Jobless Claims Rise, Unemployment Steady, Existing Home Sales Fall

- Initial Jobless Claims for this week rose to 406K versus estimates of 380K and 372K the prior week.

- Continuing Claims fell to 3107K versus estimates of 3160K and 3116K prior.

- Existing Home Sales for June fell to 4.86M versus estimates of 4.94M and 4.99M in May.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits rose last week, Bloomberg reported. Weekly jobless claims can be hard to gauge in July as automakers temporarily trim staff to upgrade factories in anticipation of new car models. The four-week moving average of claims rose to 382,500 from 378,000. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. 16 states reported a decrease in claims. I except jobless claims to tick lower next week and trend modestly lower through year-end.

Sales of previously owned US homes fell in June, Bloomberg reported. The median existing home price fell 6.1% year-over-year to $215,100. The number of previously owned unsold homes on the market at the end of June represented 11.1 months’ supply at the current sales pace. Purchases of condos and co-ops rose 1.7% to a 590,000 pace. Purchases fell in three of four regions, paced by a 6.6% decline in the Northeast. Sale gained 1% in the West. While sales fell to new lows just slightly, I still think they are stabilizing around current levels and will tick higher into year-end, which should make a meaningful dent in inventories.

Bull Radar

Style Outperformer:

Large-cap Growth (-.29%)

Sector Outperformers:

Wireless (+2.86%), Road & Rail (+1.09%) and Computer Service (+.41%)

Stocks Rising on Unusual Volume:

QCOM, AMZN, AN, CBT, TRA, NOK, ACL, MRK, TM, VDSI, DOX, CCOI, VITL, HIRE, PNSN, GSIC, QDEL, ISYS, TSCO, BLUD, CNMD, SYNT, ARBA, POOL, WIBC, IRBT, BIDU, FFIV, TISI, VAR, ABC and RSH

Stocks With Unusual Call Option Activity:

1) BRCD 2) MCK 3) AFL 4) DOX 5) RSH

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Inflation Outlook Makes a ‘Bond Bubble’ Unlikely, Goldman Says. Yields on U.S. government debt won't increase as much as some analysts expect because inflation expectations are ``well-contained,'' according to Goldman Sachs Group Inc.(GS). Expectations for inflation a decade from now are still below the average since 1997 and aren't statistically different from expectations in the past nine years, said the analysts, drawing on data from London-based Consensus Economics. That undermines the idea of a bond bubble in which prices are too high and yields are too low, Goldman said. Another reason that the bond premium won't rise is that there's ``no evidence'' that rising food and energy prices are fueling increases in prices of other goods, according to Goldman. So-called core inflation rose at a 2.4 percent annual pace in June, in line with its average of 2.3 percent over the past year.
- New York Times Co.(NYT), the third- largest U.S. newspaper publisher, said second-quarter profit declined 5.5 percent as job cuts and price increases failed to make up for plunging print advertising sales.
- New York Times Co.’s(NYT) credit rating may be downgraded to junk by Standard & Poor’s, which cited the newspaper publisher’s declining revenue and earnings.
- Baidu.com Inc.(BIDU), China's most-used Internet search engine, posted an 87 percent jump in second- quarter profit, beating analysts' estimates and sending the shares up 13.3 percent in extended trading.
- Nokia Oyj(NOK), the world's biggest maker of wireless phones, and chipmaker Qualcomm Inc.(QCOM) signed a new licensing agreement, ending global litigation and resolving concerns about the future of Qualcomm's licensing program.
- Qualcomm Inc.(QCOM), the biggest maker of mobile-phone chips, said third-quarter profit fell 6.3 percent as the company spent more to develop its MediaFlo mobile-television service. Qualcomm soared 18.7 percent to $53.20 in extended trading.
- Amazon.com Inc.(AMZN), the world's largest Internet retailer, posted second-quarter profit that exceeded analysts' estimates after consumers bought more toys and video- game consoles and overseas sales soared. Full-year sales may exceed its previous forecast, Amazon.com said today in a statement. The shares rose 8.6 percent in late New York trading.
- LSI Corp.(LSI) reported second quarter revenues that exceeded guidance. The stock jumped 10.8% in extended trading.
- Chipotle Mexican Grill Inc.(CMG) fell 11 percent to $74.99. The fast-food chain spun off from McDonald's Corp. in 2006 reported second-quarter profit lower than analysts' estimates as food costs increased.
- The U.S. House of Representatives approved legislation designed to shore up confidence in Fannie Mae(FNM) and Freddie Mac(FRE) and stem the record surge in mortgage foreclosures, sending the bill to the Senate. House members voted 272-152 in favor of the measure, which lawmakers and administration officials expect will be passed in the Senate and signed into law by President George W. Bush. The bill gives Treasury Secretary Henry Paulson power to inject capital into Fannie Mae and Freddie Mac and provides for a federal agency to insure refinanced home loans. Fannie Mae rose another 6.7% in after-hours trading.
- Brazil's central bank raised its benchmark interest rate by three-quarters of a point today, more than economists expected, to slow inflation from a 2 1/2-year high. Policy makers led by President Henrique Meirelles increased the overnight rate to 13 percent from 12.25 percent. Only 14 of the 45 economists surveyed by Bloomberg forecast today's move. The others expected a half-point increase, mirroring the previous two rate meetings. Inflation will accelerate to 6.53 percent this year, above the 2.5 percent to 6.5 percent target range, according to the same central bank survey published this week. Meirelles told senators in Brasilia on July 15 the bank will act ``vigorously'' to ensure next year's inflation will be in line with the 4.5 percent midpoint of the target. Should oil prices remain at current levels, state-controlled oil company Petroleo Brasileiro SA may need to increase gasoline and diesel prices, which are already about 30 percent below international costs, Vale said.
- The Arctic may hold 90 billion barrels of oil, more than all the known reserves of Nigeria, Kazakhstan and Mexico combined, and enough to supply U.S. demand for 12 years, the U.S. Geological Survey said. ``Most of the Arctic, especially offshore, is essentially unexplored with respect to petroleum,'' Donald Gautier, the project chief for the assessment, said in the report. ``The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth.'' Contributors of data to the study included the Geological Survey of Canada, the U.S. Interior Department's Minerals Management Service, the Norwegian Petroleum Directorate, the Cambridge Arctic Shelf Program and researchers in Denmark and Greenland. No Russian institutions took part in the study. The survey only applied to undiscovered reserves. Exxon Mobil, Shell, Gazprom OAO and other energy producers have already found 400 oil and gas fields that hold the equivalent of 240 billion barrels. On a combined basis, the undiscovered reserves of oil and gas in today's report amount to 412 billion barrels.
- Platinum fell, extending the longest losing streak in six years, and palladium slid on concern that slowing economic growth will cut demand for the metals. More than half of all platinum consumption is for emissions-control components for car and truck engines. U.S. auto sales fell to the lowest annual pace in 15 years last month, raising concerns purchases of the metal for industrial use will decline. Earlier today, palladium futures in Tokyo fell by the exchange-imposed daily limit on signs of lower demand.
- Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year. U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Speculators such as Goldman Sachs(GS) use the practices to bet on price swings, which may drive up prices, though they have no intention of taking delivery of underlying goods, lawmakers say. Excluding the effect of speculation, oil would be around $80 a barrel, 38 percent lower than yesterday's price, according to Jesus Reyes Heroles, the chief executive officer of Petroleos Mexicanos. Republicans in the Senate may allow a vote on limits as soon as tomorrow, according to Alaska Republican Senator Lisa Murkowski. The House plans a vote before members start a monthlong break in August. President George W. Bush has signaled he will consider any resulting legislation. Congress got a 14 percent job-approval rating in a Gallup survey last week, the lowest in the poll's 34-year history, partly because of gasoline prices.
- Corn and soybeans fell, extending declines from records reached in the past month, on speculation a rising dollar will reduce the allure of commodities as an investment hedge against inflation. Corn has dropped 26 percent from a record reached four weeks ago, and soybeans slipped 15 percent from their highest ever. ``Commodities were a bubble, and stocks were too cheap, and now we are seeing a shift in investments,'' said Greg Grow, the director of agribusiness for Archer Financial Services in Chicago. ``It could be a long time before commodity positions are completely unwound.'' ``There is more room both from a price standpoint and timing standpoint for further weakness,'' Frick said in the report. Most often, she said, the November soybean contract reaches a seasonal low in August. Speculators may cut their net long positions by another 40 percent before prices reach a bottom, Archer Financial's Grow said. ``It's all about money flows out of commodities, and no one really knows how long that may last,'' Grow said. ``Buying now is like trying to catch a falling knife.''
- The subordinated debt of Fannie Mae(FNM) and Freddie Mac(FRE), trading at some of the widest yields relative to the companies' senior debt, is rallying in anticipation that the government's rescue plan will add a backstop for the debt. The cost to protect the subordinated debt of Fannie Mae and Freddie Mac using credit-default swaps has dropped 90 basis points since Treasury Secretary Henry Paulson announced his plan July 13.
- The US dollar traded near a one-month high against the yen after U.S. lawmakers approved a bill that allows Treasury Secretary Henry Paulson to bail out Fannie Mae and Freddie Mac.
- U.S. airlines, reeling from losses caused by record high fuel costs, may be easing investor concerns that the industry lacks enough cash to withstand deficits lasting into next year.
- India's central bank will support the rupee and increase interest rates twice more this year to combat inflation, according to Standard Chartered Plc.

