Friday Watch

Late-Night Headlines
Bloomberg:

- The Senate Finance Committee is discussing whether to apply Medicare taxes to capital gains and other non-wage income to help pay for an overhaul of the U.S. health-care system, two people familiar with the talks said. The move would potentially raise hundreds of billions of dollars in revenue over the next decade by boosting taxes by 1.45 percentage points on income from dividends, interest, partnerships and rentals, the people said. Dividends and long- term capital gains are now taxed at 15 percent. The proposal, modeled after a plan released this week by Citizens for Tax Justice, would force people living off investments to contribute taxes to the health-care system, said Steve Wamhoff, legislative director for the Washington research group. It was raised yesterday in a closed-door meeting of Finance Committee Democrats, according to people in the room. Senate and House lawmakers are struggling to find ways to finance the $1 trillion health-care overhaul, President Barack Obama’s top domestic priority. Meanwhile, a group of self-proclaimed fiscally conservative Democrats known as the “Blue Dogs” raised “strong reservations” about a draft of legislation being considered in the House of Representatives, saying it doesn’t reduce costs enough within the system. “We cannot simply ‘add’ new consumers to a broken system,” 40 members of the group wrote in a letter to House Speaker Nancy Pelosi of California and Majority Leader Steny Hoyer of Maryland. The Blue Dogs also urged caution in setting new requirements for small-business owners to participate in the system. They said hospitals and doctors should be paid market rates in any government-sponsored system; reforms must benefit rural areas; and Republican support should be sought.

- Federal Reserve Bank of St. Louis President James Bullard said he doesn’t expect a U.S. economic recovery to falter or central bankers to make errors in their policy on inflation. “We are going to have just the right policy to get the right inflation rate,” Bullard said today in a Bloomberg Television interview. “I do not buy into the stories about the Fed making a mistake one way or the other going forward.”

- The size of the Federal Reserve’s balance sheet shrank for a third straight week, falling below $2 trillion for the first time since March, as lending to banks in the U.S. and abroad declined.

- Shaw Group Inc.(SGR), the Baton Rouge, Louisiana-based builder of power plants, said 2009 profit will be lower than projected after third-quarter profit fell 85 percent. Shaw fell $1.47, or 5.6 percent, to $24.69 at 6:06 p.m. in electronic trading after the close of the New York Stock Exchange.

- North Korea’s pursuit of ballistic missile technology and weapons of mass destruction poses a “significant threat” that could spur a “limited” Asian arms race, the nominee for top U.S. Pacific commander said. North Korea’s neighbors might “seek to enhance their own deterrent and defense capabilities” to counter its moves, Admiral Robert Willard told the Senate Armed Services Committee today at his nomination hearing.

- Roland Burris, who was appointed to President Barack Obama’s U.S. Senate seat by Governor Rod Blagojevich before he was forced out of office under indictment, will announce tomorrow that he won’t run for election in November, a Democratic official said.

- Google Inc.(GOOG) Chief Executive Officer Eric Schmidt said Microsoft Corp.’s new Bing Internet search engine may lure more Web surfers in the future. While Google isn’t losing many users to Bing, Microsoft’s product shows that the search market is competitive, Schmidt said today at the annual Allen & Co. media conference in Sun Valley, Idaho.

- For Warren Buffett, freight-train traffic has the kind of importance that Alan Greenspan attached to scrap-steel prices as Federal Reserve chairman – and it isn’t going his way. Freight carload shipments at six of the largest US railroads tumbled 19.2% through last week from a year earlier, the Assoc. of American Railroads reported yesterday. Buffett follows this gauge more closely than any other index, Bianna Golodryga, a reporter for ABC’s “Good Morning America” program, said yesterday after she interviewed the billionaire investor. Its drop worries him, she reported.

- Emerging-market equity funds posted outflows for the second time in three weeks on growing doubts the global economy will recover soon, EPFR Global said. Investors withdrew $365 million from funds investing in Asia excluding Japan in the week ended July 8, the research firm said in a statement yesterday. They pulled $307 million from Latin America stock funds. “Fresh doubts about U.S. appetite for emerging markets exports and global demand for raw materials prompted investors to pull some money off the table in early July,” EPFR said in the statement. Benchmark indexes in Russia and India are among those that have entered a so-called correction after slumping more than 10 percent from their highs this year. China equity funds also lost $424 million in the week ended July 8, while Brazil outflows totaled $244 million, the research company also said.

