Weekly Scoreboard*

Indices
S&P 500 1,296.32 +2.86%
DJIA 11,734.32 +3.60%
NASDAQ 2,414.10 +4.46%
Russell 2000 734.30 +2.53%
Wilshire 5000 13,144.91 +2.48%
Russell 1000 Growth 552.14 +2.63%
Russell 1000 Value 689.04 +2.46%
Morgan Stanley Consumer 699.23 +4.36%
Morgan Stanley Cyclical 890.79 +4.0%
Morgan Stanley Technology 582.43 +5.07%
Transports 5,216.50 +5.4%
Utilities 471.18 +.35%
MSCI Emerging Markets 41.09 -3.47%

Sentiment/Internals
NYSE Cumulative A/D Line 42,637 -1.77%
Bloomberg New Highs-Lows Index -426%
Bloomberg Crude Oil % Bulls 34.0 +41.7%
CFTC Oil Large Speculative Longs 197,332 -2.13%
Total Put/Call .91 -4.04%
OEX Put/Call .1.12 +6.52%
ISE Sentiment 119.0 +45.12%
NYSE Arms .86 -30.08%
Volatility(VIX) 20.66 -8.46%
G7 Currency Volatility (VXY) 10.22 +8.26%
Smart Money Flow Index 8,185.14 +2.21%
AAII % Bulls 35.61 -10.98%
AAII % Bears 42.42 +3.01%

Futures Spot Prices
Crude Oil 115.20 -8.06%
Reformulated Gasoline 288.74 -6.40%
Natural Gas 8.25 -12.35%
Heating Oil 312.80 -8.89%
Gold 864.80 -5.87%
Base Metals 220.48 -5.11%
Copper 333.30 -6.98%
Agriculture 382.37 -6.84%

Economy
10-year US Treasury Yield 3.93% unch.
10-year TIPS Spread 2.18% -12 basis points
TED Spread 1.11 -3 basis points
N. Amer. Investment Grade Credit Default Swap Index 133.12 +.41%
Emerging Markets Credit Default Swap Index 265.89 +7.44%
Citi US Economic Surprise Index +22.20 -17.16%
Fed Fund Futures 18.0% chance of 25 hike, 82.0% chance of no move on 9/16
Iraqi 2028 Govt Bonds 74.63 -.29%
4-Wk MA of Jobless Claims 419,500 +6.8%
Average 30-year Mortgage Rate 6.52% unch.
Weekly Mortgage Applications 432,600 +2.8%
Weekly Retail Sales +2.9%
Nationwide Gas $3.85/gallon -.05/gallon
US Cooling Demand Next 7 Days 4.0% below normal
ECRI Weekly Leading Economic Index 127.50 -.47%
US Dollar Index 75.85 +3.30%
Baltic Dry Index 7,201 -13.03%
CRB Index 387.42 -6.88%

Best Performing Style
Mid-cap Value +3.1%

Worst Performing Style
Mid-cap Growth +1.63%

Leading Sectors
Airlines +19.36%
Gaming +9.68%
Semis +9.29%
Restaurants +8.98%
Software +8.21%

Lagging Sectors
Oil Service -7.30%
Steel -8.37%
Coal -8.58%
Oil Tankers -8.92%
Gold -12.25%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Week at Session High, Boosted by Airline, Gaming, Restaurant, Retail, REIT and Financial Shares

