Stocks Fall on Growth Concerns and Trade Relations with China

Indices
S&P 500 1,200.73 -1.08%
DJIA 10,421.44 -1.57%
NASDAQ 2,070.66 -1.02%
Russell 2000 634.12 -1.45%
DJ Wilshire 5000 11,917.06 -1.04%
S&P Barra Growth 573.14 -1.23%
S&P Barra Value 623.46 -.94%
Morgan Stanley Consumer 575.83 -1.18%
Morgan Stanley Cyclical 722.15 -1.99%
Morgan Stanley Technology 482.06 -.98%
Transports 3,457.46 -3.11%
Utilities 383.42 +.39%
Put/Call .75 -16.67%
NYSE Arms 1.14 +6.89%
Volatility(VIX) 12.13 +9.77%
ISE Sentiment 158.00 -9.20%
US Dollar 89.12 +.63%
CRB 311.45 +.14%

Futures Spot Prices
Crude Oil 59.62 +.34%
Unleaded Gasoline 165.55 -.07%
Natural Gas 7.50 +.36%
Heating Oil 167.50 -.04%
Gold 442.80 -.09%
Base Metals 123.13 -1.51%
Copper 152.00 -.49%
10-year US Treasury Yield 3.95% +.34%

Leading Sectors
Oil Service +.98%
Oil Tankers +.55%
Gold & Silver +.54%

Lagging Sectors
Tobacco -2.09%
Airlines -3.68%
Steel -4.90%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
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After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on DRI and FGP.

Afternoon/Evening Headlines
Bloomberg:
- Billionaire investor Warren Buffett said state and federal probes into his Berkshire’s General Re unit is “costing money” and will weigh further on the company.
- Tata Steel, India’s second-largest steel producer, and Chinese cranemaker Shanghai Zhenhua Port Machinery were among this week’s Asian borrowers tapping the loan market for funds to boost production.
- Imposing trade sanctions of China would be misguided and put the future of the US economy at risk, Fed Chairman Greenspan told lawmakers who are considering such penalties.
- GM bonds are having their biggest monthly rally in at least eight years, fueled by high-yield and hedge funds attracted by the carmaker’s plan to cut costs and wring concessions out of its unions.
- US home prices set another record in May as previously owned homes continued to sell at a near-record rate, spurred by low borrowing costs and rising incomes.
- Chevron, close to winning regulatory approval for its agreement to buy Unocal, may be forced to increase its bid to counter an $18.5 billion offer from China’s CNOOC Ltd.
- Crude oil prices in NY rose to a record $60 a barrel on speculation supplies won’t be adequate to meet surging demand this fall.

CNBC:
- Bill Gross, who manages the world’s largest bond fund, said yields will likely fall through 2006 and 2007.

Financial Times:
- Rambus is being investigated by the European Commission in connection with patent abuses.

BOTTOM LINE: The Portfolio finished unchanged as gains in my Tech longs and Steel shorts offset losses in my Retail and Gaming longs. I added a few shorts in the afternoon, thus leaving the Portfolio 50% net long. One of my new shorts is PD and I am using a $95 stop-loss on this position. The tone of the market was negative today as the advance/decline finished substantially lower, most sectors fell and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today’s market action was negative. Stocks declined on worries over slowing global growth and concerns over issues with China. Tomorrow should be a key day for oil and the markets.

Technical Difficulties

Due to technical problems I am unable to blog today. I will resume this evening. The Portfolio is currently 75% net long.

Thursday Watch

Late-Night Headlines
Bloomberg:
- The yen rose in Asia after government reports showed Japan's service industry expanded more than expected and the country's manufacturers were less pessimistic.

Wall Street Journal:
- The NYSE wants to expand into foreign markets, options and other derivatives to compete worldwide, said John Thain, the exchange's chief executive officer.

NY Times:
- John J. Mack, Morgan Stanley's former president, has been named as the best candidate to become the securities firm's new chief executive.

Beijing Morning Post:
- China should raise the value of the yuan by between 5% and 10% in a one-off move, citing a report in a journal published by the State Council, the country's highest governing body.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on IBM, DELL, AMR, ARO, FSH, ACN, BBBY, FDC and EMC.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.13%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
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Macro Calls
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Earnings of Note
Company/EPS Estimate
AGE/.66
DLM/.31
FDO/.32
FDX/1.48
FINL/.26
MU/.02
OVTI/.31
SLR/.04
TIBX/.04
RAD/.02

Upcoming Splits
None of note

Economic Releases
8:30 am:
- Initial Jobless Claims for last week are estimated to fall to 330K versus 333K the prior week.
- Continuing Claims are estimated to fall to 2600K versus 2641K prior.