Wall Street Journal:

- Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter. The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. J.P. Morgan Chase & Co. Chief Executive James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants. The inability to agree on a price has already prompted J.P. Morgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price. The disagreement between banks and the Treasury indicates that the banking sector, despite being pilloried for its role in the financial crisis, is becoming increasingly confident in its dealings with Washington. Some banks have begun pushing back against some government initiatives, a move fraught with political risk. It also is an indication of how tricky it is going to be for the government to extricate itself from its unprecedented investment in the financial sector.

- Even a long-term Treasury bear like bond-fund giant Pacific Investment Management Co. can make money buying U.S. government bonds if it gets its timing right. Steve Rodosky, head of Treasury and derivatives trading at Newport Beach, Calif.-based Pimco, said he bought Treasurys when the 10-year note's yield rose toward 4% in late May and early June as he believed the market had become too optimistic about the economic outlook.

- The Environmental Protection Agency plans to propose rules early next year to control power-plant emissions, a step that would give the industry certainty after an appeals court threw out similar rules last July.

- Exxon Mobil Corp.(XOM) said drilling results from its first wells in Canada's Horn River Basin shale-gas field indicate that it is likely to be a very big and productive source of natural gas.

- Most economists believe the U.S. doesn't need another round of stimulus now despite expectations of continued severe job losses.

- Television networks and other media companies are rushing to try to quash a plan to tax advertisements for prescription drugs as House lawmakers finalize health-care overhaul legislation. The four major broadcast networks - Walt Disney Co.'s (DIS) ABC, CBS Corp. (CBS), News Corp.'s (NWSA) Fox and General Electric Co.'s (GE) NBC Universal -- told House Ways and Means Chairman Charles Rangel, D-N.Y., in a Thursday letter that the plan would cost New York jobs and urged him to abandon it. "Across the U.S., advertising supports more than 21 million jobs. The current economic recession requires that we do everything we can to generate more sales and more jobs - not adopt policies that would reduce them," the networks wrote. News Corp. also owns Dow Jones & Co., publisher of this newswire.

- At least 42 nonfinancial companies and trade associations are lobbying Congress on derivatives, according to a Wall Street Journal analysis of lobbying disclosure forms filed through April.

- In February, President Barack Obama signed a $787 billion stimulus bill while making lavish promises about the results. He pledged that "a new wave of innovation, activity and construction will be unleashed all across America." He also said the stimulus would "save or create up to four million jobs." Vice President Joe Biden said the massive federal spending plan would "drop-kick" the economy out of the recession. But the unemployment rate today is 9.5% -- nearly 20% higher than the Obama White House said it would be with the stimulus in place. Keith Hennessey, who worked at the Bush White House on economic policy, has noted that unemployment is now higher than the administration said it would be if nothing was done to revive the economy. There are 2.6 million fewer Americans working than Mr. Obama promised.

CNBC.com:
- Warren Buffett tells CNBC that consumer sales by Berkshire Hathaway companies have remained "very, very soft" in recent weeks. In a taped interview with our Julia Boorstin today (Thursday) at Herb Allen's Sun Valley media conference, Buffett says he'll know when things pick up because he gets constant "contemporaneous" updates on sales from his companies.

- Software Giants Rush to Cash In on Carbon-Trading.

Business Week:
- Is there a federal bailout coming for U.S. airlines? For a long time, I’ve thought this idea was beyond far-fetched, with about as much basis in reality as Uncle Sam extending funds to the equally plagued news media.

Politico:

- Senate Finance Committee Chairman Max Baucus (D-Mont.) presented his members Thursday with more than a dozen ways to pay for health care legislation, ranging from new fees on industry to an income-tax hike on couples making more than $1 million a year. Faced with a $320 billion hole in his reform plan, Baucus revisited options that were considered in the past, but never emerged as top-tier options because he believed taxing employer-provided health benefits was the best way to provide that revenue.

