Today's Headlines

Bloomberg:
- Lehman Brothers Holdings(LEH) said the worst of the global credit market rout caused by the US subprime mortgage slump is over.
- Win Thin, a currency strategist at Brown Brothers Harriman said he is a “Long-term US dollar bull.”
- Bank of America(BAC), the second-largest US bank, said the slump in global credit markets caused by subprime mortgage defaults is overstated and investors should buy corporate debt.
- Crude oil rose to an 11-month high in NY and London after a pipeline “shutdown” and “maintenance” work reduced North Sea Brent oil production.
- Democratic presidential candidate Hillary Rodham Clinton is backing efforts to boost taxes for managers of private-equity firms and hedge funds.
- Shares of Baker Hughes(BHI), the world’s third-largest oilfield-services provider, fell more than 5% after the company said second-quarter profit was less than analysts expected because of a slowdown in drilling in Canada and higher tax rates and costs.
- Hovnanian Enterprises Inc.(HOV) shares jumped the most since December 2004, leading homebuilders higher, on speculation Warren Buffett’s Berkshire Hathaway(BRK/A) may buy a stake in the company.
- General Electric(GE) said second-quarter profit rose 12% on sales of power-plant turbines, jet engines and commercial loans outside the US.
- President Bush said US help in rebuilding Iraq can lead to a more stable government and pave the way toward resolving sectarian disputes. “Grassroots efforts to improve services, to improve the economy, to encourage local government are all aimed at enhancing this concept of reconciliation from the bottom up,” Bush said.
- Christie’s Intl., the world’s largest art seller, said auctions rose almost 30% on premium prices for Warhols and an influx of new buyers.
- Alcoa(AA) shares may be valued as high as $59 if the world’s second-largest aluminum company is taken over, according to a CSFB report.
- The US is urging China’s central bank to buy more mortgage-backed securities after a surge in defaults by risky borrowers eroded demand for such instruments. US Dept. of Housing and Urban Development Secretary Jackson is in Beijing to persuade the Chinese central bank to buy more securities from Ginnie Mae, a mortgage assoc. under the Housing Dept.
- San Francisco Mayor Gavin Newsom is running for re-election virtually unopposed, more popular than ever, after admitting to having an affair with a top aide’s wife and entering an alcohol-treatment program.
- Gasoline futures are falling for the third day on rising inventories and after failing to break through a technical level.
- Copper inventories in Shanghai surged 11% this week.

Wall Street Journal:
- Pearson Plc’s Financial Times newspaper and CNBC, the US-based business news television channel, are in talks to share news to attract more online readers.
- Dealers for the four automakers with the biggest US sales will urge members of Congress next week to back “soft” fuel-economy proposals.
- Empirica Capital LLC founder and author Nassim Nicholas Taleb is helping start Universa Investments LP, a California-based hedge fund raising more than $1 billion for a special fund based on ideas in his investment books.
- The US NASD and the NYSE agreed to change the name of a new joint regulatory body after the first choice offended some Muslims, citing NASD spokesman Howard Schloss. Originally titled the Securities Industry Regulatory Authority, or SIRA, the body started receiving complaints from Muslims who said SIRA sounded similar to an Arabic word which refers to biographies of the Prophet Muhammad. The new enforcement unit will now be known as the Financial Industry Regulatory Authority, or FINRA.

NY Times:
- US imports will be more widely inspected and violators of safety regulators will face stiffer penalties under rules being crafted by the US Consumer Product Safety Commission.
- Al Gore, promoter of last weekend’s Live Earth concerts, is sponsoring a contest to raise awareness of climate change through television and Web ad “ecospots.” “Since we face a true planetary emergency, we have to give the planet a PR agent,” Gore, who plans to raise millions of dollars to place the ads, said.

Washington Post:
- Barr Pharmaceuticals Inc.(BRL) has seen sales of its Plan B morning-after pill double since the US FDA approved the pill’s use without prescription last August.

