Thursday Watch

Late-Night Headlines
Bloomberg:
- Business sentiment among Japanese manufacturers rose to a record in June, the Reuters monthly Tankan survey showed.
- China’s Premier Wen Jiabao told local governments and banks to tighten lending for investment projects as the government seeks to prevent excess capacity from building up in some industries.
- L. Paul Bremer III, the former US administrator in Iraq, said it would be a mistake to set a timetable for withdrawing American troops from that country.
- China’s central bank said it will intensify efforts to drain capital from the country’s financial system to cool surging money supply and lending growth.

Economic Daily News:
- AU Optronics(AUO) expects prices of liquid-crystal display panels to stabilize from next month as demand improves, citing Lee Kun-yao, the company’s chairman.

CNET :
- Dallas Mavericks owner and billionaire Mark Cuban invested in a journalism Web site dedicated to publicizing corporate fraud.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +1.0% on average.
S&P 500 indicated +.18%.
NASDAQ 100 indicated +.24%.

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Earnings of Note
Company/EPS Estimate
- (ADBE)/.30
- (BSC)/3.12
- (JW/A)/.24
- (KBH)/2.42
- (OVTI)/.38
- (PIR)/-.26

Upcoming Splits
- (AIT) 3-for-2
- (BMI) 2-for-1
- (CLDN) 3-for-2
- (DDE) 3-for-2
- (IIIN) 2-for-1
- (OII) 2-for-1
- (PARL) 2-for-1

Economic Releases
8:30 pm EST
- Initial Jobless Claims for last week are estimated to rise to 320K versus 302K the prior week.
- Continuing Claims are estimated to rise to 2425K versus 2415K prior.
- Empire Manufacturing for June is estimated to fall to 11.0 versus a reading of 12.4 in May.

9:00 am EST
- Net Foreign Security Purchases for April are estimated to fall to $60.0B versus $69.8B in March.

9:15 am EST
- Industrial Production for May is estimated to rise .2% versus a .8% gain in April.
- Capacity Utilization for May is estimated at 81.9% versus 81.9% in April.

12:00 pm EST
- The Philly Fed for June is estimated to fall to 11.0 versus a reading of 14.4 in May.

BOTTOM LINE: Asian indices are higher, boosted by technology stocks in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish at Session Highs on Short-Covering and Rebound in Commodity Stocks

Indices
S&P 500 1,230.04 +.52%
DJIA 10,816.92 +1.03%
NASDAQ 2,086.00 +.65%
Russell 2000 677.09 +.65%
Wilshire 5000 12,327.68 +.49%
S&P Barra Growth 572.15 +.72%
S&P Barra Value 655.80 +.32%
Morgan Stanley Consumer 597.27 +.63%
Morgan Stanley Cyclical 783.45 +.82%
Morgan Stanley Technology 475.94 +.71%
Transports 4,470.94 +.67%
Utilities 403.95 -.68%
Put/Call 1.12 -20.0%
NYSE Arms .59 -55.10%
Volatility(VIX) 21.46 -9.87%
ISE Sentiment 89.0 -29.92%
US Dollar 86.11 -.43%
CRB 332.03 +.55%

Futures Spot Prices
Crude Oil 69.19 +.07%
Unleaded Gasoline 203.75 +.08%
Natural Gas 6.59 +6.93%
Heating Oil 193.59 +.22%
Gold 557.50 -1.59%
Base Metals 199.99 +1.61%
Copper 303.00 -.85%
10-year US Treasury Yield 5.05% +1.94%

Leading Sectors
Steel +3.11%
Oil Service +2.71%
Energy +2.56%

Lagging Sectors
Utilities -.68%
HMOs -.82%
Banks -1.06%

Evening Review
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In Play

Afternoon Recommendations
UBS:
- Upgraded (SND) to Buy, target $70.

Afternoon/Evening Headlines
Bloomberg:
- Papa John’s Intl.(PZZA) plans to open 500 stores in India over the next decade as it seeks to grow internationally.
- The Bush administration wants Marathon Oil Corp.(MRO), Kerr-McGee(KMG) and 54 other oil and gas producers to renegotiate Gulf of Mexico drilling leases that let them avoid paying as much as $10 billion in government fees.
- Interest-rate futures are suggesting for the first time that the Fed will raise interest rates in August after US consumer prices excluding food and energy rose more than forecast.
- Gold fell for a seventh straight session, matching the longest slide since July 2004, as speculators continued liquidating positions in the metal.

