Monday Watch

Weekend Headlines
Bloomberg:
- President Dmitry Medvedev said Russian troops tomorrow will begin pulling out of Georgian areas it invaded as the U.S. and other western countries stepped up pressure on him to honor a cease-fire deal he signed yesterday. Medvedev told French President Nicolas Sarkozy by phone today that the invasion troops will move into the pro-Moscow breakaway region of South Ossetia, the Kremlin said in an e- mailed statement.
- House Speaker Nancy Pelosi said she will consider allowing offshore oil and gas drilling in some areas, with concessions from the oil industry, a softening of her earlier opposition to opening new areas to exploration. The California Democrat said a legislative proposal to be introduced ``in the coming weeks'' also would include expanding drilling in the Alaska oil reserve already designated for that, opening the nation's reserves of oil to reduce pump prices ``within 10 days,'' boosting support for alternative energy and reducing the cost of mass transit. Democrats have been under increasing pressure to allow offshore drilling as Republicans push the issue as a way to lower gas prices. The Sierra Club environmental group said it supports Pelosi's proposal and a debate ``will allow the truth to come out'' that offshore drilling would only benefit oil companies without lowering gas prices.
- The US dollar climbed to the strongest level in almost six months against the euro and advanced to a seven-month high versus the yen as the European and Japanese economies shrank and crude oil dropped. The U.S. currency gained against the euro for a fifth week, its longest weekly winning streak since February 2006. Sterling fell 3 percent this week to $1.8661 after touching $1.8512 yesterday, the lowest level since July 2006. It declined in each of the past 11 days, the longest stretch since at least January 1971. Bank of England Governor Mervyn King said on Aug. 13 that there was a ``chill in the economic air,'' signaling policy makers may reduce the 5 percent target lending rate. ``We're actually at a fundamental turning point for the dollar,'' said Simon Derrick, currency strategist in London at Bank of New York Mellon Corp. in an interview on Bloomberg Television. Goldman Sachs Group Inc. said this week that the dollar has ``bottomed'' against the euro, predicting it will strengthen to $1.45 per euro in three months. Lehman Brothers Holdings Inc. turned more bullish on the dollar, predicting it will advance to $1.43 by year-end and $1.40 by the end of March 2009, compared with previous forecasts of $1.50 and $1.48. The euro may be undermined further by Europe's proximity to the conflict between Russia and Georgia, said Firas Askari, head currency trader at BMO Capital Markets in Toronto. ``The world is finding the dollar is very, very cheap,'' said Steven Englander, a currency strategist at Lehman in New York. ``There's significant revision of growth outlook and monetary policies outside the U.S. Changing global sentiment is bringing down commodity prices, which is helping the dollar.''
- Asian currencies posted a weekly decline, led by the Philippine peso, after a contraction in Europe's economy added to concern a global slowdown will damp demand for emerging-market assets. The peso had its worst week in a year as overseas investors sold more of the nation's stocks than they bought for the past 14 days. ``The peso will depreciate in the short term as risk aversion seems to have made a comeback in emerging markets with the selling in stocks,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. Taiwan's dollar dropped for a fourth week on concern a slowing world economy will cut demand for the island's exports. ``The Singapore dollar will remain soft in the coming weeks as we are expecting more weak numbers from the Euro zone, which will set the tone for Asia and Singapore,'' said Wai Ho Leong, a regional economist at Barclays Capital in Singapore.
- BHP Billiton Ltd.(BHP), the world’s largest mining company, said its cobalt price tumbled 33% to the lowest in almost a year. Global production of cobalt is forecast to increase as miners in the Democratic Republic of Congo expand or begin operating in response to an earlier jump in prices. Vancouver-based miner First Quantum Minerals Ltd. said in March that supplies will increase 85% in the next 20 months. Freeport-McMoRan Copper & Gold(FCX) and First Quantum are planning projects that will add thousands of tons of extra capacity.
- Gold fell below $800 an ounce, capping the biggest weekly slide in 25 years, as the dollar surged against the euro, reducing the appeal of the metal as an alternative investment. Silver dropped as much as 14 percent. Gold plunged into a bear market this week, declining as much as 25 percent from a record $1,033.90 an ounce reached on March 17. The Reuters/Jefferies CRB Index of 19 commodities tumbled as much as 2.7 percent to 379.07, the lowest since March 20, as silver, soybeans and corn lead the drop. The index has dropped as much as 20 percent since reaching a record July 3, descending into a bear market.
- Time Warner Inc.'s(TWX) Batman saga ``The Dark Knight'' surpassed the original ``Star Wars'' to become the second highest-grossing domestic film of all time with $471.5 million, a month after its release.
- Michael Phelps broke Mark Spitz's record for gold medals in a single Olympics with his eighth in Beijing, swimming a leg on the U.S. 400-meter medley relay team. The 23-year-old Phelps lifted his Olympic record career haul to 14 golds as the U.S. won in a world record of 3 minutes, 29.34 seconds over Australia.
- Israeli Prime Minister Ehud Olmert told Palestinian Authority President Mahmoud Abbas that he was ready to give him sovereignty over Arab neighborhoods in east Jerusalem, the daily Ma'ariv reported without saying how it obtained the information.
- Venezuelan President Hugo Chavez said he will proceed with plans to nationalize the cement industry when the deadline to reach an agreement on terms of the takeover of three foreign companies expires at midnight tomorrow.
- Australian and U.S. scientists said they have copied a process found in plants that uses sunlight to make hydrogen from water, potentially a cleaner and lower-cost method of making the gas for use in fuel cells. By replicating aspects of photosynthesis, the breakthrough could ``revolutionize the renewable energy industry by making hydrogen, touted as the clean, green fuel of the future, cheaper and easier to produce on a commercial scale,'' Melbourne-based Monash University said in an e-mailed statement today.
- Peter Beutel, president of energy consultant Cameron Hanover Inc. says crude oil won’t hold prices gains related to Tropical Storm Fay. (video)

