Today's Headlines

Bloomberg:
- French consumers pared spending in the second quarter by the most in more than eight years as high unemployment and rising gas prices further damped economic growth in Europe’s third-largest economy.
- Airbus SAS has struggled for 20 months to design an intercontinental plane to compete with Boeing’s fuel-saving 787.
- US Treasuries are falling on speculation yields at about the lowest since July offered little value after reports this week showed bigger-than-expected gains in manufacturing and wholesale prices.
- Crude oil is rising more than $1/bbl. in New York as production disruptions in Ecuador and a failed rocket attack on two US Navy vessels in Jordan heightened supply concerns.
- The US dollar is headed for its biggest weekly gain against the euro in more than two months as signs that the gap between US growth and European growth is widening.

Wall Street Journal:
- Baidu.com has protected itself from a takeover with a dual-class share structure that gives original shareholders 10 times the voting rights of those who bought shares in the US IPO.
- Talented US high school students are using the Internet to take more advanced college classes at Stanford University, Johns Hopkins University and the University of Missouri and other schools.
- Hollywood marketing executives are realizing that network-tv advertising isn’t the powerful tool it once was as the summer movie season draws to a close.
- Investors, keen to take advantage of growth in Chinese stocks, should avoid putting too much money into the nation’s $400 billion stock market.
- US ranchers are turning to lawsuits and seeking damages to fight environmentalists for what they say are unwarranted accusations of ecological damage caused by cattle.
- Danskin, a maker of women’s activewear, dancewear and hosiery, and other apparel distributors including AnnTaylor Stores are turning yogawear into streetwear to follow the latest fashion trend.

NY Times:
- US home prices since 1980 have risen more slowly than the stock market. Home in San Francisco, two of the hottest markets, have risen 7% a year, compared with a 10% annual rise in the S&P 500.
- GM doesn’t face the immediate threat of bankruptcy, though that outlook isn’t as certain beyond two or three years.

Interfax:
- Russia’s Federal Security Service has information that terrorists are trying to obtain weapons of mass destruction, citing the service’s chief Nikolai Patrushev.

Economic Releases

None of note

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:
- Australia has increased its troop commitment to Afghanistan ahead of elections in September, Defense Minister Robert Hill said.
- The US dollar is poised for its biggest weekly advance against the euro in more than two months on speculation international investors are increasing purchases of US debt to boost returns.
- Economic growth among members of the Association of Southeast Asian Nations may slow by as much as 1.5 percentage points this year if the price of oil remains above $60/bbl., said Secretary-General Ong Keng Yong.
- Crude oil may fall for a second week as record gas prices deter consumers, reducing demand, and global production increases, a Bloomberg survey showed.

Financial Times:
- China has set up an armed and helicopter-equipped police force in major cities to fight terrorism and an increasing number of riots.

Commercial Times:
- AU Optronics cut its target for 2005 shipments of small-and medium-sized flat-panel displays by 20% to 55 million units because mobile-phone makers postponed orders.

Japan Metal Daily:
- Chinese export-coke prices fell below $200 a ton for the first time in two years on a free-on-broad basis because of oversupply and as steelmakers cut production.

China Business News:
- A Home Depot unit, which focuses on wholesale and retail of home-improvement products, won approval to set up a store in Shanghai.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on MRVL.
- Reiterated Underperform on HC and BKS.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
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ANN/.17

Upcoming Splits
CRR 3-for-2
STGS 3-for-2

Economic Releases
None of note

BOTTOM LINE: Asian indices are mostly lower, led down by exporting shares in the region. I expect US equities to open modestly lower and to move higher later in the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Modestly Lower on Light Volume

Indices
S&P 500 1,219.02 -.10%
DJIA 10,554.93 +.04%
NASDAQ 2,136.08 -.42%
Russell 2000 651.19 -.55%
DJ Wilshire 5000 12,137.81 -.14%
S&P Barra Growth 584.09 -.01%
S&P Barra Value 630.61 -.19%
Morgan Stanley Consumer 587.42 +.28%
Morgan Stanley Cyclical 738.16 -.59%
Morgan Stanley Technology 496.57 -.81%
Transports 3,711.07 -.38%
Utilities 391.45 +.22%
Put/Call 1.0 -5.66%
NYSE Arms 1.14 +15.22%
Volatility(VIX) 13.42 +.90%
ISE Sentiment 158.00 +.64%
US Dollar 88.57 +.65%
CRB 311.75 -.62%

