Consumer Prices, Jobless Claims Decelerate Slightly

- The Consumer Price Index for July rose .8% versus estimates of a .4% gain and a 1.1% increase in June.

- The CPI Ex Food & Energy for July rose .3% versus estimates of a .3% gain and a .3% increase in June.

- Initial Jobless Claims for this week fell to 450K versus estimates of 435K and 460K the prior week.

- Continuing Claims rose to 3417K versus estimates of 3310K and 3303K prior.

BOTTOM LINE: US consumer prices rose more than expected in July, Bloomberg reported. Energy expenses jumped 4% versus a 6.6% gain in Jun. Gasoline prices rose 4.1% during the month. Food prices gained .9% versus a .8% increase in June. Commodity costs have fallen substantially since early July, indicating the rise in total consumer prices will slow. Crude oil futures fell as low as $112/bbl. this week after hitting $147 last month. Regular grade gasoline, which hit a record $4.11 on July 17^th, has declined about 8%, according to AAA. The S&P Goldman Agricultural Commodity Index is down 14.1% since June 26^th. Rents, which make up almost 40% of the core CPI, rose .1% versus a .3% increase in June. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 3 basis points to 2.18% on today’s news. This is still down 45 basis points since July 7^th and at the lowest level since October 2003. The growth rate of the ECRI future inflation gauge is currently -8.4%. I expect the headline CPI to begin to show meaningful deceleration next month and I still believe inflation fears have peaked for the intermediate-term.

Fewer Americans filed initial jobless claims this week, Bloomberg reported. Claims in the last few weeks have been pushed higher by a government bill that extended benefits. The impact of this legislation has not been quantified by the government, a Labor spokesman said. The four-week moving average of first-time claims rose to 440,500. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.6% from 2.5% the prior week. This is still below the long-term average of 2.9% and well below the all-time high of 7.0% reached in May 1975. 18 states and territories showed a decrease in jobless claims. I expect jobless claims to begin trending lower again by no later than next month. The US Dollar Index is rising another .22% on today's news.

Bull Radar

Style Outperformer:

Small-cap Value (+.91%)

Sector Outperformers:

Homebuilders (+3.16%), Banks (+2.07%) and Road & Rail (+2.03%)

Stocks Rising on Unusual Volume:

BTM, PPC, SJM, ELOS, CPL, MWE, CTRP, RDEN, AMED, NCTY, AVNXD, NTES, EGLE, GMKT, CMED, GXDX, ZOLT, BECN, ISYS, SOLF, NATL, ATPG, VOCS, NVDA, TBSI, SCL, EL, ANW and WPI

Stocks With Unusual Call Option Activity:

1) NVLS 2) IDCC 3) FRX 4) CTRP 5) WPI

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Greg Salvaggio, vp of capital markets at Tempus Consulting, sees the US dollar rising to $1.35 versus the euro. (video)
- China's industrial-output growth cooled in July to the slowest pace since February 2007 as the country capped factory production ahead of the Olympic Games to clear the air. Production rose 14.7 percent in July from a year earlier, the statistics bureau said today, after gaining 16 percent in June. ``China's manufacturing sector is facing tough challenges due to the global slowdown, rising production costs, tight credit conditions, power shortages and currency appreciation.'' Producer prices jumped 10 percent in July from a year earlier, the fastest pace since 1996. Wages in Chinese urban areas rose 18 percent in the first half to 12,964 yuan.
- The world’s coal, grain and ore shippers, after the longest losing streak since 2005, may face another two years of declines as the fleet expands and slower global growth curbs demand for raw materials. The Baltic Dry Index fell for 23 consecutive days through August 12. The index will average 40% less next year and sink another 47% in 2009, according to Goldman Sachs Group(GS). “What we have is a classic cyclical downturn,” said Andreas Vergottis, research director at Tufton Oceanic Ltd., the world’s largest shipping hedge fund manager. “People are not buying cars and people are not buying houses, and when that stops, it travels backwards all the way back to the mine.” Slowing growth comes as shipyards have almost as many capsize vessels on order as already exist in the fleet, Goldman said. “There’s been a genuine downturn in demand from key areas, in particular China,” said Steve Rodley, a shipping hedge fund manager at M2M Management Ltd. in London.
- The U.S. presidential race is a tossup as Democratic presidential candidate Barack Obama has lost what was once an eight-point lead over Republican rival John McCain, according to a new poll. The Washington-based Pew Research Center for the People and the Press said today that Obama now leads McCain 46 percent to 43 percent among registered voters, down from June when the Illinois senator enjoyed a 48 to 40 advantage. Obama has made ``no significant headway'' among Hillary Clinton's former supporters, with 72 percent of them saying they now back Obama. That's unchanged from last month and 3 percentage points higher than in June, Pew said.
- Lehman Brothers Holdings Inc.(LEH) seeking to restore investor confidence after a $2.8 billion second-quarter loss, is negotiating to sell commercial real estate assets to a group including BlackRock Inc.(BLK), said three people briefed on the discussions. Lehman is seeking to sell about $14 billion of its $40 billion in commercial property and related securities by the end of the year, according to two potential buyers approached by the New York- based firm.
- Europe's economy probably contracted in the second quarter for the first time since the launch of the euro almost a decade ago, a survey of economists shows.
- Australia's central bank is in a position to cut interest rates from a 12-year high because consumers have trimmed spending enough to cool the economy and inflation, said Deputy Governor Ric Battellino. ``We cannot wait to see a fall in inflation before we start cutting rates because by then it would be too late,'' Battellino told a parliamentary committee in Sydney today.

