Stocks Close Modestly Higher on Good Economic Data and Decline in Oil

Indices
S&P 500 1,226.50 +.26%
DJIA 10,628.89 +.68%
NASDAQ 2,152.82 +.41%
Russell 2000 663.02 -.69%
DJ Wilshire 5000 12,214.20 +.09%
S&P Barra Growth 586.99 +.36%
S&P Barra Value 635.21 +.17%
Morgan Stanley Consumer 582.50 +.55%
Morgan Stanley Cyclical 741.30 +.41%
Morgan Stanley Technology 500.52 +.41%
Transports 3,661.90 +1.45%
Utilities 392.68 -1.06%
Put/Call .70 -10.26%
NYSE Arms .70 -1.61%
Volatility(VIX) 10.81 -.28%
ISE Sentiment 139.00 -10.32%
US Dollar 89.46 +.24%
CRB 309.11 -.78%

Futures Spot Prices
Crude Oil 58.16 +.61%
Unleaded Gasoline 169.60 +.65%
Natural Gas 7.92 +1.03%
Heating Oil 166.80 +.67%
Gold 420.40 +.05%
Base Metals 123.55 +.64%
Copper 154.75 +.03%
10-year US Treasury Yield 4.17 +.47%

Leading Sectors
Biotech +1.53%
Semis +1.26%
Computer Hardware +.75%

Lagging Sectors
Energy -2.35%
Gold & Silver -2.47%
Oil Service -2.56%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on TRB.

Afternoon/Evening Headlines
Bloomberg:
- US aviation regulators told lawmakers today that restrictions on mobile phone use on aircraft will remain in place even if the Federal Communications Commission lifts its ban on the devices.
- Support for suicide bombings has fallen in five mainly Muslim countries during the past two years, according to a survey carried out before Britons died last week in the first such attacks on their soil.

Financial Times:
- China is prepared to use nuclear weapons against the US if it is attacked during a confrontation over Taiwan, citing Zhu Chenghu, a military official.
- Procter & Gamble’s $57 billion takeover of Gillette may get European approval soon.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet and Medical longs and Energy-related shorts. 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 line finished modestly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was neutral. Worldwide copper usage fell 4.4% in the four months ended April from a year earlier with declines in demand from Europe, the U.S. and Japan, the International Copper Study Group said today. The U.S. showed a 12% drop in demand. This is amazing considering the booming U.S. housing market. As well, Chinese demand slowed to 3.1% from 6.4% in 1Q. Copper is holding at relatively high price levels due to supply issues. I still plan to short Phelps Dodge (PD) again over the coming weeks.

Stocks Modestly Higher Mid-day as Oil Falls and Rates Rise

Indices
S&P 500 1,226.00 +.22%
DJIA 10,626.08 +.65%
NASDAQ 2,152.37 +.38%
Russell 2000 663.57 -.61%
DJ Wilshire 5000 12,211.19 +.06%
S&P Barra Growth 586.77 +.33%
S&P Barra Value 635.04 +.14%
Morgan Stanley Consumer 582.26 +.51%
Morgan Stanley Cyclical 740.52 +.30%
Morgan Stanley Technology 501.60 +.63%
Transports 3,646.37 +1.02%
Utilities 391.04 -1.47%
Put/Call .67 -14.10%
NYSE Arms .67 -6.43%
Volatility(VIX) 11.02 +1.66%
ISE Sentiment 163.00 +5.16%
US Dollar 89.44 +.21%
CRB 308.39 -1.01%

Futures Spot Prices
Crude Oil 57.70 -3.85%
Unleaded Gasoline 168.50 -3.94%
Natural Gas 7.80 -1.20%
Heating Oil 165.60 -3.66%
Gold 420.20 -1.04%
Base Metals 123.55 +.64%
Copper 154.70 -.16%
10-year US Treasury Yield 4.19% +.85%

Leading Sectors
Semis +1.17%
Computer Hardware +1.16%
Biotech%

Lagging Sectors
Oil Tankers -2.09%
Energy -2.49%
Oil Service -2.60%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Internet and Medical longs and Energy-related shorts. I added to some existing Energy shorts this morning and to my AUO, PMCS and NOK longs, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is modestly lower, sector performance is mostly positive and volume is slightly above average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering recent gains, positive economic reports and the fall in energy prices. This report from the China Securities Journal via China Daily says China has entered a "mild" slowdown that could last one to two years. They expect 8.2% growth in the fourth quarter, down from a 9.5% rate in the fourth quarter of last year. They said the property market would slow significantly and that there were no assurances that a soft landing in the sector could be achieved. Finally, they said export growth would decelerate significantly. This is why I think it is so absurd that the IEA is forecasting Chinese crude demand growth to rebound to 9.4% during the second half of the year when it fell 1% in the second quarter with 9%+ GDP growth. I expect US stocks to trade mixed-to-higher into the close on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- Russia’s slowing economic growth is threatening President Vladimir Putin’s goal of raising living standards and doubling the size of the economy in the decade to 2010, Prime Minister Mikhail Fradkov said.
- Prime Minister Tony Blair’s government launched a review of the powers it holds to deport people who incite violence in Britain, and started consultations with opposition parties about new laws to curb terrorism.
- Crude oil is plunging almost $3/bbl. as Hurricane Emily was forecast to miss Gulf of Mexico platforms, China’s economy slows and the IEA downgraded global demand for crude.

