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Thursday Watch

Late-Night Headlines
Bloomberg:
- Computer Associates Intl. restated results from 2001-2005 after it found contracts that weren't recorded properly.
- Career Education said the US Education Department is reviewing its restated financial results for 2000-2003 and barring campus expansions in the meantime.
- Shares of China Cosco Holdings, the nation's biggest container shipping line, fell as much as 10% on their first day of trade in Hong Kong on concern that excess capacity for sea freight may cut the company's earnings.
- Oil is little changed in NY after falling to a two-week low yesterday when a US government report showed the nation's crude oil stockpile rose.
- South Korean businesses are the most pessimistic they've been in five months on concern a recovery in domestic demand may falter, squeezing profits as higher oil prices and won gains curb exports.

Wall Street Journal:
- Boeing is expected to name 3M CEO James McNerney Jr. as its new CEO tomorrow.

Financial Times:
- CNOOC Ltd. may partner with private equity firms for its proposed takeover of Unocal Corp. to improve its international management expertise.
- US citizens living abroad and foreigners living in the US must report details of overseas financial accounts or risk a minimum fine of $10,000.

Xinhua News Agency:
- Shanghai plans to spend $121 million building a wind farm to boost the city's electricity supply.

South China Morning Post:
- China has no plan to cap rising property prices, particularly in coastal cities, amid calls from urban dwellers.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on COH.
- Said aluminum fundamentals deteriorating due to excess capacity from China.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated +.08%.
NASDAQ 100 indicated +.17%.

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AM/.30
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RHAT/.05

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FBP 2-for-1
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JWN 2-for-1
KWK 3-for-2

Economic Releases
8:30 am EST:
- Personal Income for May is estimated to rise .3% versus a .7% gain in April.
- Personal Spending for May is estimated to rise .1% versus a .6% increase in April.
- The PCE Deflator for May is estimated to rise 2.3% versus a 2.7% increase in April.
- Initial Jobless Claims for last week are estimated to rise to 325K versus 314K the prior week.
- Continuing Claims are estimated to fall to 2594K versus 2600K prior.

10:00 am EST:
- The Chicago Purchasing Manager for June is estimated to fall to 54.0 versus a reading of 54.1 in May.
- The Help Wanted Index for May is estimated to rise to 40 versus a reading of 39 in April.

2:15 pm EST:
- FOMC expected to raise Fed Funds Rate 25 basis points to 3.25%.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker shares in the region after the US dollar rose. I expect US equities to open mixed and rise modestly later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Modestly Lower Ahead of Fed Announcement

Indices
S&P 500 1,199.85 -.14%
DJIA 10,374.48 -.30%
NASDAQ 2,068.89 -.05%
Russell 2000 642.76 +.20%
DJ Wilshire 5000 11,930.50 -.07%
S&P Barra Growth 572.41 -.36%
S&P Barra Value 623.32 +.07%
Morgan Stanley Consumer 574.12 -.43%
Morgan Stanley Cyclical 722.24 +.04%
Morgan Stanley Technology 475.53 -.25%
Transports 3,513.88 +.95%
Utilities 385.35 -.16%
Put/Call .78 +4.0%
NYSE Arms 1.21 +81.62%
Volatility(VIX) 11.77 +1.64%
ISE Sentiment 211.00 +19.89%
US Dollar 89.15 +.18%
CRB 303.10 -.45%

Futures Spot Prices
Crude Oil 57.11 -.26%
Unleaded Gasoline 158.60 +.09%
Natural Gas 7.09 +.11%
Heating Oil 160.37 +.13%
Gold 438.50 -.02%
Base Metals 122.58 -.75%
Copper 156.05 -.10%
10-year US Treasury Yield 3.98% +.24%

Leading Sectors
Gold & Silver +3.79%
Insurance +1.63%
Networking +1.21%

Lagging Sectors
Foods -.86%
Semis -.90%
Broadcasting -1.19%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DNA.

Afternoon/Evening Headlines
Bloomberg:
- UK Prime Minister Tony Blair said in an interview with the AP that coalition forces need to stay in Iraq until the insurgency is defeated.
- Home Depot will put convenience stores selling gasoline and food next to four of its Nashville warehouse stores to increase customer visits.
- Canada will seek to ban bulk sales of patented medicines to the US to prevent shortages that could arise if that country’s government allows citizens to buy Canadian drugs.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet and Homebuilding longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline finished nearly unchanged, sector performance was modestly negative and volume was around average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was negative. The 5.0% decline in Google (GOOG) over the last two days looks like healthy profit-taking to me. I would look to buy more GOOG around the $280-$290 level.

