DJIA Soars 284 Points to New Record on More Economic Optimism, Short-Covering, Buyout Activity

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Stocks Soaring into Final Hour on More Economic Optimism, Buyout Activity, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Retail longs, I-Banking longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive today as the advance/decline line is substantially higher, every sector is rising and volume is above average. Reuters is reporting today that Apple's (AAPL) largest German retailer is getting 1,000 inquiries per day about buying the new iPhone. Back when the initial announcement was made concerning the iPhone, with the stock around $80-$90 per share, several of the many bearish pundits said the phone wouldn't sell overseas. Since then, I have read quite a few reports that may suggest otherwise. It is critical not to forget that this is Apple's first stab at a new major product in the massive telecommunications market. Due to the superiority of the operating system vs. the competition, I suspect that Apple will be able to keep new versions of the phone at much higher price points for much longer than analysts expect. I still think it is very possible that Apple will eventually dominate the handset market like no other company in history. As much as it sounds impossible, I continue to believe even the most optimistic analysts are underestimating the future overall financial prospects for the company. It remains my second largest-long stock position behind Google (GOOG). The Yale School of Management Crash Confidence Index is showing the individual is currently the most concerned about a stock market crash since November 2002, right near the trough of one of the worst bear markets in U.S. history and the record-setting low for the index going back to 1989. This extreme pessimism corresponds with the recent parabolic rise in short interest and is symptomatic of the current U.S. "negativity bubble," which is laying the groundwork for the beginning of the "mother of all short-covering rallies." I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, more economic optimism, buyout speculation and short-covering.

Today's Headlines

Bloomberg:
- Rio Tinto Group(RTP) agreed to buy Alcan Inc.(AL) for $38.1 billion, overwhelming a hostile bid by Alcoa Inc.(AA).
- Gasoline futures fell for a second day after a report that BP Plc(BP) began starting up a unit at its Whiting, Indiana, refinery.
- Natural gas futures in NY are falling after an EIA report showed inventories rose more than estimates as demand waned and moderate weather reduced electricity needs for cooling. Supplies are on pace to exceed record highs later this year.
- The yen fell to a record low against the euro as rallying global stocks signaled investors were taking on risky bets, including so-called carry trades.
- Merck(MRK) may pay as much as $1.1 billion to Ariad Pharmaceuticals for a late-stage treatment for cancer.
- India’s industrial production growth slowed for a second month in May as the highest interest rates in five years crimped demand and currency gains weakened exports.
- Wal-Mart Stores(WMT) said June sales at US stores open at least a year rose 2.4% versus estimates of a .8% gain despite high gas prices and housing problems.
- Nintendo said its top-selling Wii video-game console may be in short supply this holiday season in the US as the bulk of sales concentrates at the end of the year.
- Activist investor William Ackman has accumulated a stake of more than 5% in Target Corp.(TGT), the second-biggest US discount retailer, a person with direct knowledge of his plans said.
- Economists raised forecasts for US second-quarter growth to 3.6% from 3.2% after this morning’s trade report showed US exports hit another record high.

Wall Street Journal:
- Nokia Oyj(NOK) will put a Skype Internet phone service link on one of its phones for the first time.
- US railroad shares have risen more than 20% this year as investors have joined Warren Buffett, Carl Icahn and hedge funds such as Atticus Capital LLC and Jana Partners LLC on the train.

NY Times:
- President Bush’s report to Congress on Iraq security will show progress on almost half the 18 benchmarks set by US lawmakers. There have been declines in civilian casualties and deaths from car and truck bombs, the report says. The White House report will say improvements are still needed in the performance of Iraq’s security forces and government.
- United Parcel Service Inc.(UPS) is spending more than $1 billion a year on research to find faster ways of delivery.

National Post:
- BP Plc(BP), Europe’s second-largest oil company, recognized Canada’s oil sands for the first time in its annual tally of reserves. Acknowledgement that the oil sands hold 163.5 billion barrels of undeveloped reserves in BP’s Statistical Review of World Energy report is a change from the past, when it ignored Alberta’s oil deposits, citing Mark Finley, BP’s head of energy analysis.

AP:
- Google Inc.(GOOG) plans to integrate different Web sites to provide mapping information for gas prices, home prices and other applications.

Tagesspiegel:
- Apple Inc.’s(AAPL) iPhone has attracted more than 1,000 enquiries a day in Germany, months before the combination music player and mobile phone is slated to go on sale in the country.

Challenges:
- Airbus SAS Chief Executive Officer Louis Gallois said every 10 cent gain in the euro against the dollar costs his company $1.38 billion.

