Monday Watch

Weekend Headlines
Bloomberg:
- Never Have So Many Short Sellers Made So Much Money With Stocks. Investors worldwide are betting more than $1 trillion on a collapse in stock prices. More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specializing in securities lending, show. Almost all of that is being used to speculate that shares will fall, according to James Angel, a finance professor at Georgetown University who studies short selling. Short selling on the New York Stock Exchange rose to 4.6 percent of total shares last month, the highest since at least 1931, according to data compiled by Bespoke Investment Group LLC.
- Commodities capped their longest slide since November, dropping as much as 10 percent from a record two weeks ago, on concern that slowing global growth will erode demand for energy, grains and metals. ``All of these commodities are starting to show signs that the big bull market is over, and the things that people have really made the most money with in the past seven years will start to substantially drop,'' said Michael Aronstein, president of Marketfield Asset Management in New York. Traders also sold commodities on speculation investments in equities would garner greater returns, said Adam Klopfenstein, a senior market strategist in Chicago for Lind-Waldock, a division of MF Global Ltd. ``We're seeing rotation into stocks,'' Klopfenstein said. ``We're going through a rebalancing of portfolios.'' ``You get to price levels like we've seen and it really changes people's behavior, and it starts creating demand destruction,'' Aronstein of Marketfield said. ``In two years, all these prices will be substantially lower than they are now.''
- Peter Beutel, president of Cameron Hanover Inc., says oil may drop below $100 a barrel. (video)
- Iranian President Mahmoud Ahmadinejad said the latest round of international talks was a ``step forward'' in resolving the conflict concerning his country's nuclear program.
- Corn had its biggest weekly drop in 12 years, plunging 11%. Futures are now down 19 percent from a record in June. ``There's a lot of fund liquidation going on here.''
- Copper declined, heading for a second straight weekly drop, as supplies rose in China, the world's largest consumer of the metal. Stockpiles monitored by the Shanghai Futures Exchange gained 13 percent this week to 42,935 metric tons. That's the highest level since May 29. Chinese production in the six months through June rose 19 percent from a year earlier, the country's statistics bureau said today. ``Copper is caught between slowing worldwide demand and increased Chinese supplies,'' said Donald Selkin, the chief market strategist at National Securities Corp. in New York. ``It's hard to justify higher prices right now.''
- Venezuelan President Hugo Chavez heads to Moscow today to shop for tanks, air defense systems and other weaponry as Latin America's arms race quickens amid signs that his regional influence is waning.
- Time Warner Inc.'s(TWX) ``The Dark Knight,'' the sequel to 2005's ``Batman Begins,'' made a record $155.3 million in its opening weekend for Warner Bros., while setting at least five other box-office records.
- President George W. Bush intensified pressure on Congressional Democrats to end an offshore drilling moratorium, saying lawmakers have closed off ``vast'' oil reserves that could be tapped to lower record gasoline prices. ``The sooner Congress lifts the ban, the sooner we can get these resources from the ocean floor to the gas pump,'' Bush said today in his weekly radio address. ``Democratic leaders need to show that they have finally heard the frustrations of the American people.''
- U.K. Prime Minister Gordon Brown said he would not set ``an artificial timetable'' for withdrawing British troops from Iraq, though progress toward a reduction is being made.
- The Australian dollar could be ``on the cusp of a free fall,'' after reaching a 25-year high and near-parity against its U.S. counterpart last week, TD Securities Ltd. said in a report.

Wall Street Journal:
- The SEC’s ban of “naked” short-selling in 19 financial companies has been criticized by firms that weren’t included. The American Bankers Association, which represents 8,500 banks, asked the US market regulator to extend the emergency rule to all companies in the industry or risk making them a target for market manipulators, citing a le4tter from the organization. The Financial Services Roundtable, a group of 100 financial companies, and lender Washington Mutual(WM) have also requested an extension. National City(NCC) plans to do so.
- Ford Motor(F) may overhaul some US factories to make one of its European small-car models as Americans turn to more fuel-efficient vehicles amid record gas prices. Ford has looked at the Mondeo midsize sedan and the European version of its Focus small car among models it’s considering building in US plants. The automaker may seek to take as little as 18 months to begin producing the European car for US consumers.
- The wild gyrations in markets in recent weeks and months are shaking up some of the trading relationships between different types of financial assets, from stocks to currencies to commodities.
- The U.S. isn't the only country seeking to rein in short-selling during volatile times. Australia, too, is trying to impose tighter regulations on the practice, which has been blamed for exacerbating a selloff on the country's stock market. Lawmakers in Australia are proposing rules that would require short sellers to disclose more about their positions in order to prevent market manipulation. The legislation is part of an effort to overhaul the country's financial regulation and comes amid a severe downturn in Australian shares that has pushed the benchmark S&P/ASX 200 index down 24% this year.