Stocks Modestly Lower Mid-day as Rates Move Slightly Higher

Indices
S&P 500 1,200.17 -.12%
DJIA 10,377.65 -.27%
NASDAQ 2,068.68 -.06%
Russell 2000 640.86 -.10%
DJ Wilshire 5000 11,926.25 -.13%
S&P Barra Growth 572.34 -.39%
S&P Barra Value 622.87 +.01%
Morgan Stanley Consumer 573.81 -.49%
Morgan Stanley Cyclical 721.50 -.05%
Morgan Stanley Technology 475.17 -.32%
Transports 3,514.29 +.96%
Utilities 385.15 -.21%
Put/Call .78 +4.0%
NYSE Arms 1.04 +56.37%
Volatility(VIX) 11.66 +.60%
ISE Sentiment 220.00 +25.0%
US Dollar 89.04 +.07%
CRB 304.08 -2.36%

Futures Spot Prices
Crude Oil 57.35 -1.41%
Unleaded Gasoline 160.70 -1.10%
Natural Gas 7.12 +.74%
Heating Oil 160.80 -.77%
Gold 439.30 +.37%
Base Metals 122.58 -.75%
Copper 156.20 +.51%
10-year US Treasury Yield 3.98% +1.14%

Leading Sectors
Gold & Silver +3.38%
Insurance +1.44%
Networking +1.08%

Lagging Sectors
Semis -.71%
Homebuilders -.76%
Restaurants -.78%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet and Homebuilding longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is about even, most sectors are lower and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is negative, considering another decline in energy prices and better economic data. I expect the Fed to raise rates 25 basis points tomorrow. As well, they will likely restate that policy is "accommodative" and that accommodation can be removed at a pace that is likely to be "measured." However, I would expect to see some subtle changes in language acknowledging that risks to growth may have increased due to high energy prices and slowing global growth. Considering tomorrow is the last day of the quarter, stocks will likely rise as Fed uncertainty is temporarily lifted. I expect US stocks to trade modestly higher into the close on short-covering, declining energy prices and quarter-end window-dressing.

Today's Headlines

Bloomberg:
- Calpine agreed to sell its US oil and natural-gas properties for $1.05 billion.
- Mittal Steel, the world’s largest steelmaker, plans to cut production at plants worldwide by an amount equal to more than 5% of capacity as it joins rivals bidding to shore up plunging prices for the metal.
- A US Senate panel today voted in favor of the Central American Free Trade Agreement, clearing the way for the full Senate to vote on it as early as this week.
- Credit Suisse Group, Switzerland’s second-biggest bank by assets, will drop the 73-year-old First Boston moniker from its investment banking division.
- Jarden Corp., which makes Oster and Mr. Coffee appliances, agreed to buy Holmes Group for about $625.9 million to add brands such as Crock-Pot and Bionaire.
- Crude oil is falling, bringing its two-day drop to more than $3/bbl. in NY, as a government report showed US oil and fuel inventories rose.

Wall Street Journal:
- Deutsche Bank AG’s Deutsche Asset Management may say today it will buy a group of warehouses and other industrial properties totaling about 2.1 million square meters in 18 US markets for about $1.3 billion.
- Some members of the US Congress are demanding tariffs on Chinese goods unless China revalues the yuan, but either action could disrupt the US economy and global financial markets.

NY Times:
- Millennium Pharmaceuticals Chairman, President and CEO Levin is stepping down and will be succeeded by Deborah Dunsire, who heads Novartis AG’s North American cancer unit.
- Chinese companies are attempting to acquire brands that are famous worldwide in response to a government edict for companies to increase worldwide recognition.

Detroit News:
- DaimlerChrysler’s Chrysler unit told car dealers yesterday that it may offer customers an employee-discount pricing program as early as July 6 if General Motors extends a similar promotion.

Financial Times:
- The Chicago Merc approached the Chicago Board of Trade about a merger that would create the world’s largest futures exchange.

Deutsche Presse-Agentur:
- The International Monetary Fund has cut its forecast for economic growth in Germany next year to 1.3% from its previous forecast of 1.8%.

El Watan:
- Algeria plans to double petroleum refining capacity by 2010.

Hong Kong Commercial Broadcasting:
- China plans to start filling its strategic stockpile of crude oil with locally produced fuel from the end of this year. China won’t purchase oil from overseas for its strategic reserves because of high international oil prices, citing Zhang Guobao, vice chairman of the National Development and Reform Commission.