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- None of note

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Friday Watch

Late-Night Headlines
Bloomberg:
- The yen traded near a record low against the euro and a 16-year low versus Australia’s dollar as gains in global stocks encouraged investors to borrow in Japan’s currency to buy assets elsewhere.
- China is likely to raise interest rates this quarter to cool inflation and investment. Some economists expect an increase today.
- Chinese bonds, Asia’s worst performers this year, will drop further should the central bank raise interest rates and cut taxes on deposit income, according to China Galaxy Securities.
- China’s government said unregistered fish farms were responsible for producing the seafood that was found by the FDA to contain banned chemical substances.
- Korea Gas Corp., the world’s largest buyer of liquefied natural gas, plans to increase storage capacity 72% by 2012 to meet higher demand for the fuel during winter months.
- China, the world’s biggest producer of steel, said it boosted crude-steel output by 19% to 240 million tons in the first half of this year from a year earlier.
- Light-emitting diodes started as the little red indicators on clock radios and are backlights in most cell phones. Now the LEDs are helping Apple Inc.(AAPL) and Sony Corp.(SNE) slim down computers and televisions and cut power usage.
- Dow Jones(DJ) director Dieter von Holtzbrinck resigned, saying he couldn’t support the board’s recommendation that the Wall Street Journal publisher be sold to Rupert Murdoch’s News Corp.(NWS/A).

Business Week:
- Viacom Inc.(VIA/B), owner of the Paramount film studio, might lose director Steven Spielberg and the DreamWorks name after buying the company last year for $1.53 billion.
- Brink’s Co.(BCO) is under pressure to split its armored-truck and security-services businesses into two publicly traded companies.

Dow Jones:
- The United Auto Workers union and Lazard Ltd. have been discussing ways to restructure retirees’ health-care benefits to help limit the cash drain on US automakers.

China Securities Journal:
- China’s economic policy makers should reconsider whether the country’s 3% inflation target is suitable and weight the possibility of raising it, citing unidentified Chinese experts. The consumer price index is likely to surpass 4% or “remain at a high level” in the next reporting period. Inflation, tracked by the price index, may even exceed 5% for a single month.

Late Buy/Sell Recommendations
Business Week:
- Pipex Pharmaceuticals(PP) stock may double in a year as the company’s drug pipeline draws investors, citing Steven Winters, president of Gemini Strategies.
- Research Frontiers(REFR) will probably have a large stock bounce when the company’s major licensees sign up for its light-control technology.

Night Trading
Asian Indices are +.50% to +1.50% on average.
S&P 500 futures -.10%.
NASDAQ 100 futures -.16%.

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Earnings of Note
Company/EPS Estimate
- (BSX)/.09
- (CAT)/1.49
- (C)/1.14
- (GAP)/-.30
- (SLB)/.96
- (WB)/1.22
- (WHR)/1.87

Upcoming Splits
- None of note

Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Poole speaking, SEMICON West and the (SCHW) Business Update could also impact trading today.

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

DJIA Closes Above 14,000 for First Time on Positive Earnings, Short-Covering, Surging Tech Sector

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Stocks Surging into Final Hour on Positive Earnings Reports, Short-Covering, Fed Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Software longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive today as the advance/decline line is higher, most sectors are rising and volume is above average. I was recently asked how it is possible for me to be bullish on the market and bearish on energy. First of all, I participated greatly in the early years of the energy stock advance, so I am not the energy permabear that some think. Admittedly, I got out too early, but my small energy-related short position has served its purpose in my portfolio. I am only bearish on the shares now because they are so overwhelmingly loved by investors, and I don't buy into the belief by many that global growth will remain at extraordinary levels for years without significant turbulence along the way. I believe the fundamentals for oil are much worse than is commonly perceived, worse than last year at this time, and that the recent rise has been solely a function of record "paper" demand by funds, not real demand by users of the commodity. Large speculative longs, or funds, have never been more net long crude oil futures in history, just like they were last year before the plunge. I expect oil to begin a substantial decline over the next six weeks as the peak in hurricane season approaches, and this decline should provide the catalyst for another surge in the broad U.S. stock market.

