Tuesday Watch

Late-Night Headlines
Bloomberg:
- The bear market in commodities may last for six to nine months before prices rebound in the second quarter of next year, Tiberius Asset Management AG said. ``Our analysis suggests that the events of July portend the start of a bear market of six to nine months' duration,'' Zug, Switzerland-based Tiberius, which manages about $1.5 billion of assets, said in a monthly report distributed today.
- Inflation will come down ``quite dramatically'' next year because of the economic slowdown and the slide in energy costs, said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc.(LEH) in New York. ``Next year we're going to have extremely low inflation, and a lot of that weakness is due to the decline in energy prices,'' Harris said. ``We've finally broken the back of oil prices,'' predicted Harris, who used to work at the New York Fed. ``If the economy doesn't revive at some point next year or in 2010 then you start worrying about serious, further decline in inflation,'' he said, noting that the current slump ``will probably be described as a recession.''
- Australia's central bank may need to cut borrowing costs soon to avoid the risk of a ``deeper and more persistent'' slowing in the economy. ``A case could be made for an early reduction in the cash rate,'' members of the bank's board said in minutes of their Aug. 5 meeting, released in Sydney today.
- Copper fell, reversing earlier gains, as signs of a slowing European economy fueled concern that demand will decline for the metal used in pipes and wires. U.K. house prices had the biggest annual decline since at least 2002 this month and French manufacturing confidence fell to the lowest in five years in July, separate reports showed today. Before today, copper declined for six weeks, the longest losing streak since August 2002, as the global economy cools. ``Everything is looking bad for copper,'' said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. ``People are still worried about demand.'' A global economic slowdown may lead to ``higher volatility'' for copper and other commodity prices in the short term, BHP Billiton Ltd., the world's biggest mining company, said today in a statement. Slumping growth may reduce demand for raw materials in exported Chinese products, BHP said. ``China is, of course, integrated into the world economy; we've seen the export sector, like manufactured goods, come under a little bit of pressure,'' Chief Executive Officer Marius Kloppers said today in a Bloomberg Television interview in London.
- Palladium futures in Tokyo fell below 1,000 yen a gram, dropping for a third day to the lowest since June 2006 on rising expectations that demand for the metal used in vehicle exhaust filters may be less than some had expected. Palladium for June delivery fell 2.5 percent to 993 yen a gram ($281 an ounce) on the Tokyo Commodity Exchange.
- Malaysia's ringgit won't strengthen until at least 2010 because falling commodity prices and rising political tension will damp demand for the currency, according to HSBC Holdings Plc. The London-based bank, Europe's biggest, said the currency will weaken to 3.5 per dollar at the end of this year, revising a prediction of 3.28, strategist Daniel Hui wrote in a research note. ``Deterioration across several fronts leads us to believe that an unfavorable fundamental backdrop will be much protracted,'' Hong Kong-based Hui said. ``All the conditions that helped drive capital inflows in the first quarter have now vanished,'' wrote Hui, who confirmed the report yesterday. ``Falling commodity prices will be a net negative for the trade account, national income and the fiscal balance,'' Hui said in the report. Malaysia's weakening currency and relatively low yields may cause foreign investors to liquidate their holdings of local debt, HSBC said. Global funds owned about 30 percent of Malaysia's government bonds, of which almost half is concentrated in the short-term bills, Hui said. Bank Negara's decision to hold its overnight policy rate unchanged at 3.5 percent since April 2006 made it the region's least responsive central bank, raising serious questions about its credibility and independence, HSBC also said. Inflation quickened 7.8 percent in July after reaching a 26-year high of 7.7 percent in June.
- India's central bank may have to further raise interest rates as inflation at a 16-year high damages the government ahead of elections due by May, according to the finance ministry's top economist. ``The political system doesn't tolerate inflation beyond a certain point,'' the ministry's Chief Economic Advisor Arvind Virmani said in an interview in New Delhi yesterday. ``Monetary policy has to focus on inflation.''

