BETWEEN THE HEDGES

Weekend Headlines
Bloomberg:
- The US dollar headed for a weekly gain versus the euro for the first time since mid-June on speculation the interest-rate differential that favors the 15-nation currency will stop widening.
- German manufacturing orders unexpectedly declined for a sixth straight month in May, further evidence that Europe's largest economy is losing momentum.
- French President Nicolas Sarkozy recommenced his criticism of the European Central Bank today, asking it was ``reasonable'' for it to have raised the region's key interest rate this past week.
- Lead fell in London, heading for the biggest drop in six weeks, on concern record oil prices will cut demand for the metal used in car batteries. Copper also slipped. Supply will outpace demand by 130,000 tons this year, Goldman Sachs JPWere Pty Ltd. said July 2. That's 29 percent more than all the lead held in warehouses monitored by the LME. Inventories tracked by the bourse have more than doubled this year, to 100,675 tons. Open interest, or outstanding contracts, rose 0.9 percent this week as prices fell, indicating investors are adding to bets on further declines.
- The United Arab Emirates has written off $7 billion of Iraqi debt and named an ambassador to Baghdad, following a visit to the oil-rich Gulf state by Iraqi Prime Minister Nuri al-Maliki. The UAE is the first Gulf Arab state to forgive Iraqi debts following a conference in Stockholm in May attended by more than 100 governments at which US Secretary of State Condoleezza Rice called for support for the Maliki government. So far, more than $65 billion in Iraqi debt has been forgiven by the Paris Club of creditor nations, including Russia, Japan and the US.
- NYSE Euronext(NYX), the world’s largest owner of stock exchanges, may seek to grow in commodities and derivatives as well as in Asia, Deputy CEO Jean-Francois Theodore said.
- South Korea, Asia's third-largest oil importer, plans to cut the amount of energy used by the government by 10 percent to offset rising costs from record oil prices.
- Hyundai Motor Co., South Korea's biggest carmaker, slashed its 2008 domestic sales target by 6 percent as rising oil costs and a weakening economy damp demand for automobiles.
- Italian Prime Minister Silvio Berlusconi said he'll push Group of Eight members to take action against ``speculation'' in oil markets that he says is driving prices higher.
- UBS AG may avoid a loss in the second quarter and has no plans raise capital after 3 billion Swiss francs ($2.9 billion) in tax credits offset damage from the subprime crisis.
- Iran is ready to negotiate with world powers on its nuclear program, the country's state news agency IRNA reported, citing government spokesman Gholam-Hossein Elham.
- China, India and Indonesia must become involved with emissions trading to counter climate change, Ross Garnaut, the Australian government's adviser on global warming, said today. ``The arithmetic of solving the global problem doesn't work unless China plays a substantial role from an early date,'' Garnaut told ABC's Inside Business television show today. ``Eighty percent of the emissions growth over the next couple of decades is going to be in the developing countries,'' especially China, India and Indonesia, he said.
- NBC Universal and buyout firms Bain Capital LLC and Blackstone Group LP agreed to buy the Weather Channel, after Landmark Communications Inc. put the cable network up for sale earlier this year.
- Google Inc.(GOOG), owner of the YouTube video-sharing Web site, said it's seeking to remove users' login information from a database of all videos viewed on YouTube that it must turn over to Viacom Inc.(VIA/B).
- China is drafting regulations to control cross-border payments for services to curb rising inflows of ``hot money'' betting on gains in the yuan, according to an official at the nation's currency regulator.
- Policy makers in emerging economies from Russia to Vietnam may have to start acting less like Ben S. Bernanke and more like Paul Volcker if they want to bring inflation under control.
- South Korea authorities will work to halt ``excessive'' moves in the won, Asia's second-biggest declining currency this year, including using foreign-exchange reserves to stem its drop.

