Stocks Sharply Lower into Final Hour on More Shorting, Profit-Taking, Rising Economic Fear, Increasing Financial Sector Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs and Financial longs. I added to my (IWM/QQQQ) hedges, added to my (EEM) short and took profits in my (MS) long this morning, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is below average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 6.56% and is high at 27.94. The ISE Sentiment Index is high at 162.0 and the total put/call is above average at 1.04. Finally, the NYSE Arms has been running high most of the day, hitting 2.48 at its intraday peak, and is currently 2.40. The Euro Financial Sector Credit Default Swap Index is rising .80% today to 105.60 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is jumping 5.76% to 137.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .27% to 43 basis points. The TED spread is now down 421 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.20% to 41.38 basis points. The Libor-OIS spread is rising 1.38% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.66%, which is down 98 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is down 2 basis points today. REIT, Healthcare and Commodity shares have been under significant pressure throughout the day. The (XLF) has weakened slowly throughout the day and is now trading at session lows. The AAII % Bulls rose to 37.84% this week, while the % Bears fell to 44.59%, which is a mild negative. A number of sectors are being turned back right near their 200-day moving averages. It is also a negative that the ISE Sentiment Index has been high throughout the day. On the positive side, a number of tech leaders are relatively firm and the SOX Index is just slightly lower. As well, the NYSE Arms has been running very high on low volume, which is a positive. Nikkei futures indicate a -136 open in Japan and DAX futures indicate an +5 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, increasing economic worries and rising financial sector pessimism.

Today's Headlines

Bloomberg:

- U.S. Senator Mark Warner expressed concern that President Barack Obama’s proposed Consumer Financial Protection Agency, centerpiece of a rules overhaul, is “divorced” from markets and would be a “gotcha” enforcer. “Is this going to be some kind of poor cousin, located across town, that will always be struggling to have the resources, personnel and expertise?” Warner, a Democrat on the Senate Banking Committee, said yesterday in an interview with Bloomberg News. Another concern is that the agency, “divorced from the reality of the market and the reality of the financial institution, becomes so focused on a gotcha mentality that it overdoes,” Warner said.

- Senator Edward Kennedy’s health committee released a new health-care overhaul plan that would cover almost all Americans, in part by assessing fees on companies that don’t offer insurance, and cost almost $400 billion less than an earlier proposal. The plan, which includes a government-run insurance program as an alternative to private coverage, drew praise from President Barack Obama. Kennedy, a Massachusetts Democrat, and Senator Chris Dodd, a Connecticut Democrat, said in a letter to committee members the plan would cost $611.4 billion over 10 years, according to an analysis by the non-partisan Congressional Budget Office.

- Foreign direct investment in China faces “unprecedented difficulties” after falling for eight months, the longest stretch of declines this decade, Vice Commerce Minister Chen Jian said. The government will announce policies to stabilize investment “soon,” Chen pledged at a briefing in Beijing today. Multinationals have reduced spending as they grapple with the global crisis, adding to drags on growth in the world’s third-biggest economy after exports collapsed. Direct investment in China slid 17.8 percent to $6.38 billion in May from a year earlier. Foreign-invested businesses account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to the commerce ministry.

- Grosvenor Group Ltd., the real-estate company of Britain’s third-wealthiest man, said commercial- property prices in Spain need to fall by as much as 40 percent before it will consider investing there again.

- Ireland had its top credit rating lowered one step by Moody’s Investors Service, which cited the country’s rising debt burden and a “sudden and brutal economic and financial adjustment.”

- The Treasury will hold four auctions next week for the first time to sell $73 billion of notes, bonds and inflation-protected securities as the U.S. accelerates debt sales to finance a record budget deficit. The auctions represent the first time the government will sell three so-called coupon issues and a TIPS maturity in a single week since the Treasury started issuing securities regularly in 1976.

