Friday Watch

Late-Night Headlines
Bloomberg:
- Investors in hedge funds that speculate on oil and natural gas prices would face higher taxes under legislation being readied by Oregon Senator Ron Wyden and Iowa Senator Charles Grassley. The measure, in circulation as a ``discussion draft'' at Washington lobbying firms, would force investors to pay short- term capital gains rates as high as 35 percent on their profits instead of the blend of long- and short-term capital gains rates they currently pay that result in a lower overall rate. ``The legislation, if enacted, would treat all of the income from the aforementioned commodities as being short-term regardless of the holding period,'' said Jonathan Schmeltz, a partner in the New York office of accounting firm Grant Thornton LLP. The bill may emerge as a leading legislative proposal to penalize market speculation that lawmakers have blamed for rising energy prices because Grassley is the top Republican on the tax- writing Senate Finance Committee. Wyden, a Democrat, is also a member of the panel. Speculation in the oil futures markets accounted for 37 percent of crude oil trading on the New York Mercantile Exchange in 2000, Wyden and Grassley said in a statement. Today, such speculation represents more than 70 percent of trading, they said in a statement. Tax-exempt institutional investors who typically don't owe taxes on their hedge fund investments would also be required to pay tax on any gains from speculative investments in the energy markets, according to the measure. The House and Senate have failed to approve other legislation intended to curb speculation in energy markets.
- Carlyle Group, the world's second- largest private-equity firm, is liquidating its Blue Wave hedge fund after assets fell by a third during the credit-market collapse. Blue Wave, a joint venture started last year with former Deutsche Bank AG executives Rick Goldsmith and Ralph Reynolds, is the second Carlyle-affiliated fund to close this year. Carlyle Capital Corp., an Amsterdam-listed fund, collapsed in March after defaulting on $16.6 billion of debt.
- Manufacturing in China, the world's fourth-biggest economy, contracted for the first time since a survey of purchasing managers began in 2005. The Purchasing Managers' Index fell to a seasonally adjusted 48.4 in July from 52 in June, the China Federation of Logistics and Purchasing said today. ``The size of the slowdown is unexpected,'' said Xing Ziqiang, a Beijing-based economist at China International Capital Corp., the nation's biggest investment bank. ``Production activity is weakening faster than we expected,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Companies are less willing to invest as export growth slumps, credit gets tighter and the economic outlook worsens; factory closures ahead of the Olympic Games may also have had something to do with it.''
- Crude oil fell for a second day, extending the biggest monthly decline since 2004, on concern global consumption is falling amid slowing economic growth. Crude oil for September delivery declined as much as 83 cents, or 0.7 percent, to $123.25 a barrel on the New York Mercantile Exchange. They dropped 11 percent in July, the biggest one-month drop since December 2004.
- Corn fell, capping the biggest monthly drop since 1986, as warm, wet weather helped the U.S. crop recover from the worst flooding in 15 years. Soybeans declined as rain next week may east heat stress on crops.
- Amylin Pharmaceuticals Inc.(AMLN) rose the most in three years in New York trading on speculation the maker of the Byetta diabetes treatment may be acquired by its partner Eli Lilly & Co. Amylin gained 15 percent to $31.55 in Nasdaq Stock Market composite trading, leading a rally in drug stocks, after Bristol- Myers Squibb Co. offered to buy the portion of ImClone Systems Inc. it doesn't already own for $4.33 billion.
- New Jersey does the worst job among U.S. states maintaining and spending money on its highway system, while North Dakota's roads are the best-kept, according to an annual report released today by the Reason Foundation.
- Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo & Co., told investors to cut holdings of emerging-market stocks, reversing his recommendation earlier this year. China, the world's fastest-growing major economy, faces ``dangerous times'' as the country copes with higher fuel costs and slowing global growth that reduces demand for exports, the money manager wrote. ``The combination of rising inflation, commodity dependence and particularly high export ratios'' along with the slowdown make emerging-market stocks ``more vulnerable than I had thought,'' Grantham said.
- Biogen Idec Inc.(BIIB) and Elan Corp.(ELN) reported two confirmed cases of a deadly brain infection in patients taking the multiple sclerosis drug Tysabri, the first since the drug was reintroduced in the U.S. in 2006.
- Merrill Lynch & Co.(MER) Chief Executive Officer John Thain bought $11.3 million of stock in the firm's record public offering this week, regulatory filings showed. Thain, a former Goldman Sachs Group Inc. president who joined New York-based Merrill as CEO last December, bought 500,000 shares at $22.50 apiece, according to a filing with the U.S. Securities and Exchange Commission today. Merrill Lynch President Greg Fleming and brokerage head Robert McCann each bought 100,000 shares, according to separate filings.
- Venezuelan President Hugo Chavez is set to tighten his government's grip on the economy by taking over his first bank, the local unit of Spain's Banco Santander SA. Plans to nationalize the country's third-largest bank, announced yesterday, will give the state access to Banco de Venezuela SA Grupo Universal's 285 offices and $9.46 billion in deposits. It follows nationalizations in the oil, steel, cement, electricity and telecommunications industries.
- Dynamic Materials Corp.(BOOM), a maker of metal plates used in aluminum smelting and shipbuilding, fell the most in more than four years after the company's first-quarter profit and sales forecasts trailed analysts' estimates.

