Wednesday Watch

Late-Night Headlines
Bloomberg:
- The US dollar traded near a two-week high against the euro as crude oil prices fell and the Federal Reserve pledged to support credit markets, improving the outlook for the world's biggest economy.
- Gold fell for the third straight session after energy costs tumbled, reducing the appeal of the precious metal as a hedge against inflation. ``When you prick a balloon, you get an explosion,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``You're looking at a weakening economy, weakening demand for all commodities, and a fear of greater government intervention in these markets.'' Speculative long positions, or bets prices will rise, outnumbered short positions by 187,679 contracts, the agency said in its Commitments of Traders report. Net-long positions rose by 34,141 contracts, or 22 percent, from a week earlier.
- Hedge funds that primarily invest in Asia outside Japan widened their losses this year to 14%, according to preliminary data from Hedge Fund Research.
- Orders for Japanese machinery rose at 10 times the pace economists expected in May, as demand increased for equipment used to make semiconductors and steel. Equipment orders, which signal capital spending in the next three to six months, rose 10.4 percent from April when they climbed 5.5 percent, the Cabinet Office said today in Tokyo.
- The G-8 yesterday conditioned a promise to reduce greenhouse gas pollution at least 50 percent by 2050 on China, India and other emerging economies taking part in a ``global response.'' The two sides will square off today in Toyako, on Japan's northern island of Hokkaido, to air their differences.
- Australian consumer confidence fell to the lowest level in more than 16 years, adding to evidence soaring living costs, declining share prices and interest-rate increases are slowing the economy.
- Alcoa Inc.(AA), the world's third-largest aluminum producer, reported second-quarter profit that topped analysts' estimates as the company raised prices. The shares gained 3.5% in after-hours trading.
- U.K. consumer confidence declined to the lowest level since at least 2004 in June as inflation accelerated and the economic slowdown deepened, Nationwide Building Society said.

MarketWatch.com:
- Have commodities peaked? Some say oil could go back to $100, with other commodities following suit.
- Hurt by electricity shortages, high interest rates and soaring inflation, South Africa's economy may slip into a recession this year, Moody's Investors Service warned.

NY Times:
- Google(GOOG) Introduces a Cartoonlike Method for Talking in Chat Rooms.

BusinessWeek.com:
- Unlocking Cell Phones May Get Easier.

CNNMoney.com:
- The Issues: McCain vs. Obama See where the presidential candidates stand on the issues that affect you and your money.

USA Today.com:
- Handheld marvel: iPhone 3G is a lot friendlier for business, too.
- Despite the slow economy, venture-capital funding of clean-tech start-ups in the USA and abroad is on pace for a record year, according to a report released Tuesday.

Pension & Investments:
- Hedge funds gain big from volatile global markets. Assets of top 25 climbed 73% in 2007 from year earlier.
- The hedge fund industry wants parity with mutual funds in its ability to buy exchange-traded funds under a Securities and Exchange Commission proposal to streamline ETF regulation. Mutual funds and hedge funds are limited under the Investment Company Act of 1940 to ownership stakes of no more than 3% of the outstanding voting shares of other investment companies, including ETFs.

Honolulu Advertiser:
- Hawaii auto-loan delinquencies plunge 42%, to .6% in 1^st quarter. The sharp decline in Hawaii and nationally comes after rates spiked late last year along with worries about home foreclosures in the wake of the subprime mortgage crisis.

Chicago Tribune:
- Chicago Tribune to cut 80 newsroom positions.

Reuters:
- Cisco Systems Inc (CSCO) Chief Executive John Chambers said on Tuesday that the office of the CEO will be less hierarchical in five years, although he has not yet decided on when he would hand over to a successor. Asked about the U.S. economy, Chambers said many customers of Cisco see a recovery early next year. "Most customers still see the turn probably late this year or early next year. More of them looking toward early next yea," he said.
- Two environmental groups on Tuesday filed a lawsuit seeking to overturn new federal regulations that grants permission to oil companies working in the Chukchi Sea to disturb the polar bears and walrus that live there.
- New Zealanders pitch tent in early queue for iPhone.
- Shares of Hovnanian Enterprises Inc (HOV) rose more than 26 percent on Tuesday amid share gains across the home building industry and on news that Hovnanian's chairman had bought stock.