BOTTOM LINE: The Portfolio finished about unchanged today as gains in my Retail longs, Networking longs and Semi longs offset losses in my Energy-related and Base Metal shorts. I did not trade in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was slightly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was mildly bullish. Commodity stocks paced today's advance, which is a negative for the broad market. As well, financials underperformed throughout the day, and a number of market-leading equities did not participate in today's gains. I would like to see a higher quality advance before further increasing market exposure.

Stocks Mostly Lower into Final Hour on Interest Rate Concerns

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer longs, Internet longs and Energy-related shorts. I took profits in some of my (EEM), (QQQQ) and (IWM) shorts this morning and then added back to them, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is heavy. We got a supposedly bad inflation number this morning. Fed members are making hawkish comments. The U.S. dollar is lower. Long-term rates are higher. Oil is rising. This should be helping gold at least bounce, considering it has fallen 25% in a month. Instead, gold is trading down another $9 per ounce to session lows. Its weakness is telling. I expect US stocks to trade mixed-to-lower into the close from current levels on worries over higher long-term rates and oil prices.

Today's Headlines

Bloomberg:
- Italy’s new government will renew the country’s partnership with the US through a united Europe that will be an ally in facing threats of terrorism and nuclear proliferation, Foreign Minister Massimo D’Alema said.
- Increases in consumer prices throughout the country are becoming more frequent as soaring energy costs bubble up to the surface, the Fed’s Beige Book said.
- US Treasury two-year note yields suffered their biggest decline since July, sending yields to the highest in more than five and a half years, as May consumer prices increased more than forecast.
- Former President Clinton and his wife, NY Senator Hillary Clinton, earned more than $8 million last year form speeches and book royalties, records released today show.
- US money-market funds increased assets to a three-year high this month as investors fled falling global stock markets.
- Democratic political activist and billionaire hedge fund investor George Soros failed in a bid to overturn an insider-trading conviction at France’s highest appeals tribunal.
- Boeing(BA) won an order for 20 787-9 planes from Singapore Airlines worth an estimated $4.52 billion, trumping rival Airbus SAS’s A350 airliner.
- VeraSun Energy, the second-largest US ethanol producer, and its shareholders raised $419.8 million, more than expected, in an IPO that will help finance new plants to meet rising demand.

- President Bush said the new Iraqi government has the desire and will to take control of their country and he vowed to resist domestic political pressure to cut back US involvement.

Wall Street Journal:
- The American Medical Association, the leading US medical profession group, wants sodium levels in processed and restaurant foods cut by at least 50% in the next 10 years.
- As electronic trading replaces the trading floor, where brokers shouted prices and used hand signals, products such as “MarketSound” are gaining popularity. The software used patented algorithms that produce natural-sounding voices and activity that rise and fall in line with gains, losses and volume of the real exchanges.
- US children from low-income families receive backpacks filled with food on Fridays to ensure they eat over the weekend.
- Investors have withdrawn $8.5 billion in the past three weeks from mutual funds that invest in developing-country stocks, citing EmergingPortfolio.com Fund Research.
- More than 20 US states have passed legislation requiring that a growing percentage of electricity come from renewable energy sources, resulting in energy projects worth $475 million.

NY Times:
- Google(GOOG) plans to open a computing-data center containing tens of thousands of computers about 80 miles east of Portland, Oregon, this year.

NY Post:
- Michaels Stores(MIK) is being pursued by several groups of buyout firms.

CPI Rises on Increased Rental Costs

- The Consumer Price Index for May rose .4% versus estimates of a .4% gain and a .6% rise in April.
- The CPI Ex Food & Energy for May rose .3% versus estimates of a .2% gain and a .3% rise in April.

BOTTOM LINE: Rising gasoline costs and rents propelled consumer prices higher last month, Bloomberg reported. Gasoline prices rose 4.9% for the month. Food prices rose .1%. Rental prices rose .6%, the most since 1990. However, this is a byproduct of a weakening housing market. I continue to believe inflation fears have peaked for the year as unit labor costs remain subdued, economic growth slows and commodity prices continue to fall.

Links of Interest

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