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- None of note

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- YRC Worldwide(YRCW), the Overland Park, Kansas-based trucking company said second-quarter profit excluding some items will probably be 30 cents a share to 40 cents, matching its April forecast. The stock jumped 9.7% in after-hours trading.
- Panera Bread(PNRA) today announced that it is increasing its fiscal second quarter 2008 earnings per diluted share target to $.48 to $.50 from its previously announced target of $.40 to $.44 per diluted share. The increase is driven by projected company-owned comparable bakery-cafe sales growth of 6.1% to 6.4% (versus its previously targeted range of 5% to 6%), and better than expected margin improvement on higher growth in gross profit per transaction. The stock surged 7.6% in extended trading.
- Jack Scoville, vice president at Price Futures Group, says corn futures ‘close to a peak.’ (video)
- Mexico may increase crude production by 300,000 barrels per day to 3 million barrels a day next year as state-owned Petroleos Mexicanos pumps more oil, the country’s energy minister said.
- Wyeth(WYE) and Elan Crop.(ELN) shares rose after the drugmaker’s experimental Alzheimer’s treatment helped improve brain functioning in patients with the degenerative brain disorder who were screened with a genetic test.
- Johnson&Johnson(JNJ) won a US panel’s unanimous backing to introduce a new drug for millions of adults with the skin disorder psoriasis.
- Osama bin Laden’s top aide, Ayman Zawahiri, is spearheading a public-relations effort to restore al-Qaeda’s credibility in the Muslim world as military pressure puts it on the defensive. “These are signs of weakness,” said Martha Crenshaw, a senior fellow at Stanford University’s Center for International Security and Cooperation in California. “Of course, sometimes a weak organization can be even more dangerous since it needs to lash out,” she said.
- NEC Electronics Corp., Japan’s third-largest chipmaker, climbed 9.7% to the highest in six months in Tokyo trading after Goldman Sachs(GS) raised its rating on the company to “buy.”
- New Zealand’s economy is weaker than forecast in last month’s budget as rising credit, fuel and food costs crimp consumer confidence and spending, Finance Minister Michael Cullen said.

Wall Street Journal:
- Wind power will be more easily shipped across NY’s electricity grid for real-time and next-day use under market rule changes approved by federal regulators Tuesday.
- LinkedIn Corp., a business-networking Web site, has received a $53 million infusion from blue-chip venture capitalists that values the company at $1 billion.
- Florida’s governor dropped his longstanding support for a federal ban on offshore drilling for oil and natural gas – a major shift that shows how voter anger over soaring gasoline prices is forcing politicians to rethink US energy policy.

MarketWatch.com:
- CFTC moves to close ‘London loophole’ The Commodities Futures Trading Commission moved Tuesday to make London traders of the benchmark U.S. oil contract meet the same position requirements as their U.S. counterparts, one of a series of actions the futures watchdog says it's taking to stamp out "excessive speculation" in the oil markets. In testimony before a Senate hearing on oil markets, CFTC Acting Chairman Walter Lukken said the regulator "was trying to address all points of entry for crude," including by addressing overseas trades of a contract such as WTI that settles on a CFTC-regulated exchange. "Our job is to ensure excessive speculation is not ... driving markets," Lukken said in the Washington, D.C. hearing, which was broadcast on the Internet. In addition, Lukken said Tuesday the regulator plans to give Congress a report by Sept. 15 detailing its findings on index trading. Critics say the CFTC's designation of index trading, or trades entered into by pension funds and others that are linked to a commodity index, understates the funds' presence. That's because these funds can increase their positions through swaps contracts with large investment banks like Goldman Sachs Group, Inc.(GS) and Morgan Stanley(MS). The CFTC's most recent actions come as lawmakers prepare a slate of new bills that range from bolstering the CFTC's staffing and oversight to sharply curtailing the role of institutional investors in the commodities markets. The major banks and exchanges that handle the bulk of futures traders are trying to prevent Congress from taking some of the more extreme actions it's threatened.
- Crude oil futures closed lower Tuesday as concerns about the US economy dampened the outlook for oil demand and traders bet that Saudi Arabia and other oil exporters will soon agree to boost production. "With all the volatility the last week or two, I suspect the big risk takers are all that want to trade in this market," said Charles Perry, president of Perry Management, an energy-consulting firm. "In the back of everyone's mind is a possibility the crude [and other commodities] could crash if the traders rapidly moved out of commodities, and no one wants to be left holding the bag."
- Inflation not bad for stocks? Conventional wisdom about inflation and stocks is misleading.
- Get your sockets ready – plug-in electric cars are coming soon to a garage near you, according to car makers and power company officials who met in the nation’s capital last week to discuss the technology’s future.
- H&R Block(HRB) said late Tuesday its board approved a series of changes in the company's corporate governance policies, including giving shareholders a say in the company's compensation package.
- A bipartisan housing bill that aims to provide relief to homeowners facing foreclosures and contain problems in the housing market was announced on Tuesday, and the Senate is expected to begin debate on the proposal soon.

