Durable Goods Orders Surge, New Home Sales Substantially Exceed Estimates, Home Inventories Fall, Confidence Improves

- Durable Goods Orders for June rose .8% versus estimates of a .3% decline and an upwardly revised .1% increase in May.

- Durables Ex Transportation for June rose 2.0% versus estimates of a .2% decline and an upwardly revised .5% decline in May.

- Final Univ. of Mich. Consumer Confidence for July rose to 61.2 versus estimates of 56.4 and prior estimates of 56.6.

- New Home Sales for June were 530K versus estimates of 503K and an upwardly revised 533K in May.

BOTTOM LINE: Orders for US durable goods unexpectedly increased in June, Bloomberg reported. Excluding orders for transportation equipment, which are volatile, bookings rose 2%, the most this year. The gains reflected increasing demand for machinery defense gear, autos and metals. Bookings for non-defense capital goods ex aircraft, a gauge of future business investment, jumped 1.4% versus a .1% decline the prior month. Shipments of those items, which is a number used to compute gdp, rose .7% versus a .2% gain the prior month. Economists are now projecting 2Q GDP to grow 2.0%. Orders for autos rose 1.8%, the most since July 2007, which may have reflected the end to the American Axle strike. As I said during 1Q, I think that strike was hurting overall US economic data more than perceived and it got very little attention in the press.

Sales of new homes in the US, which usually lead overall home sales, came in solidly ahead of forecasts last month, Bloomberg reported. Moreover, the number of properties on the market plunged by the most in 45 years, indicating builders are making large strides in lower inventory. There were 426,000 homes for sale at the end of June at an annual pace, the least since December 20904. The median new home price fell 2% from a year earlier to $230,900. Housing starts have fallen 53% from a peak rate of 2.27 million at an annual rate in January 2006. I continue to believe overall home sales have bottomed around current levels and will trend modestly higher through year-end, which will greatly curtail inventories.

Confidence among US consumers unexpectedly rose in July, a sign that tax rebates and a rally in the stock market may have improved Americans’ moods, Bloomberg said. The Expectations component for the next six months rose to 53.5 versus 49.2 the prior month. The Current Conditions component, which gauges Americans’ perceptions of their current financial situation and whether it is a good time to buy big-ticket items, jumped to 73.1 from 67.6. Consumers expect inflation to average 3.2%, down from 3.4% the prior month. I expect consumer confidence to trend higher through year-end on falling food/energy prices, a rising US dollar, a stabilizing housing market, rising stock prices, decelerating inflation, an improving job market and an end to the election uncertainty.

Bull Radar

Style Outperformer:

Small-cap Value (+1.27%)

Sector Outperformers:

Airlines (+6.72%), Networking (+3.03%) and Homebuilders (+2.70%)

Stocks Rising on Unusual Volume:

JNPR, PCTI, BCS, CLF, AVID, PFG, KGC, PLXS, NUVA, RVBD, SONO, VISN, NTCT, MSCC, ISYS, SAIA, SWIR, FDML, GBCI, CYBS, ANGO, CSGS, BUCY, COLB, CPSI, TGI, MTL, DVA, TYL, MTD, HUB/B and PKI

Stocks With Unusual Call Option Activity:

