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Thursday Watch

Late-Night Headlines
Bloomberg:
- Unprecedented growth in electronic and worldwide trading may be overwhelming commodities markets and raising prices, said Walter Lukken, the acting head of the US commodity trading watchdog or CFTC. Senator Richard Lugar said the work the commission is doing has ``worldwide implications,'' adding that energy costs could ``cause a catastrophe in our own economy.'' The Indiana Republican questioned if the commission had the authority to ensure the stability of commodity markets. ``A lot of money is flowing into these markets, potentially creating a bubble,'' Lukken said. ``We don't have the regulatory tools needed to spot that sort of situation.'' The commission is drafting a proposal to require more detailed information from index traders and swaps dealers in the futures markets. It also may reclassify these traders so that it can gain more information about their activities.
- Antoin Rezko, an ex-fundraiser for Democratic presidential candidate Barack Obama, was found guilty in Chicago federal court for his role in a scheme to extract kickbacks in exchange for influencing awards of state contracts.
- Boston Properties(BXP) to Seek Higher Rents in GM Building.
- Offshore oil fields in Brazil’s so-call pre-salt region have a “high potential of production,” said Jose Sergio Gabrielli, CEO of Petrobras(PBR).
- Softbank Corp., Japan’s third-largest mobile-phone carrier, will introduce the iPhone in Japan this year to help maintain its lead in user addition over NTT DoCoMo Inc. and KDDI Corp.
- The US dollar traded near a two-week high against the euro after Fed Chairman Bernanke said an increase in inflation expectations is a “significant concern” for the central bank. ``The fundamental outlook is changing in favor of the dollar,'' said Win Thin, a New York-based currency strategist at Brown Brothers Harriman & Co., in an interview on Bloomberg Television. ``The U.S. economy is holding up much better than expected.''
- Lehman Brothers(LEH) isn’t under pressure from the Fed and SEC to boost capital.
- Asian governments are falling behind in their battle against record oil prices, risking public protests, higher interest rates and slower growth.

MarketWatch.com:
- Yahoo(YHOO) rebuts Icahn’s criticisms. Company says Microsoft(MSFT) not interested in merger, defends severance plan.
- Verizon(VZ) reportedly in talks to acquire Alltel. Purchase would cost around $27 billion, report says.

CNBC.com:
- Today’s Cars And Trucks Really Are Made Better.

Housing Wire:
- Hedge Fund Looks to Snap up Abandoned Land in California.

NY Times:
- Wal-Mart’s(WMT) Detractors Come In From the Cold. After waging an aggressive public relations campaign against Wal-Mart for three years, the company’s union-backed critics are lowering their pitchforks.
- Food is Gold, and Investors Pour Billions Into Farming. Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans. But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase – by buying farmland, fertilizer, grain elevators and shipping equipment. One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain. By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets.

Forbes.com:
- Short-sellers take a lot of heat for allegedly doing bad things to stocks, and their defense always has been that they do exhaustive research and offer superior insight. There is evidence, however, that some are profiting from advance tips. Researchers at George Mason Univ. have detected a pattern of abnormally high short-selling in the three days immediately before a research downgrade is made public – four times the normal level of trading – and the trading isn’t linked to earnings or other news. The George Mason group concludes that investment banks tip trading clients about the upcoming downgrades, giving them a chance to put on bearish trades and profit from the inevitable stock decline.

MiamiHerald.com:
- Venezuela’s ruling party is pledging to push through reforms that would allow President Hugo Chavez to run for re-election indefinitely.

Newsweek:
- The iPhone ‘Secret’ How Apple(AAPL) has kept a lid on the latest version.

Cleantech Blog:
- Electric Cars for 2010. Millions will be driving full-featured freeway-speed four-door sedan electric vehicles. Look for a shift away from foreign oil to riding on local renewable energy.

AgricultureOnline:
- Is the grain bull market ending? By Ray Grabanski, President of Progressive Ag, a marketing and risk management firm for farmers. Pro Ag is getting more and more bearish as the 2008 season turns around to more normal planting progress and dramatically improving crop conditions. Its starting to look more and more likely that 2008 will be a average to above average crop yield potential, so the bull trend could come to an end this summer, and soon (the next 2-4 weeks???). If so, that would end a 20 month bull market that has been impressive to say the least. It might be time to advance sales significantly in grains. Overall, Pro Ag thinks the inflationary cycle in commodities may be 1-3 months from ending (even in crude oil), so its time to reverse the strategies now, selling product in advance and not buying inputs (the opposite of what worked the past 21 months). Could fertilizer prices DROP 30% in the coming 6 months? If they drop at all, fertilizer companies may not sell another stitch of fertilizer for another year as most farmers have already purchased the next year's supply. Beware! The trade winds appear to be changing! (very good article)

Energy Current:
-Ottawa-based biotechnology company and industrial enzyme producer Iogen Corp. plans to build Canada’s first commercial scale cellulosic ethanol plant in Saskatchewan. The cellulosic ethanol producer is backed by Royal Dutch Shell and Goldman Sachs(GS).