Chicago Tribune:
- Mark Cuban, the billionaire owner of the NBA’s Dallas Mavericks, has submitted an application to buy Major League Baseball’s Chicago Cubs.

AP:
- The $1.9 billion renovation of the headquarters of the United Nations in New York is at least $148 million over budget even before construction has begun, auditors said.

Guardian:
- European spending on Internet advertising will probably double in the next five years, from 7.5 billion euros last year to more than 16 billion euros in 2012, citing a forecast by Forrester, a US research company.

AFP:
- Iran will let United Nations inspectors visit a reactor under construction that could produce plutonium, citing the UN’s IAEA.

Business Report:
- The global supply of platinum may rise by 67% over the next five years as miners of the metal expand their operations, citing a study by Investec Securities.

El Nacional:
- Venezuelan President Hugo Chavez’s plans to amend the country’s constitution will include the elimination of term limits. Chavez’s proposal would allow the president to seek re-election every six years.

Valor Economico:
- Goldman Sachs Group(GS) may buy a stake in a group of Brazilian sugar and ethanol mills that are merging to form the country’s second-largest cane processor.

Xinhua News Agency:
- China, which supplies a third of the world’s steel, imported 26.9 million tons in June, the lowest level in six months, citing the country’s customs data. Imports fell 6.4% last month from a year-ago period and 2.61% compared with imports in May.

Import Prices Rise More Than Estimates, Retail Sales Fall More Than Estimates, Confidence Surges, Business Sales Jump

- The Import Price Index for June rose 1.0% versus estimates of a .7% increase and an upwardly revised 1.1% gain in May.

- Advance Retail Sales for June fell .9% versus estimates of a .1% decline and an upwardly revised 1.5% increase in May.

- Retail Sales Less Autos for June fell .4% versus estimates of a .2% increase and an upwardly revised 1.6% gain in May.

- Preliminary Univ. of Mich. Consumer Confidence for July rose to 92.4 versus estimates of 86.0 and a reading of 85.3 in June.

- Business Inventories for May rose .5% versus estimates of a .3% increase and a .4% gain in April.

BOTTOM LINE: Prices of goods imported into the US rose for a fifth straight month in June on higher fuel costs, Bloomberg reported. Prices excluding petroleum rose .2%. The cost of imported capital goods increased .2% last month, the first gain this year, while falling .1% from a year earlier. Costs for imported consumer goods excluding autos were unch. for the third consecutive month. I expect import prices to head meaningfully lower during the fourth quarter as energy prices fall substantially.

Retail Sales in the US fell in June, Bloomberg reported. Filling station sales fell 1.1% last month after a 4.1% increase the prior month. A drop in gas prices towards the end of June contributed to the decline. I still expect retail sales to accelerate from below-average levels to above-average levels this fall as stocks rise further, housing sales stabilize at relatively high levels, unemployment remains low, wages continue to substantially outpace inflation, interest rates head back down, energy prices fall substantially, inflation decelerates further and consumer sentiment improves.

Confidence among US consumers unexpectedly jumped the most since October this month, helped by an unemployment rate close to its lowest in six years and gains in incomes, Bloomberg said. Rising confidence bodes well for predictions that consumer spending will accelerate from a second-quarter trough. Rising stock prices are also boosting confidence. The S&P 500 hit a new record on July 12. The Expectations component of the index, which is a gauge of future spending, jumped to 83.9 from 74.7 the prior month. The Current Conditions component increased to 105.7 from 101.9 the prior month. Consumers said they expect inflation to rise 3.3% in 12 months, down from 3.4% the prior month. I continue to believe both main measures of consumer sentiment will hit new cycle highs over the intermediate-term for the above-mentioned reasons.

