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Wednesday Watch

Late-Night Headlines
Bloomberg:
- General Motors(GM) said its second-quarter net loss was $200 million more than first reported because of a charge tied to the sale of its finance unit and warned that the transaction may be delayed.
- PIMCO, the manager of the world’s biggest bond fund, formed a fund to invest in high-yield, high-risk municipal debt.
- Israel expanded its land operations in Lebanon, targeting Hezbollah bases inside the country. Between 70-80% of Hezbollah’s missiles and rocket launchers have been destroyed since the fighting began July 12.

Financial Times:
- The impression that the US and the UK are leading international diplomatic efforts to resolve the Middle East conflict “has go to be countered,” citing an interview with United Nations Deputy Secretary-General Mark Malloch Brown.
- Fidelity Investments expects its fund business to continue to shrink as it generates more revenue from the processing of payroll, health and retirement plans.

Wall Street Journal:
- Fuyao Group Glass Industries, China’s largest automotive glass maker, bid for glass assets managed by Ford Motor(F).
- Kohlberg Kravis Roberts and Silver Lake Partners have won an auction for the semiconductor unit of Philips Electronics NV.
- Coca-Cola(KO) has agreed to an alliance with Apple Computer(AAPL) for the iTunes digital music service to be promoted on the soft drink company’s Web site in Europe.

Shanghai Securities News:
- China may let its currency gain 2% this year to help east the country’s trade imbalance and cut excessive market liquidity.

Late Buy/Sell Recommendations
Goldman Sachs:
- Upgraded (CMED) to Outperform, target $28.50.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.02%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
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Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (ADP)/.46
- (AGN)/.83
- (AT)/.87
- (BEC)/.67
- (CBT)/.46
- (CI)/1.94
- (CLX)/1.04
- (CNO)/.45
- (CTSH)/.33
- (CNO)/.45
- (DF)/.53
- (DVN)/1.56
- (DLB)/.13
- (EXPE)/.24
- (GSF)/.86
- (HOC)/1.24
- (INSP)/1.06
- (IDCC)/2.94
- (LVS)/.34
- (MA)/.62
- (NTES)/.27
- (OII)/.51
- (PCG)/.64
- (PG)/.54
- (PRU)/1.44
- (PWR)/.12
- (SBUX)/.17
- (TWX)/.19

Upcoming Splits
- None of note

Economic Releases
- None of note

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

Stocks Finish Lower on Lingering Economic Concerns

Indices
S&P 500 1,270.92 -.45%
DJIA 11,125.73 -.54%
NASDAQ 2,061.99 -1.41%
Russell 2000 689.89 -1.52%
Wilshire 5000 12,708.68 -.56%
S&P Barra Growth 584.77 -.49%
S&P Barra Value 684.86 -.41%
Morgan Stanley Consumer 614.69 -.37%
Morgan Stanley Cyclical 773.09 -1.05%
Morgan Stanley Technology 459.10 -1.74%
Transports 4,295.23 -1.98%
Utilities 438.21 +1.11%
Put/Call .91 +12.35%
NYSE Arms 1.07 -6.76%
Volatility(VIX) 15.05 +.67%
ISE Sentiment 117.00 +18.18%
US Dollar 85.02 -.33%
CRB 349.56 -.08%

Futures Spot Prices
Crude Oil 75.09 +.24%
Unleaded Gasoline 227.95 +.14%
Natural Gas 7.62 +.61%
Heating Oil 208.20 +.08%
Gold 659.10 +.05%
Base Metals 228.52 -1.14%
Copper 359.75 +.13%
10-year US Treasury Yield 4.97% -.12%

Leading Sectors
Gold & Silver +2.50%
Utilities +1.11%
HMOs +.78%

Lagging Sectors
Networking -2.01%
Steel -2.59%
Airlines -2.75%

Evening Review
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Afternoon Recommendations
Banc of America:
- Rated (NVS) Buy, target $65.
- Upgraded (RIG) and (GSF) to Buy.

Afternoon/Evening Headlines
Bloomberg:
- Electronic Arts(ERTS) said its first-quarter loss widened as the company increased spending to develop games for new consoles. Results beat estimates.
- US Treasuries were little changed, keeping 10-year yields near the lowest since June.
- Citigroup’s(C) private-equity unit is raising a $3.5 billion fund to help finance acquisitions by leveraged buyout firms.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Retail longs and Semi longs. I added (IWM) and (QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was mildly bearish. The 10-year yield finished at session lows, falling to 4.97%. Cyclicals and small caps were underperformers today as investors appear to be worried again that growth will slow too much as a result of the Fed overshooting. I suspect this belief will change again after the Fed meeting next week. The fact that recent economic and inflation data have mostly exceeded estimates, yet the 10-year yield is at 4.97%, leads me to conclude that bond investors are much more worried about slowing growth than inflation. The bond market is telling the Fed to pause. I expect they are listening.

