Stocks Lower Mid-day on Greenspan Comments and Lower Consumer Confidence

Indices
S&P 500 1,205.85 -.54%
DJIA 10,402.40 -.46%
NASDAQ 2,121.74 -.59%
Russell 2000 649.86 -1.19%
DJ Wilshire 5000 12,033.94 -.57%
S&P Barra Growth 577.83 -.46%
S&P Barra Value 623.83 -.61%
Morgan Stanley Consumer 577.84 -.40%
Morgan Stanley Cyclical 729.56 -.43%
Morgan Stanley Technology 490.49 -.51%
Transports 3,655.33 -1.10%
Utilities 400.48 -.41%
Put/Call 1.22 +41.86%
NYSE Arms 1.81 +96.77%
Volatility(VIX) 13.97 +1.75%
ISE Sentiment 199.00 -1.97%
US Dollar 87.70 +.07%
CRB 319.73 +.44%

Futures Spot Prices
Crude Oil 67.80 +.46%
Unleaded Gasoline 197.30 +.47%
Natural Gas 9.95 +1.84%
Heating Oil 187.00 +.03%
Gold 442.00 -.25%
Base Metals 129.99 +.74%
Copper 164.30 +2.30%
10-year US Treasury Yield 4.17% +.55%

Leading Sectors
Broadcasting +.63%
Gold & Silver +.17%
Software -.22%

Lagging Sectors
Oil Tankers -1.74%
Steel -1.95%
Tobacco -2.59%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Oil Tanker shorts, Steel shorts and Internet longs. I temporarily hedged further this morning, however the Portfolio is now back to 50% net long. The tone of the market is negative as the advance/decline line is substantially lower, almost every sector is lower and volume is very light. Measures of investor anxiety are higher. Today’s overall market action is modestly negative given a rise in long-term rates after Greenspan’s comments and hurricane worries. The AAII % Bulls rose to 36.14% this week from 29.29% the prior week; this reading is at below-average levels. Likewise, the % Bears fell to 31.33% from 40.40% the prior week; this is slightly above-average levels. Sentiment will likely fall next week. I expect US stocks to trade modestly higher from current levels into the close on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- The Federal Reserve is paying closer attention to the rising values of assets such as stocks and homes, as low interest rates encourage more risk-taking.
- Time Warner’s publishing unit issued a hiring freeze and clamped down on spending on customer gifts and travel to meet profit targets.
- US Treasuries are falling after Fed Chairman Greenspan said the central bank is paying closer attention to asset values.
- Broadcom CEO McGregor said he is focused on winning Nokia Oyj as a customer for the company’s mobile-phone chips for the first time.

Wall Street Journal:
- Merck may consider settling a small number of cases involving its painkiller Vioxx, if patients who claim they were damaged fit certain criteria.
- Some mutual funds, seeking to boost returns, have been beating the market by acting as hedge funds.
- China’s environmental destruction as a result of fast economic growth has many middle-class Chinese worried as water is drained from parks, old palaces and wetlands.
- RealNetworks and Napster failed to reach an agreement with music copyright holders over how much to pay copyright holders for streamed music.
- The SEC has started an informal inquiry into Pixar computer animation film studios over its DVD release of “The Incredibles.”
- McDonald’s and Subway are finding the new fad for toasted sandwiches is harder to satisfy than expected.

NY Times:
- Northwest Airlines mechanics’ strike probably won’t lead to the airline to seek bankruptcy protection unless the walkout’s impact on operations worsens significantly.

Washington Post:
- Sirius Satellite Radio will have two channels devoted to radio host Howard Stern when his show begins airing in January.

Chronicle of Higher Education:
- More than 100 Iowa State University faculty members have signed a statement that denounces “intelligent design,” the theory that a higher being oversaw evolution, and asks colleagues not to suggest the concept is science.

High Energy Prices Taking Toll on Sentiment

- Final Univ. of Mich. Consumer Confidence for August fell to 89.1 versus estimates of 92.5 and a prior estimate of 92.7.

