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Thursday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting against a default by bond insurers dropped for a second day on speculation that this week's deal between Security Capital Assurance Ltd. and Merrill Lynch & Co. to tear up $3.7 billion in guarantees will lead to more agreements. More tear-ups of credit-default swap contracts guaranteeing payments on mortgage-related securities would eliminate the need for banks such as Merrill to hedge their positions with contracts protecting against bond insurer defaults, Bank of America Corp. strategists led by Jeffrey Rosenberg wrote in a note to clients that was published today.
- Australia may be headed for a housing recession similar to those roiling the U.S. and U.K. The cause is a combination of rising default rates, the biggest drop in home prices in five years, the highest borrowing costs in a decade and slowing economic growth. Prices in the property market -- described by the International Monetary Fund in April as one of the world's most ``overvalued'' -- will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia's major cities last month for the first time since just before the Great Depression.
- Australian retail sales fell by the most in six years in June as the highest borrowing costs since 1991 and rising gasoline prices prompted consumers to rein in spending. Sales dropped 1 percent from May, when they rose a revised 0.9 percent, the Bureau of Statistics said in Sydney today.
- Amanda Kurzendoerfer, an analyst at Summit Energy Services, says oil-supply data is ‘bearish’ for prices. (video)
- Platinum has tumbled 16 percent this month, partly because of slumping car sales, and is headed for the worst one-month plunge in 21 years.
- Asian currencies have yet to feel the full force of the “oil shock” and will decline even if the price of crude falls to $100 per barrel, Morgan Stanley says. Record fuel import costs have sent the current-account balances of South Korea, India and Thailand into deficit, posing “tremendous headwinds” for the economies, said Stephen Jen, chief currency economist at Morgan Stanley in London. The impact on inflation and consumer spending has been limited because of fuel subsidies that aren’t sustainable, he said. “The biggest shock to Asia is not the US housing crisis but the oil shock,” Jen said. Indonesia’s rupiah, the Philippine peso and India’s rupee will be the “first to go” as these countries’ governments are the least able to maintain subsidies.
- U.K. consumer confidence dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated, GfK NOP said. An index of confidence, based on a survey of 2,001 people, fell 5 points to minus 39, the lowest since the data began in 1974, GfK said today in London. The gauge fell to 4 points below the result for March 1990.
- Visa Inc.(V), the world's largest credit-card company, said profit rose 41 percent on gains from U.S. debit-card purchases and faster growth overseas. The stock rose 2.5% in after-hours trading.
- First Solar Inc.(FSLR), the world's biggest maker of thin-film solar power modules, said second-quarter profit rose 57 percent on greater demand for its lighter, lower- cost technology. The stock jumped 6.8% in extended trading.
- Symantec Corp.(SYMC), the world's biggest maker of security software, said first-quarter profit almost doubled and gave a forecast that beat analysts' estimates as international customers added programs to store and protect data. The stock rose 3.7% in after-hours trading.
- Akamai Technologies Inc.(AKAM), the largest supplier of software and services to speed up the delivery of Web pages, dropped 17 percent in extended trading after cutting its full-year earnings forecast.
- THQ Inc.(THQI), the third-largest U.S. video-game publisher, reported a wider first-quarter loss as it spent more to develop games such as ``Saints Row 2,'' and lowered its annual sales and profit forecasts. The stock fell 10.6% in after-hours trading.
- Construction sites in Beijing, closed because of the Olympic Games, may remain shut for two months, curbing demand for steel in the world's biggest consumer, Shougang Corp. said. Beijing has shut factories and barred vehicles and the International Olympic Committee has warned it may postpone events should pollution levels put athletes at risk during the Aug. 8 to Aug. 24 games. ``Steel demand in Beijing is almost zero, transportation has also stopped,'' Wang Sujuan, an analyst at Mysteel, said in Beijing. ``Traders have gone home. Some producers have to build up their stockpiles.''

Wall Street Journal:
- Presidential rivals Barack Obama and John McCain both appear to be seizing the roles in which they have been cast: Sen. Obama as front-runner and Sen. McCain as underdog. The approach carries perils for both men.