MarketWatch.com:
- Paulson says recovery to take months, not years. Treasury chief confident Congress will approve Fannie, Freddie aid plan. Paulson also voiced confidence on government's ability to deal with the recent string of bank failures. "Our regulators are on top of it. This is a very manageable situation," he said. He said 2008 has seen only five banks fail, compared with about 250 failures seen in a single year during the height of the savings-and-loan crisis of the late 1980s and early 1990s. Speaking later on CNN's Late Edition, he added that "99% of the banks with 99% of the assets" were in good shape in terms of capitalization. "Stability in the capital markets, that's our No. 1 thing," he said.

NY Times:
- Exxon Mobil Corp. CEO Tillerson said the US needs an energy policy that will last as long as 20 years instead of following the two-year election cycle. Tillerson called it “nonsensical” to suggest that the US shouldn’t start drilling for oil because it won’t offer an immediate solution to rising prices.
- Americans are increasingly shopping online to avoid rising gas prices, and many stores are offering free shipping to bolster this source of revenue. Among the stores offering “deals” on shipping this week are Neiman Marcus, Nordstrom, Bloomingdale’s, Macy’s, Aeropostale, American Eagle Outfitters and Target. Retailers such as Gap Inc., Victoria’s Secret and JC Penney have seen double-digit sales gains at their online stores. Internet sales may exceed $200 billion in 2008, up from $175 billion last year, citing Forrester Research.
- Behind The Wheel of the BMW Hydrogen 7.
- Western Ads Cheerlead for China. It is becoming increasingly clear which nation global corporations will be rooting for at this summer’s Olympics: China. McDonald’s is running a “Cheer for China” television ad. Nike ads feature China’s star hurdler, Liu Xiang, and other Chinese athletes besting foreign competitors. Earlier this year, Pepsi even painted its familiar blue cans red for a limited edition “Go Red for China” promotion.
- Dr. Arnold Kim’s Web site, MacRumors.com, has become such a popular technology site, he has stopped practicing medicine to blog full time.
- Erin Burnett’s meteoric rise is the most recent example of how television networks try to transform fresh-faced hosts into household names.

LA Times:
- Former Vice President Al Gore made a surprise appearance Saturday at the Netroots Nation conference, a gathering of nearly 2,000 left-leaning bloggers and political organizers. He urged the activists to mobilize for global climate protection, amplifying his call to generate all the nation's electricity from renewable sources like wind, solar and geothermal energy in 10 years. Recent Republican calls to battle rising oil prices with more drilling are "absurd" and a bit like curing a hangover with another drink, he said. At last year's conference, then called Yearly Kos, seven Democratic presidential candidates -- including Barack Obama, now the presumptive nominee -- vied for the support of the bloggers, whose political influence has grown exponentially since they emerged as a significant factor in the last presidential campaign. Obama skipped this year's conference.

Daily Tech:
- The American Physical Society, an organization representing nearly 50,000 physicists, has reversed its stance on climate change and is now proclaiming that many of its members disbelieve in human-induced global warming. The APS is also sponsoring public debate on the validity of global warming science. The leadership of the society had previously called the evidence for global warming "incontrovertible."

Washington Post:
- Senator Hillary Clinton of NY and Massachusetts Governor Deval Patrick are among those Democratic activists have suggested Barack Obama name to any opening on the Supreme Court if he’s elected president. Harvard law professor Lani Guinier said Clinton offers a “range of experiences” the Supreme Court currently lacks. Democrats want Obama to nominate a candidate who would be vocal in interpreting the constitution.

Business Week:
- Killing Jobs to Save the Climate? European emission permits are getting so pricey, German companies are threatening to leave the country. Thousands of jobs could be lost.

USA Today:
- Websites give view of neighborhood safety.

Reuters:
- Iraqi Prime Minister Nuri al-Maliki isn’t personally endorsing Senator Barack Obama’s timetable for US troop withdrawal, citing an Iraqi government spokesman. Germany’s Der Spiegel magazine misunderstood al-Maliki when it reported that al-Malkiki favored Obama’s plan, Iraqi spokesman Ali al-Dabbagh said. Al-Maliki envisions a US pullout based on talks with Washington and the security situation in Iraq, citing al-Dabbagh.
- An $11 billion joint plastics venture between Dow Chemical Co (DOW) and a unit of Kuwait Petroleum Corp will be based in Michigan, the two companies said in a statement on Sunday.
- The British economy is heading into recession and interest rates should fall to "well below" their current 5 percent, Bank of England policy-maker David Blanchflower was quoted as saying in a newspaper interview.