Wall Street Journal:
- A recent weakening in China's auto sales could be signaling tougher times ahead for its booming car industry -- and for the Chinese consumer.
- Microsoft’s(MSFT) Online Chief to Depart for Juniper(JNPR).

MarketWatch.com:
- Malaysia's consumer price inflation soared to a 26-year high in June, official data showed Wednesday, heightening expectations that the central bank will hike interest rates at its meeting later this week. The consumer price index rose by 3.9% month-on-month in June to 7.7% year-on-year, Malaysia's department of statistics reported Wednesday. In comparison, the CPI index rose by 3.8% in May. The main reason for the surge in inflation is the substantial rise in the price of petrol and diesel announced by the Malaysian government in early June.

CNBC.com:
- The price of oil, if based on global supply and demand, should be around $83 to $85-a-barrel, according to Hugh Johnson, chairman at Johnson Illington Advisors. (video)

NY Times:
- Google(GOOG) rolls out Wikipedia competitor Knol on Wednesday.

BusinessWeek.com:
- Coming Soon to a GMAT Near You: More Security.

StreetInsider.com:
- After the close, Wachovia Corporation's (WB) new CEO, Robert Steel, disclosed that he bought 1,000,000 shares on 7/22 at $15.32-$17.02. This is a huge vote of confidence for the embattled bank, which while it is up over 100% over the past week. The stock rose 5.8% in after-hours trading.

Forbes.com:
- The Whiners. Here's shocking news: Hedge fund operators that do a lot of short-selling are complaining to the Securities and Exchange Commission that recently imposed restrictions are making it tough to do business. The SEC put in a rule last week requiring short-sellers to secure borrowed shares before shorting them, preventing "naked" short-selling, in which a trader doesn't necessarily have the shares in hand to borrow. Such shorting can add extra downward pressure on a stock, since without being forced to borrow the shares first, traders can short a limitless amount of stock. Others have urged that the rule should be extended to all stocks. Now, no less than James Chanos, founder of short-selling hedge fund Kynikos Associates, is pleading with the SEC to end the order July 29 and not extend its reach beyond the 19 major financial companies. In a letter dated Monday, Chanos says the order has made it "more difficult, expensive and risky to sell short." He's joined in the whining by fellow hedge fund industry promoter Richard Baker of the Managed Funds Association. Short sales in shares of Fannie and Freddie have fallen 90% since the order was put in place Monday, according to S3 Matching Technologies, an Austin, Texas-based company that processes brokerage trades. Sales in the 17 other major broker-dealers covered by the SEC's emergency order have fallen a combined 70%. "There's no doubt the SEC has put a rule in place that has drastically reduced short-selling," says Jack Holt, chief executive of S3. Big banks not covered in the order continue to be short-sale targets, in some cases so much so that they show up on lists the stock exchanges keep of stocks that are so heavily shorted they wind up with big trade delivery failures. Stocks on these lists include National City (NCC) and Wachovia (WB), two big regional banks with a lot of mortgage-related problems, as well as boutique advisory firms Greenhill & Co. (GHL) and KBW (KBW).