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In Play

Stocks Soaring into Final Hour on Plunge in Commodities, Less Financial Sector Pessimism and Diminishing Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs, Retail longs, Gaming longs and Emerging Market/Commodity shorts. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 3.69% and is still above-average at 20.37. The ISE Sentiment Index is below average at 113.0 and the total put/call is slightly above average at .95. Finally, the NYSE Arms has been running high most of the day and is currently 1.08. The Euro Financial Sector Credit Default Swap Index is unch. today at 83.66 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 rising .55% today to 135.27 basis points. The TED spread is falling 1.67% to 1.11. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 3 basis points to 2.18%, which is the lowest since January 23rd and down 45 basis points in about a month. Growth stock leaders are especially strong again today with many posting 4-6% gains. The US Dollar Index is blasting higher through resistance and looks poised for further gains next week, which is a large positive. The Citi eurozone economic surprise index is now -171.90, with the US index at +22.2. The Gold(GLD) and Silver(SLV) ETFs are gapping lower through support on above-average volume. Many pundits on CNBC have said recently that China’s demand for commodities will re-accelerate back to prior levels after the Olympics. I strongly disagree. In my opinion, the magnitude of the global slowdown outside the US, and its impact on Chinese exports, is still being underestimated. The Shanghai Composite, the world’s worst-performing major stock index, fell another -4.5% last night and is now down -56.7% in less than a year. I still see further downside in China over the intermediate-term. Russian equities also plunged -6.5% today on the military action and drop in commodities. The Russian index is now down -25.9% in less than three months. I can easily see these stocks fall another 20% over the intermediate-term. The (RSX) is one good way to play the downside. The commodity bubble, which is the driving force behind the current “US negativity bubble,” is intertwined with the emerging market bubble and both appear to be bursting. The magnitude of the positive implications of a bursting of these bubbles for US equities can not be overestimated, in my opinion. For years, global portfolio managers have relied on a strategy of shorting or underweighting US equities to beat their benchmarks. A US Dollar upside breakout is reversing this dynamic. As well, we may look back on the credit crunch as the catalyst that caused the hedge fund de-leveraging that resulted in the beginning of the “mother of all short-squeezes.” It is still too early to know whether the sharp decline in commodities will cushion the global economy enough to prevent further US economic weakness over the intermediate-term. I suspect a sustained decline in oil below $100/bbl., which is much more likely than perceived, would do the trick and result in a massive move higher in US equities. Nikkei futures indicate an +160 open in Japan and DAX futures indicate an +74 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism, falling commodity prices and less economic pessimism.