1) LO 2) CA 3) DTV 4) BMC 5) CROX

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Friday Watch

Late-Night Headlines
Bloomberg:
- New NYSE Short-Selling Targets. Here are the 25 NYSE stocks with the largest percentage increase in short interest relative to their float over the first two weeks of July:
- New Nasdaq Short-Selling Targets. Here are the 25 Nasdaq stocks with the largest percentage increase in short interest relative to their float over the first two weeks of July:
- Stephen Schork, president of the Schork Report, says oil may drop below $100 before October. (video)
- Platinum fell, extending the longest losing streak in more than a decade, and palladium slid on concern that an economic slowdown will cut demand for the metals. ``We suspect that the drift will be towards the downside in most metals,'' Edward Meir, an MF Global Ltd. analyst in Stamford, Connecticut, said today in a report. ``The uninspiring demand backdrop, high energy prices, and what seems to us to be a spreading global economic slowdown, have yet to be fully reflected in most metals prices.''
- Four New York state officials, including two top aides to former Governor Eliot Spitzer, unlawfully misused state police to discredit a political rival, the state Public Integrity Commission found.
- Short selling of Fannie Mae(FNM) and Freddie Mac(FRE) jumped in the first two weeks of July as the stocks fell on concern that shareholders would be wiped out even if the government bailed out the entities. Short interest on McLean, Virginia-based Freddie Mac rose 28 percent to 105.9 million shares between June 30 and July 15, according to data compiled by Bloomberg. Short interest on Washington-based Fannie Mae as of July 15 was 154.4 million shares, up 11 percent.
- French Mourn Lost Leisure Time as Sarkozy Ends 35-Hour Workweek.
- HIV-infected patients in North America and Europe are living at least 13 years longer on average as a result of combination drug therapies introduced in the mid-1990s, according to a study in the journal Lancet.
- Juniper Networks Inc.(JNPR), the second- largest maker of networking equipment, reported a 40 percent jump in profit and raised its forecasts for the year as phone companies boost spending. The shares surged 10.1 percent in after-hours trading.
- Western Digital Corp.(WDC) fell 10.7 percent in extended trading to $30.01. The world's second-largest maker of hard-disk drives forecast first-quarter profit that missed analysts' estimates after an industry glut put pressure on prices.

Wall Street Journal:
- Energy Is Top Economic Issue for Voters. Conservation Steps Increase, Poll Finds; Support for Drilling. Congress will likely break for the summer without passing legislation to curb high gasoline prices. But Americans are fashioning their own energy policy, founded on conservation and support for more production. By margins of 22 to 31 percentage points, voters in each of the states -- Michigan, Colorado, Minnesota and Wisconsin -- said they support offshore oil drilling, according to the polls, which were released Thursday. Overall, the polls also show Sen. John McCain closing in on Sen. Obama in each state. Prospects look dim for major changes in U.S. energy policy before Election Day.

MarketWatch.com:
- Coastal wind turbines have been common electricity generators in Europe for years. Now they may be coming to the U.S. The wind industry has plans for turbines on the outer continental shelf.
- Energy and the candidates. Senators Barack Obama and John McCain have different energy priorities, but no matter who wins the White House, it will take a huge national effort for either man to succeed.

CNBC.com:
- Morgan Stanley(MS) is in active negotiations with top Merrill Lynch(MER) brokers to bring them to Morgan Stanley.
- Officials at troubled brokerage firm Lehman Brothers

LEHMAN BROTHERS HLDGS INC LEH 18.52 -2.58 -12.23% NYSE

Quote | Chart | News | Profile

(LEH) have weighed the sale of at least part of its Neuberger Berman asset management unit, sources told CNBC.

IBD:
- Earnings A Shot In The Arm For Company That Keeps Hearts Beating.

CNNMoney.com:
- Gas prices fall for 7^th straight day. Gasoline at the pump hits levels not seen since June 9.

DenverPost.com:
- 6 things you didn’t know about oil shale:

Reuters:
- The top U.S. securities regulator remains steadfast in a plan to broaden an emergency rule to curb abusive short selling despite opposition from the hedge fund industry and other short sellers. U.S. Securities and Exchange Commission Chairman Christopher Cox told lawmakers on Thursday the agency would soon propose expanding the rule covering the shares of 19 major financial firms to the entire market. The SEC is also considering other remedies to short selling abuses, such as requiring the reporting of substantial short positions, Cox told reporters after the hearing. Groups representing short sellers have urged the SEC not to extend the emergency order past July 29, nor beyond the current list of companies. Cox said the idea of using a price test or some sort of circuit breaker to regulate manipulative short selling is a "subject currently under consideration by the commission staff."
- Short interest jumped 7 percent on the Nasdaq in mid-July and rose 2.7 percent on the New York Stock Exchange to an all-time high, as investors continued to make bearish bets on the stock market. Short interest on the Nasdaq saw its biggest percentage increase since January, rising to 11.18 billion shares as of July 15, compared to 10.45 billion shares as of June 30. On the NYSE, short interest rose to about 18.61 billion shares as of July 15, topping the previous record of 18.13 billion shares as of June 30. "More and more people seem to be resting into the thought that a downside move in the market is the way of the future," said Dylan Wetherill, president and founder of short interest tracking Web site ShortSqueeze.com. "The shorts continue to sell shares at an erratic pace," he added. Short interest as of July 15 was equal to a record 4.86 percent of the total shares outstanding on the NYSE.
- U.S. private equity firm Lone Star Funds has raised two funds totaling $10 billion, significantly above a $6.5 billion target, a source familiar with the situation said on Thursday. Three-quarters of that is for one fund that will be for general investment purposes, and the other quarter is for real estate investments, the source said.
- US Senate on course to vote Sat. on housing bill.
- Newly merged media conglomerate Thomson Reuters is preparing to launch a business television news channel to rival that of Bloomberg and CNBC. The Daily Telegraph understands that the plan is for the channel to appear on both the internet and some form of cable or digital platform. The launch could be as early as January but may be pushed back as the company is conscious of Reuters' earlier unsuccessful foray into television.

