Friday Watch

Late-Night Headlines
Bloomberg:
- Coca-Cola(KO) may buy back as much as $13.2 billion of its stock, representing 13% of outstanding shares.
- Microsoft(MSFT) announced plans to buy back $40 billion in stock, sending the shares higher after-hours.
- National CineMedia LLC, a seller of on-screen ads for movie theaters, may raise more than $500 million in an IPO, said six people with direct knowledge of the plan.
- China and Russia may be reneging on commitments to demand that Iran stop enriching uranium, a British diplomat said after giving the UN Security Council a resolution threatening the Islamic nation with economic penalties for refusing to comply.
- Investors are paring bets the yuan will appreciate after losing money on wagers they made a year ago when China abandoned a peg to the dollar.
- Copper prices in Shanghai fell by the daily allowable maximum limit of 4%.

Financial Times:
- Morgan Stanley(MS) analyst Huw van Steenis has been chosen to lead a team that will offer investment banking advice to hedge funds and asset managers. The switch reflects the growing importance of hedge funds as corporate clients of investment banks.

Seattle Post-Intelligencer:
- Yahoo!(YHOO) signed a deal with Zillow.com, a real estate pricing site, to power Yahoo’s home value section.

Xinhua News:
- Overseas investors bought $4.5 billion of property in China in the first quarter, 32% more than the investment in the entire year of 2005.

Late Buy/Sell Recommendations
Business Week:
- ConocoPhillips(COP) is undervalued at a time when prices for crude oil are reaching record highs, citing Stephen Leeb, president of Leeb Capital Management.
- First Horizon National(FHN), a Memphis, Tennessee-based bank that has braches in 30 states, may rise as much as 26% because it may be an acquisition target of companies such as Wells Fargo(WFC), citing Ryan Beck Managing Director Jacqueline Reeves.

Night Trading
Asian Indices are -.75% to -.25% on average.
S&P 500 indicated +.26%.
NASDAQ 100 indicated +.25%.

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Earnings of Note
Company/EPS Estimate
- (ACI)/.43
- (CAT)/1.42
- (LLY)/.75
- (JBLU)/.04
- (NUE)/1.33
- (RSH)/.12
- (REY)/.39
- (SLB)/.63

Upcoming Splits
- (CX) 2-for-1
- (MRVL) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian indices are mostly lower, weighed down by stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

***Alert***

I am unable to post the Thursday Close due to a scheduling conflict. I will post the Friday Watch later this evening.

Stocks Lower into Final Hour, Led by Commodities

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Semi longs and Internet longs more than offset gains in my Commodity shorts and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, most sectors are falling and volume is above average. The FOMC just released its June 29 minutes. The committee said it has "significant uncertainty" regarding future policy. It said inflation is "temporarily" boosted and sees it receding. One member said the June hike was a close call. These minutes are dovish and are meant to further prepare the markets for a "pause." I continue to believe the Fed is done hiking rates for this cycle. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and lower long-term rates.

Today's Headlines

Bloomberg:
- President Bush is standing firm in his backing of Israel’s military assault against Islamic radicals in Lebanon and Gaza in the face of rising calls for a cease-fire and a halt to bombing targets in civilian areas.
- Fed officials saw “significant uncertainty” in June over future interest-rate decisions and expressed concern about higher inflation while expecting it to decline, according to minutes of the session.
- Iran’s top security panel said the country will pursue the production of nuclear fuel, warning against confrontation as the UN Security Council drafts a binding resolution requiring suspension of the work.

USA Today:
- A bill in Congress that would create a nationwide database to track registered sex offenders who haven’t updated their locations has the support of some key legislators.

NY Times:
- US baby boomers are getting creative with their funeral arrangements, by adding personal touches reflecting aspects of their lives, personalities or careers.
- US Congressional negotiators yesterday reached a preliminary oral agreement on a set of legislative amendments that seek to keep more pension plans from failing and being taken over by the federal government, citing Republican Senator Michael Enzi.
- Federated Department Stores(FD) Macy’s will be the subject of a new reality television series on Women’s Entertainment cable network later this year.

LA Times:
- Mattel(MAT) plans to sell a “plug and play” video-game system that’s geared toward pre-teen boys.

Washington Post:
- Switzerland faces an increase in Islamic extremism and Swiss security officials say the neutral nation may become a target for violence.

Labor Market Still Healthy, Leading Indicators Rise Slightly, Philly Manufacturing Slows

- Initial Jobless Claims for last week fell to 304K versus 320K the prior week.
- Continuing Claims rose to 2505K versus estimates of 2425K and 2420K prior.
- Leading Indicators for June rose .1% versus estimates of a .2% increase and a .6% decline in May.
- The Philly Fed Index for July fell to 6.0 versus estimates of 12.0 and a reading of 13.1 in June.

BOTTOM LINE: The number of US workers filing first-time applications for state jobless benefits fell last week as auto workers finished submitting claims following annual shutdowns at some plants, Bloomberg said. The insured unemployment rate, which tracks the US unemployment rate, remained at 1.9%. The four-week moving-average of claims rose to 316,750. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

An index of leading economic indicators rose less than expected in June, Bloomberg said. I continue to expect US economic growth to slow to around average levels through year-end. This will be viewed as a positive over the coming months.

Manufacturing growth in the Philly area decelerated this month, Bloomberg said. The employment component rose to 12.8 versus a reading of 6.8 in June. The outlook component of the index rose to 15.4 versus 6.8 the prior month. The prices paid component of the index rose to 50.3 versus 48.7 in June. I expect manufacturing is still in the process of slowing to more average levels. Low inventories should cushion the deceleration.

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