Financial Times:
- Beijing needs to bare its teeth to Tehran.

Herald Sun:
- Australia Minimum Wage Hike May Lift Inflation.

Australian Financial Review:
- Australian bankruptcies are the highest in 10 years amid higher petrol and food prices and increasing interest rates.

Oriental Morning Post:
- China’s securities regulator has banned the nation’s senior fund managers from leaving the county before Beijing’s Aug. 8 Olympics to ensure the stock market’s stability. Senior executives of China’s fund management firms will not be allowed to go abroad for any activities including vacation, investor meetings or investment conferences, the report said.

China Securities Journal:
- China Investment Corp., which manages the nation’s $200 billion sovereign wealth fund, will “soon” begin investing in global equities through external managers.

Xinhua:
- China’s economy is seeing more negative impact from the world slowdown and “imported” inflation, citing vice premier Li Keqiang. China’s economic development is at a “crucial” stage, Li said.
- China faces “unprecedented” job pressure this year partly because of a record number of university graduates seeking work, Caijing Magazine reported, citing Minister of Human Resources and Social Security Yin Weimin. The number of students expected to complete their degrees this year will reach 5.59 million, an increase of 13% from 2007. As many as 800,000 of lat year’s graduates are still unemployed.

Late Buy/Sell Recommendations
Citigroup:
- Rated (QCOM) Buy, target $61.
- Reiterated Buy on (DOX), added to Top Picks Live list, target $46.
- Reiterated Buy on (SPLS), target $28.

Morgan Stanley:
- Reiterated Overweight on (GILD), target $59.

RBC:
- Upgraded (VMW) to Outperform, target $60.

Night Trading
Asian Indices are +1.0% to +2.25% on average.
S&P 500 futures +.07%.
NASDAQ 100 futures -.05%.

Morning Preview
US AM Market Call
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Earnings of Note
Company/EPS Estimate
- (ISCA)/.55
- (WWW)/.31
- (SGR)/.62
- (RT)/.20
- (AIR)/.51

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

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -2,100,000 barrels versus a -1,982,000 barrel decline the prior week. Gasoline supplies are expected to rise by 100,000 barrels versus a 2,100,000 barrel increase the prior week. Distillate inventories are estimated to rise by 2,000,000 barrels versus a 1,264,000 barrel increase the prior week. Finally, Refinery Utilization is expected to rise by .13% versus a .63% gain the prior week.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, (IART) shareholder meeting, (MW) mid-quarter update, (ETH) investor conference, (HTH) shareholder meeting, CE Unterberg Towbin Growth Conference, Collins Stewart Growth Conference and Oppenheimer Consumer Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by industrial and financial shares 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.

Stocks Finish at Session Highs, Boosted by Financial, Transportation, REIT and Homebuilding Shares

