Today's Headlines

Bloomberg:
- States Double Down on Hedge Funds as Returns Slide. Public pension funds in the U.S. are increasing bets on high-risk hedge funds and real estate in an attempt to fill deficits in retirement plans and make up for their worst performance in six years. New York Comptroller Thomas DiNapoli is asking lawmakers to increase a cap limiting the amount of so-called alternative investments in the state's Common Retirement Fund, the third- biggest U.S. public pension at $153.9 billion. South Carolina's retirement system adopted a plan in February to invest as much as 45 percent of its $29 billion in hedge funds, private equity, real estate and other alternatives, from nothing 18 months ago. Alternative investments typically include private equity, hedge funds, real estate and commodities. That category is expanding to include timber and infrastructure. Commodity prices in July fell 10 percent, the biggest decline since March 1980, as measured by the Reuters/Jefferies CRB Index. The index has plunged 19 percent from its July 3 peak. ``Chasing performance, especially in a public fund, can be a dangerous thing,'' said Stan Rupnik, the chief investment officer at the Teachers' Retirement System of the State of Illinois.
- The euro dropped to a 5 1/2-month low against the dollar after crude oil fell and a report showed Europe's economy contracted for the first time since the 15- nation currency was introduced almost a decade ago. Europe's currency has declined 7.6 percent since touching a record high in July as traders reduced speculation that the European Central Bank will raise interest rates and oil tumbled. The pound fell to the lowest level in 22 months against the dollar on concern Britain's economy is falling into a recession. ``Not only is the European economy weakening, but the growth outlook is to remain weak,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets. ``A further move down in crude oil will be a bullish sign for the dollar.''
- Jumbo mortgage borrowers may pay lower interest rates after a trade group loosened restrictions on a market for Fannie Mae(FNM) and Freddie Mac(FRE) mortgage bonds to combat the housing slump. The Securities Industry and Financial Markets Association will permit the larger loans that Fannie and Freddie will be financing to be accepted into the main market for mortgage bonds in limited amounts. That may boost rates on loans of less than $417,000 and cut the costs of some larger, or ``jumbo,'' loans. Revised guidelines for the so-called To Be Announced market will permit securities composed of as much as 10 percent of the bigger loans, New York-based Sifma said in a statement today.
- The cost of protecting Russian bonds from default rose to the highest in four months after Georgian officials said Moscow had stalled its withdrawal from the region, two days after the countries agreed a peace plan. Credit-default swaps on Russian government debt climbed 9 basis points to 123, highest since April 16, according to CMA Datavision prices at 3 p.m. in London.
- Wal-Mart Stores Inc.(WMT) said second- quarter profit rose 17 percent as consumers spent more on lower-priced medicine and food.
- OAO Mechel(MTL), attacked by Vladimir Putin for inflating Russian coking-coal prices, was ordered to cut tariffs for domestic steelmakers ``considerably'' after an antitrust probe found the company violated competition law. The company faces a fine at the ``lower end'' of a 1-to-15 percent range of the previous year's coking-coal sales, Igor Artemyev, head of the Federal Antimonopoly Service, told reporters in Moscow today.
- Soybeans Plunge as Reports Show Slowing Demand. In the week ended Aug. 7, exporters canceled 49,700 metric tons of previously purchased soybeans for delivery before Sept. 1, the U.S. Department of Agriculture said today. China, the biggest buyer, canceled 56,300 tons. Demand for soybeans by makers of animal feed and vegetable oil fell 6.7 percent in July from a year earlier, the National Oilseed Processor Association said today.
- The U.S. highway death rate fell last year to the lowest since recordkeeping began in 1975 as automakers built safer cars and motorists started cutting back on driving. The death toll decreased 4 percent to 41,059, the lowest since 1994. Fatalities still rose for motorcycle riders.
- Billionaire Nelson Peltz and his Trian hedge-fund group sold its stake in Starbucks Corp.(SBUX) added shares of Hansen Natural Corp.(HANS), sending the Monster Energy drink maker up as much as 13 percent in Nasdaq trading. Peltz picked up shares of Hansen and retailer Target Corp.(TGT) as of June 30, according to filings today by Peltz's funds with the U.S. Securities and Exchange Commission. He also added shares of tobacco companies UST Inc., Philip Morris International Inc. and Lorillard Inc.
- India's inflation soared to a 16- year high and may accelerate further after the government approved wage increases for civil servants. Wholesale prices rose 12.44 percent in the week to Aug. 2, after increasing 12.01 percent in the previous week, the commerce ministry said in New Delhi today.
- Europe's economy contracted for the first time since the introduction of the euro almost a decade ago as faltering sales undermined investment by companies and soaring costs eroded consumer spending power. Gross domestic product fell 0.2 percent in the second quarter from the first, when it increased 0.7 percent, the European Union statistics office in Luxembourg said today.
- 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 economic growth curbs demand for raw materials.