MarketWatch.com:
- A bill that would put new limits on speculative trading in energy commodities failed to get the required two-third majority of votes to pass the House on Wednesday. The vote was 276 to 151. The Commodity Markets Transparency and Accountability Act would boost staffing at the Commodity Futures Trading Commission and require the agency to limit the positions of speculators in energy and agricultural commodities.

IBD:
- Software That Tests Airplane Wings Will Go For Gold In Beijing.

Forbes.com:
- Top Colleges For Getting Rich.
- Most Lucrative College Majors.
- Best Cities For Recent College Grads.

CNNMoney.com:
- Energy solutions: You decide. As Americans grapple with record oil and gas prices, politicians facing angry voters have offered up a variety of solutions. Vote here.

USA Today.com:
- Study: US has up to 50% more natural gas than once thought. The report says the U.S. has up to 50% more natural gas reserves than earlier projections because of higher-than-expected yields from 22 shale formations in 20 states. The industry says the findings should prod policymakers to provide incentives to wean the nation from $4 gasoline and move to compressed natural gas as a standard fuel in many cars and trucks. The U.S. has enough natural gas resources to last up to 118 years, or 2,247 trillion cubic feet (Tcf), says the study by Navigant Consulting for the American Clean Skies Foundation. That group is largely funded by natural gas companies.
- Thomson Reuters says earnings are down 17.9% so far in the second quarter. S&P 500 earnings would be up 7.8% if financials are taken out, Thomson says.

AP:
- Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.
- How the housing bill signed into law Wednesday by President Bush affects homeowners:

Reuters:
- International Olympic Committee members agreed to allow China to block Web sites during the Beijing Games after promising the media that there would be unrestricted access. Web sites blocked in the main press center include Amnesty International, which this week said China failed to honor Olympic human rights pledges.
- Energy tycoon T. Boone Pickens said on Wednesday he is creating an "army" of business leaders and mainstream Americans to lobby for his plan to revamp U.S. energy policy in favor of wind power and natural gas over imported oil. Pickens, who made a fortune in the oil industry, now has a $10 billion wind farm under development.

Financial Times:
- For the first time in history, a crisis triggered by US housing finance problems is having global ramifications. Individual companies have drawn lessons from the crisis but common efforts to reform the financial system are the order of the day. The challenge is to extend individual reforms across the financial services industry.
- The Federal Reserve ramped up its liquidity support operations again on Wednesday in an effort to reduce money market strains and pre-empt the possibility of funding crises at the year-end or at other stress points. The US central bank said it would offer three-month cash loans to banks and create a new options auction facility. It also said it would give investment banks and other primary dealers extended access to emergency cash and loans of Treasury securities until January 30.
- Six of the US's independent over-the-counter brokers will on Thursday announce they are uniting to form an interdealer brokerage that will be a leading force in trading North American energy futures. The move comes as energy trading comes under intense pressure from Congress, where speculation and opaque markets have been blamed for high oil prices.

Telegraph:
- Foreign investors have become extremely wary of the Russian stock market after the Kremlin moved yet again to tighten its noose around the country's energy and mining sector, launching anti-trust probes against London-listed Evraz Holding and Raspadsky Coal. The move follows last week's assault on steel and coal giant Mechel for alleged overpricing of raw materials and using off-shore trading to cut its tax bill.

Kyodo News:
- Japan is likely to downgrade its assessment of the economy in a report next week, citing government officials. The world’s second-largest economy will probably be assessed as “worsening” in a report on the coincident index for June to be released on Aug. 6, as opposed to “possibly at a turning point” in May. Japan may already be in a recession, according to a separate report in the Nikkei newspaper based on a survey of 10 economists.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (SYMC), target $24.
- Downgraded (TBL) to Sell, target $13.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -.16%.
NASDAQ 100 futures -.20%.

