Stocks Sharply High into Final Hour on Falling Long-term Rates, More Economic Optimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my I-Banking longs, Internet longs, Retail longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is gaining and volume is about average. I went to an Apple(AAPL) store and an AT&T(T) store over the weekend. The AT&T store was packed, and they were already out of stock of the iPhone on Saturday morning and directing people to the Apple Store. Apple appears to have done this intentionally and it seems like a good strategy. The Apple Store was packed on Sunday evening 30 minutes before the mall closed. There were about 50 people huddled around the iPhone display that had about 10 phones for demonstration. There were another 50 customers in the store checking out Macs and Apple TVs. The first thing that struck me about the iPhone was the design. It is a quantum leap from the current calculator look of most smart phones. It is ultra sleek and feels very well made. I am quite certain well-heeled trendsetters will love this phone. The real key to iPhone’s future success is the operating system, in my opinion. It is very easy to use, visually superior and performs flawlessly. It will likely take the competition a couple of years at least to catch up with this operating system. I use the internet quite often on my 8525, which is on AT&T's 3G network. The iPhone display models were using the store's wifi network. The internet was significantly faster than my 3G surfing experience and I am sure a 3G iPhone isn’t too far away. The iPhone browser is far superior to any others, in my opinion. The integration of YouTube and Google Maps is very impressive. The bottom line is that, in my opinion, the ramifications of this phone to the competition are still underestimated, notwithstaning the recent hype. If I were a long-term investor in Research In Motion(RIMM), I would be very concerned. As well, I think this phone could put a major manufacturer out of the business completely. A few tweaks, new functions and price drops and this phone will dominate the market like no other manufacturer ever has, in my opinion. Of course the competition won't stand still, but the operating system puts them so far behind it will be very hard to catch up. Finally, the "halo" effect is larger than ever. I continue to believe that Apple's future has never looked brighter and that even the most optimistic analysts are underestimating the company's financial prospects. At 33x forward conservative estimates, I still think the stock has substantial upside left from current levels. Apple remains my second-largest long position, right behind Google Inc.(GOOG). I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, more economic optimism, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Russian President Putin, meeting with President Bush today, offered broader talks with the US and Europeans about a missile-defense system that Putin said could include a new Russian radar.
- Apple’s initial iPhone sales may have beat analysts’ top projections, suggesting CEO Jobs will reach his goal of making mobile phones as profitable to the company as computers and the iPod.
- The US, Norway and Sweden are the world’s most prosperous nations while Zimbabwe, Pakistan and Egypt score lowest for material wealth and life satisfaction, Legatum Global Holdings said in a study published today.
- The 10-year T-note yield is falling another 2 basis points today on diminishing inflation fears and elevated terrorism worries. The yield has plunged 32 basis points in just a few weeks.
- Walgreen Co.(WAG), the largest US drugstore chain, agreed to buy Option Care(OPTN) for $673 million in cash to gain 100 specialty pharmacies.
- Solarworld AG, Germany’s second-largest solar-energy company, said it won more than $677 million in orders as demand for renewable power jumps.
- China, the world’s second-largest corn producer, raised its forecast for this year’s harvest to a record as farmers planted more of the grain than previously estimated.
- Jim Rogers, chairman of Beeland Interests, says he’s sold out of emerging markets, with the exception of China.
- Trump Entertainment Resorts(TRMP), the casino company founded by real estate developer Donald Trump, failed to find a buyer after a three-month search, sending its shares to the biggest drop in two years.
- Charles Schwab(SCHW), the biggest discount brokerage, will spend $3.5 billion to give shareholders a special $1-a-share dividend and pay for its biggest stock buyback after selling the company’s private-banking unit.
- Manor Care Inc.(HCR), the operator of more than 500 long-term care centers, agreed to be taken private by Carlyle Group for about $4.9 billion, 20% more than the market value in April when the company put itself up for sale.

Wall Street Journal:
- Possible terrorist supporters, drugs suppliers and those looking to violate sanctions agreements may be turning to the commodities trade as a way of moving illicit funds.
- China’s food supply may be contaminated by heavy metals after decades of industrial pollution.
- Quiksilver(ZQK) may sell its Rossignol ski-equipment unit.
- Robert McGee, the chief economist at US Trust Corp., came in first in the Wall Street Journal’s forecaster rankings for the second time in six months.

