Today's Headlines

Bloomberg:
- GM(GM), Delphi and the UAW are at odds over wages and proposed Delphi plant closings as they try to reach a labor agreement before a critical court hearing Aug. 11, a union official said.
- Natural Gas prices soared, nearing a six-month high, on concern Tropical Storm Chris will disrupt Gulf of Mexico production.
- Israel sent troops into Lebanon and raided an eastern town with special forces as Hezbollah fired 190 rockets, the most since the conflict began three weeks ago.
- Time Warner(TWX) said it will give away its AOL service to high-speed Internet users, sacrificing subscriber revenue in a bet that online advertising will compensate for the loss.
- Companies in the US added 99,000 jobs in July, the fewest this year, a private report based on payroll data showed today.

Wall Street Journal:
- Christopher Cox, the chairman of the SEC, said he intends to concentrate on protecting the assets of people in their forties and fifties.
- Phelps Dodge(PD) may increase the cash portion of its bid for Inco Ltd.(N) by more than $5.98 billion.
- Automatic Data Processing(ADP) is likely to announce today that it plans to spin off its brokerage-services arm.
- Ford Motor(F) may consider selling underperforming units such as Jaguar or pursuing alliances with other automakers.
- Shares in Sprint Nextel(S) may be set to rise over the next few years as the company’s costs have been dropping faster than its customers prices.
- Firsthand Funds, Legg Mason and T. Rowe Price Group are among mutual funds that are engaging in private-equity investments, as they seek higher return at the expense of higher risk.
- The dissolution of Dynasty Asset Management, once one of the largest China-focused hedge funds, highlights the risk to hedge funds in Asia.
- Democratic Representative John Murtha is accused in a lawsuit being filed today of defaming a US Marine Corps staff sergeant.
NY Times:
- US Postal Service revenue from online business is helping make up for a drop in first-class mail such as cards and letters.
- Goldman Sachs(GS) plans to double the number of money managers it has internationally to attract rich clients for its private banking services.

LA Times:
- Google Inc.(GOOG) is in talks with the Univ. of Cal., home of the world’s largest academic research library, about scanning its 34 million volumes on 10 campuses.

Washington Post:
- US Democrats are diverting campaign money to fund voter-turnout programs, concerned they will lose the mid-term elections in November because of a lack of organization at the local level.

AFP:
- France may boycott a UN meeting of contributors to a Lebanon peacekeeping force, part of a plan to end the Israel-Hezbollah war, citing a French official. France considers that the deployment of a buffer force in Lebanon is premature.
- Israel’s offensive against Hezbollah in Lebanon will last until the end of next week, citing Israeli Justice Minister Ramon.

CCTV:
- China should take “comprehensive” measures to prevent money supply and loans from growing too fast so as to ensure sustainable development of the economy, citing the central bank.

Economic Releases

- None of note

Links of Interest

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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%.

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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.