- Boeing Co.(BA), which indefinitely delayed its new 787 Dreamliner last week to reinforce the wing section, said it lost orders for 73 of the jets this year after Qantas Airways Ltd. dropped 15 planned purchases last week.

- North Korea fired four short-range missiles off its eastern coast today in defiance of United Nations sanctions imposed after a nuclear test, South Korea’s military and a U.S. official said. The communist state launched the devices from South Hamgyong province at 5:20 p.m., 6 p.m., 7:50 p.m. and 9:20 p.m. local time, said an official at South Korea’s Joint Chiefs of Staff who declined to be identified for security reasons.

- Security officials raised the terror threat in Germany amid concerns terrorists may seek to influence the outcome of Sept. 27 national elections, Deputy Interior Minister August Hanning said. Islamist terrorists may target Germany because of its contribution to NATO operations against Taliban insurgents in Afghanistan, Hanning told reporters in Berlin today.

- Och-Ziff Capital Management Group LLC lost about 3.7 percent of the money it manages in June because of investor withdrawals from its hedge funds. Assets under management declined $800 million in the month to $20.7 billion, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Investors had withdrawn a record $5.1 billion in the first quarter, when rival hedge funds restricted redemptions.

- PVM Oil Futures Ltd., a unit of the world’s biggest broker of over-the-counter oil derivatives, said a rogue trader lost almost $10 million. The trades may have caused London oil prices to jump almost $2 a barrel to an eight-month high in the early hours of June 30, according to exchange data. “Commodities trading, together with futures and options, is under quite a lot of scrutiny,” Jones said. “We would expect the regulated exchanges, including ICE, to have adequate systems and controls” against possible rogue trading.

- Mortgage rates in the U.S. fell this week, easing concern that a Federal Reserve plan to lower the cost of home loans had lost momentum. The average 30-year rate dropped to 5.32 percent from 5.42 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate was 4.77 percent. “We’re back to where we were a month ago,” said Donald Rissmiller, chief economist at New York-based Strategas Research Partners.

- The cost of delivering Middle East crude to Asia, the world’s busiest route for supertankers, fell for a sixth session in London amid a lack of demand for vessels. “Owners are struggling to maintain rates,” Nikos Varvaropoulos, an official at Optima Shipbrokers Ltd. in Athens, said today. “Unless we see some cargoes, I do not think that rates can be maintained.”

- A benchmark gauge of corporate credit risk in the U.S. rose for the first time in four days after a government report showed employers cut more jobs last month than economists were estimating. Credit-default swaps on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, increased 7.5 basis points to a mid-price of 138 basis points as of 11:25 a.m. in New York, according to Barclays Capital.

- Crude oil fell and gasoline slipped to a five-week low on a report showing the U.S. unemployment rate rose last month, a signal that fuel demand in the world’s largest energy-consuming country will be slow to rebound. Oil dropped more than $2 a barrel after the Labor Department said that employers cut 467,000 jobs in June. The jobless rate jumped to 9.5 percent, the highest since 1983, from 9.4 percent. U.S. fuel supplies increased last week by more than analysts forecast. Kuwaiti Oil Minister Sheikh Ahmed al-Sabah said oil prices above $100 would fuel another recession, and he hopes prices won’t increase to that level this year. The group increased output for a third month in June, a Bloomberg News survey showed. Members pumped an average 28.23 million barrels a day last month, up 55,000 from May. U.S. gasoline stockpiles increased 2.33 million barrels to 211.2 million in the week ended June 26, the Energy Department said in a report yesterday. Inventories of distillate fuel, a category that includes diesel and heating oil, climbed 2.9 million barrels to 155 million, the highest since 1987. Total U.S. daily fuel demand in the four weeks ended June 26 was down 5.8 percent from a year earlier, the Energy Department said. Distillate-fuel demand over the period fell 9.4 percent to 3.4 million barrels a day.

