Friday Watch

Evening Headlines
Bloomberg:

• Wheat Rises on Signs Russia May Extend Grain-Export Ban by Up to 11 Months. Wheat futures rose after Prime Minister Vladimir Putin indicated that Russia, a leading global exporter, may extend a ban on grain exports by as long as 11 months. “We can only review lifting the ban on grain exports after the next year’s crop is harvested and we have clarity on the balances,” Putin said today. The export ban, originally set from Aug. 15 to Dec. 31, may last until November 2011, the time that the country normally completes its harvest.
• Shipments are rising again at U.S. trucking companies, such as San Mateo, California-based Con-Way Inc., a signal the economic recovery remains in tact. The Cass Shipments Index rose 8.3% from the prior month. At 1.0950 the August measure is the second-highest reading in two years.
  
• How AnchorFree Scales China's Great Firewall. Its Hotspot Shield censor avoidance service gives users Web access they'd otherwise be denied.
• Cotton Closes at Highest Since 1995 on Demand Outlook; Orange Juice Drops. Cotton futures rose, closing at the highest price since 1995, on concern that supplies will fall short amid rising demand from Asia. Orange-juice fell for the first time in a week. Global cotton consumption will rise 2 percent in the year ending July 31 to 25.1 million metric tons, the International Cotton Advisory Committee said yesterday.
• Cameron's Austerity Turns Company Bonds Into World Beaters: Credit Markets. British companies are beating the world in the bond market as investors bet Prime Minister David Cameron’s efforts to tame the budget deficit will preserve the U.K.’s top credit rating. U.K. corporate debt denominated in all currencies returned 3.25 percent last month, the most in a year and the best among the 10 countries making up almost 90 percent of the $6.2 trillion Bank of America Merrill Lynch Global Broad Market Corporate Index. “Investors are happy with the measures taken by Cameron,” said Christian Weber, a senior credit strategist at UniCredit SpA in Munich. “The perception has spread that it’s better to actually tackle budget deficits than just keep spending and spending and spending, because that limits your ability in the future to help your economy stabilize.”
• BlackRock(BLK) to Evaluate Commercial Mortgage Holdings for Insurance Industry. BlackRock Inc., the world’s biggest money manager, was hired by state insurance regulators to assess the industry’s potential losses from holding commercial mortgage-backed securities. BlackRock will review more than 7,000 CMBS securities by year-end, the National Association of Insurance Commissioners said today in a statement released on its website. The New York- based firm will calculate loss expectations for the holdings, which in turn determines how much capital insurers must hold to cushion potential declines, the NAIC said.
• Home Prices in China to Decline Starting From September, BNP Paribas Says. China’s home prices will decline from this month as the government maintains its lending curbs and increases the supply of public housing, forcing property developers to cut prices to boost sales, BNP Paribas said. “Although the government has not quantified its target, it has indicated that it wants to see a housing-price correction take place in order to meet or partly meet public expectations,” Chen Xingdong and Isaac Meng, Beijing-based analysts at BNP Paribas, said in a report today, without giving a forecast for how much prices may drop. “We expect a housing price correction to take place from September onwards.” China’s property developers, the worst-performing group on the benchmark Shanghai Composite Index this year, will “continue to be affected” as the government maintains its curbs on the industry, the BNP analysts said. The property market is in a “very big bubble” that may last until the government increases interest rates and introduces a real-estate tax to curb prices, StarRock Investment Management’s investment director Jiang Hui said yesterday in Shanghai. China may strengthen the existing measures targeting the property market and speculation that the government will relax such policies has “vanished,” according to Deutsche Bank AG in a report yesterday.

Wall Street Journal:

• The Small Business The 97% Fallacy by Kevin Hassett and Alan Viard. The president's plan to raise top marginal rates is holding back the very people who should be leading the economic recovery.
• Mexican Soldiers Kill 25 in Gunbattle Near Border. A shootout between soldiers and suspected drug cartel members in northeastern Mexico left 25 purported gunmen dead Thursday, the military said. A reconnaissance flight over Ciudad Mier in Tamaulipas state spotted several gunmen in front of a property, according to a statement from Mexico's Defense Department. When troops on the ground moved in, gunmen opened fire, starting a gunbattle that killed 25 suspected cartel members, according to the military. The statement said two soldiers were injured but none were killed.
• Lobbying Picks Up as Finance Rules Are Written. U.S. firms eager to shape new financial regulations have wasted no time in lobbying the Federal Reserve and other agencies, according to new details the central bank released Thursday. Summaries of 11 meetings involving Fed staff and outside corporations and advocacy groups highlight the high-stakes effort to write rules that carry out the new financial-overhaul legislation.
• U.S. Frets Over Foreign Investors in GM. Treasury Officials Want to Minimize Political Fallout From Car Maker's Stock Sale as It Selects 'Cornerstone' Buyers. The U.S. Treasury is concerned about how many overseas investors it should to allow to buy big stakes in General Motors Co. through the car maker's initial public offering this fall, according to people familiar with the matter.
• East Coast Braces for Earl.
• Bruised Quant Funds Seek a Human Touch. Computer-driven mutual funds, chastened by a string of poor results and a wave of redemptions, are striving to bring more of a human touch to their investment decisions. These so-called quantitative funds, which rely largely on computer models to select investments, have been on the fritz for several years. A group of 65 such funds tracked by investment-research firm Morningstar Inc. lagged behind 72% of their category rivals, on average, in the three years ended Aug. 27.
• A Hot Fund Design Turns Cold. So-called 130/30 funds aim to boost performance with borrowed money and bets against overpriced securities.
• 3PAR(PAR) Insiders Reap Windfall. Hewlett-Packard Co.'s(HPQ) bidding war with rival Dell Inc. over 3PAR Inc. has created a $2.1 billion windfall for insiders and investors at the small data-storage company, but the proceeds won't be evenly split. Nearly $800 million will go to three venture-capital firms—Mayfield Fund, Menlo Ventures and Worldview Technology Partners—that remain among the Fremont, Calif., company's biggest shareholders. Collectively the three still own 38% of 3PAR. Almost $100 million will go to 3PAR's chief executive, David Scott. His payout eclipses the combined proceeds for the company's three founders.

Bloomberg Businessweek:

• Intel(INTC) Wants to Be Inside Everything. Intel is counting on its embedded Atom Processor chips to help break its dependence on the slowing PC market.
• Alberta Fund Got Chinese Approach on Potash Corp.(POT) Bid, CEO Says. Chinese investors approached Alberta Investment Management Corp. to consider a joint counterbid for Potash Corp. of Saskatchewan Inc., the Canadian pension fund’s chief executive officer said.
• Novartis Malaria Drug May Yield First New Treatment in 30 Years.
• Lisa Jackson's High-Wire Act on Carbon Controls. The EPA chief is using her authority under the Clean Air Act to control carbon emission. Early in his Presidency, Barack Obama made it clear that if Congress failed to limit carbon emissions, he would use his authority under the Clean Air Act to control greenhouse gases. Now that Congress has pulled the plug on legislation, that task has fallen to Lisa Jackson, Obama's Environmental Protection Agency chief.

CNBC:

• Is Copper Trying to Tell You Something?
• Gulf Rig Fire Out; Coast Guard Backpedals on Oil Sheen.
• Friday's Jobs Report Will Be Key for Markets - And Fed.
  

MarketWatch:

• BHP Billiton(BHP) May Bid for Anadarko(APC), Report Says.
• Chinese Funds Post Huge Losses in First Half of 2010. Performance marks second-largest loss for industry, after first half of 2008.
• Why Apple's(AAPL) Headed to $350 By Year End by Cody Willard.
  

NY Times:

• YouTube Ads Turn Videos Into Revenue.
• Employers Push Costs for Health on Workers. As health care costs continue their relentless climb, companies are increasingly passing on higher premium costs to workers. The shift is occurring, policy analysts and others say, as employers feel more pressure from the weak economy and the threat of even more expensive coverage under the new health care law. In contrast to past practices of absorbing higher prices, some companies chose this year to keep their costs the same by passing the entire increase in premiums for family coverage onto their workers, according to a new survey released on Thursday by the Kaiser Family Foundation, a nonprofit research group. Workers’ share of the cost of a family policy jumped an average of 14 percent, an increase of about $500 a year. The cost of a policy rose just 3 percent, to an average of $13,770.

Business Insider:

• On The Eve of the Big Jobs Report, Gallup Says Underemployment Jumped in August.

Zero Hedge:

• TrimTabs Reports Percentage of Hedge Funds Expecting to Raise Leverage in September Surges. With just one month left in the quarter, most hedge funds continue to underperform the market, not to mention that the vast majority continues to be under their high water mark (most notably Citadel). And with fickle LPs, unbound by lock ups courtesy of the 2008 crash, knowing all too well they can now move their money with the facility of a HFT frontrunner churning AMZN one thousand times a second, threatening redemptions unless something changes in the last month of the quarter, hedge funds are, for lack of a better word, panicking. Yet as we have long been demonstrating, the vicious loop of high correlations and mutual fund withdrawals means that alpha generation is gone the way of the dodo. Which means that HFs will now seek to actively lever up into the market to chase the beta wave over September like never before.