Wall Street Journal:
- Mahindra & Mahindra Ltd. has “mild interest” in talking to General Motors(GM) to potentially buy the Hummer division, citing Pawan Goenka, president of the Indian company’s automotive unit.
- Renault SA Chief Executive Carlos Ghosn said Saturday the company is getting ready to mass produce electric cars to offset rising energy prices.
- In an effort to curb the relentless increase on steel prices and bolster their own frail finances, some auto makers are beginning to push back on price increases, saying they won't pay surcharges on agreed-upon supply contracts.
- The housing industry already has given more money in political contributions this election cycle than in the entire previous cycle, while winning favorable provisions in an emergency housing bill moving through the legislature.

CNBC.com:
- BlackRock(BLK) Vice Chairman Robert Doll says the negativity in the market has reached enough of a fevered pitch to signal a buying opportunity.
- J.D. Power Automotive Forecasting on Friday reduced its forecast for west European car sales in 2008 and 2009 and now expects falls of 4 percent and 1.3 percent respectively.

NY Times:
- Google(GOOG), Zen Master of the Market. Google, it seems, is the emerging dominant company in the Internet era, much as Microsoft was in the PC era. The study of networked businesses, market competition and antitrust law is being reconsidered in a new context, shaped by Google.

TheStreet.com:
- Nanotech Advancing, One Tiny Step at a Time.

Boston Globe:
- When investments go bad, angry investors sometimes write nasty letters to the people in charge. Others sue. This week Paul Omeara took things a step further. Omeara broke into the Wayland home of hedge fund manager Michael C. Regan and stole a laptop computer and paper files in hopes of finding the $1.5 million he invested in Regan's troubled hedge fund, according to a police report and Regan's lawyer. Omeara, who didn't return phone messages, fled in an SUV, chased by a farm tractor.

NY Post:
- Merrill Lynch(MER) is in talks to sell its minority interest in Bloomberg LP to a blind trust run by Michael Bloomberg, who already owns the rest of the company. The investment is valued at between $5 billion and $6 billion.

Business Week:
- China: An Olympic Loss for Industry. Strict limits on production during the Games will be felt across the Mainland – and by consumers abroad.

CNNMoney.com:
- Offshore oil drilling: An early jump in Florida. Oil companies once viewed drilling in the deep waters off Florida as cost prohibitive. Politicians feared even the slightest sign of support would be career suicide. No more.
- Rock-bottom home prices have finally begun to lure vulture real estate investors into the fray.
- Best Places to Buy an Old House: Editors’ Top 12 Picks.

Reuters:
- Asia’s exporters suffering as global demand weakens.
- Toyota Motor Corp. plans to install solar panels on its next-generation Prius hybrid cars, becoming the first major automaker to use solar power for a vehicle.

AP:
- Republican Party ad assails Obama on energy. SCRIPT: Announcer: "Record gas prices. A climate in crisis. John McCain says solve it now with a balanced plan: Alternative energy, conservation, suspending the gas tax, and more production here at home. He's pushing his own party to face climate change. But Barack Obama? For conservation, but he just says no to lower gas taxes, no to nuclear, no to more production. No new solutions. Barack Obama: Just the party line. The Republican National Committee is responsible for the content of this advertising."

Financial Times:
- A top Chinese security official has warned that “anti-China” forces and other hostile groups are intensifying efforts to sabotage next month’s Beijing Olympics.
- Nearly a quarter of the world's leading pharmaceutical companies consider that diversifying away from selling medicines while expanding sales in emerging markets are the most promising ways to sustain growth, a survey has found. These fresh strategies meet intensifying industry and investor concerns about patent expiry, pressure on pricing and reimbursement, and difficulties in launching drugs.
- Hopes rise for progress on Tehran talks. Iran’s top security negotiator will this month meet Javier Solana, the European Union’s foreign policy chief, amid continuing hopes in western capitals that Tehran will soon begin formal negotiations over its nuclear program.

TimesOnline:
- Virgin is among three funds created to fish for the bottom of the market. Three separate funds are being created to exploit investment opportunities in the battered aviation, hotels and property sectors, The Times has learnt, in a sign that some investors are calling the bottom of the market.
- Yahoo!(YHOO) re-enters merger talks with Time Warner(TWX).

