Tuesday Watch

Evening Headlines
Bloomberg:

• Longer-Dated Bond Sales Soar Amid Best Returns: Credit Markets. Investors are buying longer-maturity corporate bonds at the fastest pace in more than three months, speculating that declining inflation expectations will keep the Federal Reserve from raising interest rates.
  
• Australia to Gauge European Bank Stress Tests, Inflation. Australian policy makers will use the results of this month’s European bank stress tests and local inflation figures due next week to decide whether to resume the Group of 20’s most aggressive round of interest-rate increases. “The important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation,” Reserve Bank of Australia officials said in minutes of their July 6 meeting released in Sydney today.
• Amazon.com(AMZN) E-Book Sales Exceed Hardcovers for First Time. Amazon.com Inc., the largest Internet retailer, said growth in sales of its Kindle digital reader accelerated every month in the second quarter and that it’s selling more electronic books than hardcover editions. The pace of Kindle sales also has tripled since the company cut the price to $189 from $259, Amazon.com Chief Executive Officer Jeff Bezos said in a statement.
• Swine Flu Fizzles Out; WHO May Declare End to Pandemic Alert.
  

Wall Street Journal:

• China Is Coming Under Fire. A series of comments by some of the world's top executives questioning China's treatment of international companies reflects an anxiety that is altering the relationship between foreign business and Beijing. For years companies that do business in China largely avoided public criticism of Beijing's policies, fearing this could jeopardize their standing in the world's fastest-growing major market. But recent months have seen executives from some of the biggest companies in Europe and the U.S. speak out—a testament to mounting concern that China's economy is moving in a direction less friendly to foreign companies that have staked much of their future on it. The latest example came when two of Germany's leading industrialists—Jürgen Hambrecht, chairman of chemical giant BASF SE and Peter Löscher, chief executive of conglomerate Siemens AG—raised complaints about a range of Chinese policies toward foreign business during a public meeting with Chinese Premier Wen Jiabao and visiting German Chancellor Angela Merkel. That followed complaints in recent months from other top executives of General Electric Co., Microsoft Corp. and Google Inc. Foreign businesses are increasingly emboldened, executives and analysts say, by a sense that the Chinese market has become too important to stay silent over policies they feel jeopardize their future. The concerns center on policies that foreign executives feel put them at a disadvantage against increasingly potent Chinese competitors, or compel them to transfer valuable technology to China, or otherwise limit their access to what is now the world's biggest market for everything from trains to cars to cellphones. At Saturday's meeting between German and Chinese executives and officials, Mr. Hambrecht complained about companies facing the "forced disclosure of know-how" in order to do business in China. "That does not exactly correspond to our views of a partnership," he said, according to a report by Germany's Deutsche Presse-Agentur, whose reporter was at the meeting.
• BP(BP) Weighs New Way to Kill Gulf Well. Oil giant BP PLC was Monday considering yet another method to kill its ruptured Gulf of Mexico oil well amid concerns that the cap it installed last week could be allowing oil and gas to seep out the sides.
• ShoreBank's Ill-Fated Crosstown Expansion. Many of the nation's ailing small banks got into trouble when they expanded into unfamiliar regions across the country. ShoreBank Corp. ran into trouble across town. The Chicago bank, which provides financial services in distressed parts of the city, is reeling, in part, because it made loans to borrowers in low-income neighborhoods away from its historical focus on Chicago's South Side, according to a person familiar with the bank's strategy. ShoreBank's fate is hanging in the balance as it waits to hear if the government will provide a $75 million infusion that could help keep it in business.
• IRS Erred in High-Stakes Tax Case. The Internal Revenue Service said it made a more than $325 million error in a high-stakes tax battle with Vi, an operator of upscale retirement communities.
• Megabanks Pressure Smaller Players. At the end of May, Florida Business Bank shut down the loan office it opened here just a year ago. It wasn't doomed by the economy. It was surrounded by giant banks that keep getting bigger and bigger. Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co., which hold about $3.50 of every $10 in local deposits, are "squeezing" and "hoarding" customers "any way they can," says Jeff Wagner, chief financial officer at Florida Business Bank.
• Blagojevich Gambles in Taking the Stand. From almost the day he was arrested 19 months ago and charged with running the state government like a criminal enterprise, former Illinois Gov. Rod Blagojevich has said he couldn't wait for his day in court to tell his side of his story. Tuesday he is expected to get his chance.
• Why Hasn't Israel Bombed Iran (Yet)? The military risks are large; the political risks could be even bigger.

Bloomberg Businessweek:

• Einhorn Buys Apple(AAPL), Saying Its Growth Prospects Are Undervalued. David Einhorn, the hedge-fund manager known for shorting Lehman Brothers Holdings Inc. before it collapsed, said he bought shares of Apple Inc. in the second quarter because the iPhone maker’s growth is undervalued. Einhorn’s firm, Greenlight Capital Inc., purchased the stock at an average price of $248.09 each, or 15 times the money manager’s estimate for 2010 earnings, according to a letter sent to fund shareholders on July 16. “While growth over the next few years will certainly be slower than it has been over the last few years, AAPL does not appear to have fully penetrated its market opportunities,” wrote Einhorn, referring to Apple by its stock symbol. “Accordingly, the opportunity to invest in this leading company (with a better financial profile than market participants seem to acknowledge) appears iTtractive.”
• Tourre Says He Relied on Goldman Sachs(GS), Denies Fraud. Fabrice Tourre, the Goldman Sachs Group Inc. executive director sued by the Securities and Exchange Commission for fraud, disputed the claims and said he relied on his firm’s legal and compliance department. Tourre, in a filing yesterday in federal court in Manhattan, denied making any materially misleading statements or omissions related to the 2007 sale of the Abacus 2007-AC1 collateralized debt obligation linked to subprime mortgages.

CNBC:

• TI(TXN) Posts Results in Line With Views, but Shares Tumble. Texas Instruments on Monday posted a quarterly profit that matched what analysts expected, but posted revenue slightly below analyst expectations due to a shortfall from one key mobile phone customer. However, shares of the chipmaker fell more than 6 percent in extended trading.
• IBM(IBM) Earnings Rise, Beat Forecasts, but Sales Disappoint. IBM reported a higher profit that exceeded what Wall Street was expecting, but the company's shares lost ground in extended trading as its revenue was lighter than forecast and a decline in services contract signings damaged investors' confidence.

IBD:

• Insurers Set Up for Next 'Affordable' Crisis. Subprime Scandal: When Democrats described FinReg as the most sweeping overhaul of Wall Street since the Depression, they didn't say it would also affect your local insurance agent. But it does. Check out Title V of their 2,300-page regulatory fatwah. It sets up a powerful new race-monitoring bureaucracy within the Treasury Department called the Office of National Insurance — the first office in the federal government focused on insurance. According to the final draft of the bill, which President Obama will sign this week to much partisan fanfare, the office "shall have the authority to monitor the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance."

NY Times:

• Need a Mortgage? Don't Get Pregnant. Expectant parents shopping for a home are not the only ones concerned about the date of the baby’s arrival. Mortgage lenders are taking a harder look at prospective borrowers whose income has temporarily fallen while they are on leave, including new parents at home taking care of a baby. Even if a parent plans on returning to work within weeks, some lenders are balking at approving the loans. “If you are not back at work, it’s a huge problem,” said Rick Cason, owner of Integrity Mortgage, a mortgage firm in Orlando, Fla. “Banks only deal in guaranteed income these days. It makes sense, but the guidelines are sometimes actually harsher than they need to be.”

Zero Hedge:

• 37 Year Old Greek Investigative Journalist And Blogger Murdered. The Guardian reports that the prominent Greek reporter and blogger Socratis Giolas was allegedly murdered by the Sect of Revolutionaries terror group, after being shot 16 times in front of his pregnant wife. "The 37-year-old radio chief is the first journalist to be killed in the country since newspaper publisher Nikos Monferatos was gunned down by the infamous 17 November terror group in 1985. Giolas, who was also a frequent blogger, posting reports on popular online newsblog Troktiko, sought to illuminate Greece's seamier underside. The shooting came days before he was due to release an investigative series on corruption, colleagues said."

The Detroit News:

• Chevy Volt Doesn't Get Leno Charged Up. It's 'a people mover, not a people impresser,' comedian says. Late-night comic and "Tonight Show" host Jay Leno, who has been courted by General Motors Co. to help build buzz for the Chevrolet Volt, zinged the automaker with a backhanded compliment to the highly anticipated electric car. GM executives gave Leno a Volt late last year to test drive, but the noted gearhead -- who says he is excited about the Volt launch later this year and hasn't ruled out buying one -- likened the extended-range electric car to an underwhelming compact model being phased out by GM's Chevrolet brand. "If you didn't know, you might think it's a Cobalt or a Camry," Leno said in an interview with The Detroit News to promote a Saturday charity performance at the Chrysler Museum in Auburn Hills.
• Ford(F): New Explorer Ups Fuel Efficiency by 30%. Ford Motor Co. today confirmed the all-new 2011 Ford Explorer will be 30 percent more fuel-efficient than the outgoing model. Ford has been building up the crossover's debut with Facebook teaser pictures of parts of the vehicle and a steady diet of snippets about features and attributes. The new Explorer goes on sale later this year, but the production model has not been shown on the auto circuit.

Rasmussen Reports:

• California Voters Divided Over Stimulus Plan. Voters in California are divided over whether the $787 billion economic stimulus plan enacted by President Obama and Congress last year has been good or bad for the economy. A new Rasmussen Reports telephone survey of Likely Voters in the state finds that 36% of voters think the stimulus plan helped the economy, while 35% say it hurt the economy. Another 24% feel the stimulus plan had no impact on the economy. Nationally, voters are much less divided on the issue: 29% say the stimulus plan helped the economy and 43% say it hurt the economy. Half (49%) of voters in California feel the U.S. economy is getting worse. Twenty-seven percent (27%) think it is getting better, and another 20% think the economy is about the same.
• Generic Congressional Ballot: Republicans 45%, Democrats 36%. Republican candidates now hold a nine-point lead over Democrats on the Generic Congressional Ballot for the week ending Sunday, July 18, the widest gap between the two parties in several weeks. A new Rasmussen Reports national telephone survey finds that 45% of Likely Voters would vote for their district's Republican congressional candidate, while 36% would opt for his or her Democratic opponent. Support for Republicans inched up a point from last week, while support for the Democrat fell two points. While solid majorities of Democrats and Republicans support the candidates of their respective party, voters not affiliated with either party prefer the Republican candidate by a 47% to 21% margin.

Politico:

• Reality Gap: U.S. Struggles, D.C. Booms. America is struggling with a sputtering economy and high unemployment — but times are booming for Washington’s governing class. The massive expansion of government under President Barack Obama has basically guaranteed a robust job market for policy professionals, regulators and contractors for years to come. The housing market, boosted by the large number of high-income earners in the area, many working in politics and government, is easily outpacing the markets in most of the country. And there are few signs of economic distress in hotels, restaurants or stores in the D.C. metro area. As a result, there is a yawning gap between the American people and D.C.’s powerful when it comes to their economic reality — and their economic perceptions. A new POLITICO poll, conducted by market research and consulting firm Penn Schoen Berland, underscores the big divide: Roughly 45 percent of “Washington elites” said the country and the economy are headed in the right direction, while roughly 25 percent of the general population said they felt that way.
  

Reuters:

• Credit Managers' Sentiment Turns Negative - Report. International credit portfolio managers' sentiment turned negative in the second quarter amid worries economic growth will suffer as governments cut spending, according to a survey released on Monday. The survey by the International Association of Credit Portfolio Managers contrasts with strongly positive sentiment found in the previous survey, conducted at the end of March, according to IACPM.
• Atheros(ATHR) Q2 Beats Street; PC Revenue Falls Sequentially. Wireless networking chipmaker Atheros Communications Inc (ATHR) posted better-than-expected quarterly results, but revenue from the PC segment fell 10 percent sequentially due to uncertainty in European markets. The company remains cautious on near-term demand in the PC market, Chief Executive Craig Barratt said on a conference call. Shares of the company were down 8 percent at $28.05 in trading after the bell.

Telegraph:

• Cameron Can Teach Obama a Thing or Two on Deficit Reduction. If there is a double dip, there is plainly going to have to be a rethink, but actually President Obama’s anti-business rhetoric and increasingly impotent populism threaten to do far more damage to the recovery than measured deficit reduction. Indeed, America’s failure to take the deficit seriously is a large part of the problem. You are never going to see a strong, investment led recovery in the US while there is so much uncertainty on economic policy. US business leaders have meanwhile rarely felt so unloved, vilified and demoralised. That’s hardly a conducive backdrop to investment. Obama needs urgently to show some leadership and switch his approach. Perhaps Cameron can persuade him, but I’m not holding my breath. I’ve reflected in a more considered fashion on all this in a longer piece for tomorrow’s print edition of The Daily Telegraph.
• Hungary's IMF Revolt Augurs Ill for Greece. The collapse of Hungary's talks with the International Monetary Fund and the EU is a chilly reminder that sovereign debt crises do not end with a rescue package and a click of the fingers. As austerity drags on for year after year, democracies react. "We told the IMF/EU that further austerity was out of the question," said Hungary's economic minister Gyorgy Matolcsy, offering no hint that the Fidesz government is willing to back down despite yesterday's surge in Hungarian default costs by 51 basis points. The Fidesz movement – an amalgam of libertarians and nationalists with a Left-populist tilt – won a crushing victory in April on a campaign of defiance against both Brussels and the IMF. It has been spoiling for a fight ever since.

CTV.ca:

• Toronto's Year-Over-Year Home Sales Down. While Toronto's real estate sales volume is significantly down over the same period in 2009, housing prices continue to rise, says the Toronto Real Estate Board. In figures released Monday, the board said there were 2,790 sales through the Multiple Listing Service for the first two weeks of July. That is a 37 per cent decrease from the 4,437 sales made in the first two weeks of July 2009.The average price recorded for the first two weeks of this month was $427,931. That figure is eight per cent higher than the average of $394,750 recorded for the same period of July 2009.

Dong-a Ilbo:

• North Korea executed a former Cabinet official who had been responsible for negotiations with South Korea, citing an official in Beijing. Kwon Ho Ung, North Korea's chief delegate to ministerial-level talks between the two sides from 2004 to 2007 was killed by firing squad, the paper said. The Ministry of People's Security and the Ministry of Sate Security, the North's two main security arms, are rounding up "impure elements" to show their loyalty to Kim Jong Un, the heir apparent to North Korean leader Kim Jong Il, the newspaper said in an editorial July 17.
  

Securities Times:

• The monetary supply normalization is key to the objective of China's current macroeconomic control, citing Ba Shusong, a researcher at the State Council's Development and Research Center.

China Daily:

• China should give the nation's central bank greater independence in drafting monetary policy as part of the government's bid to achieve economic stability, Ma Jun, Deutsche Bank AG's chief Greater China economist, wrote in a commentary today. The nation should also modify its system for appraising the performance of local government officials, as the current system encourages the pursuit of growth and excessive investment, Ma wrote. China should also increase its use of "economic leverage" including interest rates and exchange rates to guide the economy and reduce the use of administrative decrees, Ma said. The government should also strengthen China's social security system to minimize the effects of economic policy adjustments, Ma wrote.

Shanghai Securities News:

• China's banking regulator has called on local authorities to step up inspections of property loans, citing an official with the China Banking Regulatory Commission. The regulator also called for prevention of "excessive" lending for land purchases. The regulator has also ordered that bank loans account for at most 50% of financing for property developments, according to the report. The banking regulator also called for China's national policies should be followed strictly.

China Business News:

• Home prices in the Chinese cities of Beijing, Shanghai, Tianjin, Guangzhou and Shenzhen may decline 20% from current levels in the second half, citing real estate broker Centaline Property Agency Ltd. Prices may fall in the second half as a result of an increased supply of new homes on the market, the report said.

perthnow:

• Falling Chinese Demand to Hit Ore Price. A SLOWING Chinese economy has led Credit Suisse to slash iron ore price forecasts for next year by 20 per cent. This also prompted it to cut the rating on BHP Billiton(BHP) to neutral and slash the big miner's profit forecast by $US4 billion ($4.6bn). In its most recent quarterly commodities review, Credit Suisse chopped its 2010 iron ore price forecast by $US23 a tonne to $US106 and for 2011 from $US132 to $US104. Analysts at the bank said Chinese Government cooling measures had cut steel production dependent on iron ore imports by about 4 million tonnes a month. Concerns about Europe have led to steel demand being reduced there by up to 2 million tonnes a month across the continent. In the past three months, iron ore spot prices at Chinese ports slipped 35 per cent.

Evening Recommendations
BMO Capital:

• Rated (PNC) Outperform, target $73.

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 132.0 -5.0 basis points.
• Asia Pacific Sovereign CDS Index 126.75 -4.75 basis points.
  
• S&P 500 futures +.25%.
  
• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AMTD)/.28
• (OMC)/.77
• (HOG)/.44
• (STT)/.87
• (BIIB)/1.12
• (JNJ)/1.21
• (UAUA)/1.75
• (BTU)/.63
• (FRX)/.86
• (UNH)/.74
• (WHR)/2.19
• (BK)/.55
• (PEP)/1.08
• (CRUS)/.25
• (ITW)/.83
• (GS)/1.99
• (SYK)/.80
• (GILD)/.87
• (ALTR)/.53
• (MDRX)/.17
• (JNPR)/.29
• (VMW)/.32
• (LLTC)/.50
• (AAPL)/3.09
• (YHOO)/.17
• (CTAS)/.33
• (BSX)/.03

Economic Releases
8:30 am EST

• Housing Starts for June are estimated to fall to 577K versus 593K in May.
• Building Permits for June are estimated to rise to 575K versus 574K in May.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Tarullo testifying before Senate on FinReg, weekly retail sales reports and the ABC consumer confidence reading could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.