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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The US dollar traded near a 5 1/2-month high against the euro on speculation tumbling commodity prices will give a boost to the world's largest economy. The Australian dollar slid for an 11th day, its longest losing streak since at least 1975, and New Zealand's currency declined to an 11-month low as prices of raw materials the nations export declined. Raw materials account for 60 percent of Australia's exports, while sales of commodities including lumber make up 70 percent of New Zealand's overseas shipments. ``The trend is for commodities to weaken and the dollar to strengthen,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``We clearly have weaker growth outside the U.S.,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in an interview on Bloomberg Television. ``That's enough for the dollar to sustainably gain ground.''
- Short interest on the NYSE fell 1.47% from a record over the last two weeks of July to 18,337,000,000 shares.
- New NYSE Short-Selling Targets. Here are the 25 NYSE stocks with the largest increase in short interest relative to their floats over the last two weeks of July:
- Gold plunged to the lowest in more than seven months as the dollar gained against the euro, reducing the metal's appeal as an alternative investment to assets denominated in the U.S.08 at 9:57 a.m. Singapore time. currency. Gold fell to $802.34 an ounce, the lowest since Dec. 21, and 22 percent below its March 17 record of $1,032.70 an ounce. The metal traded at $807.
- With Russia's superior army overwhelming parts of Georgia, French President Nicolas Sarkozy will fly to Moscow today to try to persuade the government to end its first foreign offensive since the Cold War.
- Mexican copper production may rise 8.4% this year as capacity increases more than make up for a strike at the country’s largest copper mine, an industry group said. Output may climb to 350,000 metric tons from 323,000 tons last year, said Sergio Almazan, director of Mexico’s Mining Chamber of Commerce. Production of the metal used in pipes and wires may rise to 420,000 tons next year should Grupo Mexico restart Cananea. Mexico will reclaim its spot as the world’s largest silver producer in 2010, surpassing Peru, when Goldcorp’s Penasquito mine reaches full capacity, Almazan said. Gold output may more than double to 100 tons in 2010 as Coeur d’Alene Mine’s Palmarejo and other mines start operating, Almazan said.
- Carl Icahn's hedge funds lost 9.1 percent in the second quarter on losses of $773 million from investments in companies such as Yahoo! Inc.(YHOO) and Motorola Inc.(MOT) The funds had net investor withdrawals of $166 million during the quarter, according to a filing today with the U.S. Securities and Exchange Commission.
- Australian credit-default swaps led the cost of Asia-Pacific default protection lower on speculation the nation's banking sector is more resistant to losses from credit-market writedowns. The Markit iTraxx Australia index of credit-default swaps fell 5.5 basis points to 139.5 as of 1:17 p.m. in Sydney, JPMorgan Chase & Co. prices show. Japan's main index declined 2 to 118, Morgan Stanley prices show, and contracts in the rest of Asia also fell. Asia's index of 50 investment-grade borrowers outside Japan, including the Thai government and Hong Kong's Hutchison Whampoa Ltd., fell 3 to 142 and the region's benchmark of high-risk, high-yield borrowers declined 5 to 550, BNP Paribas prices show.
- Morgan Stanley(MS) had its long-term credit rating lowered by Moody's Investors Service, which cited the second-biggest U.S. securities firm's failed risk-management practices.
- U.K. house prices fell in July as the squeeze on credit locked out buyers and brought the property market to a ``virtual standstill,'' the Royal Institution of Chartered Surveyors said. The number of real-estate agents and surveyors saying prices dropped exceeded those reporting gains by 83.9 percentage points, the group said today in London. The reading was 94.7 percentage points in April, the most since the series began in 1978.
- LDK Solar Co.(LDK), a Chinese maker of silicon wafers used in solar cells, said second-quarter profit increased more than fivefold, beating estimates, as it expanded output faster than expected. LDK shares jumped 19.7% in extended trading.
- Gilead Sciences Inc.(GILD) won U.S. approval to sell Viread, the oldest of its AIDS medicines, as a treatment for chronic hepatitis B. Worldwide sales may grow to $810 million next year from an expected $600 million this year, according to Joel Sendek, an analyst at Lazard Capital Markets in New York.

Wall Street Journal:
- Oil Goes to the Bears. Just weeks ago the fragile commodities markets could be sparked ahead by a mere hint of bad news. That market psychology has reversed, with Monday's action showing that even war can't halt oil's current retreat. Inside the commodity-trading pits and brokerage houses, the conversation isn't whether prices are pulling back in the near term, but how far and for how long.