USA Today:
- The US Defense Department approved a 700% increase in the production of special vehicles to protect Army soldiers in Iraq from roadside bombs.

NY Daily News:
- NYC’s murder rate fell 15% to 221 through June 24, a decline that may give the city the lowest number of homicides in more than 40 years, citing the city police department.

AP:
- Disbarred prosecutor Mike Nifong submitted a new resignation letter today in which he agreed to immediately leave as Durham County district attorney.

Dealogic:
- Europe is leading the world in IPOs so far this year, as companies in Kazakhstan and Russia join those in Western Europe in listing on European exchanges.

Shanghai Securities News:
- China’s mutual funds jumped 77% in net asset value in the first six months of this year compared with the end of 2006.

ISM Manufacturing Best in 14 Months, Prices Paid Declines

- ISM Manufacturing for June rose to 56.0 versus estimates of 55.0 and a reading of 55.0 in May.

- ISM Prices Paid for June fell to 68.0 versus estimates of 69.1 and a reading of 71.0 in May.

BOTTOM LINE: Manufacturing growth in the US accelerated last month to the highest level in 14 months, boosted by an increase in production and new orders, Bloomberg reported. The Prices Paid component fell to 68 from 71 the prior month. The New Orders component rose to 60.3 from 59.6 prior. The Inventory component of the index fell to 45.3 versus 46.1 the prior month. I continue to believe manufacturing helped to boost US growth to 3%+ last quarter. As well, the prices paid component has likely peaked for the year already.

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Monday Watch

Weekend Headlines
Bloomberg:
- Apple’s iPhone debuted to crowds in US cities from New York to San Francisco as shoppers snapped up the handset and praised its slim design.
- Apple’s US debut of the iPhone drew thousands of shoppers over the weekend, emptying most AT&T’s(T) inventory and causing network glitches as the flood of customers began activating the device.
- The Ontario Teachers’ Pension Plan, BCE Inc.’s biggest shareholder, agreed to buy the telephone service provider for $48.5 billion.
- Security at US airports was increased today, ahead of the July 4^th holiday, and the threat to commercial aviation remained high after terrorist incidents in the UK, White House spokesman Tony Snow said.
- A burning car crashed through the main glass doors of Glasgow airport’s passenger terminal at 3:15 pm local time, a police spokeswoman said. The incident occurred a day after police dismantled two car bombs in central London.
- Northern Iraq’s semi-autonomous government will offer 40 oil and gas blocks for exploration, part of plans to increase daily output to 1 million barrels in the next five years.
- President Bush said the US is seeing “hopeful signs” from its troop increase in Iraq, including a drop in sectarian murders and suicide attacks.
- Police arrested five people and searched houses after an attack on Glasgow Intl. Airport and two attempted London car bombings forced Prime Minister Gordon Brown’s new government to step up security in the UK.
- Hard-Landing Risk is Rising for China’s Economy.
- Macquarie Communications Infrastructure Group and partners agreed to buy a US wireless tower operator for $1.4 billion, adding American assets to a UK network bought in April. Macquarie Communications and Macquarie Infrastructure Partners will buy Boca Raton, Florida-based Global Tower Partners, which has 2,500 towers and 4,600 rooftop wireless communications points across the US and Puerto Rico.
- Investors and economists who’ve grown used to European Central Bank President Jean-Claude Trichet’s vow to be on constant lookout for signs of faster inflation are likely to find the term disappearing from his pronouncements.
- Confidence among Japan’s largest manufacturers held near a two-year high and companies said they’re increasing spending, supporting the central bank’s argument for a third interest-rate increase in seven-years.
- Manufacturing activity in China expanded at a slower pace in June, according to a survey of purchasing managers released today.

Wall Street Journal:
- The European Union is following the US’s lead in banning some seafood farmed in China, citing EU spokesman Philip Tod.
- AT&T(T) agreed to acquire Dobson Communications, a wireless carrier, in a deal worth $2.5 billion to $3 billion.

NY Times:
- Biotechnology and pharmaceutical companies are taking advantage of patent expirations to combine old drugs to replenish their pipelines faster and at lower costs.
- President Bush will seek help from Russian leader Vladimir Putin in putting economic pressure on Iran to get the nation to halt its nuclear program.
- General Mills(GIS), Kellogg(K) and Toys “R” Us have increased scrutiny of food ingredients and products they import from China or receive from suppliers.
- US Deal-Making topped $1 Trillion in First Half. Slowdown? What slowdown?