- The euro fell against the dollar after the European Central Bank kept its benchmark interest rate at a record low. ECB President Jean-Claude Trichet will discuss the decision at a press conference at 2.30 p.m. in Luxembourg. The dollar was also buoyed after a Chinese Foreign Ministry official said he was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting. Unemployment in the 16-member euro region rose to the highest in a decade in May, the European Union statistics office in Luxembourg said today. Spanish unemployment rose to 18.7 percent, the highest in the EU, the report showed.

- Soybeans fell for the fifth time in six sessions on speculation that demand from oilseed processors is dropping. Corn futures also declined, heading for the biggest weekly drop in seven months. “During the first half of the week, corn was hammered by the acreage report and the last half by the reversal in crude prices,” Holaday said. “Oil’s made major reversals, and that’s going to weigh on corn.

- U.S. consumers made 675,351 bankruptcy filings in the first half, a 36.5 percent increase from a year ago, according to the American Bankruptcy Institute. June filings by consumers totaled 116,365, up 40.6 percent from the same period in 2008, the ABI said in a release. The monthly rate of consumer filings slowed, however, declining by 6.8 percent from May 2009.

- The Federal Deposit Insurance Corp. recommended private-equity firms that buy failed banks hold the lenders for three years, double the length imposed in the latest transaction, aiming to prevent from “flipping” the investment for a short-term profit. The new rule was among a half-dozen guidelines announced by the FDIC in Washington today to address congressional concern over the role played by buyout firms such as Blackstone Group LP and Carlyle Group in the banking industry. The changes would include requiring buyers to be well-capitalized for three years and to maintain a Tier 1 capital ratio of at least 15 percent.

- Barclays Capital recommended clients sell gasoline futures after prices broke below a “bearish continuation flag” pattern. Gasoline “looks particularly vulnerable” and “could well overshoot conventional downside targets in the weeks ahead,” Barclays analysts including NY-based MacNeil Curry said today.

Wall Street Journal:

- The board of the Federal Reserve Bank of New York is packed with powerful executives. But the selection process leading up to January's promotion of William Dudley to president underscored the lack of clout among the Fed's regional directors as the central bank navigated the crisis. Mr. Dudley, a 56-year-old former Goldman Sachs Group Inc. economist who ran the New York Fed's markets division, got the top job after a two-month search, succeeding new Treasury Secretary Timothy Geithner. Behind the scenes, the hiring process triggered concerns with some New York Fed directors, including General Electric Co. Chief Executive Jeff Immelt and PepsiCo Inc. CEO Indra Nooyi, according to people familiar with the situation. One reason: Mr. Geithner took an active role in recommending his successor, lobbying hard for Mr. Dudley and against other candidates, attendees said. It isn't unusual for outgoing Fed presidents to provide such input. But Mr. Dudley's case is different, some observers said, because Mr. Geithner was a political nominee at the time. Injecting a White House appointee's views into the process, they suggested, may have meddled. "The right thing for the Treasury secretary to do is to allow the central bank to be independent and not have a say in who gets chosen," said Allan Meltzer, a Fed historian.

- Venture-capital firms had their quietest six months since the turn of the millennium as they struggled to sell or list their European portfolio companies. There have been no initial public offerings of venture capital-backed European companies since the third quarter of last year, according to preliminary data from Dow Jones VentureSource.

- Many American supporters of Israel who voted for Barack Obama now suspect they may have been victims of a bait and switch. Jewish Americans voted overwhelmingly for Mr. Obama over John McCain in part because the Obama campaign went to great lengths to assure these voters that a President Obama would be supportive of Israel. This despite his friendships with rabidly anti-Israel characters like Rev. Jeremiah Wright and historian Rashid Khalidi.

- General Motors can survive bankruptcy far more easily than it can survive President Barack Obama's ambitious fuel economy standards, which mandate that all new vehicles average 35.5 miles per gallon by 2016. The actual Corporate Average Fuel Economy (CAFE) results will depend on the mixture of fuel-thrifty and fuel-thirsty vehicles consumers choose to buy from each manufacturer -- not on what producers hope to sell. That means only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

CNBC:

- California's controller will start paying many of the state's bills with IOUs as soon as Thursday after lawmakers failed to close the state's worsening budget deficit, adding a new measure of indignity to a state sinking deeper into dysfunction.