MarketWatch.com:
- How low can you go? Some gold timers still haven’t thrown in the towel, which is a bad sign for gold bugs.
- Amazon’s(AMZN) Kindle could be next iPod, analyst says. Citigroup doubles sales target for e-reader, predicting strong holiday demand.

CNNMoney.com:
- One month after its debut, Apple's new iPhone has hit the 3 million sold mark, according to analyst Michael Cote of the Cote Collaborative. "They are seeing unprecedented demand," says Cote, adding that there appears to be no signs of a let up yet. Cote, a former T-Mobile executive, has been extremely accurate with wireless predictions in the past. The 3 million figure is much higher than Wall Street analysts had anticipated. Forecasts called for total quarterly sales of three million to four million.
- The shorts are back. Effective Wednesday, naked short selling is fair game once again in the banking sector. Some experts have argued that the SEC needs to bring back the so-called uptick rule, which prohibits an investors from shorting a stock except when its price is moving higher to prevent massive selloffs, or "bear raids," on a stock. Last year, the rule was repealed. Any changes, however, would also likely meet with much resistance from Wall Street as well as the hedge fund community, which relies on short selling, in part, to help produce the outsized returns they have become famous for. Last month, the Managed Funds Association and the Coalition of Private Investment Companies, which represent hedge funds and other asset managers, warned the SEC that any permanent changes would not only limit legitimate short selling but also give an inaccurate representation of the real price of a stock.
- Steve Jobs: 60 million iPhone apps downloaded.
- As China makes big moves to break into the first world, US companies that manufacture there face soaring costs in a region that used to be the home of cheap, outsourced production. Here’s why prices have jumped – and how 4 small companies are being crunched.
- Gas price decline: Day 25. Gas falls to $3.81/gallon.
- Demand for high-level job talent is surprisingly robust, especially for senior managers who are willing to move.

USA Today.com:
- Study: Health costs seen rising, but smallest growth in years.

Reuters:
- Short interest rose sharply in shares of banks not included in the U.S. Securities and Exchange Commission's emergency rule to curb abusive short-selling.
- Billionaire investor Carl Icahn reported on Monday that he owns a 6.03 percent stake in the common stock of biotechnology company Biogen Idec Inc (BIIB). Icahn said in a filing with the U.S. Securities and Exchange Commission that he increased his stake "in the belief that the shares were undervalued." He said his funds may acquire additional Biogen shares, debt or other equity.
- Singapore Telecommunications, Southeast Asia's largest telecoms firm, will launch Apple Inc's (AAPL) third-generation iPhone in Singapore on Aug 22, the company said on Tuesday.

Financial Times:
- JPMorgan Chase(JPM) provided evidence of more turbulence in financial markets, warning that stormy credit conditions had forced it to take a $1.5bn writedown on mortgage-backed assets in July.
- Institutional investors expect another big financial firm will collapse within the next six months in the continued fallout from the credit crunch, new research has shown. Nearly 60 per cent of US and European institutional investors surveyed by Greenwich Associates believe there will be such a failure within the next six months. Another 15 per cent think it will happen in six-12 months. Nearly 80 per cent of institutions said banks had tightened margins or collateral requirements in the last year.
- The fighting between Russia and Georgia over the separatist enclave of South Ossetia appeared to ignite in a sequence of improvised if macho moves, fuelled by overblown rhetoric on both sides, overbidding by Tbilisi and overreaction by Moscow. But Russia - in this conflict manifestly led by the prime minister Vladimir Putin rather than Dmitry Medvedev, his successor as president - needs to consider very carefully where its wholly disproportionate action is going to leave Russia's standing in the world.

The Independent:
- In what could be the biggest ever payday for a public company executive, Fortress Investment Group(FIG), the hedge fund manager which floated in New York last year, has given one of its star traders more than $300 million to stay at the firm. Wall Street is agog at the revelation that Adam Levinson, 38, who runs one of the main funds for Fortress, has been handed a giant slug of new shares in the firm, giving him a stake of up to 7 per cent and diluting the power of existing shareholders. The award comes despite disappointing returns from his global macro fund so far this year, one of the hardest on record for the hedge fund industry. It also comes as Fortress shares languish at their all-time lows, having lost more than two-thirds of their value since they began trading in February 2007.