International Herald Tribune:
- The fog of credit default swaps. Everybody knows that the market for credit default swaps is one of the hottest investment arenas around. At the end of last year, according to the Bank for International Settlements, the fair value of credit default swaps outstanding totaled $2 trillion, up from "just" $133 billion three years earlier. When it comes to detailing how much of these instruments public companies hold, disclosure is mighty scant. This may soon change, if a rule proposed by the Financial Accounting Standards Board goes into effect as scheduled this autumn.

Independent:
- India’s inflation has risen to new heights as official figures yesterday revealed that increased fuel prices have pushed up the costs of food, building supplies and steel. The new figure of 11.63% recorded during the third week of June is the highest in 13 years, and almost a threefold increase from last summer’s rate of 4.3%. In the shorter-term, it is likely that the bank will proceed with another rise in interest rates. All eyes will be on the central bank when it next meets on 29 July. It has already raised key lending rates twice in the last month.

RTLZ:
- European Central Bank President Jean-Claude Trichet said the Dutch government shouldn’t raise taxes further because they are a risk to inflation. “If there are new decisions of that kind it’s obviously a risk to price stability,” Trichet said.

Kommersant:
- OAO Rosneft, Russia’s state-run oil company, asked the Natural Resources Ministry for permission to develop 29 offshore fields by 2020. The projects account for 10 billion metric tons of oil equivalent, or about 10% of the Russian continental shelf’s total resources.

Interfax:
- Russia’s lower house of parliament approved tax cuts for oil producers today. The level where the oil-extraction tax kicks in will increase to $15 a barrel from $9 a barrel, according to the bill. The changes also include extending so-called tax holidays for new deposits in the far northern Timan-Pechora region. Russian Energy Minister Sergei Shmatko said the state plans further changes to the tax code to “stimulate the oil industry.” The measures already agreed by the government will ease the tax burden for oil companies by a combined total of about $4 billion to $5 billion a year, Shmatko said.

O Estado de S. Paulo:
- Brazilian Finance Minister Guido Mantega said the challenge for Brazil and other emerging market countries is to fight inflation without stopping growth. Mantega said Brazil has taken measures to ease demand and growth, not to “let the economy take a beating.” That means a slight deceleration in the economy, slowing growth to 4.5% to 5% from 5.4% to 6% last year, he said.

Folha de S. Paulo:
- Brazilian President Luiz Inacio Lula da Silva will propose limits on hedge funds to reduce speculation in the commodities market at the next meeting of the Group of Eight leaders. Lula will suggest limiting the amount hedge funds can invest in the commodity futures market, to avoid the surge in prices such as the cost of oil.

Commercial Times:
- Formosa Plastics Group is reducing its inventories of commodities because it expects prices may start to fall this year, citing Lee Chih-tsuen, a member of the groups executive committee. Crude oil may fall to $100 a barrel after November, Lee said. Taipei-based Formosa Plastics Group controls Formosa Plastics Corp., Taiwan’s largest maker of Polyvinyl chloride, or PVC, and Formosa Petrochemical Corp., the island’s only publicly traded oil refiner.

The Economic Observer:
- China’s government is likely to take measures to ease property developers’ funding difficulties caused by loan curbs and falling sales. A decline in property prices will erode demand and disrupt economic growth, citing a National Development and Reform Commission report. Housing sales in China fell .4% from a year earlier in the first four months.

The Financial Express:
- India May Begin Taxing Commodities Trades.

The Economic Times:
- With stock prices in a free fall, India-obsessed hedge funds that were pushing up the market to dizzying levels are now looking to benefit from the slide by going short on India.

Gulf News:
- The United Arab Emirates will allow schools to raise tuition fees by as much as 30% to meet the rising costs from record inflation and higher salaries for teachers, citing the Ministry of Education.

Weekend Recommendations
Barron's:
- Made positive comments on (CALM) and (TWX).