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Earnings of Note
Company/EPS Estimate
- (NMX)/.81
- (IRM)/.18
- (ADP)/.41
- (CEG)/1.05
- (MA)/2.02
- (D)/.51
- (XOM)/2.53
- (FPL)/.93
- (GT)/.59
- (IP)/.40
- (PH)/1.50
- (MRO)/1.5
- (EXPE)/.39
- (CVC)/.11
- (PTEN)/.50
- (CBS)/.52
- (AET)/.93
- (EK)/.15
- (MO)/.45
- (MOT)/-.03
- (BWA)/.76
- (K)/.81
- (CVS)/.60
- (APA)/4.05
- (CHK)/.88
- (CA)/.34
- (MFE)/.45
- (MEE)/.76
- (MNST)/.36
- (DLB)/.31
- (KLAC)/.57
- (MORN)/.49
- (GMCR)/.21
- (BCO)/.77
- (ZEUS)/1.96

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Advance 2Q GDP is estimated to rise 2.3% versus a 1.0% gain in 1Q.
- Advance 2Q Personal Consumption is estimated to rise 1.7% versus a 1.1% gain in 1Q.
- Advance 2Q GDP Price Index is estimated to rise 2.4% versus a 2.7% gain in 1Q.
- Advance 2Q Core PCE rose 2.0% versus a 2.3% gain in 1Q.
- The 2Q Employment Cost Index is estimated to rise .7% versus a .7% increase in 1Q.
- Initial Jobless Claims for this week are estimated to fall to 393K versus 406K the prior week.
- Continuing Claims are estimated to rise to 3150K versus 3107K prior.

9:45 am EST
- The Chicago Purchasing for July is estimated to fall to 49.0 versus 49.6 in June.

Other Potential Market Movers
- The weekly EIA natural gas inventory report and NAPM-Milwaukee report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and industrial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Financial, Commodity, Construction and Semi Shares

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In Play

Stocks Mixed into Final Hour as Rising Oil Offsets Less Economic Pessimism

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Computer longs, Semi longs and Alternative Energy longs offset losses in my Internet longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising .05% and is still above-average at 22.04. The ISE Sentiment Index is low at 110.0 and the total put/call is about average at .87. Finally, the NYSE Arms has been running slightly below average most of the day and is currently .79. The Euro Financial Sector Credit Default Swap Index is rising 2.65% today to 79.42 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -2.15% today to 130.17 basis points. The TED spread is rising 1.12% to 1.10. Today’s action is more constructive taking into consideration yesterday’s advance and today’s $4.60 jump in oil. The fact that the financials etf(XLF), which has a negative -.95 correlation with oil, is maintaining recent gains is especially positive. Merrill(MER) is trading up another 2.4%. Half the financial newsletter writers are bearish, the most since 1995, which also bodes well for an extension of recent gains. The last time stock pessimism was this high was in January 1995, a month before the Dow Jones Industrial Average rose to 4,000 for the first time and began an advance of more than 100 percent over the next five years. The Citi eurozone economic surprise index is now -155.70 versus +29.40 in the US. I still think the US dollar has further upside over the short and intermediate-term. Nikkei futures indicate an +77 open in Japan and DAX futures indicate an +25 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing financial sector pessimism and less economic pessimism.

Today's Headlines

Bloomberg:
- Iraq’s daily oil production is the highest since March 2003. A $34 million security system of ditches, fences and concertina wire has stopped attacks since July 2007 on the pipeline from Kirkuk in the north to a major refinery in Baiji, central Iraq, according to the report. The result has been a substantial rise in crude oil exports from the north, Bowen said. ``Iraq's burgeoning oil windfall, which has yielded more than $33 billion in revenues to date in 2008,'' may result in another $7 billion that could be spent on reconstruction as U.S. spending winds down, Bowen said. Analysts say Iraq has the world's third-largest reservoir of untapped crude oil. Contributing to Iraq's improved security was the so-called surge of almost 30,000 U.S. military personnel that ended this month plus operations of the Iraq Security Forces, who cleared Muslim militias from Basra, Baghdad's Sadr City, Mosul and Amara, said Bowen, who for the third time this year reported increasing improvements in Iraq's security and economy. The Iraqi government plans to build similar protection systems for the pipelines between Baghdad and Karbala and between Baiji and Baghdad, the Pentagon said.
- Spain's economy expanded the least in 15 years in the second quarter as record oil prices and the collapse in homebuilding destroyed jobs and sapped spending, the central bank said.
- Crude oil rose more than $3 after the US Energy Dept. reported the first decline in inventories in five weeks. U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, the department said. The drop in gasoline inventories last week left stockpiles 3 percent higher than the five-year average for the period, the department said. Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.
- Gold traded near a three-week low in Asia as a stronger dollar and falling energy costs eroded demand for bullion as an inflation haven.
- Israeli Prime Minister Ehud Olmert said today he will step down ``with honor'' when the ruling Kadima party chooses a new chief in September, ending 2 1/2 years in power amid a corruption scandal.
- Europeans' confidence in the outlook for the economy dropped the most since the Sept. 11 terrorist attacks as soaring energy costs and the euro's advance against the dollar rattled consumers and executives.
- Nintendo Co., the world's second- largest maker of home video-game players, reported first-quarter profit rose 34 percent as the Wii console extended its lead over Sony Corp.'s PlayStation 3 and Microsoft Corp.'s Xbox 360.