Reuters:
- Investment manager Loomis Sayles, one of the biggest and most widely followed US bond fund managers, has been buying Lehman Brothers(LEH) debt over the past several days and is not shy about transacting with the investment bank, its vice chairman said. Dan Fuss, vice chairman of Boston-based Loomis Sayles, said he considers Lehman common shares to be “dirt cheap.” Fuss is also buying corporate bonds of other investment banks, he said. “We have no hesitation whatsoever at all in dealing with Lehman,” Fuss said, adding: “They are a fine firm and financially strong.”

Financial Times:
- Many investors are continuing to bet heavily against Lehman Brothers(LEH), lifting the percentage of the bank’s shares sold short to a record level. David Einhorn, the high-profile principal of Greenlight Capital, said Lehman was his biggest short position. He has mounted a highly public campaign against Lehman.

TimesOnline:
- Kuwait eyes US banks as Lehman Brothers seeks cash. Kuwait Investment Authority is preparing to make further investments in American financial institutions such as Merrill Lynch and Citigroup to profit from fears that banks are still short of cash.

Les Echos:
- France may expand a reward system to encourage consumers to use fuel-efficient cars to 20 other products by 2009, citing Environment Minister Jean-Louis Borloo. France will announce steps that will also increase production from renewable energy sources over the next 15 years. A solar energy plan is being completed and zones for wind farms at sea are also in the works.

Late Buy/Sell Recommendations
Citigroup:
- (NUAN) placed $100M of primary shares overnight thus partially replenishing its cash balance after using net $200M for the eScription acquisition. We believe NUAN was opportunistic in raising cash and the core business trends remain generally healthy. At today’s close of $18.80 NUAN trades at a NTM P/E of 21x vs. 3-year EPS CAGR of 25%. Any pressure in the stock tomorrow would make valuation more attractive and present an entry opportunity vs. our $24 target.

Morgan Stanley:
- Reiterated Overweight on (NVS), target $58.
- Accelerating results and improving profitability are indicative of a healthy carrier spending environment of which (ADCT), as usual, is an early beneficiary. Higher growth and profitability estimates suggest risk-reward remains skewed to the upside, and we think continued solid execution could push shares towards our new base case valuation of around $20, or 20% upside from where the stock was trading in the aftermarket.

Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 futures +.01%.
NASDAQ 100 futures -.05%.

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Earnings of Note
Company/EPS Estimate
- (SFD)/.06
- (DPS)/.41
- (DLM)/.26
- (MTN)/2.36
- (CIEN)/.36
- (JTX)/2.05
- (BF/B)/.71
- (NSM)/.27
- (COO)/.49
- (FMCN)/.33
- (TTWO)/.95
- (ZQK)/.00
- (IART)/.50

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 375K versus 372K the prior week.
- Continuing Claims are estimated to rise to 3110K versus 3104K prior.

Other Potential Market Movers
- The ICSC Chain Store Sales report, 1Q Mortgage Delinquencies report, weekly EIA natural gas inventory report, (CSC) investor meeting, (JNJ) Medical Business Review, (KLAC) analyst day, (HD) analyst conference, Jeffries Global Clean Tech Conference, Sandler O’Neil Global Exchange Conference, BMO Healthcare Staffing Forum, Stephens Investment Conference, CSFB Engineering Services Conference, Keefe Bruyette Woods Financial Services Conference, Merrill Ag Chemicals Conference and Citigroup Power/Gas/Utilities Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Higher, Boosted by Technology, Airline, Biotech, Medical, Restaurant and Utility Shares

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In Play

Stocks Mostly Higher into Final Hour on Falling Energy Prices, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs, Internet longs and Commodity shorts. I covered my (IWM)/(QQQQ) hedges and then added them back today, thus leaving the Portfolio 75% net long. The tone of the market is slightly bullish as the advance/decline line is mildly higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 4.8% and remains above average at 21.2. The ISE Sentiment Index is below average at 126.0 and the total put/call is above average at 1.04. Finally, the NYSE Arms has been running above average most of the day and is currently 1.12. I am very surprised at the severe negative investor reaction to the (MBI)/(ABK) news, which should have been mostly priced in. The (XLF) is down .74%, despite an upside reversal in (LEH) shares. A government official just said the Fed, SEC are not ordering Lehman to raise capital and that the co. is not facing a Bear Stearns-type bank run. He also said that the Fed, SEC are in daily contact with Lehman and that the Fed loan program helps avoid a Bear-type run. This should help calm fears. The European Financial Sector Credit Default Swap Index is increasing another 4.4% today to 75.27 basis points. On the positive side, growth stocks are substantially outperforming value stocks, with tech shares especially firm. As well, considering the 2-3% losses in many major emerging markets last night and this morning, our major averages are holding well. The US dollar continues to trade very well and oil remains very “heavy.” I still expect a substantial increase in demand for US stocks from the global “herd” of underweight portfolio managers over the intermediate-term. Nikkei futures indicate a -5 open in Japan and DAX futures indicate a -14 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on lower and short-covering.