10:00 am:
- Existing Home Sales for May are estimated to fall to 7.15M versus 7.18M in April.

BOTTOM LINE: Asian indices are mostly higher on gains in technology shares in the region. I expect US equities to open modestly higher, led by technology. The Portfolio is 100% net long heading into the day.

Stocks Close Modestly Lower, Long-Term Rates Plunge

Indices
S&P 500 1,213.88 +.02%
DJIA 10,587.93 -.11%
NASDAQ 2,092.03 +.05%
Russell 2000 643.45 +.38%
DJ Wilshire 5000 12,042.44 +.06%
S&P Barra Growth 580.28 -.10%
S&P Barra Value 629.38 +.14%
Morgan Stanley Consumer 582.68 -.25%
Morgan Stanley Cyclical 736.81 -.48%
Morgan Stanley Technology 486.84 +.27%
Transports 3,568.40 unch.
Utilities 381.92 +.81%
Put/Call .90 -6.25%
NYSE Arms 1.07 -9.54%
Volatility(VIX) 11.05 -.27%
ISE Sentiment 174.00 +10.13%
US Dollar 88.56 +.50%
CRB 311.03 unch.

Futures Spot Prices
Crude Oil 58.33 +.41%
Unleaded Gasoline 161.85 +.45%
Natural Gas 7.50 +.85%
Heating Oil 162.65 +.24%
Gold 440.00 +.07%
Base Metals 125.02 -.75%
Copper 154.15 -.26%
10-year US Treasury Yield 3.94% -2.46%

Leading Sectors
Oil Tankers +3.29%
I-Banks +2.95%
Oil Service +1.06%

Lagging Sectors
Homebuilders -.48%
Gold & Silver -.52%
Steel -1.08%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on ROH, WAG and CVS.
- Reiterated Underperform on DJ and TRB.

Afternoon/Evening Headlines
Bloomberg:
- The US dollar gained against the euro, British pound and Swiss franc on signs that central banks in Europe are moving closer to reducing interest rates.
- US 10-year Treasuries had their biggest gain in almost seven months on speculation slower global economic growth will cause the Fed to end a series of interest-rate increases sooner than anticipated.
- Members of the Chicago Board of Trade, the second-biggest US futures market, approved a measure allowing the exchange to issue shares, paving the way for a $150 million IPO.
- Yahoo! shut some Internet chat rooms after companies including PepsiCo and Georgia-Pacific pulled advertising, citing the concerns the sites were being used by adults to lure young children.
- Crude oil fell almost $1/bbl. following an Energy Dept. report that showed US oil inventories fell less than expected as fuel demand declined.

Financial Times:
- US regulators are about to declare milk and meat from cloned animals safe for consumption.
- CNOOC Ltd., China’s third largest oil company, will bid about $20 billion for Unocal Corp., topping Chevron’s agreement to buy the company for $16 billion.

Wall Street Journal:
- GM hasn’t convinced United Auto Workers officials that union members’ health-care benefits must be reduced.

BOTTOM LINE: The Portfolio finished slightly higher on gains in my Retail/Internet longs and Steel shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline finished a bit higher, sector performance was mixed and volume was about average. Measures of investor anxiety were lower into the close. Overall, today’s market action was mildly negative. The Broker/Dealer Index(XBD) hit an all-time high today. I expect these stocks to continue to outperform through year-end.

Stocks Modestly Lower Mid-day on Global Growth Worries

Indices
S&P 500 1,212.37 -.11%
DJIA 10,586.01 -.13%
NASDAQ 2,088.80 -.11%
Russell 2000 640.72 -.05%
DJ Wilshire 5000 12,021.30 -.12%
S&P Barra Growth 579.49 -.23%
S&P Barra Value 628.45 -.01%
Morgan Stanley Consumer 582.25 -.32%
Morgan Stanley Cyclical 735.04 -.71%
Morgan Stanley Technology 485.75 +.04%
Transports 3,564.88 -.10%
Utilities 381.03 +.57%
Put/Call 1.14 +18.75%
NYSE Arms .95 -19.81%
Volatility(VIX) 11.23 +1.35%
ISE Sentiment 156.00 -1.27%
US Dollar 88.64 +.59%
CRB 309.94 -.35%