Financial Times:
- Elan Corp.(ELN) has hired Lehman Brothers(LEH) and Goldman Sachs(GS) for a possible sale of the Irish company’s drug technology division that could fetch as much as $1.5 billion.
- Investor fears for the credit risk of eurozone countries with weaker economies has increased sharply this month. Prices of credit default swaps - a kind of insurance against bond defaults and the best gauge of risk in the debt markets - for Greece, Italy, Spain, Portugal and Ireland have all jumped.
- Citigroup(C) has come under pressure from activist union shareholders who want the financial conglomerate to break itself up.

TimesOnline:
- UK taxpayers can’t be asked to pay more while an economic downturn is proving to be deeper than previously though, citing Chancellor of the Exchequer Alistair Darling. “There are a lot of people in this country who word hard, they make their contributions and they’re feeling squeezed,” he said.
- A slowdown in the flow of containers through the giant ports of southern China is providing an amber warning light that all is not well in the vast workshops of China's eastern seaboard. Container traffic growth in Shenzhen and Shanghai, China's biggest ports, slowed in June as weakening demand took its toll on trans-Pacific trade. Traffic at Shenzhen, the world's fourth-largest port, fell in June by 0.6 per cent from the previous month and grew only 3.5 per cent against the same month last year. Throughput in the first half of the year was up 7 per cent, half the rate of growth last year.

Focus:
- Apple Inc.(AAPL) underestimated demand in Europe for some versions of its iPhone and the company is now struggling to fill orders, citing a company manager. 3G iPhone demand was “completely underestimated” and it may take until October before shops in Germany receive delivery of the next shipment.

Daily Telegraph:
- The chief executive of the sugar refining group Tate & Lyle has hit out at hedge funds and other commodity speculators, calling for them to face greater regulation in a bid to hold back soaring food prices. Tate & Lyle boss Iain Ferguson called for limits to be placed on speculators' involvement in the futures market and the way hedge funds and others finance their activity. "It's not helpful to have quite so much speculative money here," he said. "I think you need enough liquidity in the futures market for it to do its job but if you look at the swings that have been going on, they're not helpful to either farmers, processors or consumers. They create false markets."

21^st Century Business Herald:
- Two Chinese copper producers that make the metal from scrap reduced their output by 2,500 metric tons last month, citing a survey by researcher CBI (Shanghai) Co. The two companies may also cut July output by 5,500 tons, as domestic demand for the industrial material slowed, citing the survey. Scrap copper refiners now operate at about 85% of capacity, citing CBI. The global price for copper is higher than the price in China as domestic demand is lagging behind supply, citing Shang Fushan, director of the copper dept. at the China Nonferrous Metals Industry Assoc.

Straits Times:
- Government of Singapore Investment Corp. expects the current slowdown in the global economy to last longer than the 2000 slump, citing the sovereign wealth fund’s Chief Investment Officer Ng Kok Song. Ng said financial companies in the US and Europe are cutting their exposure to risky loans and assets and this will weigh on the global economy.

Commercial Times:
- Taiwan will investigate suspected rumors that may have been driving down stock prices, citing Michael Lin, acting president of Taiwan Stock Exchange Corp. The exchange will monitor stocks of which short positions have increased sharply.

China Daily:
- Beijing yesterday inched a step closer to realizing a green Olympics by enforcing a series of measures to ease traffic jams and reduce pollution. Vehicles with even and odd plates will hit the roads only on alternate days, which effectively means just half of the capital's 3.29 million automobiles can run on any given day.

Gulf News:
- Unemployment in the Arab world is about 25% this year, citing the Arab Labour Organization. The increasing number of unemployed in Arab countries is a “very serious problem,” citing Amr Mousa, Secretary-General of the Arab League.

Weekend Recommendations
Barron's:
- Made positive comments on (ISRG), (GOOG), (MDT), (FSLR), (CSIQ), (SOLF), (LEH), (PRU), (TRN), (ACN), (TROW) and (FLIR).

Citigroup:
- Reiterated Buy on (IMCL), target raised to $56.
- Reiterated Buy on (SLB), boosted estimates, raised target to $123.

Night Trading
Asian indices are +.25% to +2.0% on avg.
S&P 500 futures -.14%.
NASDAQ 100 futures -.12%.

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Earnings of Note
Company/Estimate
- (HAS)/.22
- (MRK)/.83
- (BAC)/.54
- (SGP)/.41
- (TXN)/.46
- (AXP)/.82
- (BSX)/.11
- (QLGC)/.29
- (AAPL)/1.07
- (SNDK)/.13
- (MHK)/1.25

Upcoming Splits
- (BVN) 2-for-1

Economic Releases
10:00 am EST
- Leading Indicators for June are estimated to fall .1% versus a .1% gain in May.

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.