Friday Watch

Late-Night Headlines
Bloomberg:
- The US economy will dodge recession, said Harvard Professor Martin Feldstein, who heads the panel of economists which dates US business cycles.
- Germans are beginning to awaken to a new reality: Their country is no longer one of the apparently safe havens in the post-Sept. 11 world. Under then-Chancellor Schroeder, Germany refused to join the US-led liberation of Iraq in 2003 and had been spared the sort of fear engendered by attacks carried out by Islamic terrorists in London, Madrid, Istanbul and Mumbai. Now the public is confronted with stepped-up security checks at train stations and travel delays as suspicious suitcases are cleared away, with the promis of more measures to come.
- Japan’s consumer prices rose less than expected in July, damping speculation the central bank will raise rates for a second time this year.

Wall Street Journal:
- Toyota Motor(TM), which last year recalled more vehicles in the US than it sold, may curb growth plans to address quality issues.

Financial Times:
- Alcatel’s(ALA) planned $10.4 billion acquisition of Lucent Technologies(LU) has the support of Institutional Shareholder Services, the US shareholder advisory firm.

AFP:
- Four Muslims between the ages of 16 and 20 have been charged in Denmark in connection with a plot to carry out terrorist attacks in Europe.

Late Buy/Sell Recommendations
Business Week:
- SuperGen Inc.(SUPG), which makes treatments for tumors and blood disorders, may increase as much as sevenfold within a year on sales of the bone marrow drug Dacogen.
- Brink’s(BCO) largest shareholder, Pirate Capital, demanded Aug. 9 that the company be put up for sale, saying the stock is worth as much as $80 a share.

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.22%.

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Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- (CAJ) 3-for-2

Economic Releases
- None of note

BOTTOM LINE: Asian indices are higher, boosted by technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

***Alert***

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

Stocks Mixed Heading into Final Hour as Lower Long-term Rates Offset Economic Worries

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Commodity shorts. I covered some of my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is mixed, most sectors are rising and volume is light. The major averages have stabilized, with a number of market-leading stocks now higher on the day. Apple Computer's (AAPL) recent announcement of a laptop recall only produced a mild sell-off in the shares which have since rebounded, as so much bad news is already priced into this stock and the broad market at current levels. I remain long (AAPL). I suspect Bernanke’s speech tomorrow will be viewed positively by investors. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain hunting and lower long-term rates.

Today's Headlines

Bloomberg:
- Apple Computer(AAPL) is recalling 1.8 million Sony(SNE) batteries used in its Macintosh notebooks after faulty units caused some injury. The move comes a week after Dell(DELL) instituted a similar recall.
- A patch of thunderstorms and winds in the Caribbean may become the fifth tropical storm of the year today and threaten Barbados, Grenada and nearby islands.
- Nymex Holdings, owner of the world’s largest gold futures market, plans to pay members who trade metals about $275 million in stock to win their approval of around-the-clock electronic trading.
- BP Plc(BP) cut production at the biggest oilfield in the US for a second time in less than a month because of a gas compressor breakdown.
- Richard Fentin, manager of the $15.6 billion Fidelity Value Fund, is producing market-beating returns by finding inexpensive stocks in technology and health care, industries typically favored by so-called growth funds.
- France is drawing mounting criticism for its reluctance to make more troop commitments in Lebanon, after it led the effort to win a cease-fire there.

Wall Street Journal:
- Europe is unable to deploy enough troops to implement the ceasefire in Lebanon as it lacks the military capability, is unable to command local authority, and fears casualties.
- Schneider National and other US trucking companies are turning to older couples to overcome a shortage of long-haul truck drivers.
- New Orleans has converted more than half of the 53 public schools expected to open next month into privately run institutions in a bid to improve the city’s educational standards.
- Qualcomm(QCOM) and Intel(INTC) are fighting over the market for wireless access to the Internet.
- Tom Cruise, the actor and producer dropped by Viacom’s(VIA) Paramount Pictures, may be a risky investment for the hedge funds he plans to turn to for film funding.
- Corning(GLW) shares plunged this summer as demand for LCDs used in flat-panel televisions and laptops slowed, and some market observers sense a buying opportunity.
- Nokia’s(NOK) new E62 wireless phone will offer features similar to Motorola’s(MOT) Q and Palm’s(PALM) Treo and will probably be the least expensive of this group of so-called smartphones.

NY Times:
- Amnesty International accused Israel of war crimes for its bombing of civilian infrastructure, while refusing to condemn Hezbollah for firing thousands of rockets into Israel’s civilian population.
- NYC projects supported by Mayor Bloomberg, such as redeveloping part of the city’s west side, are being hindered by state Attorney General Eliot Spitzer.
- Homeland Security Secretary Chertoff said border security measures supported by the Bush administration have reduced the number of illegal immigrants entering the US from Mexico for the first time in many years.

Atlanta Journal-Constitution:
- Wal-Mart(WMT) formed an alliance with the National Gay and Lesbian Chamber of Commerce to increase the diversity of its suppliers.

AP:
- Iran’s proposal to negotiate over its nuclear program, delivered to Chinese, French, German, Russian, UK and US diplomatic representatives on Aug. 22, will likely be rejected.

USA Today:
- Ford Motor(F) is considering going private to give it time to complete its restructuring without pressure from shareholders.

Sueddeutsche Zeitung:
- German household bankruptcies may rise by more than 40% this year due to higher unemployment, stagnating real wages and an increase in the number of indebted households, citing the Creditreform rating company.

AFP:
- Somali Islamic militants warned Ethiopia of a possible “full-scale war” as their fighters prepared to fight warlords allegedly supported by Ethiopian soldiers.

Durable Goods Orders Mixed, Job Market Still Healthy, New Home Sales Slow

- Durable Goods Orders for July fell 2.4% versus estimates of a .5% decline and an upwardly revised 3.5% increase in June.
- Durables Ex Transports for July rose .5% versus estimates of a .3% increase and an upwardly revised 2.2% gain in June.
- Initial Jobless Claims for last week fell to 313K versus estimates of 315K and 314K the prior week.
- Continuing Claims fell to 2492K versus estimates of 2490K and 2501K prior.
- New Home Sales for July fell to 1072K versus estimates of 1100K and 1120K in June.

BOTTOM LINE: US companies ordered more computers and machinery last month, suggesting corporate investment will help sustain economic growth, Bloomberg reported. Orders for non-defense capital goods excluding aircraft, a gauge of future business spending, rose 1.5% last month, the most since March. Computer and electronics orders rose 4.6% in July. Backlogs of orders for business equipment rose 1.6% last month, which implies factories aren’t able to meet demand. I expect durable goods orders to remain relatively healthy as companies continue to use cash hoards to replace equipment to improve efficiency.

The number of US workers filing first-time applications for state jobless benefits fell for a second week, Bloomberg said. The four-week moving-average rose to 315,250 from 311,750 the prior week. The unemployment rate among people eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the labor market will remain relatively healthy over the intermediate-term.

New Home Sales in the US fell last month and inventories rose, Bloomberg reported. The median home price rose .3% to $230,000. New home inventories rose to 6.2 months’ supply at the current sales pace. New Home Sales fell 21% in the Mid-west and 8% in the South. Sales rose 12% in the West and 1.8% in the Northeast. I continue to believe housing is in the process of slowing to more healthy rates and that prices will stabilize at relatively high levels.

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