- The oil market is over-supplied, said Joe Petrowski, the CEO of Gulf Oil on Thursday. As oil stocks approach a 29-year high, the fundamental supply-side of the market has never been more bearish, he said. "It will be almost impossible for gasoline prices to go up," he said.

NY Times:

- Manhattan apartment prices fell sharply during the second quarter of 2009, as the limited number of deals struck during the darkest months of the economic downturn began to close, according to a series of market reports released Wednesday. The number of closings fell more than 50 percent, and prices in some categories were reported down as much as 25 percent, compared with the same quarter in 2008. Sale prices were also down from those reported in the first quarter of 2009. One report, by Brown Harris Stevens and Halstead Property, put the average price of a Manhattan apartment in the second quarter at $1.26 million, a decline of 24 percent from the same period in 2008, and 16 percent below the previous quarter. It put the median sale price at $795,000, 19 percent below the figure in the first quarter of 2008.

Business Insider:

- Ron Insana’s New Newsletter Has Some Shady Numbers.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 33% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-five percent (35%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -2. This is the third straight day the Approval Index has been below zero (see trends).

Politico:

- Washington Post publisher Katharine Weymouth said today she was cancelling plans for an exclusive "salon" at her home where for as much as $250,000, the Post offered lobbyists and association executives off-the-record access to "those powerful few" — Obama administration officials, members of Congress, and even the paper’s own reporters and editors. The astonishing offer was detailed in a flier circulated Wednesday to a health care lobbyist, who provided it to a reporter because the lobbyist said he felt it was a conflict for the paper to charge for access to, as the flier says, its “health care reporting and editorial staff."

eFinancialCareers:

- Hedge funds are suddenly doing ok: returns are up, redemptions are down and they’ve had the best start to the year in a decade. Unfortunately this does not mean that they will be paying large bonuses. Following closely on from last year’s disastrous performance, many hedge funds are still below the high water mark at which they can charge the 20% performance fees that become bonuses. Deprived of these, they’re having to make do with 2% management fees, which are themselves being compressed to 1.5%. None of this is good news for people hoping to get rich at established funds. “A lot of people are just deciding to give up and sit on beaches,” says John Godden at hedge fund consultancy IGS Group. Examples of such behavior apparently include Julian Barnett, who left hedge fund Polar Capital earlier this year for ‘family reasons.’ Instead of hanging on until the high water mark is reached and performance fees are available again, junior traders are leaving established funds and joining new set-ups without high watermark issues. “Some managers are calculating that it could take 1-2 years to recover and they’re therefore better off jumping ship and setting up at a new fund that can afford to pay them,” says Christopher Miller, chief executive of Allenbridge HedgeInfo.

Washington Times:

- U.S. missile defenses are prepared to try to knock down the last stage of a Taepodong-2 missile that North Korea is expected soon to launch if sensors detect the weapon threatens U.S. territory, the commander of the U.S. Northern Command told The Washington Times.

Financial Times:
- Mr Trichet was cautious about eurozone growth prospects, saying activity would “remain weak” for the rest of this year even if the rate of decline had slowed since the start of the year. But he warned of a “stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets”. Although the ECB sees current negative eurozone inflation rates as temporary, it expects price pressures to remain “dampened”. Concern has intensified about the threat to the eurozone’s economic recovery of a weakened banking system, with industrial lobby groups urging more forceful measures to help businesses – including the purchase of corporate debt.

ET Now:

- India’s inflation for the week ended June 20 was seen at -1.4%.