Rasmussen:

- Voters now trust Republicans more than Democrats on eight out of 10 key electoral issues, including, for the second straight month, the top issue of the economy. They've also narrowed the gap on the remaining two issues, the traditionally Democratic strong suits of health care and education. The latest Rasmussen Reports national telephone survey finds that voters trust the GOP more on economic issues 46% to 41%, showing little change from the six-point lead the party held last month. Voters not affiliated with either party trust Republicans more to handle the economy by a 46% to 32% margin. Last week’s report of 9.5 percent unemployment, the highest since 1983, raised doubts about the economy and the president's handling of it. Consumer and investor confidence is now down to the lowest levels in three months. Just 39% now say President Obama is doing a good or an excellent job on the economy while 43% rate his performance as poor. Those are by far the weakest numbers yet for the president. The president's approval ratings also have fallen to new lows in the Rasmussen Reports daily Presidential Tracking Poll.

Washington Post:

- American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor. The troubled insurance giant has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage. The request puts the administration's new compensation czar on the spot by seeking his opinion about bonuses that were promised long before he took his post. AIG doesn't actually need the permission of Kenneth R. Feinberg, who President Obama appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts. But officials at AIG, whose federal rescue package stands at $180 billion, have been reluctant to move forward without political cover from the government. The payments coming due next week include $2.4 million in bonuses for about 40 high-ranking executives at AIG, according to administration documents from earlier this year. No development in the government's bailout of financial firms has angered lawmakers and ordinary Americans more than the disclosure in mid-March that the global insurer was paying more than $165 million in retention bonuses. They were aimed at retaining 400 employees at AIG Financial Products, the troubled unit whose complex derivative contracts nearly wrecked the global insurance giant. Separately this week, a Citigroup analyst warned that AIG might be worthless to shareholders if or when it ever pays back the billions it owes the U.S. government. "Our valuation includes a 70 percent chance that the equity at AIG is zero," Joshua Shanker of Citigroup wrote in a note to investors. He cites the continuing risks posed by the company's exotic derivative contracts, called credit-default swaps, and its sale of assets at low prices.

The Business Insider:

- Merrill Lynch, frightened by the unending flood of people out of its doors, is planning on setting 2009 compensation levels back up to 2007 levels, according to a person familiar with the matter. Executives at the investment bank have been in talks with senior people at Bank of America, warning that the entire franchise could fall apart if compensation levels don't match those offered by, say, Citigroup. Last week, Citigroup revealed it would be paying 2007 compensation by raising salaries to make up for lower bonuses.

USA Today.com:

- Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday. "The commercial real estate time bomb is ticking," said Rep. Carolyn Mallory, D-N.Y., who heads the congressional Joint Economic Committee. Delinquency rates on commercial loans have doubled in the past year to 7% as more companies downsize and retailers close their doors, according to the Federal Reserve. Small and regional banks face the greatest risk of severe losses from commercial real estate loans. The commercial real estate market's fortunes are tied closely to the economy, especially unemployment, which hit 9.5% in June. As people lose their jobs, or have their hours reduced, they cut back on spending, which hurts retailers, and take fewer trips, which hits hotels.

MercuryNews.com:

- Scientists have detected an increase in mysterious underground tremors along a stretch of the San Andreas Fault, signaling stress that could boost the likelihood of a major earthquake. Seismic tools buried in deep holes near the town of Parkfield, 175 miles south of San Jose, have found that the number of tremors along the fault has increased up to 80 percent over four years, according to University of California-Berkeley seismologist Robert Nadeau and graduate student Aurélie Guilhem.

Reuters:

- Yang Rong, a Chinese automobile tycoon who fled the country after being accused of economic crimes, is preparing to launch an ambitious plan to make clean-tech cars in the United States, said a source. The former chairman of Brilliance China Automotive Holdings Ltd, ranked by Forbes as China's third-richest man in 2001, will announce a plan later this month to set up a company in the southern U.S. state of Alabama, said the source with direct knowledge of the plan.

- Chevron Corp (CVX) warned that second-quarter earnings would be hit by a sharp decline in U.S. refining margins and that any benefits from higher oil prices were largely offset by a weaker dollar, sending its shares down 1.8 percent. The outlook from the second-largest U.S. oil company only contributed to the gloom surrounding the country's refiners in the face of toughening regulation and a depressed fuel market.

- The Federal Reserve on Thursday launched a robust defense of its independence and warned that efforts in Congress to put monetary policy under political sway would hurt the economy. Fed Vice Chairman Donald Kohn said opening up some of the U.S. central bank's most sensitive decisions to political scrutiny could result in higher long-term interest rates and hurt the United States' credit rating.