Futures Spot Prices
Crude Oil 59.35 -.03%
Unleaded Gasoline 163.70 -.52%
Natural Gas 7.54 -1.69%
Heating Oil 164.60 -.95%
Gold 440.50 +.11%
Base Metals 125.96 -1.08%
Copper 156.65 +.71%
10-year US Treasury Yield 4.05% -1.27%

Leading Sectors
Oil Tankers +2.75%
Wireless +.53%
Computer Hardware +.45%

Lagging Sectors
Homebuilders -.88%
Gold & Silver -1.0%
Steel -1.34%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet/Retail longs and Steel shorts. I have not traded this morning, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Measures of investor anxiety are mostly higher. Today’s overall market action is modestly negative, considering a decline in energy prices and interest rates. According to today's energy inventory data, U.S. crude supplies have risen 7.22% over the last 12 months. API Implied U.S. Crude demand has risen 2.26% during this same period. I continue to believe global demand for most commodities will fall more than almost anyone expects during the second half of the year. Copper is very vulnerable to most of the same problems steel currently has. I expect US stocks to trade mixed into the close as worries over slowing global growth offset lower energy prices and interest rates.

Today's Headlines

Bloomberg:
- The Fed will raise interest rates one or two more times and then stop because inflation is in check, said Paul McCulley, a managing director at PIMCO, which runs the world’s biggest bond fund.
- David Dreman, whose US money management firm overseas $13 billion, is starting his first hedge funds to bet on stocks he expects to fall as well as rise.
- European government bonds climbed, spurring the biggest two-day drop in 10-year yields in almost seven years, on increasing speculation the European Central Bank will lower interest rates.
- The S&P 500 may reach a record high in 2006 because stocks are undervalued relative to bonds and real estate, according to Ed Keon, Prudential Equity’s chief investment strategist.
- Citigroup is close to an agreement to swap its asset-management unit for Legg Mason’s brokerage, plus stock and cash, in a transaction valued at about $4 billion.
- The US dollar is gaining against the euro, British pound and Swiss franc on signs that central banks in Europe are moving closer to reducing interest rates.
- Crude oil is falling after an Energy Department report showed that US inventories fell less than expected as fuel demand declined.

CNBC:
- David Guyer, CEO of Eyetech Pharmaceuticals aid that the company has a second medicine in its pipeline to treat a leading cause of blindness in adults.
- E*Trade offered to buy Ameritrade Holding for $17.50 a share last night.
- Ameritrade will buy TD Waterhouse in a deal valued at more than $3 billion.

Wall Street Journal:
- Iraq is using an international conference in Brussels to ask for help in building a peaceful and responsible country, Hoshyar Zebari, Iraq’s foreign minister wrote.
- EBay may lose its market dominance as merchants move to other online sites or set up their own because of higher fees and an increase in competition.
- Warren Buffett is prepared to invest even more in utilities than the $10 billion to $15 billion he’s previously mentioned.
- S&P’s Rating Services has increased the risk of defaults on some types of home loans as a result of looser lending criteria.
- The shares of both Carnival Corp. and Royal Caribbean Cruises have dropped this year, though passenger bookings are the highest in four years and fares are surging.
- Mattel plans to put the Barbie doll in show in a musical tour to reverse the toy’s declining popularity with girls.
- US Senators may compromise on legislation that would end estate taxes for all but the most wealthy Americans.
- Morningstar will expand a hedge-fund database this year, adding ratings, risk-evaluation tools and research on fund indices.

NY Times:
- US companies that specialize in environmentally friendly energy sources, such as solar energy, have attracted more than $50 million in venture capital money this month.

Washington Post:
- The number of lobbyists registered in Washington D.C. has doubled since 2000, and so have the fees they charge clients, making the industry one of the fastest-growing in the US.
- AMN Healthcare Services and Cross Country Healthcare, which may provide two-thirds of US travel nurse staffing, said demand for their services is increasing.

AP:
- Knight-Ridder CEO Tony Ridder yesterday said he expects national advertising to increase in the second half of the year.

Financial Times Deutschland:
- Oracle plans to overtake market-leader SAP AG in two to four years in business-management software and is pushing for industry consolidation.

La Stampa:
- Most Europeans are skeptical of the European Union and most Italians want to revert to the lira as the national currency, Italy’s Reform Minister Roberto Calderoli was quoted as saying.

Xinhua News Agency:
- China’s Premier Wen Jiabao called for stricter polices aimed at forcing companies to cut energy and raw material consumption amid the country’s urbanization and industrialization progress.