Wall Street Journal:
- With gasoline prices near records, US carmakers are gearing up to start selling fuel-efficient compact cars again, instead of pushing SUVs and powerful sedans.
- IBM is creating a database of staff, accessible on its internal Web site, which catalogs skills, availability and salaries, aiming to cut labor costs by ensuring all employees are used effectively.
- US authorities are looking into whether the chief executive officer of Berkshire Hathaway’s General Reinsurance unit played a role in a controversial transaction between General Re and AIG.
- US inventors’ purchases of foreign stocks have risen and those of US stocks by investors abroad have declined in the past five years.

NY Times:
- US grandparents are contributing more money for their grandchildren as life spans grow and the elderly have more money.
- US Senator Hillary Clinton of NY and other Democrats want the size of the Army boosted by 80,000 troops.

Chicago Sun-Times:
- Potbelly Sandwich Works, which has 84 restaurants in nine states and the District of Columbia, is ready to sell shares to the public.

Detroit News:
- UnitedHealth Group said it will cover as much as half the cost of corrective laser eye surgeries, including Lasik, for its members, which can cost $1,800 per eye.

Vedomosti:
- Starbucks won the rights to its trademark in Russia, ending a three-year legal dispute that kept the US company out of the $500 million brewed-coffee market.

Svenska Dagbladet:
- Hennes & Mauritz AB is moving Chinese production of some clothes made for the US market to other Asian countries because the company has already filled its US import quotas.

Daily Mirror:
- UK Muslims should “root out” extremists and other British people should avoid criticizing the Muslim community after the July 7 bombings in London, Prince Charles, heir to the British throne wrote.

Inflation Tame, Retail Hot, Employment Stable

- The Consumer Price Index for June was unchanged versus estimates of a .2% increase and a .1% decline in May.
- The CPI Ex Food & Energy for June rose .1% versus estimates of a .2% increase and a .1% gain in May.
- Advanced Retail Sales for June rose 1.7% versus estimates of a 1.0% increase and a upwardly revised .3% decline in May.
- Retail Sales Less Autos for June rose .7% versus estimates of a .6% gain and an unchanged reading in May.
- Initial Jobless Claims for last week rose to 336K versus estimates of 322K and 320K the prior week.
- Continuing Claims rose to 2617K versus estimates of 2600K and 2572K prior.

BOTTOM LINE: US consumer prices were unchanged in June as companies discounted products such as clothing and cars to boost sales. Consumer prices were up 2.5% for the 12 months ended in June. As I predicted at the beginning of the year, inflation will likely rise this year less than the long-term average of 3.0%. The cost of all goods including cars, apparel and food fell .2% last month.

US retail sales rose a greater-than-expected 1.7% in June, led by spending on cars, furniture and gasoline. An improving job market, a rising stock market and booming housing market are helping to boost consumer sentiment and spending. Retail sales account for about half of all consumer spending.

The number of US workers filing jobless claims rose to 336,000 last week, reflecting a temporary shutdown of auto plants. The four-week moving average of claims rose to 320,750 from 320,500. The insured employment rate, which tracks the US jobless rate, rose to 2.1%.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY after a US government report showed stockpiles of distillates, which include heating oil and diesel, rose more than analysts predicted.
- People who work at the top 50 hedge funds ranked by assets have directed 62% of donations to Democrats since January 2003, a Bloomberg News review of campaign-finance disclosures shows.

Financial Times:
- European financial and commodities markets will today stop to observe a two minutes silence at noon London time in memory of the victims of the July 7 bombing in the UK capital.
- Cnooc's board agreed yesterday to allow its executives to raise the company's $18.5 billion takeover offer for Unocal.

China Daily:
- Philip Morris International, a member of Altria Group, is in talks with manufacturers in China about the possibility of making Marlboro cigarettes in the world's largest nation of smokers.
- China's military is shifting from large fighting divisions to smaller brigades than can be deployed swiftly to upgrade its battle readiness.

Shanghai Daily:
- Wal-Mart Stores plans to open its first store in Shanghai on July 28, its 48th location on China's mainland.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on BC, NSM and DNA.

Night Trading
Asian Indices are +.50% to +1.0% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.19%.

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Earnings of Note
Company/EPS Estimate
CBH/.46
FCS/.05
FITB/.74
GENZ/.53
IFIN/.59
MAR/.77
MTG/1.52
PII/.68
LUV/.18
TRB/.58
UNH/.60

Upcoming Splits
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Economic Releases
8:30 am EST
- The Consumer Price Index for June is estimated to rise .2% versus a .1% decline in May.
- The CPI Ex Food & Energy for June is estimated to rise .2% versus a .1% gain in May.
- Advance Retail Sale for June are estimated to rise 1.0% versus a .5% decline in May.
- Retail Sales Less Autos for June are estimated to rise .6% versus a .2% decline in May.
- Initial Jobless Claims for last week are estimated to rise to 322K versus 319K the prior week.
- Continuing Claims are estimated to rise to 2600K versus 2581K prior.

BOTTOM LINE: Asian indices are higher, led by technology shares in the region. I expect US equities to open modestly higher and build on gains later in the day. I expect the CPI to rise slightly below estimates tomorrow and retail sales to slightly exceed expectations. The Portfolio is 100% net long heading into the day.