China Times:
- Taiwan’s consumption of energy for transportation purposes fell by a record 3.7% in the first half of the year, citing Bureau of Energy Deputy Director General Wang Yunn-ming. Individuals and government agencies have taken steps to save energy because of surging oil costs.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TWTC), target $20.

Night Trading
Asian Indices are -.50% to +25% on average.
S&P 500 futures -.10%.
NASDAQ 100 futures -.04%.

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- (EBIX) 3-for-1
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Economic Releases
8:30 am EST
- The Trade Deficit for June is estimated to widen to -$62.0 billion versus -$59.8 billion in May.

2:00 pm EST
- The Monthly Budget Deficit for July is estimated to widen to -$90.0 billion versus -$36.4 billion in June.

Other Potential Market Movers
- The (FEIC) investor meeting, (SIG) investor day, weekly retail sales reports, IDB/TIPP Economic Optimism Index, UBS Engineering & Construction Conference, EnerCom Oil & Gas Conference, CSFB Tech Communications Conference, CanaccordAdams Growth Conference and Keefe Bruyette Woods Bank Conference could also impact trading today.

BOTTOM LINE: Asian indices are slightly lower, weighed down by commodity 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.

Stocks Finish Higher, Boosted by Airline, Gaming, Retail, Bank and Semi Shares

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In Play

Stocks Higher into Final Hour on Falling Commodities, Diminishing Credit Angst, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Retail longs, Gaming longs and Emerging Market/Commodity shorts. I have not traded 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 about average. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling 3.0% and is still above-average at 20.04. The ISE Sentiment Index is slightly below average at 137.0 and the total put/call is around average at .86. Finally, the NYSE Arms has been running around average most of the day and is currently .91. The Euro Financial Sector Credit Default Swap Index is -4.62% 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 falling 2.66% today to 129.59 basis points. The TED spread is falling 10.09% to 1.00. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 2 basis points to 2.16%, which is the lowest since October 8, 2003 and down 47 basis points in less than six weeks. Gold is breaking convincingly lower through its 200-day moving average and is down $206/oz. from its $1,033.90 high on March 17. The ECB appears to be in no hurry to cut rates and this is now being interpreted as a US dollar positive as they fall further behind the curve. For years, small-caps outperformed, despite dollar strength, while pundits called for their demise with the US economy’s dimming prospects. Historically, small-caps outperform during periods of dollar strength and they are now substantially outperforming again. The Russell 2000 is only 1.4% lower for the year versus a 10.3% decline for the S&P 500. I am finding many small/mid-cap growth stocks breaking out on volume over the last couple of weeks. The Shanghai Composite, the world’s worst-performing major stock index, fell another -5.2% last night and is now down -59.7% in less than a year. As well, Brazil’s Bovespa fell another 3.4% and is now down 26% in less than three months. Both are very oversold, but will likely move lower over the intermediate-term. A number of US stocks saw meaningfully insider buying again last week. SBGI, TEL, CBG, COV, COH, FCX, HBI, HOLX, HERO, MSM, INDM, PCX, MI, EQY, NEU, ID and INCY all saw a spike in corporate insider buying last week. Nikkei futures indicate a -10 open in Japan and DAX futures indicate an +21 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as diminishing credit market angst, less financial sector pessimism and falling commodity prices offsets global growth concerns and profit-taking.

