Today's Headlines

Bloomberg:

- The Baltic Dry Index, a measure of shipping costs for commodities, fell for an eighth consecutive session in London as the supply of ships exceeded demand. The index tracking transport costs on international trade routes fell 83 points, or 3 percent, to 2,689 points, according to the Baltic Exchange. That’s 23 percent lower than before the declines began. Last week’s 17 percent slide was the steepest drop since the end of October. “Charterers out there seem to be well covered for their requirements, and as such we do not expect any turnaround in the short-term,” Rikard Vabo and Lars Erich Nilsen, analysts at Oslo-based Fearnley Fonds ASA, said in a note. “Congestion is also coming down quite significantly.” The number of capesize vessels waiting to offload in China fell to 64 from 81 last week, the analysts said, citing data from Global Ports. All vessel classes slid today, led by a 4.2 percent drop in rates for panamax vessels that carry coal, iron ore and grains.

- Echelon Corporation (NASDAQ:ELON) announced today that it has entered into a long-term agreement with Duke Energy (NYSE:DUK), the nation’s third-largest electric utility, to supply Echelon’s Networked Energy Services (NES) system as a key part of Duke Energy’s smart grid program. Answers to some background questions about what was announced today follow.

- Freddie Mac, the mortgage-finance company under government control being supported by taxpayers, said the collapse of lender Taylor, Bean & Whitaker Mortgage Corp. may cause it “significant” losses. Taylor Bearn, the 12^th-largest US mortgage originator, shuttered its lending business last week after being suspended by US agencies and Freddie Mac. The Federal Housing Administration cited possible financial-statement fraud.

- Gold declined the most in more than a week as falling equities and a rising dollar reduced demand for bullion as a hedge against accelerating consumer prices. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, slipped 3.97 metric tons to 1,068.9 tons as of Aug. 7, data on the company’s Web site show. The fund reached a record 1,134.03 tons on June 1. “With physical demand very low and ETF investors carrying out further pockets of redemptions, the metal is reliant on further fund/speculative buying to fuel rallies,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 12 percent in the week ended Aug. 4, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 193,514 contracts on Comex.

- Crude oil fell for a third day in New York after gasoline futures declined on signs of slowing seasonal demand for auto fuel late in the U.S. summer. “Oil’s looking a little bit vulnerable to some more downside in the first couple of days this week,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. The dollar’s rally “really undermines a lot of these commodities including oil,” he said. Weak demand through late summer and the “massive overhang of stockpiles” in the U.S. may also limit any price gains from storms and hurricanes in the Gulf of Mexico, he said. Total daily fuel use averaged 18.9 million barrels in the four weeks ended July 31, 3.1 percent less than a year earlier, the Energy Department said last week.

- Pequot Capital Management Inc., once the world’s biggest hedge-fund manager, was cited in at least 44 private reports from exchange watchdogs in the past four years alerting U.S. regulators to potential insider trading, market manipulation or other misconduct, government documents show.

- State Street Corp.(STT) may deplete the $625 million set aside in 2007 to settle legal claims stemming from losses linked to subprime mortgages. The reserve “may not be sufficient to address ongoing litigation” if the U.S. Securities and Exchange Commission sues State Street and seeks monetary penalties, the Boston-based custody bank said in a regulatory filing today.

- Epix, the new premium movie service owned by three Hollywood studios, will be available online for customers of Verizon Communications Inc.’s(VZ) FiOS before the first broadcast on Oct. 1. Verizon’s fiber-optic TV customers will get early online access to 160 movies in high-definition including “Iron Man,” Emil Rensing, New York-based Epix’s chief digital officer, said in an interview.

- Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade. Cash and short-term investments accounted for about $1.98 trillion, or 8.2 percent, of assets at the end of the second quarter for companies in the Standard & Poor’s 500 index, up from about $1.6 trillion, or 6.4 percent, a year earlier, Bloomberg data show. Cash reached a record $2 trillion in the first quarter, 8.3 percent of assets.