Forbes:

• Apple's(AAPL) Stealthy Attack on Your Living Room.

Washington Post:

• White House Considering Major Tax Breaks for Businesses, Sources Say. With the recovery faltering less than two months before the November congressional elections, President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses - potentially worth hundreds of billions of dollars, according to two people familiar with the talks. Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks who spoke on the condition of anonymity in order to describe private deliberations. Permanently extending the research credit would cost roughly $100 billion over the next decade, tax experts said. And depending on its form and duration, a payroll tax holiday could let businesses keep more than $300 billion they would otherwise owe the Treasury. While significantly less than last year's $814 billion stimulus package, both ideas would be far more dramatic than anything the White House had been expected to propose. The staff-level discussions are in preliminary stages. But with the unemployment rate expected to rise again in new jobs numbers due out Friday, such a move could serve both to spur hiring and to combat Republican charges that Obama's tax policies would hurt small businesses. More spending on infrastructure - particularly transportation projects - is also under discussion, sources said. But a person familiar with the talks said it would be easier for a package consisting purely of tax cuts to "avoid the stain of a 'bailout' or 'stimulus' label."

GuruFocus.com:

• Hedge Fund Glenview Capital Q2: Buys (CLWR), (DFS), (GILD), (GOOG); Larry Robbins Added. Hedge fund manager Larry Robbins, founder of Glenview Capital, has been added into our list of premium gurus. These are the buys and sells of the fund during the second quarter.

Politico:

• Few Options for Barack Obama on 9/11. Every year it’s a challenge for the White House: how to commemorate the Sept. 11, 2001, terrorist attacks. This year is especially awkward, given the controversy around President Barack Obama’s remarks in support of an Islamic cultural center and mosque planned for a neighborhood near ground zero in lower Manhattan. The White House has not yet announced the president’s plans for next week, though a source familiar with the matter was doubtful Obama would travel to New York.

Reuters:

• China FX Reserves About 65% in Dollars - Report. China's foreign exchange reserves are allocated roughly in line with the global average of 65 percent in dollars, 26 percent in euros, 5 percent in pounds and 3 percent in yen, an official newspaper reported on Friday, citing unidentified reserve managers.
• Petrobras(PBR) Capital Plan to Boost Reserves by 35%. Brazil's state-run oil company Petrobras's proven oil reserves could rise 35 percent as a result of access to new fields through an oil-for-shares swap, the company chief executive said on Thursday. "We are going to have a 35 percent increase in proven reserves, strengthening production growth in a sustainable pace," Chief Executive Jose Sergio Gabrielli said during a conference call. He said the company by 2014 or 2015 could incorporate those reserves, which are distributed in at least six fields. He added that the company's reserves are currently 14 billion barrels. Gabrielli added that oil production would also increase as a result of the new fields, but declined to provide a time frame or changes to existing output forecasts.
• Ulta Salon(ULTA) Q2 Beats Estimates, Sees Q3 Above Street. Ulta Salon, Cosmetics & Fragrance Inc posted a higher-than-expected quarterly profit, helped by higher merchandise margins, and forecast a strong third quarter, sending its shares up 11 percent.
• Cooper Cos(COO) Q3 Profit Tops Estimates, Raises FY View. Eye-care company Cooper Cos Inc posted a better-than-expected quarterly profit as it gained market share in its contact lens and surgical businesses, and the company raised its full-year forecast, sending its shares up 4 percent after market.
• Esterline(ESL) Q3 Profit Beats Street, Raises FY10 EPS View. Aerospace and defense parts supplier Esterline Technologies posted a quarterly profit that beat market estimates, helped by growth in its avionics and controls segment, and raised its 2010 earnings outlook above estimates, sending its shares up 4 percent.
• Apple(AAPL) TV Could Help Netflix(NFLX) Growth. Shares in Netflix Inc neared their all-time high on Thursday, after Apple Inc said that the company's streaming video service would be added to a new version of Apple TV. The tie-in with Apple TV, a smaller, cheaper version of Apple's earlier web-to-TV product, could cement Netflix's dominance in the online movie rental business.
• ArcSight(ARST) Q1 Tops Street, Sees Strong Q2. Cybersecurity firm ArcSight Inc posted better-than-expected first-quarter results, helped by strong demand from its core customers, and forecast second quarter ahead of market estimates.