Futures Spot Prices
Crude Oil 63.55 +.44%
Unleaded Gasoline 187.10 +.43%
Natural Gas 9.00 +.81%
Heating Oil 179.60 +.31%
Gold 444.60 -.02%
Base Metals 128.74 +.45%
Copper 160.25 unch.
10-year US Treasury Yield 4.20% -1.50%

Leading Sectors
Tobacco +1.34%
Broadcasting +.52%
Biotech +.32%

Lagging Sectors
Disk Drives -.83%
Airlines -.97%
Steel -2.50%

Evening Review
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on GOOG.

Afternoon/Evening Headlines
Bloomberg:
- The US dollar rose for a fifth straight day against the euro, the longest streak in two months, and advanced versus the yen as a report showed the biggest gain in Philadelphia-area manufacturing since April.
- Retailers Gap and Limited Brands reduced their annual profit forecasts after the wrong fashion calls produced sluggish second-quarter sales.
- The US government brokered the release of 404 Moroccan prisoners held by Western Sahara’s Polisario Front rebels for up to two decades, in a step that may help end a dispute over the dessert territory and improve ties between Algeria and Morocco.
- US Treasuries surged on optimism foreign demand may be rising after a Japanese government report showed the country’s investors doubled their purchases of overseas bonds.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Medical and Internet longs. I added back my IWM and QQQQ shorts in the afternoon, 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 remained mixed into the close. Overall, today’s market action was negative considering more positive economic data and the fall in long-term rates. Investors seem somewhat spooked by the recent decline in copper and oil. As well, the 10-year T-note yield continues to drop and is now at 4.2%, which is leading some to point to an imminent economic slowdown. These developments will be viewed positively a few weeks from now as GDP growth remains strong and inflation measures decelerate further.

Stocks Mixed Mid-day Even as Oil and Rates Fall

Indices
S&P 500 1,219.15 -.11%
DJIA 10,557.26 +.07%
NASDAQ 2,138.94 -.29%
Russell 2000 652.90 -.29%
DJ Wilshire 5000 12,138.65 -.14%
S&P Barra Growth 584.43 +.05%
S&P Barra Value 630.28 -.24%
Morgan Stanley Consumer 588.01 +.39%
Morgan Stanley Cyclical 738.68 -.52%
Morgan Stanley Technology 497.10 -.71%
Transports 3,713.11 -.33%
Utilities 391.55 +.24%
Put/Call 1.03 -2.83%
NYSE Arms 1.17 +16.96%
Volatility(VIX) 13.39 +.68%
ISE Sentiment 156.00 -.64%
US Dollar 88.59 +.67%
CRB 310.51 -1.01%

Futures Spot Prices
Crude Oil 62.50 -1.19%
Unleaded Gasoline 182.50 -3.49%
Natural Gas 8.88 -5.39%
Heating Oil 176.10 -1.28%
Gold 444.70 -.11%
Base Metals 128.74 +.45%
Copper 165.90 +.12%
10-year US Treasury Yield 4.22% -1.09%

Leading Sectors
Tobacco +1.57%
Broadcasting +.91%
Biotech +.80%

Lagging Sectors
Energy -.87%
Disk Drives -1.22%
Steel -2.29%

BOTTOM LINE: The Portfolio is slightly lower mid-day on losses in my Internet, Medical and Retail longs. I added to my existing longs, including GOOG/BRCM/BBY/ISRG/AAPL, this morning, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are declining and volume is light. Measures of investor anxiety are mixed. Today’s overall market action is negative, considering the decline in energy prices, above-expectations Philly Fed report and decline in long-term rates. The AAII % Bulls fell to 29.29% this week from 39.74% the prior week; this reading is now at depressed levels. Likewise, the % Bears rose to 40.40% from 28.85% the prior week; this is an above-average level. This is a very positive development given the market's recent performance and makes me more confident that another substantial rally will begin over the next 6 weeks. I expect US stocks to trade modestly higher from current levels into the close on short covering.