Wall Street Journal:
- Target Corp.(TGT) is offering its Web site customers who buy consumer electronics next-day installation services through a new third-party supplier, Zip Express. It's the first time Target has offered installation services.

Washington Post:
- The House of Representatives issued an apology to black Americans for slavery more than 140 years after its abolition. Senator Tom Harkin, an Iowa Democrat, is considering introducing a similar resolution in the Senate.

VentureBeat:
- Google(GOOG) is the sleeping giant when it comes to advertising in video games. While the company dominates search advertising, it has yet to make a big splash in video games. That could change soon, as the company has been quietly testing its “AdSense for Games” product for months.

Politico:
- Seeking to both elevate and diminish his rival's status, John McCain is up with a new ad featuring images of Paris Hilton and Britney Spears but declaring that they take a back seat to Barack Obama. "He's the biggest celebrity in the world," says the announcer of Obama, set to images from his massive Berlin speech. "But is he ready to lead?" (video)

Boston Globe:
- The House today voted 118 to 35 to repeal a 1913 state law that prevents gay and lesbian couples from most other states from marrying in Massachusetts. The measure, which the Senate passed earlier this month, will head to the desk of Governor Deval Patrick, who is expected to sign it into law. The move will clear the way for out-of-state couples to marry in Massachusetts, making it the second state to allow gay and lesbian couples to marry regardless of their place of residence.

Reuters:
- Pacific Investment Management Co.(PIMCO) plans to offer its first bond exchange-traded fund, citing documents filed with the SEC.

Daily Telegraph:
- The Italian economy is getting so bad that the country may face pressure to withdraw from the European Union’s monetary union, according to a report by Capital Economics. Business confidence has fallen to the lowest since October 2001, following the 9/11 terrorist attacks. The country is disproportionately hit by the high euro because it relies heavily on "mid-tech" exports that compete toe-to-toe with Asian goods.

Independent.ie:
- None of the office space that's earmarked for completion in Dublin's city centre during the second half of this year has been pre-let to clients and less than 18pc of the space built during the second quarter of this year was pre-let. The figures released by estate agent Lisney suggest a sharp reversal is occurring in the fortunes of the country's commercial property developers.

International Herald Tribune:
- Nearly 4.8 billion passengers took to the air last year, with Atlanta's Hartsfield International atop the list of the world's busiest terminals, followed by Chicago's O'Hare and London's Heathrow.

Andina:
- Newmont Mining Corp.’s(NEM) new gold mill may boost output by 11% at its Yanacocha mine in Peru. The $250 million facility could increase annual gold production at Yanacocha to 2 million ounces from 1.8 million ounces this year.

Bear Radar

Style Underperformer:

Small-cap Value -1.07%

Sector Underperformers:

Airlines irlind (-5.22%), Oil Tankers (-3.77%) and REITs (-2.30%)

Stocks Falling on Unusual Volume:

ELN, ULTI, GRMN, ELON, JLL, WYE, ONXX, CTV, ALGN, SPSS, ERTS, HWAY, TTMI, EEFT, LFG, CBG and HBI

Stocks With Unusual Put Option Activity:

1) URI 2) KFT 3) WYE 4) ELN 5) CEPH