MarketWatch.com:
- Consumers work hard this summer to cut gas intake. Analysts expect trend of lower consumption, easing gas prices to continue. "Demand has undergone significant deterioration in the U.S.," said Linda Rafield, Platts' senior oil analyst. So "inventories have been building at a time when they would normally decline." "We will not see gasoline demand rebound this year," said Tom Kloza, chief oil analyst at the Oil Price Information Service. Charles Perry, president of energy-consulting firm Perry Management, admits that "adjustment" in demand is a long-term project since "we are creatures of habit as far as our driving is concerned." But demand for gasoline has dropped and "will continue to drop as the public changes its driving habits and moves into smaller cars."
- Jobs report: Is the stage set for stocks to rally? Dollar firmness can also continue, while bonds may be ripe for profit-taking.

CNBC.com:
- U.S. officials think the dollar has fallen far enough, and a deeper decline would risk stoking already hot inflation while providing only a marginal added kick to exports.

NY Times:
- Boeing(BA), Airbus See Customers Delay New-Plane Orders on Soaring Fuel Costs.
- China has ended tax breaks and clamped down on labor and environmental laws at factories to encourage low-end manufacturers to innovate or stop operating. Textile mills that make cheap products for export are no longer needed at this stage of China’s growth, citing Andy Rothman, an analyst at investment bank CLSA Ltd.

BusinessWeek.com:
- How to Spend Apple’s(AAPL) Cash. Its stash may soon be bigger than Microsoft’s(MSFT). But should all those billions continue to lie dormant?

New York Sun:
- For Energy, Do Everything Now.

MIT News:
- ‘Major discovery’ from MIT primed to unleash solar revolution. In a revolutionary leap that could transform solar power from a marginal, boutique alternative into a mainstream energy source, MIT researchers have overcome a major barrier to large-scale solar power: storing energy for use when the sun doesn't shine. "This is a major discovery with enormous implications for the future prosperity of humankind," said Barber, the Ernst Chain Professor of Biochemistry at Imperial College London.

Reuters:
- Republican White House hopeful John McCain accused Democrat Barack Obama on Thursday of playing racial politics in some of the most biting back-and-forth of the presidential campaign.
- Investors scrambled on Thursday for options on several pharmaceutical and biotechnology stocks, with many betting on future gains in the sector following news of a proposed buyout of ImClone Systems.