CNBC.com:
- China intends to make its energy prices better reflect market fundamentals over time, but needs to move cautiously because of concerns about inflation, an official said Tuesday.

NY Times:
- New Jersey’s Office Developers See a Few Bright Spots. Some real estate professionals are sensing a possible resurgence for the office market in New Jersey.
- Investors Seek Asian Options to Costly China.

IBD:
- Cognex(CGNX): Electronic Eyes Guide Robotic Arms, Assembly Lines In Industry.

c/net:
- Tech giant Intel(INTC) joins IBM(IBM) and Applied(AMAT) in big solar bet.

Reuters:
- High energy prices upset balance in US West. With energy prices at record highs, some fear that interest in long-dormant rights to develop oil and gas resources underneath the land could badly upset the natural beauty and balance of the rugged American West.
- U.S. airlines projected on Tuesday they could lose $10 billion in 2008 due to skyrocketing fuel costs, a sum that would almost match the industry's worst-ever year loss in 2002.

Middle East Times:
- US provincial reconstruction teams in Iraq’s western Anbar province installed solar-powered purification units to provide potable water to local residents.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures unch.
NASDAQ 100 futures -.08%.

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Earnings of Note
Company/EPS Estimate
- (CMC)/.73
- (FDX)/1.47
- (KMX)/.22
- (LNN)/1.22
- (MS)/.92
- (IHS)/.44
- (HWAY)/.39

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -1,750,000 barrels versus a -4,560,000 barrel decline the prior week. Gasoline supplies are expected to rise by 850,000 barrels versus a 998,000 barrel build the prior week. Distillate inventories are estimated to rise by 1,800,000 barrels versus a 2,277,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to rise by .5% versus a 1.09% decline the prior week.

Other Potential Market Movers
- The Fed’s Yellen speaking, weekly MBA mortgage applications report, (PLXS) investor day, (GET) analyst day, (TLEO) analyst meeting, BIO International Convention, Deutsche Bank Consumer & Food Retail Conference, Merrill Lynch Transports Conference, CSFB Consumer Conference and William Blair Growth Stock Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by mining and real-estate shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Lower into Final Hour, Weighed Down by Financial, Road & Rail, REIT Shares

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Stocks Lower into Final Hour on Financial Sector Worries

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Computer longs and Medical longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. The VIX is rising .62% and remains above average at 21.10. The ISE Sentiment Index is below average at 110.0 and the total put/call is above average at .92. Finally, the NYSE Arms has been running about average most of the day and is currently .96. Financial equities are under pressure again today, despite a decline in their credit-default swaps and a positive report from Goldman Sachs(GS). This is weighing on the broad market. The Shanghai Composite fell to another new 52-week low last night. This index is now down 54.4% from its October high and down 46.9% ytd. On the positive side, the Euro Financial Sector Credit Default Swap Index is falling another 3.5% today to 71.4 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is falling 2.6% today to 105.2, which is also a large positive. The TED spread is falling 5.2% today to .82 basis points. Leading growth stocks are substantially outperforming the broad market and value stocks again today. Despite a decline in the US dollar versus the euro, oil was unable to mount a rally today. Weekly retail sales rose 2.2% this week, up from a 2.1% gain the prior week and up from a .5% gain the week of March 4^th. One of my longs (NUAN) is seeing a huge spike in call option activity today, which could be related to (MSFT) acquisition rumors. Lazard reiterated its Buy today on (ISRG) and said it sees upside to its 2Q forecasts. It said that hospitals are getting financing and using the da Vinci for wider surgical uses. Nikkei futures indicate an +72 open in Japan and DAX futures indicate a -4 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices, bargain-hunting, diminishing credit market angst and short-covering.

