain leads 46 to 41 percent. That would mark a sharp turnaround for McCain, who trailed Obama by seven points in last month's Reuters/Zogby poll. On the question of which candidate would be the best manager of the country's economy, Reuters reports that McCain leads Obama 49 to 40 percent. "There is no doubt the campaign to discredit Obama is paying off for McCain right now," pollster John Zogby said. "This is a significant ebb for Obama."

USA Today.com:
- Hyundai Motor says it will bring a gasoline-electric hybrid version of its Sonata sedan to the U.S.

Washington Post:
- A Few Speculators Dominate Vast Market for Oil Trading. When the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange. By June 6, for instance, Vitol had acquired a huge holding in oil contracts, betting prices would rise. The contracts were equal to 57.7 million barrels of oil -- about three times the amount the United States consumes daily. The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators. The CFTC, which learned about the nature of Vitol's activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the CFTC checks the status of other big traders. The biggest players on the commodity exchanges often operate as "swap dealers" who primarily invest on behalf of hedge funds, wealthy individuals and pension funds, allowing these investors to enjoy returns without having to buy an actual contract for oil or other goods. Many big traders are active not only on NYMEX but also on private and overseas markets beyond the CFTC's purview. These openings have given the firms nearly unfettered access to the trading of vital goods, including oil, cotton and corn. Using swap dealers as middlemen, investment funds have poured into the commodity markets, raising their holdings to $260 billion this year from $13 billion in 2003. CFTC data show that at the end of July, just four swap dealers held one-third of all NYMEX oil contracts that bet prices would increase. For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings. The first major change to this regulatory framework occurred in 1991, when Goldman Sachs(GS), through a subsidiary called J. Aron, argued that it should be granted the same exemption given to commercial traders because its business of buying commodities on behalf of investors was similar to the middlemen who broker commodity transactions for commercial firms. The CFTC granted this request. More exemptions soon followed, including one to the Houston-based energy trader Enron. The most successful of the private platforms was InterContinental Exchange, or ICE, founded by Goldman Sachs, Morgan Stanley and a few other big brokerages in 2000. ICE soon opened a trading platform in London, allowing its founders to trade vast quantities of U.S. oil overseas without being subject to regulation. (very good article)

AP:
- The Bush administration has approved a preliminary agreement to reduce the presence of American troops in Iraq. The tentative deal on a long-term security arrangement still must be accepted by Iraqi leaders.

Reuters:
- Starting in 2009, all of DreamWorks Animation SKG Inc's films will be in next-generation 3-D. "This is the next innovation for the movie industry," Jeffrey Katzenberg, chief executive of DreamWorks Animation, said in an interview. "It impacts how we make our movies, how movie theaters present our films and how audiences experience our films." Katzenberg's DreamWorks Animation and No. 1 chipmaker Intel Corp announced a 3-D movie image brand called InTru 3D at Intel's Developer Forum in San Francisco on Wednesday. The first movie from DreamWorks Animation to use the brand and logo will be "Monsters vs. Aliens," coming out next March.
- Software maker Salesforce.com Inc (CRM) said on Wednesday that it signed an all-you-can-eat deal with Dell Inc (DELL) that allows the computer maker, already a large customer, to use an unlimited amount of its Web-based software through 2011. Although Salesforce declined to disclose the value of the contract, Chief Executive Marc Benioff said it was the largest single deal his company has signed since it was founded a decade ago.
- California's attorney general is reviewing a request by former employees of IndyMac Bancorp Inc to investigate whether a New York senator triggered the bank's collapse by releasing confidential information. At issue is a much-publicized letter that Chuck Schumer, a Democrat, sent in June to the Federal Deposit Insurance Corp (FDIC) and Office of Thrift Supervision (OTS) questioning the company's ability to survive. In a letter to Attorney General Jerry Brown last week, 51 former IndyMac workers wrote: "From the day (Schumer's) letter was made public on June 26 until the closure of the bank, a run on the bank took place and the failure became inevitable."
- Japan's construction machinery makers, including the world's No.2 maker Komatsu Ltd, on Thursday cut their shipment growth estimate for the year to March 2009 to 1.9 percent from the 8.5 percent they forecast in February.
- Colombia's industrial production fell 6.55 percent in June compared with a year earlier in the clearest sign yet of the country's slowing economic growth, the government said on Wednesday.

TimesOnline:
- Iceland is to join the growing rush of countries aiming to tap into the potentially vast oil and gas reserves of the Arctic. Reykjavik is hoping to attract investment from some of the world's biggest oil companies as it finalizes the terms for its first offshore licenses. The region is relatively unexplored, although a joint preliminary study conducted by Norway and Iceland in the 1980s offered evidence of the existence of oil-bearing rocks. The results of an additional seismic survey carried out this summer will be published at an investor conference in Reykjavik on September 4 and 5. The US Geological Survey estimates that there could be 90billion barrels of undiscovered oil in the Arctic, with 80 per cent lying offshore. Greenland, Russia, the United States and Canada are opening up areas that previously were considered too costly to explore.
- Hopes that industry can take up some of the slack in Britain's faltering economy were undercut yesterday as the CBI reported that manufacturers' expectations of their future output fell to a seven-year low this month. The growing gloom among manufacturing groups came as order books declined for a second month in a row and by more than they had expected.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MRVL), target $22.
- Maintain Buy on (AIG), target $40.50.

Night Trading
Asian Indices are -1.25% to +.25% on average.
S&P 500 futures -.24%.
NASDAQ 100 futures -.34%.

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Earnings of Note
Company/EPS Estimate
- (DKS)/.36
- (BKE)/.59
- (PLCE)/-.44
- (BKS)/.10
- (BKC)/.34
- (TECD)/.46
- (PDCO)/.39
- (GME)/.28
- (SSI)/.23
- (HRL)/.38
- (TTC)/.97
- (PSUN)/.06
- (GPS)/.30
- (ARO)/.31
- (INTU)/-.08
- (HIBB)/.15
- (BEBE)/.17

Upcoming Splits
- (ALXN) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 440K versus 450K the prior week.
- Continuing Claims are estimated to fall to 3405K versus 3417K prior.

10:00 am EST
- Philly Fed for August is estimated to rise to -12.6 versus -16.3 in July.
- Leading Indicators for July are estimated to fall .2% versus a .1% decline in June.

Other Potential Market Movers
- The weekly EIA natural gas inventory report and (VSEA) analyst meeting report could also impact trading today.

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