US businesses in May increased inventories by .5%, however sales surged almost three times as much, Bloomberg said. Businesses had enough goods on hand in May to last 1.26 months at the current sales pace, the lowest in a year. The gain in purchases was led by increasing demand at auto dealers and clothing stores. Inventory rebuilding should help US GDP growth to come in around 3%+ in 2Q. I still expect growth to decelerate modestly in 3Q.

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Friday Watch

Late-Night Headlines
Bloomberg:
- Federal Realty Investment Trust(FRT) shares had the biggest rise in more than 13 years on a report the developer and manager of shopping centers may be a takeover target.
- Shares of Samsung Electronics, Asia’s largest maker of chips, mobile phones and flat screens, rose after a newspaper reported billionaire investor Carl Icahn may be planning a hostile bid.
- Amaranth Advisors LLC, the hedge fund that collapsed in September after losing $6.6 billion on energy trades, and JPMorgan Chase(JPM) were sued by a natural gas trader who accused the fund of market manipulation.
- Third Point LLC, the activist hedge fund firm run by Daniel Loeb that oversees more than $5 billion, bought a 7.2% stake in Atmel Corp.(ATML).
- Energizer Holdings(ENR) agreed to acquire Playtex Products for about $1.2 billion in cash, adding consumer products such as the Banana Boat sunscreen line.
- Democratic presidential candidate Barrack Obama supports legislation to raise the tax rate for publicly traded private-equity and hedge funds, an aide said today.
- Issuance of subprime mortgage securities fell 41% last quarter from a year earlier to $74 billion, while sales of so-called Alt A home-loans bonds fell 2.7% to $100.9 billion, newsletter Inside MBS & ABS said.
- General Electric(GE) plans to sell its three-year-old US subprime mortgage unit, the company said in an e-mail to employees.
- Roche Holding AG signaled it may raise its $3 billion hostile takeover bid for US diagnostics maker Ventana Medical Systems(VMSI) after the offer was rejected yesterday.
- The House of Representatives voted to require the withdrawal of US troops from Iraq, defying President Bush’s veto threat and his request today for time to allow the new war strategy to succeed.

Wall Street Journal:
- Nordstrom Inc.(JWN) is close to selling its Faconnable line to M! Group for more than $200 million.

Reuters:
- Intercontinental Exchange(ICE), an electronic energy market which lost a bidding war this week to buy the Chicago Board of Trade(BOT), is open to acquiring another exchange or becoming a takeover target itself, citing Chairman Jeffrey Sprecher.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BKD), target raised to $65.
- Reiterated Buy on (PAYX), target raised to $50.

Business Week:
- Zoltek Companies’(ZOLT) profit will rise because of demand for the carbon-fiber components it makes for wind turbines. Michael Carboy of Signal Hill Capital Group expects profit to reach .72 a share in 2007 and $1.60 in 2008, up from 13 cents in 2006.
- Ziopharm Oncology(ZIOP) is trying to get approval to treat cancer with organic arsenic, and its shares could rise fourfold in the process. Griffin Securities’ Chrystyna Bedrij rates the stock a “buy” and said the stock could rise to $20 a share within a year based on the company’s trials on its arsenic drug.
- Arbitron Inc.(ARB) shares could rise 40% if the NY-based provider of radio and audience ratings uses its free cash flow to buy back shares, citing Mark Boyar, president of Boyar Asset Management.

Night Trading
Asian Indices are +.75% to +1.50% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.07%.

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Earnings of Note
Company/EPS Estimate
- (GE)/.52

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for June is estimated to rise .7% versus a .9% gain in May.
- Advance Retail Sales for June are estimated to fall .1% versus a 1.4% increase in May.
- Retail Sales Less Autos for June are estimated to rise .2% versus a 1.3% gain in May.

10:00 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for July is estimated to rise to 86.0 versus a reading of 85.3 in June.
- Business Inventories for May are estimated to rise .3% versus a .4% gain in April.

Other Potential Market Movers
- The BMO Capital Markets Media/Comm./Tech 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 modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

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.