- McDonald’s Corp.(MCD), the world’s largest restaurant company, said global sales gained 4.3 percent in July, more than some analysts estimated, on demand for McCafe coffees and international sales. The stock rose in U.S. trading. Sales at U.S. restaurants open at least 13 months climbed 2.6 percent, while European orders increased 7.2 percent, Oak Brook, Illinois-based McDonald’s said today in a statement. Sales in Asia, the Middle East and Africa rose 2.1 percent.

- Priceline.com Inc.(PCLN), the online travel agency, rose the most in almost six months in Nasdaq trading after second-quarter earnings topped analysts’ estimates as travelers sought discounts during the recession. Priceline.com climbed $17.34, or 13 percent, to $148.66 at 10:18 a.m. New York time after earlier reaching $149.54, the biggest intraday gain since Feb. 19.

- Consumer bankruptcies show no sign of abating after rising more than a third this year and may hit 1.4 million by Dec. 31 as jobs are lost and loans are harder to get, according to the American Bankruptcy Institute. More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4.

- Treasury 10-year notes rose for the first time in six days as yields at their highest levels in two months lured buyers before the U.S. sells a record $75 billion of notes and bonds this week.

Wall Street Journal:

- Next year’s census will determine the apportionment of House members and Electoral College votes for each state. To accomplish these vital constitutional purposes, the enumeration should count only citizens and persons who are legal, permanent residents. But it won’t. Instead, the U.S. Census Bureau is set to count all persons physically present in the country—including large numbers who are here illegally. The result will unconstitutionally increase the number of representatives in some states and deprive some other states of their rightful political representation. Citizens of “loser” states should be outraged. Yet few are even aware of what’s going on.

- Economists don't see much relief for unemployed teenagers in a recession that has trimmed hires and pulled many adults into the scramble for jobs typically held by teens.

Unemployment of people ages 16 to 19 was a seasonally adjusted 23.8% in July after hitting a quarter-century high of 24% in June, the government said last week. That compared with last year's summer peak of 20.5%.

- The Taliban have gained the upper hand in Afghanistan, the top American commander there said, forcing the U.S. to change its strategy in the eight-year-old conflict by increasing the number of troops in heavily populated areas like the volatile southern city of Kandahar, the insurgency's spiritual home. Gen. Stanley McChrystal warned that means U.S. casualties, already running at record levels, will remain high for months to come. In an interview with The Wall Street Journal, the commander offered a preview of the strategic assessment he is to deliver to Washington later this month, saying the troop shifts are designed to better protect Afghan civilians from rising levels of Taliban violence and intimidation.

- A provider of subscription e-textbooks for college students is making its 7,000-plus titles accessible on Apple Inc.'s(AAPL) iPhone and iPod Touch as interest heats up in the digital-textbook arena. The new applications, free for subscribers to CourseSmart LLC, will let students access their full electronic textbooks, read their digital notes and search for specific words and phrases. "Nobody is going to use their iPhone to do their homework, but this does provide real mobile learning," said Frank Lyman, CourseSmart's executive vice president. "If you're in a study group and you have a question, you can immediately access your text."

- Two dump trucks packed with 6,600 pounds of high-grade explosives flattened a large swath of a Shiite village in northern Iraq on Monday, while two more bombs targeting Shiites struck Baghdad. The attacks, which left at least 45 people dead across the country, are part of a wave of violence aimed at rekindling the sectarian bloodshed that swept Iraq from 2006-2007, according to U.S. and Iraqi officials.

CNBC:

- New York Attorney General Andrew Cuomo has issued cease-and-desist orders to nearly 40 auto dealerships in the state for running misleading and deceptive advertisements about the U.S. government's "cash for clunkers" program.

New York Post:

- Victims of Bernie Madoff's massive Ponzi scheme may have to wait until 2024, or longer, before all the money is collected, according to one veteran court-appointed receiver. "We are still sending out checks on a 10-year-old Ponzi scheme case because of the complicated nature of the case," said Robb Evans, whose firm of 25 former bank executives is the receiver in dozens of cases. "I wouldn't be surprised if the Madoff case was not fully settled in 15 years," he said.