Emirates Business 24/7:
- UAE banks have exposure of more than $3 billion (Dh11bn) through syndicated and bilateral transactions to the two embattled Saudi groups – Saad and Algosaibi – and their banking outfits, according to people involved in these deals. The Saudi groups have raised finance through at least eight syndications in the past four years – three by Saad Group, two each by Awal Bank and Algosaibi Group and one by The International Banking Corporation (TIBC), they said. Other financial institutions with exposure through syndicated and bilateral financing deals include Arab and global lenders. "I think many banks may not have bothered to verify their aggregate exposure built up to these groups over the past few years," said a banking analyst.

- Dubai Investments Real Estate Company (DIRC), the real estate arm of Dubai Investments, is giving a 100-per cent refund to its investors on the Mirdiff Hills project, which it has put on hold due to unavailability of mortgage financing. The Mirdiff Hills project, located in Mirdif, is a Dh2 billion mixed-use development comprising 680 apartments, 380 offices and 129 retail outlets. The project was launched in July last year with completion scheduled for 2010. "We have put the Mirdiff Hills project on hold because of a lack of availability of mortgage financing on the project. Investors have got back to us saying they cannot pay up for their units," Khaled Kalban, Managing Director and CEO, Dubai Investments, told Emirates Business in an exclusive interview.

Haaretz.com:

- The U.S. administration has not been successful in securing commitments from Arab countries to take steps toward normalizing relations with Israel, a senior source in Jerusalem said Wednesday. The source said U.S. President Barack Obama's recent meeting with King Abdullah of Saudi Arabia did not produce a commitment to encourage the other Arab states to begin normalization. "In such a situation, the Americans can't continue demanding gestures only from Israel, such as the demand that Israel freeze settlement construction," the source said.

Bear Radar

Style Underperformer:
Small-cap Value (-3.18%)

Sector Underperformers:
REITs (-4.30%), Oil Service (-4.16%) and HMOs (-3.72%)

Stocks Falling on Unusual Volume:
MANH, MBT, HES, TSO, GSK, ILMN, EZCH, UBNK, SEPR, GXDX, AFAM, FUQI, PLCE, VSAT, BOOM, BCPC, BIIB, USTR, GKSR, FWRD, CSGP, HRBN, TOWN, CYBX, NJ, NRG, KYN, IEZ, AYI, ASI and RPV

Stocks With Unusual Put Option Activity:
1) USU 2) MOT 3) FTO 4) HOT 5) ETN

Bull Radar

Style Outperformer:
Large-cap Growth (-2.0%)

Sector Outperformers:
Semis (-.52%), Banks (-.80%) and Education (-.94%)

Stocks Rising on Unusual Volume:
POT, QSFT, ADTN, IPCR, ENER, OSK, MSM and VAR

Stocks With Unusual Call Option Activity:
1) SEPR 2) AU 3) MI 4) HOT 5) ELN

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
Chart Toppers
Real-Time Intraday Quote/Chart
HFR Global Hedge Fund Indices

Thursday Watch

Late-Night Headlines
Bloomberg:

- U.S. retail gasoline prices have peaked and won’t go higher during this year’s summer driving season, AAA said. The average price for regular gasoline won’t rise above the June 21 high of $2.693 a gallon, Geoff Sundstrom, a spokesman for AAA said today in an telephone interview. AAA, the nation’s biggest motoring organization, estimated after the Memorial Day holiday in May that summer prices would reach $2.75 a gallon. “When you see consumer confidence sliding again and no improvement on the job front, barring any major geopolitical or catastrophic event like a hurricane, it looks like prices have topped,” Sundstrom said. Sundstrom added that average prices this summer may fall as low as $2.50 a gallon.

- Iran’s state-run Fars news agency said a Newsweek magazine reporter who was detained last month has “confessed” that Western media helped stir unrest following the disputed June 12 presidential election. Newsweek said today it “strongly disputes” the allegations against Maziar Bahari and called for his immediate release. Iranian officials arrested Bahari, a Tehran-based journalist of Iranian-Canadian citizenship, about two weeks ago as the Iranian capital was rocked by daily protests over the officially declared victory of President Mahmoud Ahmadinejad.