Financial Times:
- Russia plans to form a state grain trading company to control up to half of the country's cereal exports, intensifying fears that Moscow wants to use food exports as a diplomatic weapon in the same way as Gazprom has manipulated natural gas sales. The move by Moscow, the world's fifth-biggest exporter of cereals, has been sharply criticized by US agriculture diplomats as a "giant step back" to the Soviet era.
- ArcelorMittal is considering breaking up the $8.8bn takeover of US coal miner Alpha Natural Resources(ANR) by Cleveland-Cliffs(CLF) with a counter-bid.
- The Jefferies-Reuters CRB index, a global commodities benchmark, lost 10 per cent, its largest monthly decline since it fell 10.5 per cent in March 1980, amid worries about lower economic growth damping demand for raw materials. Natural gas, corn, wheat and freight costs plunged last month between 10 and 30 per cent. The general bullish outlook is cracking with Deutsche Bank's strategists warning today that oil prices would fall below $100 a barrel by the start of next year. "We expect the short-term cyclical factors that drove the price of oil from $60 to $145 over the past year to reverse in the coming 12 months," said Marcel Cassard, of Deutsche Bank."The impact of the decline in commodity prices on global inflation will be significant." Traders warned the key commodity indices and energy markets closed the month below the previous month's opening, resulting in a strong technical bearish signal, which could trigger further sales in August.

Guardian:
- Google Inc.(GOOG) will be allowed to introduce its Street View service, which allows ground-level pictures of streets, in the UK after the Information Commissioner’s Office said it had no complaints about the service.

International Herald Tribune:
- An activist British hedge fund has taken a 6 percent stake in Washington Mutual as the largest U.S. savings and loan tries to rebound from billions of dollars of mortgage-related losses. The London-based fund, Toscafund Asset Management, also reported a 5.1 percent stake in Sovereign Bancorp , the second-largest U.S. thrift.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (MNST), target $30
- Reiterated Buy on (CVS), target $52.
- Reiterated Buy on (BWA), target $57.

Night Trading
Asian Indices are -2.0% to -.75% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.35%.

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Earnings of Note
Company/EPS Estimate
- (ASF)/.43
- (BYD)/.27
- (CVX)/3.03
- (CI)/.97
- (CCU)/.39
- (CLX)/1.11
- (GM)/-2.63
- (IR)/.89
- (KBR)/.36
- (NT)/-.04
- (NYX)/.78
- (OSK)/1.05
- (PPL)/.55
- (JAVA)/.25
- (TDW)/1.52

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for July is estimated at -75K versus -62K in June.
- The Unemployment Rate for July is estimated at 5.6% versus 5.5% in June.
- The Change in Average Hourly Earnings for July is estimated at .3% versus a .3% gain in June.

10:00 am EST
- ISM Manufacturing for July is estimated at 49.0 versus 50.2 in June.
- ISM Price Paid for July is estimated at 88.0 versus 91.5 in June.
- Construction Spending for June is estimated to decline .3% versus a .4% decline in May.

Afternoon:
- Total Vehicle Sales for July are estimated at 13.6M versus 13.6M in June.

Other Potential Market Movers
- The (YHOO) shareholders meeting and (DRYS) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity 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 Commodity and Construction Shares