NY Times:

- The Internet has taken a lot of the paperwork out of banking, but there is no avoiding paper when someone gives you a check. Now one bank wants to let customers deposit checks immediately — through their phones. USAA, a privately held bank and insurance company, plans to update its iPhone application this week to introduce the check deposit feature, which requires a customer to photograph both sides of the check with the phone’s camera. “We’re essentially taking an image of the check, and once you hit the send button, that image is going into our deposit-taking system as any other check would,” said Wayne Peacock, a USAA executive vice president. Customers will not have to mail the check to the bank later; the deposit will be handled entirely electronically, and the bank suggests voiding the check and filing or discarding it. But to reduce the potential for fraud, only customers who are eligible for credit and have some type of insurance through USAA will be permitted to use the deposit feature. Mr. Peacock said that about 60 percent of the bank’s customers qualify.

- General Motors and eBay(EBAY) are expected to announce Monday that hundreds of G.M.’s California dealers will let consumers haggle over the prices of new cars and trucks through the online marketplace.

MarketWatch:
- Hedge funds have generated strong returns this year, but the $1.4 trillion industry remains in a sticky financial situation because many firms have yet to recoup losses from 2008, leaving them missing out on lucrative fees.

- Most economic forecasters say the recession will end this quarter, but most also believe a U.S. recovery will be subdued, according to the monthly survey of economists published Monday by Blue Chip Economic Indicators. The panel of 51 economists predicts that the economy will contract 2.6% in 2009 and that gross domestic product will grow 2.3% in 2010, according to the median forecast.

- Early warning signs suggest a bubble could be building in China's stock market, although it's too early to know whether this warrants an immediate exit from Chinese equities, analysts said in a recent research report.

Securities Industry News:

- Morgan Stanley(MS) in the last week of July nearly displaced Goldman Sachs(GS) as the program trader most active on the New York Stock Exchange. The global financial services firm’s program trading surged 59 percent, to 737.9 million shares bought and sold between July 27 and July 31, according to weekly statistics released by the exchange. That trailed Goldman Sachs, the perennially most active trader, by 8 percent. Goldman’s buy and sell programs totaled 796 million shares. In the previous week, July 20 to 24, Goldman was nearly twice as active as Morgan. Goldman executed buy and sell programs involving 823.7 million shares; Morgan, 463.7 million. Morgan’s biggest jump came in the daily after-hours crossing session. Its placement and execution of orders there reached 183.6 million shares, more than five times the 32.3 million leaving or coming into its hands the prior week. Also increasing strongly was program trading on its own account, up 39 percent to 184 millions shares.

Wealth Bulletin:

- Less than a fifth of all hedge funds launched this year have been able to charge investors the standard 2% management fee, according to new research that comes as the industry faces up to the prospect of life without the lucrative “two and 20” model. Only 13% of funds set-up this year have asked clients to pay a 2% fixed fee for managing assets, according to a report from Morgan Stanley’s prime brokerage division entitled ‘Out-perform and under-deliver’. This is a large drop on the figure from last year, when about half of all funds launched were able to charge the 2% levy. Between 2005 and 2006, 56% applied the fee. Morgan Stanley said: “New funds are making do with less.”

JLMPacificEpoch:

- An unnamed source says Apple (Nasdaq:AAPL) has selected NetDragon to operate its China application store, reports TechWeb.com.cn. Apple has contacted many local developers to provide applications, the source said.

LA Times:

- Lawsuits are the latest roadblock for California budget. Litigators go to court to undo cuts made by legislators and the governor. The state is spending billions of dollars fighting the lawsuits and dealing with increasingly unfavorable rulings. Lawyers are being drafted in droves to unravel spending plans passed by the Legislature and signed by the governor. The goal of these litigators is to get back money their clients lost in the budget process. They are having considerable success, winning one lawsuit after another, costing the state billions of dollars and throwing California's budget process into further tumult. In the last few months alone, the courts added more than a billion dollars to the state's deficit by declaring illegal reductions in healthcare services, redevelopment agency funds and transportation spending. Another ruling threatens to deprive California of all its federal stimulus money if the state does not rescind a cut to the salaries of home healthcare workers. Lawyers are scrambling to prepare additional suits related to the budget plan the governor signed last month.