Wall Street Journal:
- Germany's powerful engineering union IG Metall is preparing to demand inflation-busting wage increases during negotiations this fall that will affect 3.6 million workers.
- Lehman Brothers Holdings Inc.(LEH) has approached a wide range of potential bidders about buying a piece of the firm's investment-management business, which includes Neuberger Berman, according to people familiar with the matter.

MarketWatch.com:
- Small-cap stocks have enjoyed big returns during the unlikely market upswing this summer, and many investors are gaming the action with exchange-traded funds. The small-cap ETF has gained 14% for the month ended Aug. 15, nearly doubling the blue-chip SPDR S&P 500 ETF (SPY) , which rose 7.6%, according to investment researcher Morningstar Inc. So far in 2008, the small-cap ETF is down 0.5% while the S&P 500-tracking fund has shed about 10%.

IBD:
- Quality Systems(QSII): With New CEO, Company Hopes More Doctors Will Go Electronic.

CNNMoney.com:
- An oil terminal and pipeline network expected to be built off the Texas Gulf Coast in about two years would be capable of handling nearly 20% of the nation's daily imported oil. Demand from expanding refineries along the coast, from Freeport to Port Arthur, is driving the $1.8 billion project.

RockyMountainNews:
- Vestas Wind Systems' slogan is "believe in the wind." The company also seems to believe in Colorado. The company is investing $680 million with plans to employ 2,450 in Colorado by about 2010. All of Vestas' announced U.S. manufacturing is here. Gov. Bill Ritter on Friday said Vestas will spend $290 million on two plants in Brighton that will employ 1,350. The plants will join the company's existing Windsor operations and another plant, in a Colorado location to be determined, that will build towers for its wind systems.

Arizona Republic:
- Tempe-based First Solar Inc.(FSLR) will add 500,000 square feet of manufacturing, research and office space to its Perrysburg, Ohio, plant, the company said Monday.

USA Today.com:
- The average retail price for gasoline fell to its lowest level in 14 weeks, as cheaper crude oil costs are passed on to the pump and Americans drive less, the government said Monday. The national price for regular unleaded gasoline declined 6.9 cents over the last week to $3.74 a gallon, the federal Energy Information Administration said in its weekly survey of service stations.

Wealth-bulletin:
- Sharp reversals in the price of oil in July led energy hedge funds to a 9.5% decline during the month, according to new data, while funds investing more broadly in commodities were also down amid expectations of a global economic slowdown. Managed futures funds that can invest in other markets as well, including those for hard and soft commodities, fell 4% in July. Those focused on China reported a rise of 0.3% in July compared to a 5.2% increase for those targeting India. By contrast, funds investing in Russia fell by 9.1%, and those in the Middle East by 4%. The falls leave HedgeFund.net's database of emerging markets equities long/short funds down 4.9% in July and down 9.3% so far in 2008.

Dealbreaker:
- Morgan Stanley(MS) and Goldman Sachs(GS) are linking their lending to hedge funds to the market's assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.

BusinessWeek.com:
- Daimler’s Smart Car Hits Cruising Speed. Thanks to eco-image-consciousness and soaring pump prices, sales finally rev up – even in the US.
- These days, all the excitement in the optical business is around new undersea cables being laid (or planned), bridging previously unconnected parts of the world. These cables are, in fact, the early warning signs of a coming economic boom.

