Today's Headlines

Bloomberg:
- Boeing Co.(BA) deserves another chance to bid on the $35 billion US Air Force aerial-tanker contract won by rival Northrop Grumman(NOC), a government agency said.
- Brazilian central bank President Henrique Meirelles said policy makers are on the lookout for increases in consumer prices and are ready to raise interest rates further if their inflation target is threatened.
- New York Times(NYT) said advertising revenue at its newspapers and their Web sites dropped 13% in May, the biggest monthly drop this year.
- Crude oil’s “bull run” may be over as prices become increasingly volatile and Saudi Arabia pledged to boost supplies, according to JPMorgan Chase(JPM). Spare production capacity may reach 5 million barrels a day by 2010, similar to levels in 2002 to 2003, when oil was $30 a barrel, the analysts said.
- Crude oil is surging more than $2/bbl. as historic investment fund speculation for the commodity continues unabated, despite a smaller-than-expected weekly US oil inventory drawdown and a rise in the US dollar.

Wall Street Journal:
- China’s investment-banking market is about to become increasingly crowded. After a two-year hiatus, regulators are opening the way for global banks to set up joint ventures and allow them to expand their businesses in the country.
- EU Rethinks Farm Subsides, Seeks More Production. With global food prices and arable land in short supply, the EU finds itself at loggerheads over how to overhaul a subsidy system that frequently pays landowners not to grow crops.
- A new exchange-traded note is attempting to break new ground by employing a sophisticated strategy popular with hedge-fund investors: using short-selling and stock selection in an effort to outperform the market. In late May, JPMorgan Chase(JPM) teamed up with asset manager First Trust Advisors on an ETN that uses a so-called 130/30 strategy.

NY Times:
- Michelle Obama Seeks New Introduction After Stumbles.

CNBC.com:
- The economy of California, the most populous US state, will remain weak this year as the downturn in its housing market persists, but strong exports and agricultural activity will help offset that drag, according to a UCLA Anderson report. “Though you still hear talk of recession these days, it does appear that California will not exhibit the type of job loss that typically goes with a national recession,” the report said. "We are looking for a 2008 growth rate of 1.5 percent in personal income after adjusting for inflation. Not a barn burner, but not bad in a slow economy," the report said. "Most of that growth will take place later in the year. Through 2009 the growth rate will increase towards more normal trend levels." "Suffice it to say, the housing market has yet to hit the affordability bottom, an event we think will occur before year end," their report said. "When that happens, home prices and mortgage interest rates will once again stimulate the demand for housing, though not nearly to the extent we have seen in recent years."

MarketWatch.com:
- President Bush called for the lifting of a ban on offshore oil drilling on Wednesday, touting it as a way to boost US oil production as Americans suffer from high and rising gasoline prices and echoing an identical proposal made Tuesday by Republican presidential contender John McCain. "For many Americans, there is no more pressing concern than the price of gasoline," Bush said at the White House, laying out a four-part plan including allowing drilling off of U.S. coasts. A majority of Americans -- 57% -- support opening up new territories to drilling, according to a recent Gallup poll.

Washington Post:
- The campaigns of Senators John McCain and Barack Obama on Tuesday engaged in a heated exchange over the rights of terrorism suspects, with each side accusing the other of embracing a policy that would put the country at risk of more attacks in the future.

USA Today:
- The Air Force is expected to double patrols of armed drones in Iraq and Afghanistan to help save more lives.

Hedgeweek:
- Net hedge fund industry inflows slumped to $2.62 billion during the first quarter. Combined with a new performance loss of some $36 billion, this resulted in estimated assets falling to $1.75 trillion at the end of March.

Morningstar.com:
- Sharp increases in commodity prices may be due to pension-fund investors, not speculators, NYSE Euronext(NYX) CEO Duncan Niederauer said. Pension funds have made commodities a part of their investment portfolios and are investing in them regularly, Niederauer said in response to questions after a speech to the National Press Club. "Frankly, that completely alters the supply and demand for these commodities," he commented. "I think that's what's driving it."

Advertising Age:
- Consumers will spend five hours a day watching videos on mobile phones, televisions and computers by 2013, an increase of 25% from 2008, citing a study by Forrester Research.

Reuters:
- The video game industry is expected to shoot from $41.9 billion in global sales last year to $68.3 billion in 2012, a compound annual growth rate of 10.3% and better than all other media sectors except for online advertising and access.

Ottawacitizen:
- Today we are told the era of cheap energy -- cheap oil in particular -- has passed. Again. And this time we are told it ain't ever coming back. The more excitable doomsayers foresee the end of the world as we know it -- whether due to gentle decline or apocalyptic collapse. I don't buy it. The history of civilization is the history of people running into walls and figuring out how to climb over, go around or tunnel under. We are an inventive species.

Xinhua:
- Inflation in Russia may reach 12% this year, some one percentage point higher than the previous official forecast, a Russian Central Bank Official said.

Khaleej Times:
- UAE’s inflation soared to a 20-year high of 11.1% in 2007, exceeding estimates made by various official sources and global research agencies. According to latest estimates, with no end sight for the easing of rents that had shot up 17.5 per cent last year, coupled with skyrocketing food and fuel prices, inflation would be headed for another record surge in 2008, even beyond 12 per cent despite serious efforts initiated by the Ministry of Economy to contain inflation at five per cent this year.

Bear Radar

Style Underperformer:

Mid-cap Value -1.58%

Sector Underperformers:

Airlinesirlind (-4.66%), Retail (-3.16%) and Banks (-2.86%)

Stocks Falling on Unusual Volume:

ERJ, FITB, CATY, ASBC, CINF, DISH, ZION, TRAK, LNN, VMI, CLC, STI, KMX, WXS, MI and BBT

Stocks With Unusual Put Option Activity:

1) KMX 2) CBS 3) USB 4) CMA 5) RF

Bull Radar

Style Outperformer:

Large-cap Growth (-.49%)

Sector Outperformers:

Steel (+2.23%), Airlines (+1.83%) and Energy (+1.64%)

Stocks Rising on Unusual Volume:

UNP, CSX, GSK, JRCC, PFE, SNP, ANW, PNRA, TLEO, YRCW, GROW, GMXR, VPRT, KNSY, CSIQ, IVGN, CRAI, MYGN and OTTR

Stocks With Unusual Call Option Activity:

1) RWT 2) DKS 3) INFY 4) ALL 5) MF

Economic Releases

- None of note

Links of Interest

Market Snapshot Commentary
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Style Performance
Sector Performance
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Top 20 Biz Stories
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Real-Time Intraday Quote/Chart
Dow Jones Hedge Fund Indexes

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.