Financial Times:

• ABB Chief Plugs Into the Developing World. As debate rages on the direction of the world economy, few should be better placed to make a call than Joe Hogan, chief executive of ABB, the Swiss-Swedish electrical engineering group that is as prominent in emerging markets as mature ones. With 117,000 employees in 100 countries, the group is an industrial bellwether, vying with the likes of Siemens, General Electric and Hitachi to secure large contracts for electricity transmission systems, factory automation and heavy mine equipment. “I’m cautiously optimistic,” says Mr Hogan in a rare interview, almost two years to the day since he took over at ABB after stepping down as chief executive of GE’s healthcare division. “Anyone who’s overly optimistic right now would not be reading the economic statistics as they’re coming through.” But Mr Hogan, freshly returned from holiday in his native US, is equally wary of predicting disaster. He acknowledges that Europe – outside Germany – and the US “are still slow”. But he is adamant ABB has detected no signs of a double-dip US slowdown as yet. “So far, I can’t say we’ve seen any kind of deviation from the first and second quarters.”
• Banks Are Cutting Use of Bonuses to Recruit. Investment banks are using far fewer lucrative “guaranteed” bonus packages to attract recruits in response to the global regulatory crackdown on bank pay, according to a closely watched industry report. Guaranteed bonuses, where employees are promised a fixed incentive payment regardless of their performance or their business’s profitability, accounted for about 5 per cent of the bonuses paid out for 2009 at 37 leading financial companies surveyed by the Institute of International Finance, the industry lobby group. That is down from an average of nearly 10 per cent of bonuses for 2008 and 8 per cent for 2007.
• Lenders Shunned on Stress Tests Doubts. Leading UK and continental European companies are increasingly shunning banks from Spain, Italy and even Germany because they do not believe the Europe-wide stress testing of banks gave a true picture of their financial health. Corporate treasurers from groups with revenues of more than $240bn told the Financial Times they were conducting their own tests to gauge for themselves banks’ robustness. “What we are increasingly concerned about is credit risk,” said the treasurer of one of Germany’s largest industrial companies. “Even after the stress tests, we have to ask ourselves: are the banks healthy? The tests have opened up more questions than they have answered, especially here in Germany.” Stuart Siddall, chief executive of the Association of Corporate Treasurers, said companies were taking a more proactive approach to assessing how financially strong banks are: “Everybody is spending a lot more time today on counterparty risk than they did before.” “There is an element of whether the emperor has any clothes on and what to do if he doesn’t. The stress tests were a joke,” said the treasurer of a large European media company. The companies said that they were taking measures such as talking to banks’ own proprietary trading desks to determine the health of other banks. “We are paranoid about it and monitor market rumours very closely,” said the treasurer of another media company. Treasurers are now also paying close attention to credit default swaps – the price of protection against a bank defaulting on its debt – as well as to share prices. “Credit rating agencies acted too slowly,” said the treasurer of a German industrial group. “We look at banks’ health daily and adjust our limits with them accordingly.”
• Fears Grow Over Global Food Supply. Russia announced a 12-month extension of its grain export ban on Thursday, raising fears about a return to the food shortages and riots of 2007-08 which spread through developing countries dependent on imports. The announcement by Vladimir Putin came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage, and riots in Mozambique left seven dead. The unrest in Maputo, in which 280 people were also injured, followed the government’s decision to raise bread prices by 30 per cent. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.

Der Spiegel:

• American Has Become Too European. The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government. There's no question about it: The 20th century was America's era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

China Business News:

• Chinese local government financing vehicles may have outstanding loans of as much as 10 trillion yuan this year and exceeding 11 trillion yuan in 2011, citing Liu Yuhui, an economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences. The extent of risk at the vehicles depends on the nation's economic growth and property market, Liu said.

China Securities Journal:

• China's four state-owned banks reported an increase in special-mention loans in the second quarter, citing statistics. Special-mention loans, one level above non-performing debt, rose from the previous quarter by about 42 billion yuan at Industrial and Commercial Bank of China Ltd, 12 billion yuan at Bank of China Ltd., 4.9 billion yuan at Agricultural Bank of China Ltd. and 2.7 billion yuan at Bank of Communications Co.

Evening Recommendations
Citigroup:

• Rated (WMB) Buy, target $31.

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 124.0 -3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 118.50 -2.0 basis points.
  
• S&P 500 futures -.24%.
  
• NASDAQ 100 futures -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CPB)/.30

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for August is estimated at -105K versus -131K in July.
• The Change in Private Payrolls for August is estimated at +40K versus +71K in July.
• The Unemployment Rate for August is estimated to rise to 9.6% versus 9.5% in July.
• Average Hourly Earnings for August are estimated to rise +.1% versus a +.2% gain in July.
  

10:00 am EST

• ISM Non-Manufacturing for August is estimated to fall to 53.2 versus a reading of 54.3 in July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lockhart speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity 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 day.