Today's Headlines

Bloomberg:
- The $1.9 trillion hedge fund industry, mired in its worst performance in two decades, faces ``much worse'' conditions than in 1998, when Long-Term Capital Management LP collapsed, a veteran of that fund said. ``Hedge funds live on credit and leverage and the ability to finance esoteric positions for a long time,'' said Hufschmid. ``To the extent liquidity is drying up as it is now, that becomes more difficult.'' This year's poor results mean fewer funds are starting, Hufschmid said. GlobeOp said none of the ``seven or eight'' clients it had ready to launch funds with $500 million to $2 billion in the first six months of the year had started. ``Some of them have given up,'' said Hufschmid.
- MBIA Inc.(MBI) rose as much as 15 percent in New York stock trading after the bond insurance company posted a profit that beat analyst estimates and said it would resume a share buyback program.
- MBIA Inc.(MBI) said it may sue Bill Ackman, striking back against the hedge fund manager who waged a six-year campaign against the bond insurer and said this year that the company may be insolvent. MBIA is ``assessing all our options, including litigation'' against Ackman's Pershing Square Capital Management LP, Chief Executive Officer Jay Brown said on a conference call today after the Armonk, New York-based company reported a $1.7 billion profit. Brown's comments came in response to an anonymously submitted e-mail asking if MBIA planned to follow-up on New York State Insurance Superintendent Eric Dinallo's comments in a Financial Times article last month saying that ``rumor mongering'' about a bond insurer's solvency ``crossed a line.'' ``MBIA agrees that statements may have violated New York state insurance law,'' Brown said.
- The ruble dropped the most in 3 1/2 years, Russia's Micex Index fell to a 22-month low and bond yields climbed after Prime Minister Vladimir Putin said ``war has started'' in the breakaway Georgian region of South Ossetia. Credit-defaults swaps, a measure of bond risk, jumped the most this year after Georgia's Interior Ministry said jets bombed the towns of Gori and Kareli near South Ossetia. Yields on government bonds rose. The Micex plummeted, bringing its decline this year to 28 percent after oil slid 20 percent from its July high. ``This is the last nail in the coffin,'' said David Tavadian, head of fixed income and derivative sales at Calyon Rusbank SA, a Moscow-based unit of Credit Agricole SA. Calyon's Russian loan book is worth $7 billion. ``It tells people that in Russia you have to be careful.''
- Commodity-linked exchange-traded products, or ETPs, attracted $10 billion in the first half, more than double the amount a year earlier, Barclays Capital said. Investors bought less than $4 billion of the products in the first six months of 2007 and 2006, London-based Gayle Berry and nine other Barclays analysts said in a report yesterday. `These trends reflect developments in the type of investors now being attracted to commodities, in particular the growing interest from retail investors.'' Commodities, as measured by the UBS Bloomberg CMCI Index of 26 raw materials, have advanced for six consecutive years. Prices are now declining on speculation that the record cost of oil, corn and other commodities will curb demand. The Reuters/Jefferies CRB Commodity Index of 19 commodities fell 10 percent in July, the biggest monthly drop since March 1980.
- The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows. The euro is poised for its biggest weekly loss since January 2005 after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. ``This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.
- Crude oil fell, heading for its fourth decline in five weeks, as the dollar gained the most in more than seven years against the euro, reducing the appeal of commodities as an inflation hedge. Oil dipped to $115.61 a barrel, a three-month low, as prices for commodities including metals and crops fell amid the dollar's gain. Crude has declined more than $30 from its July record. Futures have dropped more than 20 percent below the record $147.27 on July 11, a threshold commonly seen as the start of a bear market. Crude oil may extend declines next week amid weakening demand caused by a global economic slowdown, a survey showed. Thirteen of 35 analysts surveyed by Bloomberg News, or 37 percent, said prices will drop through Aug. 15.
- Corn and soybeans fell to the lowest prices in four months, extending this week's declines, as a surging dollar reduced the appeal of commodities as a hedge against inflation. ``When the dollar rallies as much as it has, it reduces the investment in commodities, including grains,'' said Roy Huckabay, an executive vice president for the Linn Group in Chicago. ``People that bought in the past two days, looking for improved demand at lower prices, are getting beat up today.'' Index funds that invest in a basket of commodities cut net- long positions by 3.7 percent to 372,405 corn contracts last week, down 18 percent from a record 452,568 contracts in February. Index funds that invest in baskets of commodities reduced net-long positions by 0.9 percent to 148,734 soybean contracts in the week ended July 29, down 25 percent from a record of 198,707 on Feb. 19, the data show. ``The dollar has been beat on by everybody for the past six years, yet was unable to make further downside progress in the past six months,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida. ``The dollar could have a big up move in the next 12 months,'' which will have a general depressing impact on all commodities, Roach said.
- Emerging-market stocks fell to the lowest level in almost a year as Russian equities tumbled on concern a conflict with Georgia will intensify and Chinese shares dropped before the start of the Olympic Games. ``What concerns us are these political issues,'' said Michael Keppler, who manages more than $1 billion in emerging market assets at Keppler Asset Management in New York. ``I'm certainly staying out of Russia at the moment as it's just not attractive at all.'' MSCI's measure of emerging markets has retreated 20 percent this year, while equity benchmarks from every country in the index except for Jordan and Morocco experienced bear-market plunges since September. The CSI 300 has tumbled 51 percent in 2008, the worst performance among benchmarks in the world's 20 biggest markets, while the Micex plunged 28 percent.
- McDonald's Corp.(MCD), the world's largest restaurant company, rose to the highest in 43 years of U.S. trading after July sales climbed more than analysts' estimates. Global sales by restaurants open at least 13 months advanced 8 percent, the biggest gain since February, after the Oak Brook, Illinois-based chain sold more chicken biscuits and $1 sweet tea in the U.S. and snack-sized chicken wraps in France. European outlets grew the fastest of three regions at 7.6 percent, while U.S. sales advanced 6.7 percent, McDonald's said today.
- Qwest Communications International Inc.(Q), the third-largest U.S. local phone company, rose the most in more than five years in New York trading after a Morgan Stanley analyst recommended the stock.
- Italy's economy unexpectedly shrank in the second quarter, edging it closer to the fourth recession in a decade as households and businesses struggle to cope with more expensive oil. The economy, first of the three biggest in the euro region to report second-quarter growth, contracted 0.3 percent after expanding 0.5 percent in January to March.
- Egypt's central bank increased its benchmark interest rate for a fifth time this year and warned it will ``not hesitate'' to raise it again to combat the highest inflation rate in the Middle East. Policy makers increased the benchmark overnight deposit rate by half a percentage point to 11 percent and the overnight lending rate by the same amount to 13 percent, the central bank said in a statement on its Web site today. The Cairo-based bank has raised the deposit rate by a total of 2.25 points this year.
- One of the favorites at the Beijing Olympics may be shares of Nike Inc.(NKE).

NY Times:
- A left-wing political group, Accountable America, plans to issue a “warning” letter to nearly 10,000 Republican donors, saying they will be investigated and face possible legal trouble if they give to conservative groups. The group has collected $200,000, and plans to raise a total of $2 million. The letter is an opening shot across the bow from an unusual new outside political group on the left that is poised to engage in hardball tactics to prevent similar groups on the right from getting off the ground this fall. Led by Tom Matzzie, a liberal political operative who has been involved with some prominent left-wing efforts in recent years, the newly formed nonprofit group, Accountable America, is planning to confront donors to conservative groups, hoping to create a chilling effect that will dry up contributions. “I doubt anyone will be intimidated by him,” he said, “but if it gives anyone pause, they are always welcome to give to Freedom’s Watch — all of our donors are entitled to complete anonymity by law.” Indeed, anonymity is a potential obstacle to the group’s efforts. Outside political groups organized as 501(c)4 entities, including Accountable America, do not have to disclose the names of their donors. Chris LaCivita, a Republican strategist, said Mr. Matzzie’s group was likely to have the opposite effect on potential donors, firing them up instead of discouraging them.