Trade Deficit at Estimates as Exports Hit Another Record, Job Market Still Healthy

-The Trade Deficit for May came in at -$60.0B versus estimates of -$60.0B and -%58.7B in April.

- Initial Jobless Claims for last week fell to 308K versus estimates of 315K and 320K the prior week.

BOTTOM LINE: The US trade deficit widened in May as a jump in imported oil costs outpaced record exports, Bloomberg reported. Record US exports were boosted by strong civilian aircraft sales and stronger electrical equipment sales. Imports of industrial supplies, which include crude oil, jumped by $2.4 billion to $52.6 billion, reflecting record purchases from OPEC. I continue to believe the trade deficit will improve modestly over the intermediate-term as lower commodity prices more than offset faster US growth coupled with decelerating global growth.

First-time claims for jobless benefits fell more than forecast last week to the lowest in almost two months, adding to evidence that the labor market is holding up going into the second half of the year, Bloomberg reported. The four-week moving-average of claims dropped to 317,750 from 319,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- North Korea will start shutting down its nuclear facilities from “early next week,” the head of the UN atomic agency said today.
- Lady Bird Johnson, widow of former President Lyndon Baines Johnson, has passed away at the age of 94.
- Copper prices fell for a third day in Asia on concern that China may be oversupplied.
- Michael Darda, chief economist at MKM Partners LP, sees demand “bottoming” in the US housing market.
- Yunnan Copper Industry, China’s third-largest producer of the metal, said it started output at a smelter in the northern city of Chifeng in Inner Mongolia with capacity of 100,000 tons a year.
- Shares of Western Mining Co., China’s second-largest maker of lead concentrate, more than doubled on their Shanghai debut after investors ordered more than 200 times the stock offered.
- South Korea’s central bank raised its benchmark interest rate for the first time in a year on concern record lending to small companies may spur inflation.
- Australia’s unemployment rate rose in June as employers added fewer jobs than economists expected after some of the nation’s largest companies fired workers to pare rising wage costs.

Wall Street Journal:
- News Corp.(NWS/A) Chairman Rupert Murdoch may be growing frustrated with negotiations to buy Dow Jones(DJ) because the company’s controlling shareholders “keep changing their minds.”
- Hewlett-Packard(HPQ) has developed a system for cosmetic companies to match people’s skin tones to make-up.

Chicago Tribune:
- Al Qaeda’s deputy leader threatened a jittery Britain on Tuesday with more attacks, accusing London of defying the Islamic world by honoring novelist Salman Rushdie.

USA Today:
- A man thought to be al-Qaeda’s second in command called for revenge after Pakistani troops cleared militants from Islamabad’s Red Mosque, citing an Internet video. “Your salvation is only through jihad,” or holy war, a voice said to be that of Ayman al-Zawahiri said on the tape.

Financial Times:
- The London Stock Exchange is preparing to introduce a market for private equity, property and hedge funds. To be called the Specialist Fund Market, the exchange will be announced today.
- President Bush on Wednesday predicted that the US budget deficit would drop to less than half its 2004 peak by the end of the current fiscal year but warned Democrats against loosening constraints on federal spending.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SNDK). NAND’s unfolding inflection(the most powerful in semis and more robust than we expected three months ago) argues for more aggressive estimates and share appreciation expectations. We increase our (SNDK) target to $62 from $52 for 20% upside and see catalysts including: 1) positive street 2H07/2008 revisions, 2) bullish 2H07 contract pricing, 3) new product activity (Apple, others), and 4) 3Q share price seasonality (averages +13% monthly from July through Sept., suggesting upside to $65-$70.
- Reiterated Buy on (WWW), target $33.
- Reiterated Buy on (MU), target $17.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/EPS Estimate
- (CBSH)/.76
- (ESIO)/.23
- (FAST)/.39
- (FLE)/-.31
- (MAR)/.53
- (PGR)/.45
- (TXI)/1.05

Upcoming Splits
- (TPL) 5-for-1

Economic Releases
8:30 am EST
- The Trade Deficit for May is estimated to widen to -$60.0B versus -$58.5B in April.
- Initial Jobless Claims for last week are estimated to fall to 315K versus 318K the prior week.
- Continuing Claims are estimated to fall to 2500K versus 2569K prior.

2:00 pm EST
- The Monthly Budget Surplus for June is estimated to rise to $27.7B versus $20.5B in May.

Other Potential Market Movers
- The Fed’s Yellen speaking, Fed’s Kroszner speaking, ICSC June Chain Store Sales, (MU) Analyst Conference, weekly EIA natural gas inventory data, Pacific Growth Equities Cardiology Conference, BMO Capital Markets Media/Comm./Tech Conference, CE Unterberg Towbin Emerging Growth Conference and CIBC Consumer Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and mining 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.