Night Trading
Asian indices are -.75% to unch. on avg.
S&P 500 futures +.10%.
NASDAQ 100 futures +.03%.

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Earnings of Note
Company/Estimate
- (AMCN)/.12

Upcoming Splits
- (PCU) 3-for-1
- (ATW) 2-for-1

Economic Releases
- None of note

Other Potential Market Movers
- The (MICC) general meeting, (GNB) shareholders meeting and (CALW) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the close of trading. The Portfolio is 75% net long heading into the week.

Indices
S&P 500 1,262.90 -1.58%
DJIA 11,288.54 -1.44%
NASDAQ 2,245.38 -3.27%
Russell 2000 665.78 -4.67%
Wilshire 5000 12,769.72 -2.24%
Russell 1000 Growth 541.59 -2.46%
Russell 1000 Value 668.90 -1.60%
Morgan Stanley Consumer 647.60 -.95%
Morgan Stanley Cyclical 818.81 -4.93%
Morgan Stanley Technology 547.94 -2.43%
Transports 4,678.75 -4.37%
Utilities 515.32 +.94%
MSCI Emerging Markets 129.52 -4.18%

Sentiment/Internals
NYSE Cumulative A/D Line 43,461 -9.36%
Bloomberg New Highs-Lows Index -1064 -4.11%
Bloomberg Crude Oil % Bulls 54.0 +42.1%
CFTC Oil Large Speculative Longs 211,137 unch.
Total Put/Call 1.15 +1.77%
OEX Put/Call 1.71 +116.46%
ISE Sentiment 150.0 +57.89%
NYSE Arms .77 -14.44%
Volatility(VIX) 24.79 +3.59%
G7 Currency Volatility (VXY) 9.75 -3.56%
Smart Money Flow Index 8,035.11 -.57%
AAII % Bulls 23.93 -23.42%
AAII % Bears 52.14 -.25%

Futures Spot Prices
Crude Oil 144.18 +2.59%
Reformulated Gasoline 354.90 +.68%
Natural Gas 13.57 +2.49%
Heating Oil 406.50 +3.12%
Gold 935.50 +.55%
Base Metals 242.95 -1.61%
Copper 388.15 +.04%
Agriculture 481.45 -.42%

Economy
10-year US Treasury Yield 3.98% +1 basis point
10-year TIPS Spread 2.60% +7 basis points
TED Spread .97 -16 basis points
N. Amer. Investment Grade Credit Default Swap Index 147.16 +3.95%
Emerging Markets Credit Default Swap Index 266.62 +4.38%
Citi US Economic Surprise Index +9.70 +21.25%
Fed Fund Futures 17.8% chance of 25 hike, 82.2% chance of no move on 8/5
Iraqi 2028 Govt Bonds 72.25 -.41%
4-Wk MA of Jobless Claims 390,500 +3.0%
Average 30-year Mortgage Rate 6.35% -10 basis points
Weekly Mortgage Applications 477,700 +3.56%
Weekly Retail Sales +2.5%
Nationwide Gas $4.10/gallon +.03/gallon.
US Cooling Demand Next 7 Days 10.0% above normal
ECRI Weekly Leading Economic Index 131.20 -.30%
US Dollar Index 72.73 +.51%
Baltic Dry Index 8,854 -7.76%
CRB Index 472.36 +1.96%

Best Performing Style
Large-cap Value -1.60%

Worst Performing Style
Small-cap Value -5.42%

Leading Sectors
Drugs +4.37%
Biotech +1.51%
Utilities +.94%
Medical Equipment +.19%
Defense -.66%

Lagging Sectors
Coal -8.62%
Airlines -10.59%
Alternative Energy -12.0%
Steel -13.3%
Gaming -15.6%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

BETWEEN THE HEDGES

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Stocks Finish Mostly Lower, Weighed Down by Steel, HMO and Gaming Shares

Stocks Finishing Mostly Lower on Global Growth Worries, Record Energy Prices