Reuters:
- General Motors Corp(GM), aiming to boost sagging sales, rolled out a major promotion for U.S. dealers on Monday that includes employee-level discounts on almost all the Chevrolet cars and trucks in its showrooms.
- A total of 297,000 options traded on Monday in the Financial Select Sector SPDR Fund (XLF), with puts outpacing calls by a factor of 1.57, according to option analytics firm Trade Alert.
- Assets in U.S.-based exchange-traded funds edged up $3 billion, or 0.5 percent, in July to $578 billion, according to a report on Monday by State Street Global Advisors. Aggregate short interest in the U.S. ETF market fell slightly to approximately 21 percent of total assets. Short interest in small cap ETFs rose 21.2 percent, while short interest in financials ETFs climbed 18.7 percent.
- Private equity firms are expected to expand their foray into leveraged loans and other distressed securities to capitalize on opportunities created by the credit crisis, Standard & Poor's said in a report. The trend is expected to benefit banks as they continue to whittle down the backlog of unsold loans from the last leveraged buyout boom before the onset of the credit crisis in the summer of 2007.
- Rogers Communications Inc, the owner of Canada's biggest wireless carrier, will start offering Research In Motion Ltd's(RIMM) new BlackBerry Bold on Thursday, the telecom firm said.

TimesOnline:
- Is it time to back America again? Investors are looking for bargains in the US property and stock markets. Brave investors are starting to back America as evidence grows that it could be the first to pull itself out of the global downturn. “This is the start of a major move: the dollar will get even stronger,” said Alan Steel at Alan Steel Asset Management. “Anyone sitting in a US fund in the last three or four weeks will have seen a nice bounce - anything up to 12%.” Professionals are more positive about America than they have been for six years, the latest Merrill Lynch survey of fund managers shows. A record net 58% of managers believe the dollar is undervalued, some 38% are most likely to be overweight in the US over the next year, and 12% of asset allocators are currently overweight - meaning they have more than their global benchmark in the country. The S&P 500 is down 9.3% on the year, but dollar-adjusted the fall is only 2.8%. The tech-based Nasdaq is up 4.7% for sterling investors. Despite huge write-downs in the financial sector, many American companies have strong balance sheets, and Steel believes the US economy is hugely underrated. “If you’re in a storm the safest place to be is in the deep sea, not the shallows, and the economy in the world that represents the deep sea is the US,” he said. “It has shown remarkable resilience. It went into the credit crunch first and it’ll be the first to come out.” American property might remain in the doldrums, but a growing number of British buyers are seeing opportunities to buy in on the cheap. Foreign-exchange firm World First has seen a 38% year-on-year jump in inquiries from Britons looking to buy in the four months to the end of July. Those thinking of following in his footsteps should think ahead. “If you’re looking at that US dream home, buying dollars and keeping them in your back pocket may be a very sensible play,” said Jeremy Cook, chief economist at World First.

Globovision:
- Venezuelan National Guard troops, four judges and workers from Petroleos de Venezuela SA moved in on the Cemex SAB cement factory in the western city of Maracaibo late today to nationalize it. A ceremony was held in the plant to mark the transfer of control.

The Financial Express:
- Mahindra & Mahindra (M&M) is working on an electric car that will be bigger than the Reva brand, said a senior company official. The four-seater, under development, will hit the Indian market by 2010. M&M plans to launch the product in India and then take it abroad. This is contrary to the plans of Tata Motors, which is working on an electric car project for Norway and plans to launch the product there by the end of this fiscal and then make it available in other markets.

Business Times online:
- Malaysia’s economic growth is expected to moderate in the second half of the year, said Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz. The second half figures will be impacted by rising energy and commodity prices.

Late Buy/Sell Recommendations
RBC Capital:
- Rated (AFAM) Outperform, target $52.
- Rated (AMED) Outperform, target $70..

Night Trading
Asian Indices are -1.50% to -.50% on average.
S&P 500 futures -.02%.
NASDAQ 100 futures unch.

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Earnings of Note
Company/EPS Estimate
- (TGT)/.75
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Upcoming Splits
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Economic Releases
8:30 am EST
- The Producer Price Index for July is estimated to rise .6% versus a 1.8% increase in June.
- The PPI Ex Food & Energy for July is estimated to rise .2% versus a .2% gain in June.
- Housing Starts for July are estimated to fall to 960K versus 1066K in June.
- Building Permits for July are estimated to fall to 970K versus 1138K in June.

Other Potential Market Movers
- The Fed’s Fisher speaking, weekly retail sales reports and Intel(INTC) Developer’s Forum could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.