Stocks Mixed Mid-day as Rates Fall and Energy Rises

Indices
S&P 500 1,228.83 +.15%
DJIA 10,605.24 -.20%
NASDAQ 2,171.82 -.31%
Russell 2000 670.97 +.58%
DJ Wilshire 5000 12,272.84 +.32%
S&P Barra Growth 590.70 +.16%
S&P Barra Value 635.48 +.42%
Morgan Stanley Consumer 585.18 +.13%
Morgan Stanley Cyclical 755.97 +.01%
Morgan Stanley Technology 497.61 -.18%
Transports 3,765.62 -.37%
Utilities 391.75 +.81%
Put/Call .79 -14.13%
NYSE Arms 1.08 -23.36%
Volatility(VIX) 10.94 -.27%
ISE Sentiment 155.00 -25.48%
US Dollar 89.55 +.70%
CRB 303.93 +1.05%

Futures Spot Prices
Crude Oil 58.15 +1.79%
Unleaded Gasoline 170.00 +1.13%
Natural Gas 7.37 +.96%
Heating Oil 158.30 +.90%
Gold 425.00 unch.
Base Metals 124.73 +.21%
Copper 160.50 +.09%
10-year US Treasury Yield 4.22% -1.25%

Leading Sectors
Oil Service +4.88%
Energy +3.16%
Steel +2.25%

Lagging Sectors
Drugs -.92%
Biotech -2.22%
Airlines -2.34%

BOTTOM LINE: The Portfolio is lower mid-day on losses in my Internet, Biotech and Networking longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering the rise in energy prices and decline in long-term rates. The U.K. economy, Europe's second-largest, grew 1.7% in the second quarter. I expect the Bank of England to cut rates next month or sooner. The ECB won't be too far behind. This should spur further gains in the U.S. dollar. Industrial production in England fell .4% in the second quarter after a .9% decline the previous quarter. Oil prices have a high correlation with global industrial production. I expect stocks to trade mixed-to-higher into the close as falling long-term rates more than offsets higher energy prices.

Today's Headlines

Bloomberg:
- The UK economy, Europe’s second largest, grew in the second quarter at the slowest annual pace in more than 12 years as the expansion in services slowed and industry fell into recession.
- President Bush’s energy bill may include a provision for companies such as Lyondell Chemical to pay $2 billion to $4 billion into a fund to clean up drinking water polluted by the gasoline additive MTBE.
- Microsoft said it chose Windows Vista as the name of its next Windows operating system, and said the version is on schedule for release in the second half of 2006 after a two-year delay.
- The US dollar is gaining against the yen and euro on speculation its drop yesterday following China’s currency revaluation was excessive.
- US 10-year T-notes are rising for a third day in four after a decline that pushed yields to the highest in more than two months attracted investors.
- US companies have reported an 8% gain in second-quarter earnings so far, with more than a third of the S&P 500’s Index having reported results, including Citigroup, Microsoft and Yahoo!.

Wall Street Journal:
- A compromise energy bill proposal in the US Congress would cut to one rather than two months a proposed extension of daylight savings time.
- US Senate Republicans say they plant to schedule a vote for next week on a proposal to abolish the death tax in a bid to force a compromise with Democratic opponents of the repeal.
- US sales of DVDs are slowing, with dire implications for media companies such as News Corp., Time Warner and Walt Disney.

NY Times:
- Wal-Mart Stores and Best Buy are among retailers that may not carry a cleaned-up version of Take-Two Interactive Software’s “Grand Theft Auto: San Andreas” video game.

TradeWinds:
- Some Chinese shipyards have started to cut prices as demand for new ships drops, citing unidentified shipbrokers.
- Greek shipping companies cut first-half new ship orders by 60%, in terms of cargo capacity, as prices rose and freight rates fell.

Economic Releases

None of note

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Friday Watch

Late-Night Headlines
Bloomberg:
- The US House of Representatives voted 257-171 to extend provisions of the USA Patriot Act, the law passed after the 2001 terrorist attacks to strengthen law enforcement's surveillance authority.
- Chartered Semiconductor Manufacturing, Singapore's largest chipmaker, reported a smaller-than-expected second-quarter loss as demand started to recover.

London-based Times:
- Samsung Electronics has become the world's most valuable consumer electronics brand, overtaking Sony Corp., citing research by Interbrand.
- Prime Minister Tony Blair has been urged by senior police officers for greater powers to tackle the threat of terrorism.