- Iraq has appealed to Iran to free three American hikers after concluding that the trio who apparently strayed across the Iranian border were just lost tourists, Iraqi Foreign Minister Hoshyar Zebari said Sunday. Zebari said he had heard no word from the Iranians since making the request during a meeting with Iran's ambassador to Iraq last week. But he hoped for an answer in the coming days, he said.

Rassmussen:

- Thirty-two percent (32%) of voters nationwide favor a single-payer health care system where the federal government provides coverage for everyone. A Rasmussen Reports national telephone survey finds that 57% are opposed to a single-payer plan. Fifty-two percent (52%) believe such a system would lead to a lower quality of care while 13% believe care would improve.

Politico:

- Under fire from immigration reform supporters who say he’s not moving fast enough, President Barack Obama said Monday he expects to have a draft immigration bill in Congress by year’s end — but that lawmakers wouldn’t begin to seriously debate the issue until next year. He acknowledged that the fight for comprehensive reform would be difficult, saying, “Am I going to be able to snap my fingers and get this done? No. . . . There are going to be demagogues out there who try to suggest that any form of pathway for legalization for those who are already in the United States is unacceptable.” Obama also predicted that Congress would pass his health reform bill later this year when more “sensible and reasoned arguments will emerge” — a clear reference to the increasingly heated attacks being leveled against his overhaul plan by opponents.

AP:

- President Barack Obama says Canada's government-run health care system works for Canada, but wouldn't work for the U.S. Opponents of Obama's plan to reshape health care have contended it would result in a government-run system where people are denied care, as they say happens in Canada.

Reuters:
- Short sellers' portfolios were left in tatters in July after one of the strongest monthly run ups in equities in recent years, preliminary data from Credit Suisse/Tremont showed on Monday. Hedge funds made money overall during the month, with the Credit Suisse/Tremont Hedge Fund Index was up 2.35 percent. However, those returns paled against the MSCI World's 8.4 percent rise. Short sellers got the thin end of the wedge. The dedicated short bias index was down 8.3 percent on the month, bringing year-to-date losses to 18.2 percent. The only other loser aside from short selling was managed futures, a strategy which uses computer programs to exploit trends in certain asset classes. It was down 0.8 percent for the month, and has lost 8.2 percent so far this year.

- Dow Theory, one of the oldest stock market forecasting methods, has shown a new buy signal: the Dow Jones Transportation Average joined the Dow Jones Industrial Average to close above January highs, according to Bank of America Merrill Lynch. However, the bank's analysts said on Monday that a momentum indicator known as breadth thrust, which focuses on the proportion of advancing to declining stocks, shows a pull-back of 15 to 20 percent this fall when combined with the Dow Theory buy signal.

- Car sales in Russia fell 58 percent in July compared to the same period a year ago, a worse showing than the 56 percent slump seen in June, data from the Association of European Businesses showed on Monday. The AEB data showed that the slump in demand for cars has cut sales by 50 percent in the first seven months of this year.

Financial Times:
- Two years after the financial crisis began, Germany is still at risk of a credit crunch as banks face a wave of corporate downgrades, the head of the country’s main banking association has warned. “Will there be a credit crunch? Clearly it is a concern and there is a real danger of this. I do not think it is entirely unrealistic to think there will be one,” Andreas Schmitz, president of the Federal Association of German Banks, said in an interview. “I think we have reached the low point of the financial crisis. But it is obvious that every bank will have more to deal with in the next 18 months, in terms of defaults by clients and non-performing loans, than they have had up to now.” The warning from could undermine fragile confidence that the worst of the recession may be over in Europe’s largest economy. Mr Schmitz said banks were under pressure to reduce the size of their balance sheets and would have to set aside more capital if corporate customers were downgraded by credit rating agencies. “I think there is a substantial migration of ratings that will also come next year,” he said. His comments are one of the clearest statements of the risk of a credit squeeze from a German banker. Banks have been generally dismissive of complaints from other industrial groups that lending is already being reduced.

Frankfurter Rundschau:

- Germany’s metal and electrical industry may see production fall by as much as 20% this year, head of the Gesamtmetall employers’ group, was cited as saying. Kannegiesser said the industry is running at less than 70% of capacity “for the first time,” making further job cuts likely.