Wall Street Journal:
- Tiger Woods to Become First Billionaire Athlete.
- Bush Orders Humanitarian Aid For Georgia, Sends Rice to Tbilisi.
- Intel Corp.(INTC) has developed technology to remotely power up personal computers, letting users retrieve files over an Internet connection.
- Mitsubishi UFJ Financial Group Inc. may buy a bank in the US or other countries outside Japan, aside from its $3 billion offer to gain full control of its California unit. The bank could spend “several billion dollars” to acquire a regional or commercial lender in the US, citing analyst. Salt Lake-based Zion Bancorp.(ZION) and Dallas-based Comerica Inc.(CMA) are targets that would enable the bank to benefit from growth in other US states, citing JPMorgan.

MarketWatch.com:
- As boomers age, progress on Alzheimer’s front. Pipeline has new drugs that show promise in halting disease’s progression.
- Ford Motor Co.(F), struggling as sales of gas-chugging trucks and SUVs suffer, plans to use its new Focus model to speed its transition into the small-car market, the company said Wednesday.

CNBC.com:
- The rest of the world's economic pain could mean American gain as investors once again place their trust in the US stock market. In a year when investors have increasingly shied away from companies that do most of their business domestically, a downturn in European and Asian economies coupled with a turnaround in the dollar looks to reverse that trend. A Merrill Lynch survey on Wednesday showed fund managers concerned about economic slowdowns around the world and favoring US assets for investment.

NY Times:
- The rapid growth in advertising and traffic to Web sites aimed primarily at women has attracted the attention of major media companies and venture capitalists.

CNNMoney.com:
- The American Petroleum Institute says oil and gas demand sank in the first half of 2008, marketing the first significant decline in 17 years.

AP:
- Whites will no longer make up the majority of people in the US by 2042, eight years earlier than previous estimates, citing Census Bureau figures released today. Forty-six percent of the population will be white by 2050, with the Hispanic representation doubling to 30%. Increased immigration and higher birth rates among Hispanics has sped up population diversity, AP said.

unicef:
- Russia, Georgia Conflict Displaces 100,000 People.

dailybreeze:
- Stay bullish on biofuels. Cellulosic ethanol is poised to play a greater role in the economy of Los Angeles County. The county Planning Commission last month approved a proposal to build the county's first ethanol plant near a landfill in Lancaster. The $30 million plant, which has been designed by Irvine-based BlueFire Ethanol, would be the first commercial facility in the nation to process ethanol from biowaste such as woodchips, grass cuttings and other organic materials. The plant would produce clean-burning ethanol that could be added to gasoline or used as an alternative fuel. Another benefit of this technology is that it doesn't require a lot of water to operate. The plant will use water recycled from the continuous use of biowaste.

BusinessWeek.com:
- Best Buy(BBY) Deal Expands iPhone’s Retail Footprint. For U.S. market in particular, this would expand the iPhone’s retail presence substantially to nearly 3,200 locations in the U.S. Apple has 188 of its own retail stores in the US, while AT&T operates some 2,000 stores. Assuming it can keep up with demand, Apple is on track to sell nearly 4.5 million iPhone in the current quarter, says Piper Jaffray analyst Gene Munster in a research note published today. Munster carried out a survey counting sales of phones at Apple stores around the U.S. “We estimate that Apple sells an average of 95 iPhone 3Gs per day at each of its 188 retail stores, up from 21 phones per day a year ago,” Munster wrote.

Reuters:
- Spending on online ads overtook advertising on mainstream TV in Britain last year, growing 40 percent to 2.8 billion pounds ($5.3 billion) and accounting for 19 percent of all advertising, UK regulator Ofcom said. In its annual report on Britain's 51 billion-pound communications industry, the watchdog found that Britons spent four times as much time on computers, or 24 minutes a day, and twice as much time on mobile phones in 2007 as in 2002.