Wall Street Journal:
- The booming Persian Gulf is starting to suffer from its own form of a credit and lending crisis. As oil-fueled economic growth in the region surges, banks are finding that they don't have enough cash to meet all the demand from businesses to expand their operations. The development means that unless banks are able to boost their deposits or develop new financial instruments, a lack of finance could provide an important brake on how quickly the region can grow. Emirates Bank data show spreads over Libor for five-year bonds have more than quadrupled for A-rated U.A.E. banks. Funding spreads have rallied from as low as 0.25 percentage point before the credit crunch began last year to more than a full point, and even large regional clients considering issuing a sukuk are willing to pay as many as three percentage points over Libor, says Mr. Goff. Another factor adding to the crunch is the dollar's recent strength, which has driven away many foreign speculators who had bet the U.A.E. would cut its peg to the dollar, or revalue the local currency, the dirham. "The depeg story has gone away and as a result speculative money has exited the country drying access to funds," says Mr. Goff. "At the end of last year we were awash with liquidity but now that money has left the country."
- The US dollar’s seven-year trend of devaluation may be ending, which could slow inflation and the country’s exports. Further strengthening of the dollar, which has gained 8% against the euro in the past month, would help to depress inflation and prices for commodities and imported goods, while slowing exports that benefited from the dollar’s weakness.
- A sharp drop in commodity prices is raising hopes that inflation is peaking in many parts of the developing world, especially in Asia, providing welcome relief for the fragile global economy. Lofty prices for oil, food and other essentials remain a big challenge, especially for poor developing countries such as Haiti, Egypt and India, where earlier this year soaring costs triggered violent street protests, transport strikes and other unrest.
- General Motors(GM) has decided not to sponsor the 2009 Academy Awards, citing a GM spokeswoman. While GM has been under pressure to save money, the company has also been aggressively shifting ad dollars to digital marketing, such as search-related ads, and away from traditional media, according to people close to the company. They add that GM is looking to put a larger share of its ad dollars into media that offer a measurable return on its investment.

Barron’s:
- Broadcom’s(BRCM) stock could rally 40% as the cutting-edge chip maker grabs a bigger slice of the smartphone market.

MarketWatch.com:
- Shares in Vestas Wind Systems jumped as much as 8% Friday after the wind turbine manufacturer announced strong growth in second-quarter net profit and a big jump in its order backlog as rising energy prices help drive demand.
- Tropical Storm Fay, after unleashing heavy rains on Haiti, was creeping Saturday along a westward track toward Jamaica and southeast Cuba, prompting Cuban officials to issue a hurricane watch along the coast, the National Hurricane Center said.