- Chicago-based Citadel, founded by 40-year-old billionaire Kenneth Griffin, said in a lawsuit filed on Thursday that Mikhail Malyshev, 40, and two other former employees had violated their non-compete clauses by starting their own firm, Teza Technologies LLC. The lawsuit was filed in the circuit court of Cook County, Illinois.

- U.S. M-2 money supply fell by $36.2 billion in the June 29 week to $8,349.2 billion, the Federal Reserve said on Thursday. The Fed said the four-week moving average of M-2 was $8,372.5 billion vs. $8,376.5 billion in the previous week.

- A U.S. Senate panel on Thursday approved a $46.4 billion bill to fund the Treasury Department and pressed the agency to obtain more details about how recipients of the government's $700 billion financial bailout are using the funds. The Senate Appropriations Committee approved the spending bill for 2010 as the Treasury Department, along with the Federal Reserve, have been trying to rescue ailing lenders struggling under the weight of the financial crisis. The Troubled Asset Relief Program (TARP) has come under blistering criticism about the lack of transparency and for being used to pour billions of dollars into troubled lenders rather than helping individuals facing home foreclosures. Scores of major U.S. banks received money from the program amid a global credit freeze, but many declined to detail how they used the funds, drawing criticism from lawmakers who were concerned that they were not using it to thaw the credit markets.

- A crack in the fragile coalition crafting a U.S. healthcare reform bill emerged on Thursday when fiscally conservative Democrats balked at the cost and direction of the House of Representatives' plan. Lawmakers in Congress, controlled by Democrats, are working on draft proposals to revamp the bureaucratic U.S. healthcare system at a cost of about $1 trillion over a decade. Healthcare reform is a key part of the Obama administration's agenda. But in a letter to Democratic House Speaker Nancy Pelosi and Senate Republican Leader Mitch McConnell, about 50 House Democrats said the House should "pare back some of the cost-drivers to produce a bill that we can afford." The so-called Democratic Blue Dog Coalition, an influential faction within the majority party, also said they had "strong reservations about the process and direction" of the proposed legislation.

Financial Times:

- John Meriwether’s decision to shutter his flagship Relative Value Opportunity II hedge fund, even as many other groups with a similar approach are flourishing, underscores how conditions in the hedge fund world have changed. Mr Meriwether’s approach for his latest fund was a relative value strategy that sought to identify small price discrepancies across a range of securities, whether currencies or fixed income, for the leading economies and to take positions on the expectation that those anomalies would disappear. But because the price moves can be so slight, the strategy relies on much borrowed money to produce adequate profits at the best of times. Mr Meriwether, and other hedge fund managers, found that the desks of the Wall Street firms that financed them were no longer willing to do so, forcing them to sell securities in a market where demand vanished. “To try to take advantage of relative mispricings turned out to be a crappy business,” said one consultant, a former colleague of Mr Meriwether’s. “Whenever liquidity becomes an issue, you are exposed.” “The funds that have done well are those that have actually stopped doing traditional relative value trades and put on directional trades instead,” said a managing director at a firm investing in a variety of hedge funds on behalf of institutions and wealthy families in New York. “Traditional relative value is dead.”

CTV.ca:
- The fur is really starting to fly, now that the first pet-only airline in the U.S. is taking to the skies. Pet Airways, which will fly from airports in five American cities starting next week -- with plans to expand into Canada next year -- is focused entirely on pet "pawsengers." In fact, human passengers aren't even allowed on the planes, said CTV's travel expert Loren Christie. "It's actually an airline only for pets," Christie told CTV's Canada AM.

Late Buy/Sell Recommendations

- None of Note

Night Trading
Asian Indices are -.75% to +.25% on average.

Asia Ex-Japan Inv Grade CDS Index -.86%.
S&P 500 futures -.32%.
NASDAQ 100 futures -.30%.

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Economic Releases

8:30 am EST

- The Trade Deficit for May is estimated to widen to -$30.0B versus -$29.2B in April.

- The Import Price Index for June is estimated to rise 2.0% versus a 1.3% increase in May.

10:00 am EST

- The Preliminary Univ. of Mich. Consumer Confidence reading for July is estimated to fall to 70.0 versus 70.8 in June.

Upcoming Splits
- None of note

Other Potential Market Movers
- The (MRVL) shareholders meeting could also impact trading today.

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

Stocks Finish Slightly Higher, Boosted by Construction, Homebuilding, Semi, Gaming, Bank and Oil Service Shares

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In Play

Stocks Slightly Higher into Final Hour on Short-Covering, Less Economic Pessimism, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling 5.62% and is high at 29.52. The ISE Sentiment Index is low at 109.0 and the total put/call is above average at 99. Finally, the NYSE Arms has been running slightly below average most of the day, hitting .54 at its intraday trough, and is currently .74. The Euro Financial Sector Credit Default Swap Index is falling .67% today to 110.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling .93% to 144.10 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.29% to 35 basis points. The TED spread is now down 431 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.28% to 36.44 basis points. The Libor-OIS spread is down 3.74% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 3 basis points to 1.55%, which is down 109 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. Cyclicals are bouncing back a bit today. Bank, Semi, Gaming, Homebuilding, Oil Service and Construction shares are especially strong. Given today’s decline in the dollar, cyclical outperformance, better-than-expected economic data and recent crude declines, oil’s inability to bounce is noteworthy. The AAII % Bulls dropped to 27.91 this week, while the % Bears jumped to 54.65, which is a big positive. On the negative side, I am surprised the broad market isn’t bouncing more today. (IYR) has been heavy throughout the day and it is beginning to weigh on (XLF). Moreover, several key stocks aren’t participating in today’s gains. Nikkei futures indicate an +104 open in Japan and DAX futures indicate an +3 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering, bargain-hunting and less economic pessimism offsets commercial real estate worries and higher long-term rates.

Today's Headlines

Bloomberg:

- Mortgage rates in the U.S. fell for a second consecutive week, easing concern that a Federal Reserve plan to lower the cost of home loans had lost momentum. The average 30-year rate dropped to 5.2 percent from 5.32 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate averaged 4.69 percent.

- President Barack Obama has failed thus far to clinch the support of a handful of pivotal Democratic senators on two of his top priorities: extending health coverage to the uninsured and reducing greenhouse gases. The lawmakers represent Republican-leaning states, practice bipartisan politics, at times vote against their party and will influence legislation from health care to spending. “Senators aren’t sheep,” Senator Evan Bayh of Indiana said in an interview. He and the four other Democrats in this small group “were hired by their constituents to make independent judgments of their own, not to be told by somebody else what to do,” he said. These independent-minded Democratic lawmakers have all expressed reservations about a central element of Obama’s health-care proposal -- a government-run insurance program that would compete with private plans --and about the cost of capping greenhouse-gas pollution. On health care, these senators all express concern about Obama’s proposal. “How are we going to pay for this at a time when the economy is already sluggish and we don’t want to raise people’s taxes?” Bayh, 53, said. On climate change, these senators are concerned about rising energy costs and the consequences of forcing U.S. businesses to meet stricter standards. “You have to find a way to get the developing world, particularly China and India, to cooperate,” said Bayh. Obama’s plan to limit greenhouse gases and encourage the use of renewable energy is a hard sell in Nebraska, said Nelson, 68. “We’re the only state with 100 percent public power, and when they tell you it could as much as double utility rates in the state, it doesn’t take long to unite the state pretty dramatically,” he said. On fiscal matters, the senators push spending restraint. In April, Nelson and Bayh voted against their party’s $3.55 trillion budget plan for 2010.

- North American refiners will leave about 25% of plants idle by 2014, the International Energy Agency says, as a rise in capacity around the world increases the available supply of gasoline and distillates. Refinery utilization in North America may drop 5 percentage points to 75% as global crude distillation capability increases by 7.6 million barrels a day between 2008 and 2014, the IEA said June 29 in its Medium-Term Oil Market Report. That is more than twice the 3.2 million barrels of projected oil demand growth. The US refinery utilization rate is 2.4 percentage points lower than a year ago, the Energy Dept. said. Plants operated at 87% of capacity in the week ended July 3. The IEA forecast the North American rates to average 80% in the second quarter of this year. “North American refinery utilization is expected to decline slightly from the low levels seen today, as the recovery in demand is met by rising imports and ethanol supplies, rather than a rebound in domestic capacity utilization,” the IEA said.

- Volunteers for a children’s clinic in Moline, Illinois, are collecting empty beer and pop cans after TARP slashed the money it will receive from the city’s John Deere Classic golf tournament. Wells Fargo & Co. and U.S. Bancorp are among those that didn’t renew their sponsorship while under scrutiny for how they’re using Troubled Asset Relief Program money, said Clair Peterson, director of the golf tourney that starts today. Moline-based Deere & Co. is the main sponsor of the event, which was sixth in fundraising among 44 PGA Tour events last year. “A lot of it is just being paranoid about what Congress has said about the sponsorships,” Zach Johnson, the 2007 Masters champion who serves on the Deere Classic’s board, said as he left the 18th green after a practice round this week.

- The U.S. dollar will remain the world’s main reserve currency, White House Press Secretary Robert Gibbs said at the Group of Eight summit today. “Despite whatever talk you might have heard, I don’t see that there is movement away from the notion of the dollar being that currency,” Gibbs told reporters at a briefing at the start of the second day of the three-day meeting in L’Aquila, Italy.

- Inventories at U.S. wholesalers fell in May for a ninth straight month as an increase in sales helped distributors get rid of some of their excess supply. At the current sales pace, it would take 1.29 months for distributors to deplete the amount of goods on hand, the lowest since November, compared with 1.31 months in April. The reading was as low as 1.1 months in June 2008.

- Police fired tear gas as thousands of protesters defied a ban on a march toward Tehran University to mark unrest during student protests in 1999, Agence France- Presse said, citing witnesses. Demonstrators chanted “Death to the dictator” as they gathered in the streets around the university, the center of the protests 10 years ago, AFP said.

- Iranian President Mahmoud Ahmadinejad said that although the world’s powers are angry over his re- election, they must “interact” with his administration. “The enemies of the Iranian people are very angry because, despite their efforts and propaganda, a government will be in power with the support of 40 million votes,” he said in a meeting with officials in Tehran today, according to the state- run Iranian Students News Agency. “We will not give them any advantage, and they must interact with this government.”

- Treasury 10-year note yields will resume the declines posted yesterday even as the US sold $19 billion of the securities and stocks recovered from their lows, according to a Barclays Plc repot citing chart patterns. “The failure to give back session gains speaks to the strength of the bull trend,” the analysts said. The notes face resistance at 3.44% should yields increase, he said.

- The number of Americans filing claims for unemployment benefits fell last week to the lowest since January, as early automotive plant closures altered the timing of layoffs that typically happen at this time of year. The four-week moving average of initial claims, a less volatile measure, fell to 606,000 last week from 616,000.

- General Motors Corp., poised to exit bankruptcy as soon as today, will keep losing U.S. market because it lacks new-model introductions for early 2010, according to Erich Merkle, an independent auto analyst. GM’s only new vehicle slated for that time period is the Chevrolet Cruze compact car, said Merkle, who is based in Grand Rapids Michigan, in an interview today on Bloomberg Radio. “One product, for a company the size of General Motors with its market share, quite honestly isn’t enough,” he said. “Their market-share results will go lower as a result of very poor product cadence. That’s what happens in bankruptcy. A lot of these products are being canceled or delayed.”

Wall Street Journal:

- Chinese President Hu Jintao presided over a meeting of the country's top leaders who vowed "severe punishment" for those responsible for the deadly unrest in the country's northwest, state media reported Thursday, in the first public account of Mr. Hu's actions since he hurried home from a global summit to oversee the response to the turmoil.

- The Public Option Two-Step. Why Obama won’t acknowledge the ‘Trojan Horse’ in the room.

CNBC:

- Oil traders continue to squeeze past tighter U.S. market rules via a loophole that allows them to bet for bigger stakes on certain fuel futures that are under British regulation, brokers and analysts said. The opening in what has been called the London loophole, which U.S. authorities tried to close in June 2008, allows the kind of high-risk plays that concern the Group of 8 leaders who have shone the political spotlight on oil price volatility. Traders buying oil contracts in London played a part in the spike in oil prices to nearly $150 a barrel last year, critics have said. Trading volumes have since jumped on gas oil futures not monitored by the U.S. Commodity Futures Trading Commission (CFTC) on the InterContinental Exchange (ICE) in London. Traded volumes on the gas oil futures contract on ICE surged by more than 20 percent in the first six months of 2009, from the first half of 2008.