Here are 14 of the hugely positive effects I see from a significant decline in energy prices:

1. lower inflation readings, less hawkish Fed;
2. lower long-term rates, taking some pressure off housing;
3. broad market P/E multiple expansion;
4. lower gold prices, less doomsday talk from the gold bugs;
5. a boost to U.S. growth, a drag on global growth, which is heavily commodity-dependent;
6. an increase in global demand for broad U.S. market;
7. accelerating outperformance by growth style over value style;
8. a lower U.S. trade deficit;
9. a lower U.S. budget deficit;
10. a firmer U.S. dollar;
11. less pessimism by investors, consumers, CEOs, etc.;
12. a pick-up in consumer spending;
13. a rotation out of commodity stocks and into technology, retail, biotech, medical, health care, i-banking, restaurant, gaming and airline shares;
14. less demand for low correlation or negative correlation stock strategies.

I realize that some investors won't view a few of these outcomes as positive. However, in my opinion, a meaningful decline in energy prices would be a large positive for the broad market, as it was last year. Last year, oil peaked at $78.40 on July 14. It then proceeded to plunge $28 in less than six months. The S&P 500 rocketed 16.5% higher over that time frame. The fall in energy prices, in my opinion, was the predominant catalyst for the huge move higher in the S&P 500. While a firmer dollar and lower-than-expected earnings from the energy sector will subtract from earnings growth to an extent, the huge boost to consumer spending, which is significantly more important, more than offsets those drags on earnings. The bottom line is that a meaningful decline in energy prices boosts overall global demand for U.S. stocks during a time of shrinking supply. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates, investment manager performance anxiety, earnings optimism and bargain-hunting.

Today's Headlines

Bloomberg:
- Federal Reserve officials said risks to economic growth last month were “more balanced” than in May and reiterated that inflation remains the biggest policy concern.
- The Robin Hood Foundation, a poverty fighting NYC charity that was criticized by lawmakers for investing in hedge funds run by board members and donors, said it would stop the practice.
- Viacom Inc.(VIA/B) shares rose the most in 11 months on speculation that a rift between Chairman Sumner Redstone and daughter Shari Redstone may lead to a sale of the company.
- Federal Reserve Chairman Ben Bernanke is preparing the ground for the longest freeze in interest rates in two decades.

Wall Street Journal:
- Clearwire Corp.(CLWR) and Sprint Nextel(S) are close to an agreement to allow each other’s customers access to their wireless roaming services.
- The National Hockey League will broadcast games live on the Internet next season to try and make up for dwindling television ratings in the US.
- US consumers can pay once to buy voice-over-Internet-protocol hardware from Ooma that enables phone calls through the Internet with no more monthly bills, Walt Mossberg wrote.
- Walt Disney(DIS) plans to use some of its star performers on its cable television Disney Channel and record labels.

NY Times:
- Former Tennessee Senator Fred Thompson is expected to enter the US presidential race with a national announcement tour after Labor Day in early September, citing aides.
- Cerberus Capital Management LP, the private equity firm that bought Chrysler Group from DaimlerChrysler AG in May, is expected to make a bid for Ford Motor’s(F) Jaguar and Land Rover units today.
- Method Products, a seller of environmentally friendly household cleaners, this week began the largest advertising campaign in its seven-year history.

NY Post:
- Foot Locker(FL) is exploring a possible sale of the company, and has hired Lehman Brothers Holdings(LEH) to advise it.

Seattle Times:
- Kevin Durant, the second pick in last month’s NBA draft, signed a seven-year, $60 million endorsement contract with Nike Inc.(NKE).

Business Week:
- The board at Motorola Inc.(MOT) started discussions to replace CEO Zander.

AP:
- The European Union endorsed the mobile-television standard, known as DVB-H, or Digital Video Broadcasting for Handhelds, which is backed by a group of companies headed by Nokia Corp.(NOK).

Australian:
- Australia’s BHP Billiton(BHP) isn’t interested in making a bid to buy part or all of Alcoa Inc.(AA).