NY Times:
- After years of regarding pirated video on YouTube as a threat, some major media companies are having a change of heart, treating it instead as an advertising opportunity. In the last few months, CBS, Universal Music, Lionsgate, Electronic Arts and other companies have stopped prodding YouTube to remove unauthorized clips of their movies, music videos and other content and started selling advertising against them. Getting into the good graces of media entities is seen as critical to the future of YouTube, which has struggled to show appreciable revenue for video ads.

Houston Chronicle:
- Ethanol producers last week railed against what they described as a smear campaign by opponents who have branded the industry responsible for rising food prices. "Today, we face strong opposition, and their weapon primarily is the press," Bob Scott, president of the American Coalition for Ethanol, told hundreds of producers gathered in Omaha for the group's trade show. Scott said the facts support the ethanol industry's view that the recent spike in energy prices is the biggest factor in food price increases. Ethanol producers, such as Poet, are working on developing cellulose-based forms of ethanol to supplement corn-based ethanol. Poet said last week that its new pilot cellulosic plant should begin producing fuel from corn cobs and fiber by the end of the year. Groups such as the National Corn-to-Ethanol Research Center are also helping test new feedstocks that can be used to create ethanol. Stephanie Regagnon said her test plant at Southern Illinois University's Edwardsville campus has experimented with barley, corn stover and even candy corn as possible sources of ethanol. Companies can hire the university lab to test their methods. The energy bill passed by Congress last year requires 9 billion gallons of ethanol to be blended into gasoline this year and about 11 billion gallons next year. The mandate requires refiners to use 36 billion gallons of ethanol by 2022.

TheStreet.com:
- Gary Krakow says lots of companies, including Motorola, are desperately looking for a phone as good as the iPhone but argues that no device is better or cheaper yet. (video)

Business Week:
- Hedge fund group spent $600,000 lobbying gov’t in 2Q. A trade group representing hedge funds spent $600,000 in the second quarter to lobby on proposals to raise taxes on the industry and regulate it more closely, according to a recent disclosure form. The Managed Funds Association lobbied against congressional efforts to raise taxes on hedge funds, buyout firms and their managers. The group also lobbied on bills to regulate commodity trading and require pension plans to disclose their hedge fund holdings.
- Empty Seats at China’s Sellout Olympics.

Denver Post:
- Big oil companies are boosting their natural gas operations in Colorado, digging into the reserves that have driven the state's energy boom and have been largely explored and developed thus far by smaller independent firms. Chevron received 71 drilling permits in the fiscal year ended June 30, up from 40 in fiscal 2006, according to data from the Colorado Oil and Gas Conservation Commission. The company is in the early stages of a $7.3 billion, decades-long project in western Colorado that could hit up to 3,000 wells, employ 500 people and produce enough natural gas to supply 2.4 million homes annually. Exxon Mobil was granted 202 permits last year, more than triple the company's permits from 2006. BP's permits increased to 122 from 58 during the same years. ConocoPhillips' growth has been even more dramatic. The company received just 1 permit in 2006. This past year, it was approved for 118. Industry experts attribute the surging interest from Big Oil to the rise in natural gas prices and heightened international political risks.

Lloyd’s List:
- Container-shipping lines scrapped plans to impose a $150 levy per cargo-box on Asia-Europe routes at the start of August because of weak demand. Slowing demand has caused rates to fall to less than $500 per twenty-foot container for some Asia-Europe cargos.

National Bureau of Economic Statistics(NBER):
- Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a recession-dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates. The only substantial point of disagreement is with respect to the NBER November 1973 peak. The algorithm prefers September 1974. In addition, this algorithm indicates that the data through June 2008 do not yet exceed the recession threshold, and will do so only if things get much worse.

USA Today:
- Juicy Couture: A business that’s oozing success. With their nearly waist-length hair, sky-high heels and matching outfits, the two co-founders of Juicy Couture look more like some of their high-style customers than their fellow corporate executives.
- Flu vaccine makers have begun shipping their products already, earlier than usual, and for the first time every strain included in the vaccine is new. The changes are due to a push to vaccinate an extra 30 million Americans — children ages 5 to 18 — and to a significant shift in the influenza strains expected to circulate in the northern hemisphere this year. One is a new Australian strain that sickened many last winter, when the vaccine didn't match the prevalent flu strains well.

Forbes:
- America’s Best Colleges.