Today's Headlines

Bloomberg:
- On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street's devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse. In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-biggest U.S. securities firm out of business and, in the process, reap a profit of more than $270 million.
- Commodities slumped as signs of slowing global growth sent crude oil, gold and silver tumbling and an index of 24 raw materials into a bear market. The gauge dropped below its 200-day moving average of 697.14. The speculative fervor may be over as traders ``rotate'' into non-commodity assets, Hellwig of Morgan Asset Management said.
- Slept Through Rice Age, Awoke to Commodity Bear. It seems like only yesterday that analysts were stroking their chins and telling us in all-knowing tones that the global supply of commodities could not keep up with the global demand. Prices of corn, wheat and rice -- yes, rice! that cheap, out-of-the-box starchy meal extender -- went berserk this year. The neo-Malthusians came out of the closet, joined by their close cousins, the peak oil enthusiasts. ``I half expected to see corn shooting up from the terraces of Manhattan,'' says Michael Aronstein, president of Marketfield Asset Management in New York. ``We have to invent a rationale,'' says Aronstein, who thinks the seven-year bull market in commodities is over, not taking a breather. He thinks the real price of oil should be the equivalent of the real price of plow horses. ``The crux of the matter is, can we replace a 100-year-old technology -- the internal combustion engine -- that has way outlived its place in the world?'' Aronstein says. ``There are hordes of people with 140-plus IQs working on this. It's absurd to bet against it.'' Last month, Senators Joe Lieberman, Susan Collins and Maria Cantwell introduced the Commodity Speculation Reform Act of 2008, which, among other things, closes the loophole allowing some commodity investors to evade the position limits set by the Commodities Futures Trading Commission.
- The US dollar increased to a 5 1/2- month high against the euro on speculation a drop in commodity prices will boost U.S. consumer spending.
- Corn and soybean crops in the U.S., the world's largest producer, probably avoided the flood damage investors anticipated in June as warm weather dried out fields, analysts estimate a government report will show.
- Crude oil fell more than $2 a barrel to a 14-week low. ``It's become clear that demand is cratering, which is making it hard to rally,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. Regular gasoline, averaged nationwide, fell 0.8 cents to $3.81 a gallon, AAA, the nation's largest motorist organization, said on its Web site. Pump prices reached a record $4.114 a gallon on July 17.
- Copper fell to a six-month low in New York as slowing economic growth and rising stockpiles spurred concern that manufacturing demand is waning. Industrial production in France unexpectedly fell in June, a report showed today. Inventories monitored by the London Metal Exchange are at the highest level since February.
- Russia sent ground forces into Georgia proper for the first time since fighting began five days ago, seizing a military base and forcing the Georgian army to retreat toward the capital.
- Wal-Mart Stores Inc.,(WMT) the world's largest retailer, may exceed analysts' second-quarter estimates and increase its profit forecast because of less discounting on home and apparel products, Goldman Sachs Group Inc. said.
- Amazon.com Inc.(AMZN) rose to a seven- month high in Nasdaq trading after Citigroup Inc. doubled its estimate for the number of Kindle electronic reading devices the world's largest Internet retailer might sell this year.
- Ciena Corp.(CIEN), the maker of network equipment for AT&T Inc., rose the most in five months in Nasdaq trading after Morgan Keegan & Co. recommended buying the stock because it is cheaper than the industry average.

Wall Street Journal:
- Apple Inc.'s(AAPL) on cellphone software appears to be paying off. In the month since Apple opened an online software clearinghouse called the App Store, users have downloaded more than 60 million programs for the iPhone, Chief Executive Steve Jobs said in an interview at Apple's headquarters. While most of those applications were free, Apple sold an average of $1 million a day in applications for a total of about $30 million in sales over the month, Mr. Jobs said. If sales stay at the current pace, Apple stands to reap at least $360 million a year in new revenue from the App Store, Mr. Jobs said. "This thing's going to crest a half a billion, soon," he added. "Who knows, maybe it will be a $1 billion marketplace at some point in time." "I've never seen anything like this in my career for software," he said.
- Best Buy Co.(BBY) plans to open about a dozen automated vending points at airports across the country. The kiosks will dispense mobile phone and computer accessories as well as digital cameras, adapters, chargers and headphones.
- Ostensibly, the Russia/Georgia war is about an unresolved separatist conflict. Yet in reality, it is a war about the independence and the future of Georgia. And above all, it is a war over the kind of Europe our children will live in. Let us be frank: This conflict is about the future of freedom in Europe. No country of the former Soviet Union has made more progress toward consolidating democracy, eradicating corruption and building an independent foreign policy than Georgia. This is precisely what Russia seeks to crush.
- 7 Prizes to Improve Life.
- Waste Management Inc., North America’s largest trash hauler, may raise its bid to acquire rival Republic Services Inc. to $6.73 billion.

NY Times:
- Wal-Mart(WMT), Kohl’s(KSS), Safeway(SWY), Whole Foods(WFMI) Turn to Solar Energy.

LA Times:
- Scientists say they are a step closer to developing materials that could render people and objects invisible. Researchers have demonstrated for the first time they were able to cloak three-dimensional objects using artificially engineered materials that redirect light around the objects. Previously, they only have been able to cloak very thin two-dimensional objects.