USA Today.com:
- DuPont (DD) and Genencor, a unit of Denmark's Danisco, said Wednesday that they will break ground this fall on a 250,000 gallon cellulosic ethanol pilot plant in Tennessee. Ethanol should be available from the pilot plant by December 2009, with commercial-scale production by 2012, the companies said. The companies said the pilot plant will initially process western Tennessee corn cobs into ethanol but plans to shift to switchgrass for conversion to ethanol, working with Tennessee farmers as dedicated switchgrass suppliers. "The high cellulosic content of switchgrass makes it an optimal feedstock for ethanol production," said DuPont Danisco Technology Leader John Pierce in a statement. "Its yields today make it more than competitive with other biomass sources, and it has the potential to produce over 1,000 gallons of ethanol per acre in the future." There are about 1.5 million acres in Tennessee seen as unsuitable for growing food crops but good for switchgrass, officials said.

Times-Herald:
- It's time for the U.S. to end its long-standing ban on offshore oil & gas drilling. Increased drilling - whether it's off shore or in the Arctic National Wildlife Refuge - needs to be part of an aggressive energy plan that also includes conservation and further development of non-petroleum-based energy, such as biofuels, wind and solar power, along with nuclear.

AdvisingAge:
- It's official. Sen. Barack Obama's campaign will be among the TV sponsors of NBC Universal's Olympics coverage. In the first significant network-TV buy of any presidential candidate in at least 16 years, the Obama campaign has taken a $5 million package of Olympics spots that includes network TV as well as cable ads.

Reuters:
- The U.S. stock market would fare better in the first year after a victory by Republican presidential candidate John McCain than by his Democratic rival Barack Obama, according to a majority of economists at U.S. banks and research groups polled by Reuters.

Financial Times:
- Chinese officials and government economists have warned domestic banks to tighten their mortgage lending criteria after the US government's action to prop up Fannie Mae (FNM) and Freddie Mac(FRE), the giant mortgage agencies. Liu Mingkang, China's top banking regulator, has in recent days urged the country's state-owned commercial banks to beware of risks in the real estate sector and ordered them to tighten loan approval processes. Others among China's policy community have also begun to express concerns about the health of the country's banks amid signs a once-booming property sector has begun to slow. Average house prices in China's 70 largest cities were up 10.2 per cent from a year earlier by the end of June, according to official figures. But sales volumes in important cities, including Shanghai, Beijing and Shenzhen, have fallen precipitously in recent months. Some analysts fear steep price falls ahead.
- Goldman Sachs(GS) has raised a $10bn fund to invest in loans backing leveraged buy-outs, taking advantage of a gap in the financing markets created by the credit crisis. The fund will buy senior loans, so-called because they are paid off before other debts. It comes in addition to an existing $20bn Goldman fund that invests in "mezzanine" debts, which are paid after the senior debt.
- Germany can no longer expect to avoid damage from the mounting global econ­omic storms, with a "significant fall" in economic growth likely in 2009, Angela Merkel warned on Wednesday. The German chancellor said a "clear economic slowdown" appeared unavoidable and that recent falls in unemployment in Europe's largest economy would also come to an end.

Estado de S. Paulo:
- Petroleo Brasileiro SA(PBR) is increasing the number of exploratory wells it is drilling in the Santos Basin off the coast of Brazil to assess more accurately the size of its pre-salt oil find. The company is also drilling three wells in the deepwater fields known as Tupi, Carioca and Jupiter. The wells may lead to a large number of oil discoveries in the second half.

Australian Financial Review:
- Brisbane office rents may decline 25% over the next year as more commercial space becomes available in Queensland state’s capital, citing Stephen Urwin, a principal of MPS Corporate Property Advisory. Rents in prime office space have fallen 20%, Urwin said. Landlords are offering incentives to tenants to lease space for the first time “in years.”