Washington Post:
- With the clock running out on preparations for the Democratic convention, advisers to Sen. Barack Obama are scrambling to reach a compromise with Sen. Hillary Rodham Clinton to appease her supporters and find roles for her and her husband. The Obama and Clinton camps said this week that they agree on a central point: They would like to avoid an embarrassing display of discord from Clinton's most ardent backers when the national convention begins in just over two weeks. Conversations about how to achieve that have increasingly focused on the question of whether Clinton's name will be offered in a roll-call vote by delegates to determine the nominee, even though she has said she is not challenging Obama's claim as the party's standard-bearer.

Reuters:
- A diet high in vitamin C may help lower the risk of developing diabetes, citing research in Archives of Internal Medicine. A study of almost 22,000 middle-aged and older patients found the ones with the highest levels of vitamin C were less likely to develop the illness over 12 years when compared to those with the lowest levels.

The Australian:
- Australia’s best known stockbroker has ended a long silence to say that short-selling rules are being widely abused here to the detriment of share market integrity and at a high cost to investors' retirement funds. Brent Potts, founder of Southern Cross Equities and before that Potts West Trumbull, said short sellers were using reporting loopholes to avoid revealing they were selling shares they did not own.

Journal de Angola:
- Angola’s output of coffee rose from nil during the 27-year civil war that ending in 2002 to 800 metric tons a year currently, citing Joaquim Pedro, director of agriculture in the northern Uige province. Increased investment in the industry and demand for the beverage will see production continuing to climb back to the thousands of tons produced when the southern African country gained independence in 1975.

Hurriyet:
- Turkish gasoline consumption slumped 9.7% in the first half of the year as prices rose. Consumption in the period fell to 1.4 million cubic meters of gasoline in the period, citing the Petrol Industry Association.

Milliyet:
- Turkish small business closures jumped 75% in the first seven months of the year to 28,338 units, citing data from the country’s largest business group. Turkey’s economy is slowing after the inflation rate rose to a four-year high last month and the central bank increased the benchmark interest rate by 1.5 percentage points to 16.75 percent since May.

Bear Radar

Style Underperformer:

Mid-cap Growth +1.07%

Sector Underperformers:

Gold irlind (-4.24%), Steel (-2.39%) and Oil Service (-2.23%)

Stocks Falling on Unusual Volume:

GOLD, ATW, NCTY, PGNX, PLLL, CEDC, DPTR, FWLT, PRX, ARP, SLV and CEP

Stocks With Unusual Put Option Activity:

1) SD 2) HANS 3) RAH 4) RWT 5) ITMN

Productivity Healthy, Unit Labor Costs Decelerate, Wholesale Inventories at New Record Low as Sales Surge Most Since 2004

- Preliminary 2Q Non-farm Productivity rose 2.2% versus estimates of a 2.5% increase and a 2.6% gain in 1Q.

- Preliminary 2Q Unit Labor Costs rose 1.3% versus estimates of a 1.4% gain and a 2.5% rise in 1Q.

- Wholesale Inventories for June rose 1.1% versus estimates of a .6% rise and a .9% increase in May.

BOTTOM LINE: Worker productivity in the US grew at a healthy rate in the second quarter and unit labor costs decelerated, Bloomberg reported. Usually, productivity growth suffers during energy spikes. The fact that productivity growth remains strong is a large positive. Unit Labor Costs, which make up about two-thirds of inflation, rose 1.3% during 2Q versus the long-term average of a 3.3% increase. Investors’ long-term inflation expectations continue to fall rapidly. I expect productivity to remain healthy and unit labor costs to remain low over the intermediate-term.

Inventories at US wholesalers rose faster than forecast in June, led by gains in stockpiles of higher-priced petroleum, farm goods and metals, Bloomberg said. Despite a 4.7% decline in vehicle sales, Wholesale Sales surged 2.8% in June, the most since March 2004, after a strong 2.2% increase in May. Distributors had enough supplies on hand to last 1.06 months at the current sales pace, a new record low, versus 1.08 in May. Inventories of computer equipment fell 1.2% in June and machinery stockpiles fell .3%. Companies pared inventories in 2Q at a $62 billion annual pace, the fastest drawdown since 4Q 2001. The US economy grew at a 1.9% pace during 2Q despite the fact that falling inventories reduced growth by 1.9 percentage points. Inventory rebuilding should add meaningfully to 3Q/4Q US growth as sales remain healthy on the substantial fall in food and energy prices.