- Officials made available $4 billion in the first release of funds under a $7.2 billion U.S. program to expand high-speed Internet service, Vice President Joe Biden said today. The program is part of the $787 billion stimulus package Congress passed in February.

- As General Motors Corp. prepares to sell its best assets to a streamlined new entity, the worst of what it owns will be auctioned off in bankruptcy court, including contaminated factory sites, parking lots in Flint, Michigan, and a nine-hole golf course in New Jersey.

- The European Central Bank will keep interest rates at a record low for more than a year and may yet need to expand its use of unconventional tools as it battles the worst recession since World War II, economists said.

- The U.S. doesn’t see any indication North Korea is poised to test-launch a long-range ballistic missile capable of landing near the Hawaiian Islands, according to four government officials. The officials, who are privy to information about North Korean launch preparations, said there are no signs of the work necessary to launch a long-range missile during the U.S. July 4 Independence Day celebration. The officials don’t rule out the firing of short- and medium-range missiles capable of reaching Japanese waters.

- Dow Chemical Co.(DOW), the largest U.S. chemical maker, is permanently closing three Louisiana factories that make ethylene and derivatives to meet cost-reduction targets following the acquisition of Rohm & Haas Co.

Wall Street Journal:

- President Barack Obama, after picking fights with rivals over health care during the election campaign, is signaling flexibility on many of his previous stances as he tries to put a health-care deal together. As a candidate, Mr. Obama criticized Democratic opponent Hillary Clinton for proposing that all Americans be required to get health insurance. Now he says he is open to the idea. He ran some 47,000 TV ads criticizing Republican candidate John McCain for wanting to tax employee health benefits and cut Medicare spending. Mr. Obama has now signaled openness to taxing such benefits, and has proposed his own Medicare cuts -- in both cases on a smaller scale. In addition, the White House isn't ruling out the possibility that families earning less than $250,000 a year might see higher taxes if they have generous health benefits that become subject to new taxes. During the campaign, Mr. Obama had vowed not to raise taxes on any families earning less than $250,000.

- Barclays PLC (BCS) plans to hire up to 200 high-end investment representatives over the next four years in a move to expand its new wealth management foothold in the Americas. Following the collapse of Lehman Brothers Holdings Inc. (LEHMQ) into bankruptcy, Barclays acquired Lehman's private investment management unit to gain a presence in the coveted U.S. market. Since then, the U.K. bank has recruited roughly 50 representatives - the firm's name for financial advisers. Nearly half of the new additions were top producers, who had an average annual production of roughly $2.9 million and managed more than $350 million in client assets.

- After several years of heavy losses, Bill Miller's diehard investors are breathing a tentative sigh of relief. The famous Legg Mason value investor, who stumbled so badly during the stock market turmoil of the past few years, is off to a much more promising 2009. Indeed, it's been the best first half for his mutual funds since 2003, when his 15-year streak of beating the Standard & Poor's 500 still had 2 1/2 more years to run. Mr. Miller's flagship Legg Mason Value Trust is up 15% through the halfway mark, about two percentage points ahead of the U.S. market overall. And his smaller, more flexible, and more volatile Legg Mason Opportunity Trust is up 33%.

- Business is back on Wall Street. If the good times continue to roll, lofty pay packages may be set for a comeback as well. Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc.(GS) is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal. the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits. Repaying last year's capital infusions from the government freed Goldman, Morgan Stanley and other big financial firms from curbs on compensation.

- Polo Ralph Lauren(RL) has reached a deal with the U.S. Olympic Committee to dress the American team at the Games in Vancouver this winter and in London in 2012, betting a blend of sports and patriotism will help propel its brand amid a falloff in consumer spending.