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In Play

Stocks Mostly Higher into Final Hour on Fall in Energy Prices, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Alternative Energy longs, Gaming longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, sector performance is mostly positive and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising 3.02% and is still above-average at 21.85. The ISE Sentiment Index is low at 114.0 and the total put/call is about average at .92. Finally, the NYSE Arms has been running above average most of the day and is currently 1.13. The Euro Financial Sector Credit Default Swap Index is rising 3.2% today to 81.75 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 +.17% today to 130.53 basis points. The TED spread is rising .08% to 1.12. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 3 basis points today to 2.29%, which is the lowest since May 2nd and down 34 basis points in less than 3 weeks. Today’s broad market action is more constructive taking into consideration the morning weakness in financials and recent broad market gains. Growth stocks are especially strong. Small/Mid-cap Biotech/Medical stocks are sharply higher on the (IMCL) takeout news. I expect these stocks to continue to substantially outperform over the intermediate-term. There has been ample opportunity for the many bears to gain downside traction the last few days and they have been unable to capitalize thus far. It is interesting to note that one of my alternative energy longs, heavily-shorted (AMSC), has moved higher 11 out of the last 12 days, despite the decline in oil. The company reports next week. The AAII % Bulls rose to 40.0 this week and the % Bears fell to 41.18. Nikkei futures indicate a -31 open in Japan and DAX futures indicate an +46 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Tumbling prices for natural gas, nickel and corn are turning July into the worst month in 28 years for the Reuters/Jefferies CRB Commodity Index. The CRB Index of 19 commodities has slumped 10 percent since June 30, the biggest decline since a 10.5 percent drop in March 1980. Natural gas plunged 31 percent to lead July's biggest losers. Corn was down 18 percent and nickel sank 16 percent. The dollar's rebound from a record low against the euro eroded the appeal of raw materials as an alternative to stocks and bonds, especially for investors who snapped up commodities earlier this year and sent prices to records. Demand also is easing in China, which expanded at the slowest pace since 2005 in the second quarter, Lehman Brothers Holdings Inc. analyst Edward Morse said in a report on July 23.
- Freddie Mac(FRE), the second-largest U.S. mortgage-finance company, doubled the amount of money it will pay to loan servicers for helping borrowers avoid foreclosures by establishing repayment plans or reworking delinquent loans.
- The cost of borrowing dollars overnight dropped to the lowest this week after the Federal Reserve extended its emergency lending programs to Wall Street firms yesterday to encourage loans between banks. The London interbank offered rate, or Libor, fell 3 basis points to 2.32 percent today, the lowest level since July 28, the British Bankers' Association said. The three-month rate for dollars declined 1 basis point to 2.79 percent. ``The Fed's move is going to help market confidence and push Libor rates lower,'' said Orlando Green, a fixed-income strategist in London at Calyon, the investment-banking arm of Credit Agricole SA, France's second-biggest bank.
- Wheat and corn production will be higher than previously expected because of favorable weather in some producing nations, the International Grains Council said.
- Corn fell .6%, heading for the biggest monthly drop in more than a decade, as warm, wet weather helped U.S. crops recover from the worst flooding in 15 years.
- Crude oil declined on speculation that high prices and slowing economic growth will further reduce demand in the U.S., the world's biggest energy user. U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, according to a weekly report by the Energy Department yesterday. Nigeria, the U.S.'s fourth-largest supplier, said production remains close to 2 million barrels a day even after recent pipeline attacks. The price ``is not sustainable,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``We've seen some demand destruction already. Prices will go back to $120, and $110 before the end of the year.'' ``On closer examination the gasoline data should not be regarded as that supportive,'' said Gareth Lewis-Davies, research analyst at Dresdner Kleinwort Group Ltd. ``Deliveries from refineries and terminals into the wholesale market were very large indeed, while other data has shown continuing weak retail gasoline sales.''
- Treasury Secretary Henry Paulson said he expects the government's fiscal stimulus plan will boost economic growth in the second half of the year, offsetting a housing downturn and high energy prices.
- The Federal Reserve Bank of New York expanded efforts to clean up trading in the privately negotiated derivatives markets to include contracts linked to interest rates, commodities and currencies.
- International Paper Co.(IP), the world's largest maker of office paper, gained the most in more than seven years in New York trading after second-quarter profit rose, topping analysts' estimates.
- President George W. Bush scolded Congress for a third straight day for refusing to vote on measures that would expand domestic oil drilling and exploration. ``I'd rather be buying our oil from U.S. producers than sending our money overseas,,'' said Bush in a speech to the West Virginia Coal Association at The Greenbrier resort in White Sulphur Springs.
- General Motors Corp.(GM), Ford Motor Co.(F) and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's over concern that deteriorating U.S. auto sales will reduce cash flow.
- Exxon Mobil Corp.(XOM), the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade, sending its shares lower.
- U.K. house prices declined the most in almost two decades in July and consumer confidence fell to a record low as the economy edged closer to a recession. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, Nationwide Building Society, Britain's fourth-biggest mortgage lender, said today.
- Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, posted a 13 percent gain in second-quarter profit as price increases boosted revenue.
- If cable TV is unfulfilling or the video store too inconvenient, the answer might be a video-on- demand set-top box, a device that plays movies straight to your television at the push of button. Several new and improved devices have finally arrived. The latest contender is from Netflix Inc. The popular DVD- by-mail service teamed up with device maker Roku Inc. to develop the $100 Netflix Player. Meanwhile, Vudu Inc., based in Santa Clara, California, enhanced its Vudu Box in June with the addition of a wireless kit ($349 for the bundle). The third device I checked out is the Apple TV (starts at $229).