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In Play

Stocks Soaring into Final Hour on Falling Commodity Prices, Short-Covering, Bargain Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Medical longs, Biotech longs, Gaming longs and Commodity shorts. I covered all my (QQQQ)/(IWM) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is above-average. Today’s overall market action is very bullish. The VIX is falling 8.73% and is above-average at 25.09. The ISE Sentiment Index is unavailable and the total put/call is high at 1.08. Finally, the NYSE Arms has been running about average most of the day and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising 1.3% today to 95.17 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is falling .75% today to 145.5. The TED spread is falling another 4.4% to .94. This is now down 19 basis points in 7 days, which is a big positive. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points today to 2.48%, which is also down 15 basis points in two days on the plunge in commodity prices. This is also a significant positive for the broad market. Weekly retail same-store-sales rose 2.6% this week versus a 2.5% gain the prior week. Weekly retail sales have averaged a 2.4% gain the past four weeks, up from a .6% average weekly gain during the month of February. I suspect we will build on today’s gains over the coming weeks as earnings come in better-than-feared and energy prices fall further. The massively-shorted (XLF) is soaring over 5% today to session highs. Nikkei futures indicate an +260 open in Japan and DAX futures indicate an +120 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Commodities tumbled for a third day, led by crude oil and corn, on escalating concern that the sagging global economy will erode demand for raw materials.
- The cost to protect US corporate bonds from default fell as oil prices declined a second day. Credit-default swaps on the Markit CDX North America Investment Grade of 125 companies in the US and Canada fell 2.5 basis points to 145.5 basis points, according to Phoenix Partners Group.
- Democratic presidential candidate Barack Obama is trying to claim the political center, following in the footsteps of previous nominees including Republican Ronald Reagan in 1980. Yet the Illinois senator has a higher hurdle than most: a consistently liberal voting record.
- Iran's Mahmoud Ahmadinejad dismissed the possibility of a war with the U.S. and Israel over his country's nuclear work, saying Iran is trying to avoid conflict.
- Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank should consider raising interest rates to limit inflation as the threat of a steep economic slump begins to fade.
- JPMorgan Chase & Co.(JPM) Chief Executive Officer Jamie Dimon said buyers are returning to some types of mortgage products and the crisis in the capital markets will ease.
- Corn tumbled by the limit allowed on the Chicago Board of Trade for a second straight day as rain and warmer temperatures boosted prospects for grain yields in the U.S. Midwest.
- Apple Inc.(AAPL) will start selling its new iPhone at 8 a.m. across U.S. time zones on July 11 and plans to get customers through the buying process, including activating the handset on AT&T Inc.'s(T) wireless network, within 15 minutes.
- John Templeton, the billionaire U.S. philanthropist who made his fortune as the pioneer of global investing in the postwar boom, has died. He was 95.
- Freddie Mac(FRE) and Fannie Mae(FNM), the largest U.S. mortgage-finance companies, rose in New York Stock Exchange composite trading after slumping yesterday to the lowest in 13 years.

Wall Street Journal:
- The Spanish economy could face recession in the second half, possibly depriving the euro zone of a principal engine for job creation and economic growth.
- DreamWorks Animation SKG Inc.(DWA) has chosen Intel Corp.(INTC) to supply chips and other technology for its big computer-animation operations, a shift that will cost Advanced Micro Devices(AMD) one of its most prestigious customers.
- The Market Is Responding to the Oil Shock.

Bear Radar

Style Underperformer:

Mid-cap Growth -.91%

Sector Underperformers:

Coal irlind (-5.7%), Steel (-3.92%) and Oil Service (-3.13%)

Stocks Falling on Unusual Volume:

PLLL, HOC, CLF, TTES, NUE, CMC, STLD, PBR, PCZ, IDCC, CENX, CTCM, GYMB, JRCC, GMXR, MHGC, TITN, CAVM, FSYS, BPT, EMC, EBF and BAP

Stocks With Unusual Put Option Activity:

1) SPG 2) ARO 3) FWLT 4) GLW 5) TLM

Bull Radar

Style Outperformer:

Small-cap Value (-.15%)

Sector Outperformers:

Airlines (+6.19%), Drugs (+2.30%) and HMOs (+2.19%)

Stocks Rising on Unusual Volume:

PSMT, EBS, FLO, GSK, LLY, STC, XL, TEVA, TRLG, ESPW, WDFC, HELE, CYBX, MRTN, IPAR, LEAP, DMND, RICK, OZRK, ALEX, CELG, ALGT, CLNE, GENZ, IDRA, RBCAA, ANL, HTV, KNM and CSH

Stocks With Unusual Call Option Activity:

1) COG 2) ABT 3) SPG 4) ODP 5) HOLX