BETWEEN THE HEDGES

- Housing Starts for June rose to 1066K versus estimates of 960K and 977K in May.

- Building Permits for June rose to 1091K versus estimates of 965K and 978K in May.

- Initial Jobless Claims for this week rose to 366K versus estimates of 380K and 348K the prior week.

- Continuing Claims fell to 3122K versus estimates of 3180K and 3203K prior.

- Philly Fed for July fell to -16.3 versus estimates of -15.0 and -17.1 in June.

BOTTOM LINE: US housing starts unexpectedly surged the most in more than two years in June because of a change in NYC’s building code that overshadowed a slide in single-family home construction, Bloomberg said. Excluding a jump in construction of multifamily units in the Northeast, starts would have dropped 4%. Single-family home starts were the slowest in 17 years. Residential construction fell at a 24.6% pace in the first quarter and subtracted 1.1 percentage points from growth. Housing Starts will remain muted over the intermediate as homebuilders pare down inventories.

The number of Americans filing first-time claims for unemployment benefits rose last week, Bloomberg reported. The four-week moving average of claims fell to 376,500 from 381,000 the prior week. During the 2001 recession, which was one of the mildest on record, jobless claims averaged around 415,000. The unemployment rate among those eligible for benefits, which tracks the US This is still well below the long-term average of 2.9%. I expect the job market to continue to improve modestly through year-end. unemployment rate, fell to 2.3% from 2.4% the prior week.

Manufacturing in the Philly region improved slightly in July, Bloomberg reported. The New Orders component rose to -12.1 from -12.4 the prior month. The Prices Paid component rose to 75.6 versus 69.3 prior. The Prices Received component fell to 28.8 versus 29.7 in June. The Outlook component, for the next six months, fell to +18 versus +21.3 in June. I expect the Philly Fed to improve slightly again next month.

Late-Night Headlines
Bloomberg:
- The U.S. Securities and Exchange Commission subpoenaed Wall Street's biggest firms and hedge-fund advisers in a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc.(LEH) and Bear Stearns Cos.(BSC) shares, said three people with knowledge of the matter. The subpoenas mark a new front in the broadest U.S. investigation of Wall Street trading since state and federal regulators targeted mutual-fund abuses in 2003.
- Wells Fargo Leads Drop in Company Bond Risk After Profit Report. Credit-default swaps on the CDX North America Investment Grade Index, a benchmark gauge of credit risk tied to the bonds of 125 companies in the U.S. and Canada, fell 4.5 basis points to 139 basis points as of 3:31 p.m. in New York, according to broker Phoenix Partners Group.
- Cancer Patients in US Outlive Europeans on Technology, Costs. Death rates for all cancers in America continue to decline, according to the National Cancer Institute's Cancer Trends Report 2007. Cancer survival seems to be tied to a country's gross domestic product and its spending on technologies such as computed tomography scanners, the study found.
- Aluminum dropped in London as the biggest jump in inventories since August 2006 signaled demand may be weakening, and a slump in crude oil prices spurred sales of commodities. Stockpiles of aluminum in warehouses monitored by the London Metal Exchange jumped 24,825 metric tons to more than 1.1 million tons, bringing the gain this year to 20 percent.
- Crude oil futures were little changed in New York after a report of an unexpected gain in U.S. supplies pushed prices down more than $4 a barrel. ``Between the bearish DOE numbers and the price drop of the last two days it may be time to back up and re-evaluate whether the market is still bullish or now bearish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York.
- EBay Inc.(EBAY), the world's largest Internet auctioneer, fell 6.6 percent in late U.S. trading after reporting that people are paying less for items on its retail sites.
- Barr Pharmaceuticals Inc.(BRL), the maker of contraceptive pills and generic drugs, surged in extended trading on a report it might be acquired by Israeli generic drugmaker Teva Pharmaceuticals Inc.(TEVA).
- Merrill Lynch & Co.(MER), the third- biggest U.S. securities firm, dropped efforts to sell a stake in BlackRock Inc.(BLK) and struck a deal to sell its 20 percent share of Bloomberg LP, according to people familiar with the decision.
- China's banking regulator told policy makers that forcing banks to increase reserves has hurt the industry's ability to repay debt, according to a person with knowledge of the matter.
- China’s economic expansion cooled, handing more ammunition to Chinese officials calling for reduced gains by the yuan as the outlook for exports dims. Gross domestic product grew 10.1% in the second quarter from a year earlier, down from 10.6% in the first. Consumer prices rose 7.1% in June, slowing from 7.7% in May.
- Asian currencies will fall in the second half of the year as faltering demand from Europe for the region’s exports adds to challenges from inflation and slowing domestic economic growth, according to Calyon. The Philippine peso, the Thai baht, and India’s rupee, the three worst performers this year among the 10 most-traded currencies in Asia outside Japan, will lead declines, said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France’s Credit Argicole SA. “People focused a lot on the US but Europe is going to be a bigger problem for Asia,” said Barbe. Europe is the largest destination for China’s exports, buying $137.02 billion of its goods and services in the first half of the year compared with $116.82 billion sales to the US.