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TXT), target $59.
- Reiterated Buy on (FORM), target $30.
- Reiterated Buy on (SLGN), raised estimates, target $66.
- Reiterated Buy on (ISIL), target $31.
- Reiterated Buy on (FFIV), target $36.50.
- To compliment our overweight posture on Consumer Discretionary/Retailing and some potential relief in energy prices, we are adding Nike(NKE) and Kohl’s(KSS) to our Recommended List. We are removing (NWS/A), in light of our less optimistic view of the Media industry group and a 31% decline in the stock ytd. We are reducing exposure to the Energy industry group, consistent with our underweight recommendation, by removing (MRO) from the list. We are also removing (AGN) from the Recommended List.

Night Trading
Asian Indices are unch. to +1.75% on average.
S&P 500 futures -.12%.
NASDAQ 100 futures +.43%.

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Earnings of Note
Company/EPS Estimate
- (STRA)/1.47
- (IVGN)/.57
- (LLL)/1.62
- (GR)/1.08
- (HOT)/.52
- (LLY)/.99
- (MMM)/1.35
- (LH)/1.24
- (SII)/.88
- (FCL)/.156
- (TRA)/1.21
- (ABC)/.66
- (ESV)/1.98
- (MHS)/.53
- (DOW)/.85
- (RTN)/.93
- (F)/.28
- (XRX)/.26
- (UNP)/.91
- (BNI)/1.30
- (CAKE)/.29
- (MCHP)/.42
- (YRCW)/.30
- (JNPR)/.27
- (BMC)/.42
- (WDC)/.81
- (FII)/.60
- (CB)/1.48
- (CPHD)/-.06
- (IM)/.35
- (CCI)/-.07
- (DO)/2.75
- (KMB)/1.03
- (OXY)/2.68
- (NCC)/-.27
- (BDX)/1.10
- (BMY)/.40
- (IMCL)/.31
- (WYNN)/.93
- (NEM)/.49
- (AN)/.29
- (LUV)/.12
- (CELG)/.35

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 380K versus 366K the prior week.
- Continuing Claims are estimated to rise to 3160K and 3122K prior.

10:00 am EST
- Existing Home Sales for June are estimated to fall to 4.94M versus 4.99M in May.

Other Potential Market Movers
- The weekly EIA natural gas inventory report, (MSFT) analyst meeting and (RPRX) analyst day could also impact trading today.

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

Stocks Finish Higher, Boosted by Gaming, Airline, HMO, Technology, Telecom, Retail and Homebuilding Shares

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In Play

Stocks Higher into Final Hour on Oil Plunge, Diminishing Credit Angst, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Gaming longs, Software longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is rising 2.50% and is still above-average at 21.72. The ISE Sentiment Index is below average at 119.0 and the total put/call is slightly below average at .82. Finally, the NYSE Arms has been running about average most of the day and is currently .83. The Euro Financial Sector Credit Default Swap Index is falling 4.44% today to 79.83 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 -2.0% today to 131.76 basis points. The TED spread is falling another 2.94% to 1.22. The 10-year TIPS spread, a good gauge of inflation expectations, has dropped 30 basis points in 12 days to 2.34% on the fall in commodities. This is a large positive. By talking hawkish, the Fed is in a win-win situation, in my opinion. This should continue to boost the US dollar and pressure commodities, which should in turn boost stocks, lower inflation readings and help the economy. Then, later down the road, with a stronger economy and lower inflation readings, the Fed can actually raise rates to ensure that the commodity bubble doesn’t re-inflate and that inflation remains contained. I expect the prices paid gauges and headline inflation numbers to show considerable deceleration beginning in August. The CRB Index, the main source of inflation concerns, has declined 13% in three weeks. In my opinion, the many commodity bulls remain extraordinarily complacent, given recent losses, which bodes well for further declines over the intermediate-term. Considering recent gains, the .8% gain in the (XLF) today is somewhat stunning. The (XLF) is up 32% in 8 days. Two of my longs, (ISRG) and (ILMN), are substantially higher today after stellar earnings reports. After a consolidation period, I expect both to trade meaningfully higher from current levels by year-end and over the long-run. Growth stock leaders are substantially outperforming the broad market today. These types of stocks should help propel the market higher as the financials consolidate recent gains. Given many hedge funds’ love affair with commodity stocks and hatred for the financial sector, recent action could result in another wave of hedge fund trouble rumors. Nikkei futures indicate an +188 open in Japan and DAX futures indicate an +40 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst, falling commodity prices, bargain-hunting and less financial sector pessimism.