Wall Street Journal:
- Google(GOOG) to Extend Reach With Venture-Capital Arm.
- Acorn, a non-profit housing advocacy group that holds voter drives for Democrats, will get funding from the housing bill signed into law yesterday. The legislation, which will provide almost $5 billion for affordable housing, financial counseling and mortgage help for overextended borrowers, will also fund groups like Acorn, whose activities include voter registration drives for low-income minorities.
- In a race supposedly dominated by the economy, both Barack Obama and John McCain have spent a lot of time talking about Iraq. Why? Because both men have Iraq problems that are causing difficulties for their campaigns.
- You Know Gas Prices Are High When Texans Start Driving Golf Carts. Low-Speed Electric Vehicles Catch On; Peters Family Jaunts in the Land of Giants.

NY Times:
- Jeweler Cartier Sets Up Site on MySpace.

San Francisco Chronicle:
- A majority of Californians favor more oil drilling off the coast, according to a statewide survey released Wednesday, for the first time since oil prices spiked nearly three decades ago. The support by 51 percent of residents polled this month by the Public Policy Institute of California represents a shift caused by renewed Republican advocacy for drilling as well as motorists' reaction to soaring pump prices, according to the pollster. With high oil prices and calls from President Bush and Republican presidential aspirant Sen. John McCain to open coastal waters to domestic production, support for drilling has jumped, particularly among Republicans, the poll says. Support increases with age and is slightly higher among men than women. But as the price of oil hovers around $120 per barrel, double the cost a year ago, support for drilling has increased even among Democrats and independents, says the survey of 2,504 adult residents polled across the state July 8-22.

New York Post:
- If the Securities and Exchange Commission expands its clampdown on short-selling, it is widely expected to slam hedge funds like Stephen Cohen's SAC Capital and James Simon's Renaissance Technologies, which profit from fast-and-furious trading, experts predicted. That's because under the long-accepted rules of the short-selling game, these hedge funds, which often trade through sophisticated computer programs, have been able to skip the process of borrowing the shares needed to cap off their short positions. But that luxury is now being challenged by the SEC's mandate requiring investors who short 19 financial stocks, including Fannie Mae and Freddie Mac, to borrow the shares they short before they bet against the stock whose price they predict will fall. "The guys who do the rapid trading stuff, they're shorting without having to borrow because they know they're going to close out by the end of the day," said one hedge fund manager. "Those are the people who are going to be most impacted by this." Under the new rules, "if a prime broker does not have it physically pre-borrowed, those trading opportunities may be gone," said well-known short trader Jim Chanos, speaking on behalf of his organization, which is lobbying against the SEC's rules. Among those most likely to be affected are day-trading shops like SAC, Renaissance and Ken Griffin's Citadel Investment Group, which trade shares so quickly they rarely need the shares to be delivered.

Reuters:
- Pension funds to trim commodities exposure. Many have invested in commodities to diversify their portfolios away from traditional assets such as stocks. "For pension funds already at their desired allocation to passive commodities, they would indeed have to sell commodities to maintain that exposure," said Laura Ambroseno, an executive director at Morgan Stanley Investment Management. Fund managers say many pension funds have a benchmark allocation of between 2 and 5 percent to commodities. But those numbers have gone awry as prices have surged. Research by Barclays Capital shows total commodity assets under management rose to $270 billion in the second quarter, a rise of $43 billion from the first quarter. Barclays estimates that new money inflows into commodities in the second quarter fell by 51 percent from the first quarter to $6.4 billion.

Financial Times:
- AK Steel Holding(AKS) has been in talks with potential buyers and is seeking an all-cash bid. AK Steel’s shareholders may be holding out for an all-cash offer close to the shares’ recent highs above $70.