Financial Times:
- The battle between Toyota (TM) and Honda (HMC) for supremacy in the hybrid petrol-electric car market is set to heat up with both Japanese carmakers set to introduce distinctive new models early next year. Honda disclosed details on Wednesday of a hybrid hatchback that will be smaller and cheaper than its existing Civic hybrid sedan.Toyota is due to unveil a larger version of its popular Prius.
- A consortium of the biggest US cinema chains is closing in on a $1bn deal that will pave the way for a new generation of money-spinning 3-D movies, after securing provisional backing from three key Hollywood studios. Walt Disney and Paramount Pictures are on the verge of signing a contract with Digital Cinema Implementation Partners, a consortium made up of the AMC, Regal and Cinemark chains, according to people familiar with the situation.

CBCnews:
- HSBC Holdings PLC, the world's largest bank, is considering ditching the BlackBerry in favor of the iPhone, according to an Australian report, a move that would be a huge blow to Waterloo, Ont.-based Research In Motion Ltd.(RIMM) Brenton Hush, chief information officer for HSBC in Australia and New Zealand, on Tuesday said the bank was looking at rolling out Apple Inc.'s(AAPL) iPhone across its worldwide workforce of 300,000. Apple made the 3G iPhone compatible with Microsoft Exchange servers, thus making the device a serious contender to the BlackBerry for business users. RIM co-chief executive officer Jim Balsillie has repeatedly said the iPhone is good for his company's business as the device raises the profile of all "smartphones."

Nikkei:
- The Bank of Japan may lower its economic assessment when it holds a policy board meeting next week. The central bank, which said last month that economic growth was “slowing further,” will probably lower its views on exports, production and consumer spending.

Straits Times:
- Singapore promised help for its poor as the economy slows, citing Minister Mentor Lee Kuan Yew. Some workers in Singapore may be fired as demand for exports to Europe and America slows, citing Lee.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BRCD), target $9.
- Reiterated Buy on (DE), boosted estimates, lowered target to $91.
- Downgraded (SGR) to Sell, target $50.
- Replaced (AOC) with (AIZ) in Top Picks Live list.

Night Trading
Asian Indices are -.25% to +1.25% on average.
S&P 500 futures +.19%.
NASDAQ 100 futures +.22%.

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Company/EPS Estimate
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- (A)/.53
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- (JWN)/.64
- (DV)/.38
- (IRF)/-.19

Upcoming Splits
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Economic Releases
8:30 am EST
- The Consumer Price Index for July is estimated to rise .4% versus a 1.1% gain in June.
- The CPI Ex Food & Energy for July is estimated to rise .2% versus a .3% gain in June.
- Initial Jobless Claims for this week are estimated to fall to 435K versus 455K the prior week.
- Continuing Claims are estimated to fall to 3310K versus 3311K prior.

Other Potential Market Movers
- The Fed’s Stern speaking, weekly EIA natural gas inventory report, JPMorgan Auto Conference, EnerCom Oil & Gas Conference and the CanaccordAdams Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are slightly higher, boosted by commodity and technology 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 Lower, Weighed Down by Bank, Airline and Gaming Shares

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Stocks Mostly Lower into Final Hour on Jump in Commodities, Global Growth Worries, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Computer longs, Medical longs and Software longs offset losses in my Commodity shorts, Retail longs and Gaming longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling .57% and is still above-average at 21.04. The ISE Sentiment Index is very low at 93.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running above average most of the day and is currently .96. The Euro Financial Sector Credit Default Swap Index is rising 3.18% today to 81.17 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 4.3% today to 135.50 basis points. The TED spread is rising 1.09% to .96. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 2.15%, which is the lowest since October 8, 2003 and down 48 basis points in less than six weeks. Given the 2.1% decline in the (XLF) and rise in commodities, the Nasdaq is trading very well again. I think the Naz will lead another broad market surge higher over the coming weeks as financials stabilize. Small-cap shares, specifically small-cap growth, are especially strong again today. The Russell 2000 is only 1.4% lower for the year and has rallied 17.0% since its low on March 10^th. I suspect small-caps will continue to outperform over the intermediate-term. Today’s rise in oil looks like short-covering to me. Gasoline supplies are falling because refiners are operating at record low levels for this time of the year due to poor demand for gas. The US dollar continues to trade very well and is likely just consolidating recent gains before another surge higher. Nikkei futures indicate a -8 open in Japan and DAX futures indicate an +65 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.