CNNMoney.com:
- Oil: What the drilling advocates say. Supporters say there could be much more oil offshore than the government predicts as they fight for access to new supplies to lower the price of oil.
- A new generation of fortune hunters is seeking riches under the sands of Saudi Arabia. But this time they're searching for gold - the shiny kind, not the black, liquid variety - and potentially even more lucrative metals and minerals. "Gold, copper, phosphate, bauxite - this place could be the next Canada or Australia," says Inés Scotland, CEO of Citadel Resource Group, an Australian company that is mining copper in the kingdom. "The geology here is fantastic."
- Gas prices down another penny. AAA’s daily survey falls for 31^st straight day, bringing the total decline to more than 36 cents a gallon.

Energy Information Administration:
- Average monthly total petroleum consumption has now declined for 12 consecutive months when compared with the same month the year before. Within the last 25 years, we’ve identified 6 other 12-month periods during which there was a sustained drop in total petroleum consumption from the previous year.

Reuters:
- The Dalai Lama said on Saturday China was mistreating and torturing civilians in Tibet while the Olympic Games were going on. "Unfortunately the Olympic spirit is not being respected at all by Chinese officials in Tibet," he said in an interview on France's TF1 television, when asked if the tradition of an Olympic truce was being respected. "There are restrictions on the circulation of information, very strong censorship," he said. "Civilians are often arrested, violently tortured to the point where they die. It's really very, very sad," he said.

AP:
- Shine off India’s economy as gloomy data piles up. Until a few months ago, the most popular buzz phrase for India was "economic miracle", with the nation appearing impervious to the financial turmoil engulfing the developed world. But now the "India story" is losing traction, with inflation at 13-year highs and economic expansion slowing, prompting an exit by foreign investors as gloomy warnings pile up. Inflation, currently at 12.44 percent, will "remain in double digits through 2008" as a result of the surge in oil and other commodity prices, said Goldman Sachs economist Tushar Poddar, who sees more monetary tightening to tame prices, which will brake domestic growth further. Some economists forecast inflation, which has nearly tripled from a year ago, could hit at least 15 percent. The government has already shifted gears, saying it is giving priority to subduing prices over boosting growth. Global ratings agency Fitch has cut India's currency outlook to negative, citing a worsening fiscal deficit.

Financial Times:
- Lehman Brothers(LEH) is in discussions with interested parties to sell its $40 billion portfolio of commercial real estate assets. Lehman is also considering splitting the unit and listing it separately if the discussions fail.
- The general mood of frugality hitting US shoppers as they cut back on spending during the downturn, is failing to hit electronics goods, which are seeing a corresponding surge in sales. Demand for new gadgets saw consumer electronics sales up an annualized 4.8 per cent in July. even Wal-Mart's largely low-income shoppers are finding money for electronics. Last week, the retailer reported "strong sales" of flat-screen televisions, personal computers and digital music players. The release of Apple's new $200-$300 3G iPhone had supposedly cash-strapped customers lining up outside its stores. Amazon, the online retailer, saw its shares surge last week after a Wall Street analyst predicted strong sales of its $359 Kindle wireless electronic book reader. Meanwhile, sales of home media products. such as computer games and DVDs, are also holding up. Reed Hastings, CEO of Netflix, the DVD rental service, told investors last month that "we appear to be substantially unaffected by this significant economic negative climate". GameStop, the computer games retailer, is predicting that sales at stores open at least a year will increase by between 12 and 14 per cent during its current quarter.
- American industry can stay ahead of China. Our manufacturing future is in our own hands. Congress and the next administration will have significant impact on the environment for US manufacturing and its ability to compete globally. For the US to stay ahead of China and maintain world leadership, we must reduce corporate tax rates, which are the highest in the world, develop more of our domestic resources to ensure an affordable supply of energy, provide more generous incentives for research and development, train a new generation of skilled workers and move aggressively to expand exports with more free trade agreements - just as China is now doing. We also need to tackle the foreign barriers to trade that Congress has declined to remove as it holds up trade agreements with markets such as Colombia, Panama and South Korea. America's manufacturing future is bright, but we need our own government to be our ally. With support in Washington, US manufacturing will continue to bring home the gold.
- Singapore has taken on the appearance of a vast building site. Old apartment blocks are being torn down to make way for futuristic condominiums, including one in the shape of a huge sail. A new financial district in central Singapore is rising next to the city-state's first casino resort complex, to be operated by Las Vegas Sands (LVS) .The boom in construction, which rose 17 per cent between April and June, reflects a recent surge in property prices, including a 70 per cent increase in homes since 2005. Residential and office rents also jumped nearly 70 per cent last year. Prime office rentals are now the highest in Asia, beating traditional leaders Tokyo and Hong Kong, according to Colliers International. But, having reached stratospheric heights, the property market looks set to hit some turbulence that could produce an equally significant fall.