Financial Times:
- London's tourism industry may suffer from the threat of further terrorist attacks, citing British Hospitality Association Chief Executive Bob Cotton.

Economic Daily News:
- China's move to end its decade-old peg to the dollar to let the yuan strengthen may move the Taiwan dollar, and Taiwan's central bank doesn't rule out stabilizing the Taiwan currency.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on NUE, ODP, TPX, SBC, ROH, GOOG and DHR.
- Reiterated Underperform on AZR.

Business Week
- American International Group(AIG) will likely recapture its business momentum and boost its share price.
- Shares of Intrado Inc.(TRDO), which provides emergency phone services to US carriers, may benefit because the company may be sold.

Night Trading
Asian Indices are -.50 to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
BDX/.68
CMI/2.40
FLIR/.27
FPL/.70
KMB/.94
MYG/.10
OXY/2.27
SLB/.67
SII/.65
SLAB/.27

Upcoming Splits
None of note

Economic Releases
None of note

BOTTOM LINE: Asian indices are mixed as strength in China is being offset by weakness in Japan. I expect US equities to open modestly lower and to rise later in the day on short-covering. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower as Long-term Rates Close Near Session Highs

Indices
S&P 500 1,227.04 -.66%
DJIA 10,627.77 -.57%
NASDAQ 2,178.60 -.46%
Russell 2000 667.10 -1.54%
DJ Wilshire 5000 12,234.24 -.76%
S&P Barra Growth 589.77 -.53%
S&P Barra Value 632.84 -.79%
Morgan Stanley Consumer 584.42 -.47%
Morgan Stanley Cyclical 755.88 -.97%
Morgan Stanley Technology 498.53 -1.16%
Transports 3,779.59 +.27%
Utilities 388.62 -1.86%
Put/Call .92 +3.37%
NYSE Arms 1.40 +20.21%
Volatility(VIX) 10.97 +7.23%
ISE Sentiment 208.00 +36.84%
US Dollar 88.93 -.46%
CRB 300.76 -.86%

Futures Spot Prices
Crude Oil 57.32 -1.21%
Unleaded Gasoline 167.60 unch.
Natural Gas 7.30 -3.25%
Heating Oil 157.40 -1.48%
Gold 426.00 +.92%
Base Metals 124.47 +.13%
Copper 157.00 -1.35%
10-year US Treasury Yield 4.27 +2.84%

Leading Sectors
Gold & Silver +2.29%
Steel +2.03%
Defense +.56%

Lagging Sectors
Disk Drives -2.15%
Airlines -3.07%
HMOs -6.28%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on MSFT, GOOG, ACN and ALK.
- Reiterated Underperform on DJ, SGP, JBLU and EMC.

Afternoon/Evening Headlines
Bloomberg:
- China’s decision to end its currency peg to the dollar is unlikely to give Asia’s export-driven economies a boost, according to economists at Morgan Stanley and Deutsche Bank AG.
- Iraqi security forces are improving their capability to conduct combat operations on their own, with decreased US support, the Pentagon said in a report to Congress released today.
- German President Horst Koehler dissolved parliament, paving the way for an early election requested by Chancellor Gerhard Schroeder to avoid a year of political deadlock.
- Four of Saddam Hussein’s nephews were identified today by the US Treasury Department as having financed and directed groups carrying out attacks against Iraqi and coalition forces.

Financial Times:
- Volkswagen AG will boost its sales discounts and advertising in North America to regain market share and improve relations with its US and Canadian dealers.
- Russia’s levels of corruption have increased tenfold in four years, and is now worth $316 billion, citing a survey by Indem.

Golfweek:
- Teenage golfer Michelle Wie will turn professional in October and sign a multiyear endorsement contract with Nike’s golf division worth $10 million to $12 million.

BOTTOM LINE: The Portfolio finished lower today on gains in my Networking, Semiconductor, Homebuilding and Retail longs. I added to my GOOG long in after-hours trading with the stock down 27 and trimmed another tech long, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was heavy. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was neutral. The reaction to China's revaluation in the bond market seems overdone at this point. Ninety-five percent of China's foreign trade is denominated in dollars. Due to the political and economic ramifications, I seriously doubt any significant U.S. Treasury sell-down will occur.