- The U.S. military launched a major operation in southern Afghanistan, an early test of the Obama administration's new strategy for beating back the resurgent Taliban and stabilizing the country in advance of this summer's presidential elections. Operation Khanjar, or "strike of the sword," began shortly after 1 a.m. local time when close to 4,000 Marines, backed by about 700 Afghan security personnel, moved by air and ground into villages in the Helmand River Valley, a major opium-producing region and Taliban stronghold. U.S. commanders said the forces would build an array of small patrol bases designed to forge closer ties with local people and better protect them from militants, borrowing an approach used in Iraq that is central to the administration's new counterinsurgency strategy for Afghanistan.

- The Obama administration announced a crackdown Wednesday on hundreds of companies suspected of employing illegal immigrants, signaling a shift in strategy: going after employers instead of workers. U.S. Immigration and Customs Enforcement, a unit of the Department of Homeland Security, said that it had begun an audit of 652 U.S. companies to verify whether their employees were eligible to work. Violations could lead to fines, as well as civil and criminal charges.

MarketWatch.com:
- Big pension and endowment funds that invest in commodities by modeling their exposure on popular indexes have increased their purchases of crude rapidly in recent months, an analysis of regulatory data shows. This stake has likely contributed to the doubling in oil prices this year, a swift advance that has brought the role of financial speculators back onto the radar of policy-makers -- some of whom say financial investments in commodities should be curbed. Passive investors increased their crude-oil holdings to the equivalent of more than 600 million barrels in June, up more than 30% from the end of last year, a MarketWatch analysis of Commodity Futures Trading Commission data and the most popular commodities indexes shows. The correlation between rising oil prices and increased index investment has reawakened calls to restrict the ability of financial investors to take large stakes in commodities. Unlike in past decades, though, shadowy hedge funds and secretive financiers aren't getting the major blame. Instead, it's long-term investors like California's biggest public-employee pension fund and Harvard University's endowment that have gradually widened to include assets beside stocks and bonds. "Institutional investors such as country funds and pension funds are basically pushing prices where they shouldn't go," said Steve Briese, author of "The Commitments of Traders Bible." On Tuesday, Rep. Peter DeFazio, D-Ore., introduced a bill that would give the CFTC new authority to prohibit "excessive speculation." CalPERS, the biggest U.S. public pension fund, now has about $600 million in commodities that track the 24-component S&P GSCI commodity index, one of the two most popular commodities indexes. Funds like CalPERS typically get their exposure to commodities by engaging in trades with big derivatives dealers such as J.P Morgan Chase & Co.(JPM) and Goldman Sachs Group(GS) . Trading between funds and dealers takes place over the counter and doesn't get reported to the futures regulator. At the peak of oil prices last year, index fund holdings in oil had surpassed 700 million barrels. They then slid to near 400 million barrels in December. Index holdings in oil have since rebounded. This analysis also shows that the dollar value of total commodity index investment rose more than 60% this year to above $140 billion. Mark Gilman, an analyst at research firm Benchmark Co., said the current oil-market environment has a "strong and almost eerie resemblance" to oil's boom during the first half of last year. He anticipates oil could fall again to the $40 to $50 level. "Recent history is likely to repeat itself with a sharp price decline," Gilman added.

CNBC.com:
- Google(GOOG) will to stick to its core business and continue developing technologies to monetize search, CEO Eric Schmidt told CNBC on Wednesday. Specifically, the company plans to expand its advertising expertise to television and mobile phones, which will serve as "primary drivers" of revenue over the next few years, Schmidt said.

NY Times:

- Last year, after the financial crisis, Morgan Stanley(MS) made a decision that its biggest rivals avoided: burned by the crisis, it would take far fewer risks in its trading. That decision is costing it — at least for now. Unlike earnings at Goldman Sachs and JPMorgan Chase, which quickly returned to profitability by taking on risk in trading for their customers, Morgan Stanley’s earnings from those operations are predicted to be less in the second quarter. As a result, these profits will not be high enough to offset some unusual charges and expenses, and Morgan Stanley is expected to post a loss for the quarter, while its Wall Street rivals post robust quarterly profits.