Today's Headlines

Bloomberg:
- Michael Fitzpatrick, vice president for energy risk management at MF Global sees potential for oil near $86/bbl. (video)
- American Express(AXP), the biggest credit-card company by US purchases and cash advances, led the Dow higher after affirming profit this year may be higher than some analysts expected.
- China’s stocks fell to a six-week low on speculation government measures to control prices will dent earnings for steel and coal producers. The benchmark CSI 300 has plunged 34% this year, the most among the world’s 20 biggest equity markets.
- The OECD cut its forecast for global growth, while cautioning central banks against reducing interest rates. Economic expansion in the OECD’s 30 members will slow to 1.8% this year and 1.7% in 2009.
- European Retail Sales Drop by Record on Gas, Food Costs.
- Dollar Trades Near Two-Week High Versus Euro on U.S. Resilience.
- Monsanto(MON), the world’s largest seed producer, pledged to develop seeds that will double yields for three major row crops to meeting rising global demand for food, fuel and fiber.
- Copper Declines to Two-Month Low in NY on Demand Concerns.
- Carlyle Group co-founder David Rubenstein said private-equity firms will buy smaller asset managers to expand beyond the leveraged-buyout business.
- MBIA, Ambac Credit Ratings Under Threat at Moody’s.
- Lehman Brothers(LEH) snapped a three-day decline in NY trading after Merrill(MER) told clients to buy the shares.
- Malaysia will raise fuel and power prices as record oil costs force the government to cut subsidies that keep domestic prices artificially low. The price of 97-RON grade gasoline will increase 41% tomorrow.
- The cost of protecting the debt of Lehman Brothers(LEH) fell after a Merrill analyst said that funding concerns at the securities firm are exaggerated. Credit default swaps on Lehman fell to 260 basis points from 275 basis points earlier in the morning.

Wall Street Journal:
- Dangers spared outweigh Iraq war origins says Fouad Ajami.
- Washington’s push for tougher measures to rein in energy and agricultural commodities markets gained steam Tuesday.
- Drake Capital Closes Two More Hedge Funds After Losses.

NY Times:
- On Long Island, a Push to Nurture Biotech Work.
- Lehman(LEH) Battles an Insurgent Investor. For eight months now, David Einhorn of Greenlight Capital, a rabble-rousing hedge fund manager, has pilloried the venerable Lehman Brothers in an effort to drive down the bank’s stock prices, which he is short. Critics says he is needlessly fanning fears about the health of the financial industry at the very moment executives are struggling to stabilize their ailing companies. Many on Wall Street still wonder if hedge funds like Greenlight helped bring down Bear Stearns(BSC) and spread false rumors about the bank, a possibility the SEC is investigating. Mr. Einhorn instigated the latest dive in Lehman’s stock price two weeks ago when he encouraged other investors to short the stock at a large conference in NY. It is impossible to quantify Mr. Einhorn’s influence on Lehman’s stock price. But hours before his speech two weeks ago, trading volume exploded for Lehman stock puts, which are options to sell the stock and profit if it falls in value.
- The priest whose mocking of Senator Hillary Clinton stirred more racially tinged controversy in the presidential campaign was effectively placed on leave from his pastoral work Tuesday.

TheStreet.com:
- Google’s(GOOG) Android Preview Mind-Blowing.

Boston Globe:
- Clinton backers push her for VP.

Guardian:
- Jimmy Carter tells Barack Obama not to pick Hillary Clinton as running mate.

Interfax:
- Russian consumer prices rose 7.7% through May. Price growth accelerated to a monthly 1.4% in May from .6% in the same month last year, citing a govt. official.

Bear Radar

Style Underperformer:

Large-cap Value -.39%

Sector Underperformers:

Coalirlind (-2.57%), Banks (-.97%) and Homebuilders (-.77%)

Stocks Falling on Unusual Volume:

WNR, CCOI, SUN, PZE, BEAV and TGI

Stocks With Unusual Put Option Activity:

1) AXL 2) VRSN 3) BJ 4) ALTR 5) STT