Wall Street Journal:
- With gas prices rising, California residents are softening their long-held opposition to offshore drilling, a new opinion polls suggests. The shift comes as Congress and the Bush administration are escalating a battle over whether to end a two-decade federal ban on drilling off the coasts of California, Florida and the Eastern seaboard.
- Goldman(GS) Is Queried About Bear’s Fall. Manipulation Talk Worried Schwartz; Lehman(LEH) Also Calls.
- The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 8 basis points to 132 as of 9:09 a.m. in Tokyo, according to prices from Morgan Stanley(MS). The Markit iTraxx Australia index fell 8 basis points to 148 compared with yesterday's close in Sydney, Westpac Banking Corp. prices show.
- Short-Selling Rules Loom for Firms. he federal crackdown on short selling is causing a scramble on Wall Street, with brokerage firms racing to implement new controls before the rules take effect on Monday. The unprecedented get-tough action by the Securities and Exchange Commission means that securities firms will have to fine-tune their back-office operations to comply with the requirements.

MarketWatch.com:
- Gartner says PC sales rose 16% in second quarter. Apple Inc.(AAPL) continued to add to its slice of the US PC sector, as Gartner said the company shipped 1.4 million PCs in the quarter, up 38% from last year, and good enough for 8.5% of the total US market.

CNBC.com:
- New Oil Vix Lets Investors Bet On Market’s Volatility.
- As global demand for oil slows, supply should build. Does that mean the energy bull has run its course? Basically, yes, according to Steve Cortes, founder of Veracruz Research. “The energy trade has really been sold to the investing world as a play on emerging markets due to supposedly insatiable demand for crude and other resources from Asia," Cortes tells Fast Money. "But India and China and other Asian markets are trading disastrously; down nearly 50% for the year. In my view that story doesn't hold water any longer!”

NY Times:
- Car Buyers Downsize, but Spend Big on Options.

paidContent.org:
- Amazon.com (AMZN) is launching its new streaming online movie and video service tomorrow...the new service is called, surprise surprise, Amazon Video on Demand.

Reuters:
- U.S. securities regulators' moves to curb short selling of financial sector stocks may give a boost to a handful of exchange-traded funds (ETFs) that are shorting the financial sector and producing sizzling returns. Funds such as the $2.1 billion UltraShort Financials Proshares, as well as the recently launched $11.8 million Short Financials Proshares and $9.5 million 2x S&P Select Sector Financials of Rydex Investments benefit when the financial sector is suffering. Unlike some hedge funds and other investors who short stocks, these funds take short positions through derivatives such as swaps and options. With the regulators' move set to hamper investors' ability to freely short financial stocks, these funds may see more demand.