Investment News:
- The hedge fund industry faces growing opposition to its efforts to hold back restrictions on naked short selling. What's more, South Dakota voters will decide in November whether to approve an initiative that the state's securities director says would ban all short selling. The group sponsoring that action promises to get similar initiatives on ballots in 18 other states if the SEC doesn't put more restrictions on short sales. Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke and Robert Greifeld, chief executive of The Nasdaq Stock Market Inc. of New York, as well as the Financial Services Roundtable and the U.S. Chamber of Commerce, both of Washington, have all indicated support for the SEC's efforts to impose more restrictions on short-selling.

New York Post:
- Corporate raider turned activist investor Carl Icahn is having a tough year. Shares of Icahn Enterprises, which include the hedge funds and other businesses, have plummeted nearly 50 percent this year as investors have backed away from their initial enthusiasm for the activist investor. His funds were up about 2 percent last month, but are down roughly 6 percent for the year, according to investors.

Market News:
- European Central Bank council member Klaus Liebsher said the bank remains focused on the “worrying” level of inflation.

USA Today:
- Small cars are on track to hit a sales level this year not seen since the 1980s — if automakers can build enough. Both Ford Motor (F) and General Motors (GM) officials say they think small-car sales could hit 3 million, an increase of more than 10% from last year. Ford sales analyst George Pipas says that by his calculation, the closest previous total was 2.9 million in 1986. The sales trend is significant because it shows how seriously many motorists are taking the rise in gasoline prices.
- The Transportation Security Administration is planning a massive expansion of aviation security that for the first time will regulate thousands of private planes now flying with no security rules. The new regulations, expected to be proposed in coming months, stop short of passenger screening, but would aim to prevent someone from flying a small plane, possibly packed with explosives, into a building. Authorities also worry about terrorists transporting hazardous materials or themselves on private aircraft.

Reuters:
- India’s gold imports in July fell nearly 56% from a year ago as higher prices led to a drop in retail sales, a top industry official said. The country, the biggest consumer of the yellow metal, imported about 30 tons of gold, Harmesh Arora, vp of the Bombay Bullion Assoc., said. India imported 68 tons in July last year. India’s gold imports touched 79 tons in August 2007, the highest of the year.

Financial Times:
- Rick Wagoner, chairman and chief executive of General Motors(GM) , said the worst may be over for the beleaguered carmaker, in terms of US job cuts, retiree healthcare costs and pension problems.

Naftemporiki:
- Greece’s economic expansion slowed to an annual 3.4% in the second quarter from 3.6% in the first quarter. That would be the slowest rate of growth since 2000. Consumer spending waned and investment fell 3.5% as demand for new homes declined and public investment was restrained.

Folha de S. Paulo:
- Brazilian freight costs have risen as much as 1250% this year to a record because of oil prices. Automobile shipping costs have risen as much as 57%, while transport of iron ore has increased up to 150%. For every $10 rise in the price of oil per barrel, the cost of freight by cargo ship increased $500 per day, citing the Ministry of Development, Industry and Trade.

Buenos Aires Economico:
- Argentina’s economy expanded 6% in June, the slowest pace in about five years, citing the Economy Ministry.

Xinhua News Agency:
- China’s Premier Wen Jiabao expressed hopes for a stable US currency in his meeting with US President George W. Bush on Aug. 10. Wen told Bush, who is in Beijing for the Olympic games that he hopes the US economy will expand and the dollar will become stable. Wen also said the two countries should step up efforts to prevent protectionism and promote communication on macroeconomic policy and international trade.

Economic Times:
- China imported 7% less crude oil in July versus a year earlier, customs data showed on Monday. Last month's imports at 13.79 million tons, or 3.25 million barrels per day (bpd), dropped from 3.545 million bpd in June.

Iraqi TV:
- King Abdullah of Jordan arrived in Iraq, becoming the first Arab leader to do so since the US-led liberation in 2003. The Jordanian monarch met with Iraqi Prime Minister Nuri al-Maliki after his arrival today. The US has been encouraging Iraq’s neighbors to set up diplomatic missions and engage with al-Maliki’s administration.

Bear Radar

Style Underperformer:

Large-cap Growth +.48%

Sector Underperformers:

Coal irlind (-7.91%), Gold (-5.95%) and Steel (-3.98%)

Stocks Falling on Unusual Volume:

SRDX, MOS, KWK, FCX, GGB, KNOL, EZPW, ZOLT, CEDC, RC, GTU, SLV and BCH

Stocks With Unusual Put Option Activity:

1) EL 2) JOSB 3) ZOLT 4) SYY 5) CCJ