Today's Headlines

Bloomberg:
- McAfee(MFE) released new software today to fight identity theft and protect wireless networks
- Toyota Motor(TM) passed Ford Motor(F) in July to become the No. 2 automaker in the US for the first time as US automakers said sales declined more than 20% after rising fuel costs curbed demand for light trucks.
- President Fidel Castro gave temporary control of Cuba to his brother Raul after undergoing surgery for intestinal bleeding, handing over power for the first time in more than 47 years.
- US Treasury Secretary Henry Paulson said the global economy is “more robust” than at any point during his 32 years on Wall Street, and that the US economy, while slowing, remains “strong.”
- Tropical Storm Chris, the third named storm of the Atlantic hurricane season, is expected to hit the northern Leeward Islands as early as tonight and head toward Puerto Rico tomorrow.
- Israel’s security cabinet approved a plan to push troops further into southern Lebanon after Prime Minister Olmert said the fight against Hezbollah will continue until the group no longer poses a threat.

Wall Street Journal:
- Carlyle Group, which manages $41.9 billion in private-equity funds, will start a hedge fund that trades stocks and bonds.
- IBM(IBM) is increasing its use of semiconductors from AMD(AMD).
- US companies gained in unexpected ways from improved security introduced since the Sept. 11, 2001 terrorist attacks, as savings from added protection offset the cost of extra investment.
- China is boosting production of auto parts, reflecting a shift by the Asian nation’s manufacturing industries to more sophisticated goods.
- Ordinary US investors are becoming the biggest market for ETFs, which were considered unusual investments only a few years ago.
- Many executives are quitting Yahoo!(YHOO) and EBay(EBAY) to join start-ups.
- ESPN is breaking with current internet strategy and charging Internet service providers for the right to offer its broadband Web site.

NY Post:
- Microsoft(MSFT) told content providers it will delay the video portion of its Zune device, designed to compete with Apple’s(AAPL) iPod.

Washington Post:
- Twelve US congressional Democrats united to ask President Bush to start withdrawing troops from Iraq by the end of the year.
- Israel’s strategy of killing innocent civilians in the hopes that people will place blame on Hamas and Hezbollah is both inhumane and counterproductive, former Democratic President Jimmy Carter wrote.

Guardian:
- Nigeria’s oil production may exceed 3 million barrels a day by the end of 2006, with output from deep-water fields offsetting losses caused by militant attacks, Oil Minister Daukoru said.

Personal Spending and Incomes Meet Estimates, PCE Core Gains, Manufacturing Accelerates, Housing Stabilizing

- Personal Income for June rose .6% versus estimates of a .6% gain and a .4% rise in May.
- Personal Spending for June rose .4% versus estimates of a .4% increase and an upwardly revised .6% gain in May.
- The PCE Core for June rose .2% versus estimates of a .2% increase and a .2% gain in May.
- Construction Spending for June rose .3% versus estimates of a .1% increase and no change in May.
- ISM Manufacturing for July rose to 54.7 versus estimates of 53.5 and a reading of 53.8 in June.
- ISM Prices Paid for July rose to 78.5 versus estimates of 75.3 and a reading of 76.5 in June.
- Pending Home Sales for June rose .4% versus estimates of a .5% decline and a 1.4% gain in May.

BOTTOM LINE: US personal spending and incomes met expectations in June, Bloomberg reported. Spending on services, which account for two-thirds of the economy, rose .1% versus a .4% gain in May. The PCE Core, the Fed’s favorite inflation gauge, rose 2.4% from a year ago. I continue to believe spending is slowing to more averages levels from robust rates. Incomes will likely grow around current levels over the intermediate-term. I still believe inflation fears have peaked for the year.

US construction spending increased in June by the most in three months as companies built more factories and offices at the same time homebuilding slowed, Bloomberg said. Private non-residential construction rose 2.7% and is up 22% from year-ago levels, which bodes well for continued capital spending by companies. I continue to see construction decelerating as home construction slows, but is offset to some extent by increased commercial building.

Growth in UN manufacturing unexpectedly accelerated in July as production rebound, Bloomberg said. The prices paid component of the index rose to 78.5 versus a reading of 76.5 in June. The new orders component of the index fell to 56.1 versus 57.9 the prior month. The employment component of the index rose to 50.7 from 48.7 the prior month. I continue to see manufacturing slowing, but remaining relatively healthy as companies rebuild low inventories.

Contracts to buy previously owned homes in the US unexpectedly rose for a second month in June, suggesting the slowdown in housing will be gradual, Bloomberg reported. Pending re-sales rose 1.9% in the Mid-west and 2.5% in the South. Pending re-sales fell 6.3% in the Northeast and were unchanged in the West. This report adds to evidence that the housing market is just slowing to more healthy sustainable levels.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote