Today's Headlines

Bloomberg:

- Business activity in the U.S. rose more than forecast in August, adding to signs the economy is improving. The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 50, the highest level since September, from 43.4 in July. A reading of 50 is the dividing line between contraction and expansion. Increasing demand from overseas and a record reduction in inventories mean a pickup in factory orders and production may last for much of the rest of the year. The Chicago report’s orders gauge climbed to 52.5, the highest level in a year, from 48 in July and the production index rose to 52.9 from 43.3. The employment index increased to 38.7 from 35.3. Smaller inventories will contribute to a rebound in output as orders rise to restock shelves. Inventories dropped at a record $159.2 billion annual rate in the second quarter, the Commerce Department said last week. They dropped at a $113.9 billion in the first three months of the year.

- Walt Disney Co.(DIS) agreed to buy Marvel Entertainment Inc.(MVL) for about $4 billion in cash and stock, adding comic-book characters Iron Man and Spider-Man to Disney’s lineup of princesses and live-action stars. Marvel investors will receive $30 a share in cash plus 0.745 Disney shares, the companies said today in a statement.

- Baker Hughes Inc.(BHI), the world’s third-largest oilfield-services provider, agreed to buy BJ Services Co.(BJS) for $5.5 billion in a bet on U.S. natural-gas shale formations. The price represents a 16 percent premium to BJ Services’ stock price on Aug. 28 and will leave BJ stockholders owning about 27.5 percent of Baker Hughes’s outstanding shares, Houston-based Baker Hughes said in a statement today. BJ Services shareholders will receive 0.40035 share of Baker Hughes’s stock and a cash payment of $2.69 a share.

- New York Federal Reserve Bank President William Dudley said the Fed has the tools to prevent inflation from accelerating and doesn’t need to begin trimming its balance sheet. “It’s a little bit premature to be so confident that you want to pull all these things back right now, because the economy still isn’t growing very fast and we do have a very high unemployment rate,” Dudley said today in an interview on CNBC. Dudley’s comments are in contrast to those of two Fed district bank presidents, Jeffrey Lacker and James Bullard, who said the central bank may not need to buy the full $1.25 trillion in mortgage-backed securities that has been authorized by year-end.

- The credit-default swaps market is concentrated in the hands of a small group of dealers, which is stoking concern about “systemic risk to financial market stability,” according to the European Central Bank. The 10 most active counterparties account for between 62 percent and 72 percent of the default-swap exposure of lenders surveyed by the ECB, the Frankfurt-based central bank said in a report on its Web site after the market closed Aug. 28. The credit default-swaps market has also become more concentrated because of the failure of dealers and counterparties such as Lehman Brothers Holdings Inc. and Bear Stearns Cos LLC, the ECB said in the report, titled “Credit Default Swaps and Counterparty Risk.” The “interconnected nature” of the default-swaps market and its “structural opacity” may also increase risk, the ECB said in the report. “In practice, the transfer of risk through CDS trades has proven to be limited, as the major players in the CDS market trade among themselves and increasingly guarantee risks for financial reference entities,” according to the ECB.
- Crude oil prices fell the most in a month as Chinese equities led a global slump on concern a slowdown in lending may derail an economic recovery in the world’s second-largest energy consuming country. “The Chinese markets have helped support commodities. Price rises have been based on expectations of increased economic growth and demand in China.” Crude oil for October delivery fell $3.18, or 4.4 percent, to $69.56 a barrel at 11:16 a.m. on the New York Mercantile Exchange. Futures dropped as much as $3.40, or 4.7 percent, the most since July 29. The United Arab Emirates’ Abu Dhabi National Oil Co. eased cuts on crude oil supply for the first time in seven months, a sign OPEC members may be overshooting their output targets.

- China’s economy isn’t “sustainable” and the benchmark Shanghai Composite Index may fall another 25 percent, former Morgan Stanley Asian economist Andy Xie said in an interview. “The market is in deep bubble territory,” Xie, who correctly predicted in April 2007 that China’s equities would tumble, told Bloomberg Television. The Shanghai index plunged 6.7 percent to 2,667.75 today, the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy. Xie said the index “should be 2000 or less.” The Shanghai gauge slumped 22 percent this month, the worst performer among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. “The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.