BOTTOM LINE: US consumer confidence fell for the first time in three months in August as Americans paid record prices at the gas pump, Bloomberg reported. The average retail price of a gallon of regular gas increased to $2.61 this week. The current conditions component of the index, which measures whether or not consumers feel it’s a good time to buy big-ticket items, fell to 108.2 from 113.5 in July. The expectations component of the index fell to 76.9 from 85.5 the prior month. I continue to believe consumer sentiment will make new cycle highs over the coming months.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Japan’s consumer prices fell in July for a second month, suggesting deflation lingers and that the central bank isn’t likely to abandon its policy of pumping money into the world’s second-largest economy.
- The yen fell against the dollar for a third day in four after a Financial Times report said al-Qaeda may be planning a terror attack on an Asian financial center.
- Goldman Sachs was hired to prepare an IPO for Bank of China, the nation’s second-biggest lender.
- Hurricane Katrina hit land in southeastern Florida and caused two fatalitites.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on JCI.
- Reiterated Underperform on CMOS.

Business Week:
- AtheroGenics(AGIX), which develops treatments for inflammatory diseases, may be bought by a bigger pharmaceutical company, citing Medical Technology Stock Letter editor John McCamant.
- Tarragon Corp.(TARR), a US homebuilder and property investment company, is expected to see its shares climb even if housing demand slows.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.06%.

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Economic Releases
9:45 am EST
- Final Univ. of Mich. Consumer Confidence for August is estimated to fall to 92.5 versus a prior estimate of 92.7.

BOTTOM LINE: Asian indices are mostly higher on gains in energy shares in the region. I expect US equities to open mixed and to move higher later in the day. The Portfolio is 50% net long heading into the day.

Stocks Finish Slightly Higher as Lower Long-term Rates Offset Higher Energy Prices

Indices
S&P 500 1,212.39 +.23%
DJIA 10,450.63 +.15%
NASDAQ 2,134.37 +.26%
Russell 2000 657.70 +.41%
DJ Wilshire 5000 12,102.72 +.24%
S&P Barra Growth 580.49 +.23%
S&P Barra Value 627.64 +.23%
Morgan Stanley Consumer 580.14 +.25%
Morgan Stanley Cyclical 732.74 +.39%
Morgan Stanley Technology 492.95 unch.
Transports 3,695.95 +.82%
Utilities 402.11 +1.18%
Put/Call .86 -5.49%
NYSE Arms .92 -32.64%
Volatility(VIX) 13.73 -3.11%
ISE Sentiment 203.00 +69.17%
US Dollar 87.73 +.10%
CRB 318.33 -.53%

Futures Spot Prices
Crude Oil 67.47 -.03%
Unleaded Gasoline 196.45 +.04%
Natural Gas 9.75 -.15%
Heating Oil 186.80 -.08%
Gold 443.00 -.02%
Base Metals 129.04 -.72%
Copper 160.80 +.12%
10-year US Treasury Yield 4.15 -.19%

Leading Sectors
Steel +2.06%
Utilities +1.18%
Gaming -.99%

Lagging Sectors
Software -.28%
Homebuilders -.75%
Oil Tankers -1.78%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on AMLN.

Afternoon/Evening Headlines
Bloomberg:
- Iraqi officials extended talks on a new constitution until tomorrow to give negotiators a fourth day to reach consensus between Sunnis and the Kurds and Shiites who have submitted a draft document.
- Merck now faces 4,951 lawsuits over the painkiller Vioxx in state and federal courts, or 15% more than a month ago.
- United Airlines parent UAL Corp., the second-largest US carrier, has received four proposals from banks willing to provide $3 billion in financing to help the company exit bankruptcy.
- California sued GlaxoSmithKline Plc, Bristol-Myers Squibb and 37 other pharmaceutical companies as part of a lawsuit accusing drugmakers of defrauding the state’s $34 billion Medi-Cal program by inflating prescription prices.

Financial Times:
- Al-Qaeda may be planning a terror attack on a financial center in Asia.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Oil Tanker shorts offset losses in my Medical longs. I did not trade in the afternoon, thus leaving the Portfolio 50% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, most sectors rose and volume was very light. Measures of investor anxiety were lower into the close. Overall, today’s market action was neutral. The fact that oil is moving relentlessly higher and stocks refuse to sell-off in any significant fashion is a huge positive.