Today's Headlines

Bloomberg:
- Wall Street is losing its top oil analysts as securities firms suffer record losses and hedge funds offer the promise of higher pay.
- Kuwait followed Saudi Arabia in saying crude oil prices are too high as evidence mounts that energy costs are restraining growth and accelerating inflation.
- Goldman Sachs Group(GS), the world’s biggest securities firm, surpassed analysts’ estimates as gains in prime brokerage, asset management and commodities buoyed second-quarter profit. Goldman, which dominates the business of commodities trading along with Morgan Stanley, said revenue from commodities was higher in the second quarter than a year earlier. The firm doesn't provide any separate figures for the business, instead reporting it under the broader category of fixed-income, currencies and commodities. Crude oil futures doubled in the past year, and the price of products from gold to corn soared to record highs. Finance ministers from the Group of Eight nations said June 15 that surging food and fuel prices replaced the credit squeeze as the biggest threat to the world economy.
- The cost of protecting corporate debt from default fell as Goldman Sachs(GS) said its second-quarter profit fell less than analysts had estimated. Credit-default swaps tied to the debt of NY-based Goldman fell 8 basis points to 104 basis points. Contracts on Lehman(LEH) fell 10 basis points to 225 basis points. Contracts on Morgan Stanley(MS), which reports earnings tomorrow, fell 8 basis points to 160.

Wall Street Journal:
- Senator Barack Obama shed new light on his economic plans for the country, saying he would relay on a heavy dose of government spending to spur growth, use the tax code to narrow the widening gap between winners and losers in the US economy, and possibly back a reduction in corporate taxes.
- US Car, Truck Fuel Efficiency May Get Even Better.
- Help For Holders of Auction-Rate Securities May Be on the Way. Regulatory doors appear to have opened that could permit the creation of a new type of security to rescue stranded auction-rate preferred shareholders.
- Suburbs a Mile Too Far for Some. Demographic Changes, High Gasoline Prices May Hasten Demand for Urban Living.
- Hedge Funds Heart Goldman Sachs(GS), But Not Bear Stearns.

NY Times:
- Data Engineers Needed as Internet Demands Grow.
- In a Twist, a Hedge Fund Boss Defends MBIA(MBI).

AP:
- A major labor union and the liberal organization MoveOn.org are joining forces to air a provocative new ad portraying John McCain’s Iraq policy as a prolonged presence that would involve a new generation of Americans. McCain has stressed that his goal is to reduce American casualties, shift security missions to Iraqis and, ultimately, have a non-combat US troop presence in Iraq similar to that in South Korea. Polls show that while a large majority of the public opposes the war, they split almost evenly between McCain and Senator Barack Obama over who would better handle Iraq.

USA Today:
- European and Asian companies are beating their American rivals into Iraq now that security has improved the investment climate, Iraq and US officials say. “It’s starting to turn…and the people who are getting in on the ground floor are not American,” said Paul Brinkley, the Pentagon official who is leading US efforts to help Iraq rebuild its economy. “It’s ironic.” Foreign companies, including US investors, have committed to deals worth about $500 million so far this year and Brinkley expects at least $1 billion in foreign investment by the end of the year. Some US and Iraqi officials say American companies risk losing an early opportunity to establish long-term strategic ties with Iraq. Many of the companies active in Iraq now are from countries, including France, Russia and Turkey, that did not send combat troops into the country. China has also aggressively pursued the Iraqi market, selling machinery to the government and electronic products to consumers. “My question is, ‘Where are you guys in terms of investment, in terms of economic engagement?’” said Naufel al-Hassan, Iraq’s commercial counselor in Washington. “Iraqis need your support. Why let someone else do that?”

NY Post:
- Phil Falcone’s Harbinger Capital Partners – the hedge fund that won a battle to land board seats at The NY Times(NYT) – is expanding its size and presence to capitalize on its newfound clout. Falcone is seeking to use the reputation gained from the Times fight and winning bets against US subprime mortgages to springboard Harbinger, which now has $25 billion in assets, towards new goals.

Reuters:
- To counter the global food crisis, Africa could triple or quadruple food output quickly, a UN food expert said.

Financial Times:
- Latin America pays the price for fuel subsidy.

AFP:
- Iran is against any plan by Saudi Arabia to increase oil production without the consensus of OPEC, citing an Iranian official.

La Tribune:
- NYSE Euronext(NYX) is in talks with possible partners to create a global stock index, citing an interview with exchange deputy CEO Jean-Francois Theodore.

Sueddeutsche Zeitung:
- Almost three quarters of Germans say that income and wealth are not fairly distributed in Europe’s largest economy, citing a survey by Bertelsmann Foundation.

Die Welt:
- Germany’s ruling coalition government plans to water down measures to reduce carbon-dioxide emissions to ease the burden on homeowners from rising energy prices.