Friday Watch

Late-Night Headlines
Bloomberg:
- EMC Corp.’s(EMC) VMware boosted the size of its IPO to as much as $1.1 billion, potentially making it the biggest share sale of a technology company since Google’s IPO in 2004.
- Shares of banks, hammered over the debacle in credit markets, are now at their cheapest in more than a decade. Some investors have noticed.
- Treasuries rose, pushing the two-year note’s yield down the most since 2004, after money market rates soared and the European Central Bank loaned $130 billion to banks to avert a cash crunch. Ten-year note yields exceeded the shorter-term maturities by the most since September 2005 as futures traders increased bets the Fed will cut interest rates.
- News Corp.(NWS/A) Chairman Rupert Murdoch said he will take on the New York Times(NYT) once his purchase of Dow Jones(DJ) is complete by expanding non-business coverage at the Wall Street Journal.
- The Bank of Japan added $8.49 billion to the financial system, joining central banks in the US and Europe in supplying cash to assuage a credit crunch.
- Countrywide Financial(CFC) said “unprecedented disruptions” in the US home-loan market may crimp its ability to lend and erode profit.

Wall Street Journal:
- One of the most profitable periods ever for the refining industry may be coming to an end.

AP:
- Activist Cindy Sheehan, who turned her soldier son’s death into a platform for protesting the Iraq war, announced her candidacy for the US House of Representatives. She plans to challenge House Speaker Nancy Pelosi for her seat.

Financial Times:
- Nick Scheele, president and chief operating officer of Ford Motor(F) from 2001 to 2005, has entered the bidding for the Jaguar and Land Rover brands.
- Hillary Clinton faced scrutiny on Thursday over her attitude towards the use of nuclear weapons, amid a deepening foreign policy dispute with Barack Obama, her rival for the Democratic presidential nomination.
- Telecoms switch on to web television.

Sankei:
- North Korean leader Kim Jong Il sent a personal message to President Bush saying he wanted to normalize ties with the US and become a close partner after North Korea tested a nuclear weapon. The US government switched its strategy toward North Korea from confrontation to dialogue after Bush received the message.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (AKAM), target $58.
- Reiterated Buy on (EFII), target $33.50.
- After years of small-cap and value stock outperformance, we have witnessed a turnaround in style trends. Our models currently favor large-caps and growth stocks. Continued large-cap and growth stock outperformance could created additional headwinds for investors who are not positioned for such a shift.

Night Trading
Asian Indices are -3.0% to -1.5% on average.
S&P 500 futures -.69%.
NASDAQ 100 futures -.55%

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Earnings of Note
Company/EPS Estimate
- (AYR)/.45
- (CRYP)/-.11
- (WCRX)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for July is estimated to rise 1.0% versus a 1.05 gain in June.

2:00 am EST
- The Monthly Budget deficit for July is estimated to widen to -$35.0 billion versus -$33.2 billion in June.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows on Lingering Credit Fears

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Stocks Sharply Lower into Final Hour on Lingering Credit Fears

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, every sector is declining and volume is very heavy. My intraday gauge of investor angst is elevated again. Mall retail same-store sales, specifically at teen retailers, were disappointing. However, Cosco (COST, +7%), Target (TGT, +6.1%), TJX Corporation (TJX, +5%), Wal-Mart (WMT, +1.9%) and JCPenney (JCP, +10%) were bright spots. The brokers, led by Goldman(GS), are moving to session lows, and this is sending the broad market to new lows. This is one of the most bifrucated days I have ever seen: I have literally hundreds of stocks on my monitor pages higher or barely down today with the DJIA down 300. This is highly unusual and indicates underlying strength, in my opinion. As well, Nasdaq breadth is -929, which is mild considering the headline losses. I still believe longer-term investors should use pullbacks to add to high-quality growth stocks at current levels and use strength to cut back on the most economically sensitive and emerging-market stocks. I expect US stocks to trade higher into the close from current levels on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- The Federal Reserve added $24 billion in temporary funds to the banking system, the most since April, amid an increase in demand for cash from banks roiled by US subprime loan losses.
- President Bush said his administration opposes efforts in Congress to raised taxes on hedge funds and private-equity firms, saying the move could stifle economic growth.
- TJ Marta, a fixed-income strategist at RBC Capital Markets, said global markets are at the “peak of the hysteria” in the credit markets.

Wall Street Journal:
- Gannett Co.(GCI), the largest US newspaper publisher, amended several of its compensation plans to reflect a potential management buyout of the company.
- Goldman Sachs’ North American Equity Opportunities Fund, which relies on computer models to pick stocks, is down 15% this year. The fund had $463.5 million in assets under management and has sold down positions in response.

Forbes:
- A consortium of the nation’s leading investment banks have quietly created an index that is not only protecting them against the recent market meltdown but also promising to make them bundles of money in the process.

Mysteel.com:
- China’s steel-product exports soared 66% to 5.94 million metric tons in July from a year earlier, citing preliminary figures from the customs. China has exported 39.7 million tons in the first seven months, up 92% from a year earlier. Steel-product imports fell 9.2% to 1.39 million tons in July from a year earlier.

Forbes:
- Bear Stearns(BSC) is in talks to sell a minority stake to China’s Citic Group, citing a person close to the Beijing-based company.

AFP:
- China is unlikely to sell US dollar assets as long as there is no major disagreements with the US, citing a government economist.

Job Market Still Healthy

- Initial Jobless Claims rose to 316K this week versus estimates of 310K and 309K the prior week.

- Continuing Claims rose to 2559K versus estimates of 2520K and 2520K prior.

BOTTOM LINE: First-time claims for jobless benefits rose last week to a level that still indicates strength in the labor market, Bloomberg said. The four-week moving-average of jobless claims rose slightly to 307,750 from 306,000 the prior week. Forty-four states and territories reported a decrease in new claims, while nine reported an increase. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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