Wall Street Journal:
- Senator John McCain called on the U.S. and its allies to pressure Russia to permanently withdraw from Georgia and said international monitors should be sent to the country to avert a humanitarian disaster. The North Atlantic Treaty Organization should grant Georgia and Ukraine membership, McCain added in a commentary published in today's Wall Street Journal. He also called for countries to review their relationships with Russia and demand that Russian leaders promote stability and peace in the region.
- Russia may have targeted key pipelines in Georgia carrying oil and gas to the Mediterranean as a warning to the West, citing Georgian officials. A line of 45 bomb craters were seen close to the buried Baku-Tbilisi-Ceyhan pipeline in a remote field in Georgia 15 miles south of the capital; Russia denied attempting to bomb the pipelines and the Journal said based on the evidence, there had either been an attempt to destroy it or a deliberate near-miss intended as a warning. The BTC, operated by BP Plc, carries 850,000 barrels of crude oil a day from Azerbaijan to Turkey, equal to 1% of global demand.
- US Commodity-Based ETFs Gain Traction With Investors.
- John McCain will unveil a technology agenda that bundles previously announced pro-business proposals with continued support for a hands-off approach to regulation. The plan, dubbed "John McCain and American Innovation," is set to be released Thursday on the Republican presidential candidate's campaign Web site. It will call for a 10% tax credit on wages paid to all research-and-development employees. At the same time, it will reiterate Sen. McCain's opposition to Internet taxes and new laws guaranteeing net neutrality, the idea that Internet providers must treat all legal Internet traffic equally. The goal of the plan, said McCain spokesman Taylor Griffin, is to create "good, high-paying, innovation-oriented 21st-century jobs." Several CEOs have signed on to support Sen. McCain, including Ms. Whitman, Cisco Systems Inc.'s John Chambers and former Hewlett-Packard Co. CEO Carly Fiorina.

NY Times:
- Demand for Home Geothermal Heat Pumps Grows in US.
- Ron Insana made a big name for himself reporting and interviewing Wall Street hotshots as an anchor on CNBC. But so far, his foray into the hedge fund world hasn’t been such a hit. Nevertheless, Mr. Insana has reportedly landed a new position at one of the hedge-fund industry’s most prominent firms: SAC Capital.

The Detroit News:
- Detroit home sales improve. Purchases go up 20%, foreclosures drop 17% in four-county area in July from last year. In the four-county region of Wayne, Oakland, Macomb and Livingston, 4,245 homes were sold in July, a 20 percent gain over the 3,538 sold in the same month last year, according to data from RealComp, the Farmington Hills-based multiple listing service. The number of pending home sales -- where an offer has been accepted but the deal isn't yet closed -- was up as well, to 5,971, a 34.1 percent increase from last July. It was the seventh month in a row that Metro Detroit home sales were up year over year. All told, year-to-date sales in Metro Detroit are up 13.38 percent over the January-July period of last year. "It seems that we're on an upward trend this year," said Don Grimes, senior research economist at the University of Michigan. "This is good news, especially for a state like Michigan." According to data from RealtyTrac, an online marketplace for foreclosed properties, Michigan's foreclosure rate of one in every 389 properties with a filing still ranked seventh in the country, but was down 17 percent from a year ago.