TimesOnline:
- The British Chambers of Commerce will become the first leading business group to predict a recession in Britain, citing the group’s quarterly forecast that will be published on Aug. 18.

Sonntag:
- General Motors(GM) is going through a “difficult phase,” citing Vice Chairman Bob Lutz. GM is not fighting for survival, and talk of GM going bankrupt is “pure pessimism,” Lutz said.

NZZ am Sonntag:
- UBS AG has reduced its risk positions to an extent that any future writedowns would be considerably smaller than previous ones, citing Chairman Peter Kurer. The likelihood of additional writedowns depends on financial markets, though many areas in which UBS holds positions are showing signs of recovery, Kurer said. UBS aims to be profitable again next year.

DN:
- Energy companies exploring in Norwegian waters will boost investments as long as the oil price stays above $80/bbl.. The energy companies, which include StatoilHydro ASA and Exxon Mobil Corp.(XOM), have on average based their production on an oil price of $70.40/bbl., according to the survey.

E24:
- Sweden will increase the number of wind turbines to about 6,000 by 2020 from currently 900 to help meet its renewable energy targets, citing Industry Minister Maud Olofsson.

Finanz & Wirtschaft:
- Honda Motor anticipates hybrid vehicles will account for about 10% of sales by 2013, citing Honda President Takeo Fukui. Vehicles that use less or don’t require fossil fuel and need few expensive resources such as steel will dominate the market, Fukui said.

The Australian:
- They’re mad as hell and they're not going to take it any more. Managers of several of Australia's most conservatively run companies have variously approached Prime Minister Kevin Rudd, Treasurer Wayne Swan and most particularly corporate law minister Nick Sherry to say how unhappy they are about many aspects of the plague of short selling that has recently swept through the Australian share market.

Kyodo News:
- The US is ready to delist North Korea as a state sponsor of terrorism once the Asian nation provides a plan for verifying the dismantlement of its nuclear program, citing US envoy Christopher Hill.

Nikkei:
- Suzuki Motor Corp. will start selling cars that run purely on bioethanol in Brazil and US in 2010. Suzuki will start selling cars fueled by gasoline blended with as much as 25% ethanol in Brazil in current fiscal year as a first step.

South China Morning Post:
- China’s Guangdong Loses 3,618 Toy Exporters. The hostile operating environment and fragile consumer confidence have hit about 3,600 toymakers in Guangdong in the first seven months of the year, according to state statistics.
- The Chinese insurance regulator has urged insurers to cut their holdings in A-shares because of the “uncertain” economic outlook. The China Insurance Regulatory Commission suggested at a recent work conference that insurers should be “extremely cautious” about potential declines in the country’s stock market.

Weekend Recommendations
Barron's:
- Made positive comments on (AMLN), (ONXX), (JRCC), (CALM), (BRCM), (RHD), (VIP), (SU) and (WBD).
- Made negative comments on (FNM) and (FRE).

Citigroup:
- Executives from American Shale Oil LLC told us at lunch today that the company plans to be producing 100,000 barrels per day by 2022 in Western Colorado’s Piceance Basin. The company believes that its projects will be economic at oil prices of below $50/bbl. The resource potential for oil shales is huge with 2 trillion barrels in the US.
- US market appears to be growing concerned as natural gas production continues to growth at 8% and current storage levels are already equal to the five-year historical average.
- US total rig count is currently at record levels – 1,990, 12% above levels seen at the beginning of the year and 11% higher year-over-year.

Night Trading
Asian indices are -.25% to +.75% on avg.
S&P 500 futures -.05%.
NASDAQ 100 futures -.05%.

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Earnings of Note
Company/Estimate
- (LOW)/.56

Upcoming Splits
- (ALXN) 2-for-1

Economic Releases
1:00 pm EST:
- The NAHB Housing Market Index for August is estimated at 16 versus 16 in July.

Other Potential Market Movers
- The (CSR) analyst meeting and (AER) investor meeting could also impact trading today.

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