Forbes:
- The world’s richest individual’s halved their allocations to alternative investments in 2006, largely in favor of real estate and equity investments, but the appetite for hedge funds and private equity is poised to return, according to a report by Merrill Lynch and Capgemini.

ABC News:
- Democratic Senator Barack Obama raised more than $30 million for his US presidential campaign in the second quarter. Senator Hillary Clinton’s presidential campaign has said that they expect the NY Democrat to have brought in $27 million in the second quarter.

Barron’s:
- Investor’s Guide to the Presidential Candidates.
- Republican presidential candidate Mitt Romney strikes some voters as just too slick, and his adherence to Mormonism has hurt him in the polls. Democrat Bill Richardson, the garrulous governor of New Mexico, has bloviated himself from near the front of his party's field to the back. Yet Romney would be the best Republican candidate for stocks, bonds and the economy, and Richardson, hands down, would be the best Democrat.

ifixit:
- Technicians explain the iPhone’s construction and identify specific parts.

Crain’s Chicago Business:
- Microsoft Corp.(MSFT) Chairman Bill Gates and Manulife Financial’s John Hancock subsidiary are buying Illinois farmland to cash in on rising demand for corn to make ethanol.

SILICONVALLEY.COM:
- Months after release, demand for Nintendo’s Wii still far outpaces supply.

Economist:
- As the line blurs between hedge funds and banks, a bit of mystique goes missing.

Financial Times:
- McDonald’s Corp.(MCD) plans to convert cooking oil from its restaurants into biodiesel to run its 155 delivery trucks in the UK.

Observer:
- Two UAE-based funds plan to buy one or both of Ford’s(F) Jaguar and Land Rover units.

Times of London:
- Carlyle Group is among buyout firms who have made informal approaches for Virgin Media Inc.(VMED).

Sunday Times:
- GLG Partners LP, a London-based hedge fund manager, is dividing an 11% stake in the firm valued at $400 million among 16 of its best-performing traders.

Telegraph:
- China’s stock market boom is “too hot.”

South China Morning Post:
- Property prices in Beijing will probably fall after next year’s Olympic Games, citing a government-controlled research group. There is now a bubble forming in the city’s property market, quoting a report released by the Beijing Olympics Economic Research Institute. The institute estimates average annual demand of 20 million square-meters in new flats, a figure that is “way below the built up areas.”

Weekend Recommendations
Barron's:
- Made positive comments on (SSW), (SAH) and (UAG).
- Made negative comments on (DFS-W) and (AAPL).

Citigroup:
- Reiterated Buy (BWA), raised target to $99.

Night Trading
Asian indices are unch. to +.50% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/Estimate
- (NDN)/.01
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Economic Releases
10:00 am EST
- ISM Manufacturing for June is estimated at 55.0 versus a reading of 55.0 in May.
- The ISM Prices Paid Index for June is estimated to fall to 68.5 from 71.0 in May.

Other Potential Market Movers
- The (SFC) shareholders meeting could also impact trading on Monday.

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

Weekly Outlook

Click here for The Week Ahead by Reuters

Click here for the Bloomberg US Equity Monday Preview

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – ISM Manufacturing, ISM Prices Paid

Tues. – Pending Home Sales, Factory Orders, Total Vehicle Sales, weekly retail sales reports

Wed. – All US markets closed

Thur. – weekly MBA mortgage applications report, weekly EIA energy inventory report, Challenger Job Cuts, ADP Employment Change, Initial Jobless Claims, ISM Non-Manufacturing

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – 99 Cents Only Stores(NDN)

Tues. – None of note

Wed. – All US markets closed

Thur. – Healthways(HWAY), International Rectifier(IRF),

Fri. – Laidlaw Intl.(LI)

Other events that have market-moving potential this week include:

Mon. – None of note

Tue. – None of note

Wed. – All US markets closed, BOE Policy Meeting

Thur. – BOE Policy Meeting, ECB Policy Meeting

Fri. – The Fed’s Yellen speaking

BOTTOM LINE: I expect US stocks to finish the week modestly higher on declining long-term rates, subsiding terrorism fears, diminished sub-prime concerns, lower energy prices, bargain hunting, better-than-expected earnings reports and short-covering. My trading indicators are giving mixed signals and the Portfolio is 100% net long heading into the week.