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Tuesday Watch

Late-Night Headlines
Bloomberg:
- China's government said it may restrict its textile exports to the US, similar to caps it put on exports of the products to the European Union last month to help resolve trade friction with the US.
- Confidence about the prospects of the global economy has declined 10%, citing a survey of international company executives by management consulting firm McKinsey.
- The yen weakened against the dollar for a third day in Asia on speculation China will delay any further revaluation of the yuan, restricting the benefit to the competitiveness of Japanese exports.
- Australian Prime Minister John Howard met his nation's troops and Iraqi Prime Minister Ibrahim al-Jaafari in an unannounced seven-hour visit to Iraq.

AP:
- Jane Fonda, the actress who in 1972 posed on a North Vietnamese anti-aircraft gun, plans in March to launch a bus tour across the US to call for an end to US military operations in Iraq.

Financial Times:
- The European Commission will propose that banks register personal details of anyone making money transfers into or out of the European Union as part of an effort to stop funding for terrorism.

Guardian:
- Revenue from sales of computer games to be played on cell phones will increase to $11 billion by 2010, compared with $2.6 billion this year, citing a report by Informa Telecoms & Media.

London-based Times:
- UK Prime Minister Tony Blair's popularity has increased in the wake of the terrorist attacks in London, citing a Populus survey commissioned by the newspaper.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on RE and BLS.
- Reiterated Underperform on ASH, AVB and CR.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/EPS Estimate
ADP/.44
AFL/.64
AMZN/.10
BIIB/.36
BJS/.60
CTX/1.69
CME/2.38
GLW/.18
ERTS/-.24
IMCL/.33
INSP/.38
LXK/1.06
LMT/.83
MHS/.58
HOT/.65
TDW/.46
VLO/2.95
VZ/.64

Upcoming Splits
None of note

Economic Releases
- Consumer Confidence for July is estimated to rise to 106.3 versus 105.8 in June.

BOTTOM LINE: Asian indices are mostly lower on worries over earnings in the region. I expect US equities to open modestly higher, spurred by tech shares. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Energy and Rate Worries

Indices
S&P 500 1,229.03 -.38%
DJIA 10,596.48 -.51%
NASDAQ 2,166.74 -.60%
Russell 2000 670.99 -1.0%
DJ Wilshire 5000 12,258.72 -.42%
S&P Barra Growth 589.72 -.38%
S&P Barra Value 634.92 -.37%
Morgan Stanley Consumer 584.39 -.37%
Morgan Stanley Cyclical 756.85 -.21%
Morgan Stanley Technology 496.22 -.51%
Transports 3,732.08 -1.27%
Utilities 391.99 -.24%
Put/Call .79 -1.25%
NYSE Arms 1.19 +17.29%
Volatility(VIX) 11.10 +5.51%
ISE Sentiment 169.00 +5.63%
US Dollar 89.57 -.08%
CRB 305.29 +.34%

Futures Spot Prices
Crude Oil 57.59.05 +.68%
Unleaded Gasoline 169.93 -1.66%
Natural Gas 7.33 -.66%
Heating Oil 160.90 +1.71%
Gold 425.70 +.16%
Base Metals 124.47 +.13%
Copper 161.30 +.59%
10-year US Treasury Yield 4.24 +.61%

Leading Sectors
Oil Service +.98%
Energy +.86%
Broadcasting +.47%

Lagging Sectors
Biotech -1.41%
Steel -2.12%
Homebuilders -2.56%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on EBAY.

Banc of America:
- Downgraded LM to Sell.

Afternoon/Evening Headlines
Bloomberg:
- US Federal research dollars to colleges and universities rose by 13.1% and hit their highest levels since 1985, according to the latest National Science Foundation statistics released last week.
- The Chicago Merc has overtaken Deutsche Boerse as the world’s most valuable financial market following a surge in the US exchange’s shares.
- The SEC is considering civil action against Fidelity Investments for violating rules on accepting gifts from brokers.
- Brazil’s currency had its biggest slide since October 2002 and stocks and bonds tumbled on concern President Luiz Inacio Lula da Silva may be drawn into an investigation of alleged government corruption.
- President Bush may consider bypassing the Senate by appointing John Bolton as UN ambassador on a temporary basis if Democrats continue to hold up a vote on his nomination.