Financial Times:
- The eurozone economy is fast running out of steam with growth prospects collapsing across the 15-country region, closely watched surveys indicated on Thursday.

Telegraph:
- JPMorgan Chase(JPM) is in talks with banks and private equity firms to acquire and break up HBOS Plc, the biggest UK mortgage lender.

China Daily:
- China’s Energy Subsidies Are Unsustainable.
- China Farmers Incomes Hit by Rising Prices.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (LLL), target $127.

CSFB:
- Reiterated Outperform on (CELG), raised target to $84.

Night Trading
Asian Indices are -2.0% to -1.0% on average.
S&P 500 futures -.05%.
NASDAQ 100 futures unch.

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Earnings of Note
Company/EPS Estimate
- (ACI)/.64
- (B)/.60
- (BEC)/.87
- (BDK)/1.42
- (FSS)/.18
- (FO)/1.20
- (IDXX)/.456
- (ITT)/1.10
- (LM)/.13
- (TROW)/.60
- (NFLX)/.40

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Durables Goods Orders for June are estimated to fall .3% versus unch. in May.
- Durables Ex Transports for June are estimated to fall .2% versus a .8% decline in May.

10:00 am EST
- Final July Univ. of Mich. Consumer Confidence is estimated to fall to 56.4 versus a prior estimate of 56.6.
- New Home Sales for June are estimated to fall to 503K versus 512K in May.

Other Potential Market Movers
- None of note.

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Airline, Homebuilding, Gaming, Financial, REIT and Steel Shares

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In Play

Stocks Falling into Final Hour on Financial Sector Pessimsim, Global Growth Worries, Profit-Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Alternative Energy longs, Gaming longs, Software longs and Computer longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is above-average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is rising 7.6% and is still above-average at 22.93. The ISE Sentiment Index is low at 92.0 and the total put/call is above average at 1.03. Finally, the NYSE Arms has been running above average most of the day and is currently 1.26. The Euro Financial Sector Credit Default Swap Index is rising .26% today to 78.50 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 +.48% today to 133.57 basis points. The TED spread is falling another 7.73% to 1.16. The 10-year TIPS spread, a good gauge of inflation expectations, has dropped 32 basis points in 13 days to 2.32% on the fall in commodities. This remains a large positive. Former Treasury Secretary Lawrence Summers was on CNBC today. He said that the “worldwide commodity price environment is troubling.” However, he is proposing a massive US infrastructure spending plan to stimulate the economy. I agree that infrastructure spending should be increased, but not “massively.” A massive infrastructure spending increase would boost commodities further, send interest rates/inflation higher, pressure the US dollar, result in another down-leg in housing and increase job losses, in my opinion. I believe the number one threat to the global economy now is the bubble in commodities and that we should be looking for ways to burst that bubble, not inflate it further. Today’s market action is somewhat puzzling. Stocks like BIDU, QCOM, AMZN, CELG and STRA are sporting massive gains even as the Naz falls 1.6%. Breadth isn’t too bad considering the losses in the headline averages. The biotech, drug, medical equipment, wireless, computer service and energy sectors are all holding up well. Investors are worried that the global economy is slowing too much. We need to see stabilizing economic data overseas or another large decline in commodities to get the major averages moving higher again. Nikkei futures indicate a -160 open in Japan and DAX futures indicate an +12 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on profit-taking, more shorting, global growth worries and financial sector pessimism.