Business Standard:
- India’s inflation was below 12% in the week ended July 19. However, the rate of inflation will be higher than the 11.89% reported in the previous week.

Sabah:
- Exxon Mobil(XOM) is in talks to explore for oil in Turkey’s eastern Black Sea.

Bear Radar

Style Underperformer:

Large-cap Value -.78%

Sector Underperformers:

Coal irlind (-9.31%), Oil Service (-2.83%) and Construction (-2.83%)

Stocks Falling on Unusual Volume:

CNQR, ENDP, AIZ, UL, UN, BARE, AKAM, SSYS, HOLX, CPLA, RBCN, ZEUS, BT, TSS, DLX, ARJ, CDI, IOSP, MA, OI, DVR and OII

Stocks With Unusual Put Option Activity:

1) HOLX 2) BARE 3) KFT 4) HUN 5) IMCL

2Q GDP Accelerates, Inflation Decelerates, Jobless Claims Rise, Manufacturing Unexpectedly Expands

- Advance 2Q GDP rose 1.9% versus estimates of a 2.3% gain and a downwardly revised .9% increase in 1Q.

- Advance 2Q Personal Consumption rose 1.5% versus estimates of a 1.7% increase and a downwardly revised .9% gain in 1Q.

- Advance 2Q GDP Price Index rose 1.1% versus estimates of a 2.4% gain and a downwardly revised 2.6% increase in 1Q.

- Advance 2Q Core PCE rose 2.1% versus estimates of a 2.0% increase and a 2.3% gain in 1Q.

- The 2Q Employment Cost Index rose .7% versus estimates of a .7% gain and a .7% increase in 1Q.

- Initial Jobless Claims for this week rose to 448K versus estimates of 393K and 404K the prior week.

- Chicago Purchasing Manager for July rose to 50.8 versus estimates of 49.0 and 49.6 in June.

BOTTOM LINE: The US economy accelerated during the second quarter as the effects of the federal tax rebates took hold, Bloomberg reported. The trade deficit shrank to a $395.2 billion annual pace during the quarter, adding 2.4 percentage points to growth, the most since 1980. Residential construction fell at a 15.6% annual rate after dropping 25.1% in the first quarter. The decline subtracted .6 percentage point from growth, the least in more than two years. The GDP Price Index rose 1.1% during 2Q, the smallest increase in 10 years and down from a 2.6% rise in 1Q. The Core PCE, the Fed’s preferred inflation gauge, decelerated to 2.1%, which is close to the Fed’s target of 1-2%. According to Intrade.com, the percentage chance that the US slips into recession this year is 19.5%, down from a 79% chance in Mid-March. I expect 3Q GDP to come in around 1.5% and inflation to decelerate further on the fall in commodities.

The number of Americans filing first-time claims for unemployment benefits unexpectedly rose last week, Bloomberg reported. The four-week moving average of claims rose to 393,000 from 382,000 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.5% from 2.3% the prior week. 13 states and territories reported an increase in new claims, while 40 reported a decline. I expect jobless claims to decelerate next week and still expect non-farm payrolls, released tomorrow, to come in modestly better-than-estimates of -75K.

A measure of US business activity unexpectedly rose in July, led by a gain in orders, and is now indicating expansion, Bloomberg said. The New Orders component rose to 53.5 from 52.0 in June. The Order Backlogs component rose to 45.7 from 42.3. The Employment component fell to 45.9 versus 46.7 the prior month. The Inventories component rose to 54.9 from 50.5. The Prices Paid component rose to 90.7 versus 85.5 the prior month. I suspect July will mark the high point for the prices paid index. The CRB commodities index, the main source of inflation fears, has declined 12.2% since July 2. I expect manufacturing gauges to continue to indicate mild expansion next month. After an initial sell-off, the US Dollar Index is just slightly lower on today’s reports and is at session highs. The 10-year yield is falling 9 basis points. The BankRate.com avg. 30-year fixed mortgage rate is 6.35%, down 16 basis points in a week.