Financial Times:
- Pakistan has destroyed al-Qaeda’s command and control system in the country and captured 700 fighters, citing President Pervez Musharraf.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Internet, Biotech and Homebuilding longs. I exited my QQQQ long in the afternoon and took profits in a couple of other longs, 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 light. Measures of investor anxiety were mixed into the close. Overall, today’s market action was neutral slightly negative. Stocks are responding well to earnings reports after-hours. I expect consumer confidence to modestly exceed expectations tomorrow which could also boost shares.

Stocks Consolidating Recent Gains Mid-day

Indices
S&P 500 1,234.11 +.03%
DJIA 10,645.87 -.06%
NASDAQ 2,175.20 -.21%
Russell 2000 676.39 -.21%
DJ Wilshire 5000 12,312.16 +.01%
S&P Barra Growth 591.85 -.02%
S&P Barra Value 637.95 +.10%
Morgan Stanley Consumer 585.89 -.11%
Morgan Stanley Cyclical 760.58 +.28%
Morgan Stanley Technology 498.30 -.09%
Transports 3,765.39 -.39%
Utilities 394.62 +.44%
Put/Call .69 -13.75%
NYSE Arms .92 -8.98%
Volatility(VIX) 10.97 +4.28%
ISE Sentiment 162.00 +1.25%
US Dollar 89.61 -.03%
CRB 304.91 +.22%

Futures Spot Prices
Crude Oil 58.80 +.17%
Unleaded Gasoline 171.00 -1.04%
Natural Gas 7.25 -1.81%
Heating Oil 160.10 +1.27%
Gold 425.80 +.19
Base Metals 124.92 +.15%
Copper 161.70 +.84%
10-year US Treasury Yield 4.24% +.61%

Leading Sectors
Energy +1.54%
Oil Service +1.48%
Telecom +.51%

Lagging Sectors
Biotech -.98%
Homebuilders -.99%
Steel -1.27%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Software and Medical longs are offsetting losses in my Biotechnology 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 modestly lower, most sectors are lower and volume is below average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral considering recent gains and the rise in energy prices and long-term rates from morning lows. In a recent Merrill Lynch survey, energy was the favorite industry among 273 global money managers. Portfolio managers who were "overweight," or held stakes above their benchmarks, outnumbered those "underweight" by 37 percentage points. The energy industry topped health care for the top ranking among all 11 industry groups. I expect stocks to trade mixed into the afternoon as stocks consolidate recent gains.

Today's Headlines

Bloomberg:
- The Service Employees International Union and the International Brotherhood of Teamsters, two of the three largest unions in the AFL-CIO, may leave the labor federation as early as today because of differences over organizing tactics and declining membership.
- The US House of Representatives may urge regulators to investigate whether the maker of video game “Grand Theft Auto: San Andreas,” which has hidden sexual content, deceived a ratings board to avoid an adults-only tag.
- North Korea and the five nations trying to persuade it to dismantle its nuclear weapons program are willing to stay in Beijing as long as needed to reach an agreement, a senior US official said.
- Blackstone Group LP is raising $12.5 billion from investors to start the world’s largest takeover fund as corporate buyouts set a record pace.

Wall Street Journal:
- Security vulnerabilities in computer software are on the rise, citing new security research from the SANS Institute.
- People who want to invest small sums at regular intervals have tended to avoid exchange-traded funds because fees are incurred with every trade, but Nasdaq Global Funds is working on a Web-based program that will change that.
- Low levels of industrial chemicals may be responsible for rising rates of cancer and childhood brain disorders, including autism and learning disabilities.
- XM Satellite Radio Holdings and Sirius Satellite Radio are adding local features including traffic and weather reports in a bid to establish a bigger presence in markets served by traditional broadcasters.

NY Times:
- Teva Pharmaceutical is close to completing the acquisition of Ivax for about $7.5 billion in cash and stock.
- Some US cities such as Seattle and Los Angeles are sending police officers to Israel for training on dealing with suicide bombers.
- Sony is forming manufacturing and technology agreements with Samsung Electronics to boost profit and compete more effectively.

China Economic Times:
- China’s coal stockpile reached 115 million metric tons by the end of June because of rising output.

Existing Home Sales Set Another Record

- Existing Home Sales for June rose to 7.33M versus estimates of 7.15M and 7.14M in May.

BOTTOM LINE: US sales of previously owned homes rose an unexpected 2.7% to an all-time record in June as a strong US economy and low interest rates boosted prices to another high. Sales increased 5.5% in the West, 3.4% in the Northeast, 1.9% in the Midwest and 1.1% in the South. The supply of homes available for sale held at 4.3 months’.