NY Times:

- TiVo(TIVO), the Silicon Valley company that popularized the digital video recorder, and Best Buy, the national electronics chain, are forging a broad partnership. On Thursday, the companies plan to announce that Best Buy will heavily promote TiVo products in its 1,100 stores in the United States. TiVo will develop a version of its set-top box, to be sold in Best Buy stores, that will let the retailer advertise its products and services to TiVo subscribers on their home televisions.

- Man Group, the world’s biggest listed hedge fund firm, said investors have continued to withdraw their money although private investor sales have picked up, as flows in the battered industry slowly improve. Investors pulled out a net $1.4 billion in the three months to June, the firm said, helping push assets down to $43.3 billion, Reuters reported.

MarketWatch:
- Cerberus Capital Management LP unveiled a restructuring of its main hedge fund late last week that offers few ways for redeeming investors to get their money back quickly, according to people familiar with the situation. Under the plan, described in a Friday letter from the firm, investors in Cerberus Partners LP will get about 5% of their money back by the end of 2009 at most, the people said on condition of anonymity.

HousingWire.com:

- For the first time since 2006, the nation posted positive quarter-over-quarter price returns in Q209, according to the July Home Data Index Report released Thursday by Clear Capital. Fueled by strong seasonal spring sales in the Midwest, which had a price increase of 5.3% over Q109, the overall US price growth increased by 1.7% in a quarter-over-quarter comparison. The South also added to the surge, climbing 2% from the previous quarter.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 30% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-eight percent (38%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –8. The President’s Approval Index rating has fallen six points since release of a disappointing jobs report last week (see trends).

Politico:

- In a potentially alarming trend for the White House, independent voters are deserting President Barack Obama nationally and especially in key swing states, recent polls suggest. “This is a huge sea change that is playing itself out in American politics,” said Democratic pollster Doug Schoen. “Independents who had become effectively operational Democrats in 2006 and 2008 are now up for grabs and are trending Republican. “They’re saying, ‘Costing too much, no results, see the downside, not sure of the upside,’” he said.

Miami Herald:

- Some Chinese-made drywall imported into the United States contained radioactive material, news reports suggest, but state and federal tests so far haven't detected it. Copies of customs reports obtained by The Los Angeles Times show drywall made with a radioactive waste product was shipped to the states in 2006 by at least four Chinese manufacturers and trading firms.

Reuters:
- Gold jewelry sales in Dubai are down around 30 percent in June on a year ago, as high prices of the metal and the economic downturn deter tourists from visiting the emirate, five jewelry retailers told Reuters.

- The Obama administration's dash through the bankruptcies for General Motors Corp (GMGMQ) and Chrysler is nearly done, but the debate about the government's conflicted role in reshaping the American auto industry has only just begun. While the administration has been praised for its rapid reorganizations of GM and Chrysler, it has also been blamed for placing itself and its officials in situations with conflicts of interest. The U.S. government stepped in to save GM by becoming its largest creditor and majority investor, positions that inevitably clashed with its role as regulator and referee of its pending deals with outside investors. "Whenever you have a group that is regulator, owner and funder, there is a massive conflict of interest," said David Logan, associate dean at the University of Southern California's Marshall School of Business.

- Banks and hedge funds already go to extraordinary lengths to protect the automated trading secrets critical to generating big, fast profits, but after an purported theft last month, they have even more work to do.

TimesOnline:

- A drug used by transplant patients can extend the lives of mice by about a third, according to research that raises the prospect of a life-prolonging pill for people. Male mice given rapamycin lived on average 28 per cent longer than a control group of animals, while the effect on females was greater still, with a 38 per cent increase in life expectancy. The animals were treated at an age of 20 months, which is the equivalent of 60 years in humans. The study, led by David Harrison, of the Jackson Laboratory in Maine, is the first to identify a drug that can lengthen the lives of mammals, and suggests that similar medical techniques might be capable of doing the same thing in people.

- Man Group’s flagship fund, AHL Diversified, lost investors 11.2 per cent of their money in first five months of the year, as the world’s largest listed hedge fund manager missed out on the sector’s wider recovery.

Bear Radar

Style Underperformer:
Large-cap Growth (+.45%)

Sector Underperformers:
Education (-2.21%), Tobacco (-1.08%) and Drugs (-.70%)

Stocks Falling on Unusual Volume:
JCP, MRK, VRGY, FTGX, EXBD, KMT and YPF

Stocks With Unusual Put Option Activity:
1) AIG 2) WYE 3) GOLD 4) RIGL 5) DDUP