- The number of jobs advertised on the Internet climbed in August to the highest level of the year, signaling an improvement in employment. There were 3.46 million help-wanted ads posted online this month, the most since December, according to figures from the Conference Board, a New York-based private research group. Demand for health-care workers posted the largest gain, the report showed. “The August increase is good news showing what we hope will be a continued improvement in job demand this fall,” Gad Levanon, a senior Conference Board economist, said in a statement. The gain this month was led by the South, with Texas and Florida showing increases in demand for workers. The number of jobs advertised online in California increased by 26,700, the most of any state. Texas was next with a gain of 21,900. Ads for health-care professionals showed the biggest advance, rising by 52,700 this month. There was an 18,900 rise in management openings and an 8,800 gain in computer and mathematical sciences.

Wall Street Journal:

- William O'Brien's father was a seat holder and trader on the New York Stock Exchange in the 1970s. Now, the younger Mr. O'Brien has become one of the Big Board's top rivals. The 39-year-old Mr. O'Brien is chief executive of Direct Edge, a trading system that has commandeered 12% of U.S.-listed stock trading, a six-fold increase in just two years. The Big Board is leading an attack against Direct Edge, and has found a sympathetic ear in Congress and the Securities and Exchange Commission. Direct Edge, of Jersey City, N.J., is at the heart of the world of high-frequency trading, in which computerized models dash in and out of stocks by the millisecond, hoping to capture fleeting distortions between the prices of securities. What has gotten the NYSE so upset is Direct Edge's advocacy of "flash trading" -- a particular variety of high-frequency trading that briefly previews some orders to a few dozen market participants and trading platforms in hopes of finding a match. New York Sen. Charles Schumer last month said use of such orders "creates a two-tiered system where a privileged group of insiders receives preferential treatment," and he urged the SEC to ban them. In response, SEC Chairman Mary Schapiro has vowed to curb any "inequity" in such orders as part of a review of high-speed trading practices and "dark pools" operated by Wall Street firms and other traders.

- Germany's auto makers are worried about slumping sales when the government's "cash for clunkers" program expires this fall after running through its allocation of €5 billion, or $7.15 billion. Even so, they don't agree with the dire forecasts in a study issued by German management consultancy Roland Berger. In the study, published Friday, Roland Berger said car sales in Germany may fall more than 20% next year, and that as many as 90,000 jobs may be lost across the industry by the end of 2011.

- The biggest spur to deal-making among banks isn't private-equity cash or foreign investors. It is the federal government. To encourage banks to pick through the wreckage of their collapsed competitors, the Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. The initiative amounts to a subsidy for dozens of hand-picked banks.

- The commander of U.S. and NATO troops in Afghanistan said Monday in an assessment of the war that a new strategy was needed to fight the Taliban, while NATO officials disclosed he is expected to separately request more troops. Increasing U.S. forces is a hot-button issue that could ignite furious debate in Washington on the U.S. military's future in an increasingly unpopular war. Some Democratic senators have increased calls for a timeline to draw down troops.

- The International Atomic Energy Agency has produced another alarming report on Iran's nuclear programs, though it hasn't released it publicly, only to governments that would also rather not disclose more details of Iran's progress toward becoming a nuclear theocracy. Meanwhile, Iran intends to introduce a resolution, backed by more than 100 members of the so-called Non-Aligned Movement, that would ban military attacks on nuclear facilities. No actual mention of Israel, of course. The mullahs understand that the only real challenge to their nuclear ambitions is likely to come from Israel. They've long concluded that the U.N. is no threat, as IAEA chief Mohamed ElBaradei has in practice become an apologist for Iran's program. They can also see that the West lacks the will to do anything, as the Obama Administration continues to plead for Tehran to negotiate even as Iran holds show trials of opposition leaders and journalists for saying the recent re-election of Mahmoud Ahmadinejad was fraudulent. The irony is that the weaker the West and U.N. appear, the more probable an Israeli attack becomes.

- Sorting Fact From Fiction on Health Care. Current congressional proposals would significantly change your relationship with your doctor.

CNBC:

- These are fun days at Ford(F). After staring bankruptcy in the eye and surviving a horrific slump in sales, the auto maker is rolling. Sure, it's not yet back in the black, but it has the big "MO". It's adding production, cutting losses, and is in the sweet spot of new product cadence with models like the Edge and Taurus bringing back buyers. So after two years in the #3 spot in the U.S., is it possible Ford could catch Toyota to become #2?

- Fewer Americans are afraid that they will be unable to pay for healthcare services and fewer expect to postpone medical treatments due to costs, according to a Thomson Reuters survey published Monday. Researchers found a steady increase in people's confidence about their ability to pay for healthcare services — it rose 12 percent between March and July this year.

- Wal-Mart Stores(WMT) said Monday it will launch an online marketplace with nearly 1 million items available through a number of retailers.