EETimes:
- The rumors were flying at the Flash Memory Summit here. The big rumor is that Seagate Technology Inc.(STX) is interested in buying all or part of SanDisk Corp.(SNDK), according to sources in the industry.

AP:
- Oil prices pulled back Thursday, erasing most of the gains from the previous day's rally, as waning U.S. demand for energy overshadowed supply threats from the conflict in Georgia. the pump, retail gas prices slid further. A gallon of regular fell about a penny overnight to a new national average of $3.778, according to auto club AAA, the Oil Price Information Service and Wright Express. "It's just a market that has all the feeling of continuing to work lower until we get some definitive evidence that demand is going to improve because of lower pump prices, and that seems a long ways off," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "According to our calculations, the exchange rate development has contributed $12.30 per barrel to the decline in oil prices since mid-July, when the US dollar hit a low of 1.6 against the euro," said Vienna's JBC Energy in a research note. "Since then the greenback has improved by 6.9 percent."

VentureBeat:
- Over the past few days, we’ve gotten multiple confirmations from reliable sources that the first phone built on Google’s Android platform will launch in the next several weeks. It will be an HTC phone, likely the HTC Dream, and will be launched internationally on the T-Mobile network. A window of between Oct 15 and Nov 30 is most likely, according to these sources.

USA Today:
- It may be Barack Obama's party, but that may not prevent an emotional show of support for former rival Hillary Rodham Clinton at the Democratic National Convention later this month. Aides to Obama, who will formally accept the Democratic nomination in Denver on Aug. 28, are girding for the possibility that Clinton's backers will force a roll call vote that would demonstrate the extent of support for the New York senator.

Reuters:
- Precisely targeted radiation therapy can eradicate tumors that have spread to other parts of the body, offering more months or years of life to patients who have no other options, U.S. researchers reported on Wednesday.
- Texas oil billionaire T. Boone Pickens said on Thursday crude prices may soon fall as low as $110 a barrel amid falling gasoline demand, but should not sink below $100 because the United States depends heavily on oil imports. Pickens' hedge fund BP Capital, which manages about $7 billion in assets, sank about 35 percent in July, according to a report this week in the New York Post.
- ImClone Systems(IMCL) hired JPMorgan Chase(JPM) to help it review alternatives. NY-based ImClone hired the securities firm to evaluate options including Bristol-Myers Squibb’s $5.2 billion offer or a split of the company.

Daily Telegraph:
- The UK's financial industry watchdog, the Financial Services Authority, has been blamed for soaring oil prices by an American economics professor. Professor Michael Greenberger, a former official at US regulator the Commodity Futures Trading Commission (CFTC), said the FSA had "let the British people down" because it failed to clamp down on speculation in the market. In an interview for BBC Radio 4's The Investigation - to be broadcast tonight - Prof Greenberger, former director of the CFTC's trading and markets division, said: "The FSA has let the British people down. If the FSA adopted limits on speculation, you would see the price of gasoline drop in the United Kingdom."

Reforma:
- Mexico will gradually increase gasoline prices until they equal those in the US. The goal is to bring local price of gasoline, which is currently $2.73/gallon, in line with that of the US, which is $3.82/gallon, citing Energy Minister Georgina Kessel.

Bear Radar

Style Underperformer:

Large-cap Growth +.46%

Sector Underperformers:

Gold irlind (-3.60%), Oil Service (-2.06%) and Energy (-1.92%)

Stocks Falling on Unusual Volume:

MDR, FTO, TRLG, CHDX, PAAS, OVTI, GSOL, FLO and XOP

Stocks With Unusual Put Option Activity:

1) HANS 2) ADSK 3) OTEX 4) BGG 5) NTES

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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Earnings of Note
Company/EPS Estimate
- (URBN)/.29
- (RRGB)/.49
- (KSS)/.73
- (A)/.53
- (HAR)/.76
- (SJM)/.76
- (WMT)/.84
- (ADSK)/.52
- (BGG)/.22
- (EL)/.56
- (JWN)/.64
- (DV)/.38
- (IRF)/-.19

Upcoming Splits
- (TWI) 5-for-4

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.