Financial Times:
- The cost of borrowing shares for short sales on Wall Street has been rising steeply in recent weeks, hampering the ability of hedge funds and other sophisticated traders to profit from market declines. "It has become much tougher as the number of funds that want access to stock has gone up," says the head of prime brokerage at one Wall Street firm. "And stocks these days get hot much more quickly, which makes it even tougher." The rise in shorting has been largely caused by the growth of hedge funds, which account for most of the activity. Generally, hedge funds borrow shares from money managers such as Fidelity or Barclays Global Investors to make short sales. But even as the demand for shares to borrow has grown, money managers are cutting the number of shares they lend for fear of depressing the market and of not having enough shares on hand to meet their own needs. Hedge fund managers say they are worried about getting calls from brokers or money managers asking for their shares back, which could lead to a so-called "short squeeze" in which bearish investors have to buy stock to cover their short positions.

Guardian:
- US plans to station diplomats in Iran for first time since 1979. Washington move signals thaw in relations.
- The global biofuels sector has launched a ferocious attack on the Opec oil cartel by accusing it of deliberately "misleading" the public about who is responsible for soaring fuel prices. "Since you, as head of Opec, provide no explanation for what in our view constitutes a self-serving and misleading statement that goes counter to any independent analysis of the fuels market today, one can only conclude that Opec views competition with biofuels as a direct threat," says the letter signed by the European Bioethanol Fuel Association, the Renewable Fuels Association in the US, the Canadian Renewable Fuels Association and the Brazilian sugar-cane producers of Unica. The organisations point instead to a recent piece of research from the investment bank Merrill Lynch suggesting that biofuels push crude prices 15% lower than they otherwise would be. They note that petrol prices in Brazil have not risen in two years because of competition from sugar cane-derived ethanol.

The Australian:
- Home Sales in Major Australian Cities Decline 24% in 1Q.

Kyodo News:
- North Korea has removed half of the 8,000 nuclear fuel rods from its Yongbyon reactor as it disables the plant under an accord. The removal of the rods at the site 56 miles from the capital is one of the last steps being taken to render the reactor difficult to restart.

Late Buy/Sell Recommendations
Citigroup:
- Rated (DNA) Buy, target $91.
- Upgraded (ACE) to Buy, target $63.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures -.23%.
NASDAQ 100 futures -.31%.

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Earnings of Note
Company/EPS Estimate
- (MMR)/1.05
- (BAX)/.82
- (CCE)/.53
- (KO)/.95
- (CMA)/.54
- (AMTD)/.32
- (BLK)/1.98
- (GPC)/.79
- (HOG)/.76
- (IGT)/.36
- (JCI)/.73
- (SWY)/.52
- (MTG)/-.61
- (NUE)/1.81
- (PNC)/1.16
- (PPG)/1.55
- (SHW)/1.39
- (BBT)/.70
- (TXT)/.96
- (UTX)/1.31
- (CIT)/-2.07
- (SPWR)/.50
- (CHB)/.11
- (FCS)/.17
- (APH)/.58
- (DHR)/1.06
- (JPM)/.44
- (BK)/.75
- (CAL)/-.49
- (ITW)/.97
- (RS)/2.10
- (SYK)/.72
- (MER)/-1.91
- (COF)/1.31
- (GILD)/.51
- (AMD)/-.54
- (IBM)/1.82
- (GOOG)/4.73
- (BXS)/.42
- (MSFT)/.47

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for June are estimated to fall to 960K versus 975K in May.
- Building Permits for June are estimated to fall to 965K versus 978K in May.
- Initial Jobless Claims for this week are estimated to rise to 380K versus 346K the prior week.
- Continuing Claims are estimated to fall to 3180K versus 3202K prior.

10:00 am EST
- The Philly Fed for July is estimated to rise to -15.0 versus -17.1 in June.

Other Potential Market Movers
- The weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by financial and airline shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

BETWEEN THE HEDGES

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Thursday, July 17, 2008

Housing Starts Rise, Jobless Claims Increase, Philly Fed Improves

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Wednesday, July 16, 2008

Thursday Watch

Stocks Finish at Session Highs, Boosted by Financial, Airline, Homebuilding, REIT, Retail, Road & Rail Shares

Stocks Soaring into Final Hour on Plunge in Oil, Short-Covering, Bargain-Hunting