NY Times:

- Microsoft’s(MSFT) No. 1 rival is a household name, Google(GOOG). But a strong candidate for No. 2 is a company that is scarcely known outside the technology industry: VMware(VMW).

- A Chinese magazine’s weekend report that state-owned companies had the right to renege on commodity derivative contracts caused concern among foreign banks on Monday, though it was met with some disbelief. Caijing, a leading financial magazine in China, quoted an unidentified industry source as saying that the Assets Supervision and Administration Commission, or Sasac, the regulator in charge of state-owned enterprises, had sent a letter to six foreign financial institutions saying that the Chinese companies could break their agreement on the commodities hedging contracts, which have been causing them huge losses.

Forbes:

- Transcript: Hedge Fund Roundtable, Part One. Three hedge-fund heads discuss funds’ performance over the last year and debate potential tax code changes.

Washington Post:

- President Obama ordered federal officials to disclose their contacts with lobbyists trying to influence how the government doles out money to jump-start the economy. Yet few such communications have been reported even though lobbyists say they are busier than ever with the multibillion-dollar stimulus. Since the $787 billion American Recovery and Reinvestment Act passed in February, federal agencies have reported 197 contacts with lobbyists about stimulus grants. In August, the entire government reported only eight such lobbying contacts. The Pentagon, which controls about $7.4 billion in stimulus spending, reported just one lobbying contact so far this year. The Homeland Security Department, with at least $3 billion to spend, reported none. Yet the paucity of reporting masks activities by lobbyists and clients eager to obtain stimulus money for their projects. Lobbyists have separately reported work related to stimulus projects, and in many cases have operated in new ways to skirt restrictions on their efforts to influence stimulus spending.

- Morale has sagged at the CIA following the release of additional portions of an inspector general's review of the agency's interrogation program and the announcement that the Justice Department would investigate possible abuses by interrogators, according to former intelligence officials, especially those associated with the program. A. B. "Buzzy" Krongard, the third-ranking CIA official at the time of the use of harsh interrogation practices, said that although vigorous oversight is crucial, the public airing of once-classified internal assessments and the prospect of further investigation are damaging the agency. "Morale at the agency is down to minus 50," he said.

marketfolly:

- This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings. Next up is David Stemerman's hedge fund Conatus Capital.

Rassmussen:

- Thirty-five percent (35%) of Americans favor the climate change bill, while 40% are opposed to it. However, the antis feel more strongly: Twenty-six percent (26%) Strongly Oppose the bill versus 10% who Strongly Favor it.

Politico:

- After an August recess marked by raucous town halls, troubling polling data and widespread anecdotal evidence of a volatile electorate, the small universe of political analysts who closely follow House races is predicting moderate to heavy Democratic losses in 2010. Some of the most prominent and respected handicappers can now envision an election in which Democrats suffer double-digit losses in the House — not enough to provide the 40 seats necessary to return the GOP to power but enough to put them within striking distance. Top political analyst Charlie Cook, in a special August 20 update to subscribers, wrote that “the situation this summer has slipped completely out of control for President Obama and congressional Democrats.”

Reuters:
- The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday. Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.
- U.S. credit card defaults declined in July after five straight months of record highs, suggesting the ability of cardholders to pay bills could be stabilizing, Fitch Ratings said on Monday. Fitch's prime credit card chargeoff index, which measures the portion of credit card securitized loans that companies do not expect to be repaid, fell to 10.55 percent in July from 10.79 percent in June. In addition, Fitch's delinquency index, an indicator of future defaults, fell to 4.26 percent from 4.31 percent.

- Details of the Federal Reserve Bank of Dallas' Texas monthly manufacturing index released on Monday.

- Hedge fund firm Citadel Investment Group LLC reversed course Monday, canceling plans to cut its stake in hard-hit online brokerage E*Trade Financial Corp (ETFC) by about 10 percent. News that E*Trade's largest stock and bond holder would not sell 120 million shares into the market over the next three months sent E*Trade stock surging as much as 18 percent.

Financial Times:
- US lawmakers are considering a more drastic consolidation of bank regulators than that outlined by the Obama administration as Congress prepares to overhaul the financial system’s watchdogs. Both Democratic and Republican members of the Senate banking committee want a more ambitious reform, according to several people familiar with the committee, in a sign of the continuing flux of the regulatory revamp laid out by the Treasury in June. The administration’s proposals included merging one regulator, the Office of Thrift Supervision, into the Office of the Comptroller of the Currency, while preserving the separate duties of the Federal Deposit Insurance Corporation and Federal Reserve.