IBD:

- Cerner Corp. (CERN) has been enjoying strong vital signs for most of the decade, especially since recovering from a case of the blahs in 2003.

Politico:

- In the end, there’s only one person who really matters when it comes to getting a health care overhaul done this year – President Barack Obama – and he’s been maddeningly vague about what he can live with in a plan. So as Obama heads to Virginia for a health care town hall meeting Wednesday, POLITICO did a little imaginary spelunking in the caves of the presidential mind and came up with this take on what Obama might really be thinking when it comes to health care.

Rasmussen:

- Fifty-six percent (56%) of Americans say they are not willing to pay more in taxes and utility costs to generate cleaner energy and fight global warming. A new Rasmussen Reports national telephone survey, taken since the climate change bill was passed on Friday, finds that 21% of Americans are willing to pay $100 more per year for cleaner energy and to counter global warming. Only 14% are willing to pay more than that amount.

Vanity Fair:

- For years, administrators at Harvard University could throw money at anything that tickled their fancy. A new medical school building for $260 million? Sure. A massive, Robert A.M. Stern—designed addition to Harvard Law School? No problem. One of the most sweeping financial aid initiatives ever undertaken? Consider it done. Of course, that was before the money dried up. Now, Vanity Fair’s Nina Munk finds America’s oldest university suddenly at risk of not being able to keep the lights on. Over the past year, Harvard’s endowment has collapsed (it lost $8 billion between last July and October), its fundraising has declined, and its construction cranes have been idled. Gripped by the worst economic crisis in its history, Harvard is in trouble, and no one can decide who’s to blame.

Reuters:

- Many hedge fund investors burned by last year's market meltdown will likely demand a system of checks and balances in which outsiders keep a closer watch over assets, data released on Wednesday show. Pension funds, endowments and wealthy investors that have long funneled money into loosely regulated hedge funds will want to see more data detailing how their investments are valued and priced, researchers at State Street Corp found. One problem last year was that many hedge funds invested in illiquid securities where they were unable to exit quickly when investors asked for their money back. Many investors will also begin insisting on having outsiders such as State Street, the world's second-largest administrator for hedge funds, review positions.

- Auto seating supplier Lear Corp said on Wednesday it would file for Chapter 11 in a reorganization supported by key secured lenders and bondholders and had obtained $500 million in bankruptcy financing.

- Vice Foreign Minister He Yafei said on Thursday he had not heard about reports that China had requested a debate about global reserve currencies. Asked about the matter by a reporter during a news briefing, He said, "I have not heard that China has this request".

Financial Times:

- Governments around the world have continued to push up trade barriers in spite of high-profile pledges at the G20 summit and other forums to resist protectionism, according to a World Trade Organization report to be published on Thursday. Over the past three months, the WTO recorded 83 trade-restricting measures undertaken by 24 countries and the European Union – more than double the number of trade-liberalizing measures enacted during the same period. However, the report noted that the worst abuses had largely been contained.

TimesOnline:

- Long arm of the US taxman must be resisted.

Late Buy/Sell Recommendations

Deutsche Bank:

- Rated (CSCO) Buy.

Night Trading
Asian Indices are -.25% to +1.0% on average.

Asia Ex-Japan Inv Grade CDS Index +2.26%.
S&P 500 futures -.16%.
NASDAQ 100 futures -.19%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (AYI)/.57

Economic Releases

8:30 am EST

- The Change in Non-farm Payrolls for June is estimated at -365K versus -345K in May.

- The Unemployment Rate for June is estimated to rise to 9.6% versus 9.4% in May.

- Average Hourly Earnings for June are estimated to rise .1% versus a .1% gain in May.

- Initial Jobless Claims for last week are estimated to fall to 615K versus 627K the prior week.

- Continuing Claims are estimated to rise to 6740K versus 6738K prior.

10:00 am EST

- Factory Orders for May are estimated to rise .9% versus a .7% gain in April.

Upcoming Splits
- None of note

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

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