Friday Watch

Late-Night Headlines
Bloomberg:

- “Naked” credit-default swaps may be banned under provisions in the main U.S. House legislation overhauling oversight of the $592 trillion derivatives industry, House Financial Services Committee Chairman Barney Frank said. “The question of banning naked credit-default swaps is on the table,” Frank, a Massachusetts Democrat, said during an interview on Bloomberg Television today. The legislative proposal will be released next week, Frank said. House Agriculture Committee Chairman Collin Peterson, a Minnesota Democrat, said he is helping draft the legislation, which could ban credit-default swaps where the investor doesn’t own the debt on which the contracts are based. “Frank has indicated to me he wants a total ban on naked credit default swaps,” Peterson said in a statement through a spokesman today. Under Frank’s current proposal, market makers would be excluded from the ban on naked credit-default swaps, according to Representative Melissa Bean of Illinois, a Democrat and co- sponsor of a competing bill giving the U.S. Treasury authority over derivatives. As much as 80 percent of the $26.4 trillion credit-default swap market is traded by investors who don’t own the underlying debt, according to Eric Dinallo, who stepped down this month as superintendent of the New York State Insurance Department. The New Democrat Coalition’s legislation yesterday would still give the SEC and CFTC authority to propose rules for margin and collateral requirements and determine which contracts must be backed by a clearinghouse or traded on an exchange. The Treasury would have “disapproval power” over any regulations, and could censure or suspend traders or revoke registrations, according to the bill.

- The Securities and Exchange Commission should develop a central database of stock loan information to curb abusive short sales, six U.S. senators urged in a letter to the agency’s chairman. The SEC should “urgently consider” a proposal that would stiffen rules requiring brokerages to locate a willing lender of a stock before completing a short sale, according to the letter whose backers include Republican Orrin Hatch and Democrat Robert Menendez, both members of the Senate Finance Committee. Under the proposal, investors would have to identify the actual shares they intend to borrow in a central database operated by Depositary Trust & Clearing Corp. “One share owned would be one share located -- and ultimately one share delivered on time,” the senators said in the letter. “This proposal potentially represents a great stride forward and a substantial improvement on current short sale market practices.” The SEC, led by Chairman Mary Schapiro, is weighing multiple rules to dictate when traders can bet shares will fall, after lawmakers and business groups said short-sellers fed last year’s plunge in financial shares and the collapse of Lehman Brothers Holdings Inc. The SEC last year enacted rules that have almost eliminated naked short selling, so called because a trader has shorted a stock without obtaining a loan. The proposed DTCC database would prohibit multiple investors from executing short sales relying on a single indication of an available loan. It would make them match their short sales with a specific set of shares available to borrow. “This centralized ‘hard locate’ system seems to offer a viable way to eliminate ‘over selling’ of stock inventories, in that there would no longer be multiple locates on the same shares of a security,” the senators said in the letter.

- President Barack Obama’s concession that his effort to revamp U.S. health care will miss a deadline led analysts to recommend buying shares in the industry. Obama, who once set an Aug. 7 deadline to pass health- overhaul bills in both houses of Congress, said at a White House press conference last night that he “will get it done this year.” Senate Democratic leader Harry Reid said today his chamber won’t vote on an overhaul bill until September. Every day Obama’s historic effort to curb health spending and extend coverage to an estimated 46 million uninsured Americans is delayed, “health stocks will gradually rise,” Les Funtleyder, an analyst with Miller and Tabak & Co., said today in an interview. Investors in insurance and pharmaceutical shares have “overestimated” how much Obama’s overhaul might depress earnings, Funtleyder said. “The worst of the worst for these sectors, like drug price controls or a government-run health plan, seems to have moved off the table and investors are still assuming the worst,” Funtleyder said. “That makes now a very good time to invest in the sector.”

- Issuance of collateralized mortgage obligations repackaging standard agency home-loan securities has soared to a pace typical before the “liquidity crises” of recent years, reflecting demand from banks and money managers, according to Amherst Securities Group analysts. Issuance rose to $64.8 billion last quarter, from $23.4 billion in the first quarter and $6.8 billion in the fourth quarter, the analysts led by Laurie Goodman wrote in a report yesterday. Banks, flush with deposits and lending less, are seeking to take advantage of a “quite steep” difference between short- term funding costs and higher investment yields amid a declining supply of “competing” assets such as new adjustable-rate mortgages and related bonds, the analysts wrote. “Total return” managers also have liked the debt, they said. “Hence the rejuvenation of the CMO market,” the New York- based analysts wrote.

- Microsoft Corp.(MSFT) fell as much as 8.8 percent in late trading after reporting a 29 percent profit drop and sales that missed analysts’ estimates, a sign that demand for Windows and Office software is still declining.

- JPMorgan Chase & Co.(JPM), the second- largest U.S. bank by assets, will increase salaries for investment bankers who earn half or more of their total compensation in year-end bonuses, a person familiar with the firm said. The plan, unveiled today at a meeting with investment bank co-heads Steven Black and William Winters, will be implemented in 2010 and details will be announced closer to the end of this year, the person said, declining to be identified because pay matters are confidential. The salary increase doesn’t change total pay.

- Samsung Electronics Co., Asia’s biggest maker of chips, flat-screens and mobile phones, reported an unexpected increase in profit, helped by a recovery in demand for liquid-crystal-display televisions and handsets. Higher prices of memory chips and LCDs, coupled with increasing demand for flat-panel TVs and mobile phones, may help Samsung’s profit climb to a five-year high this quarter, according to analysts’ projections.

- Amazon.com Inc.(AMZN) reported a 10 percent decline in second-quarter profit and lower revenue than analysts anticipated after the online retailer lowered prices. The stock dropped 8.6 percent in late trading.

Wall Street Journal:

- The Associated Press, taking a hard line against Web sites that run stories without permission, said it is creating a way to track and control the distribution of its articles online.

- President Barack Obama's health-care plan is in jeopardy because of serious concerns that costs will spin out of control. As much as anyone, it's White House budget director Peter Orszag's job to save it. Mr. Orszag is the administration's point man for controlling health-care spending. So when the director of the Congressional Budget Office, which Mr. Orszag used to run, testified eight days ago that none of the health plans pending on Capitol Hill would control long-term spending, Mr. Orszag knew that meant trouble.

- Just a few months ago, conglomerates Berkshire Hathaway Inc. and Leucadia National Corp. made a bid to buy parts of CIT Group Inc. CIT rebuffed the offer, according to people familiar with the matter, because the price was too low. Now CIT and its advisers are evaluating a similar break-up, this time with the threat of bankruptcy bearing down, and its shares worth less than a dollar each. CIT's aviation-finance and rail-finance operations are the units most likely to be sold, said these people, who cautioned the analysis is still in early stages.

- Federal criminal authorities are investigating whether Corey Ribotsky, a Long Island, N.Y., hedge-fund manager who has said he has $770 million under management, lied to investors about their returns and the holdings of his various funds, according to people familiar with the matter. Prosecutors from the U.S. attorney's office in Brooklyn and investigators from the Federal Bureau of Investigation and the Securities and Exchange Commission are looking at whether the 38-year-old Mr. Ribotsky and his firm defrauded investors as the stock market fell amid the credit crisis, these people said.

- How’s the economy, you ask? I have the proverbial good news and bad news, but in this case, they’re exactly the same: The U.S. economy appears to be hitting bottom. First, the good news. Right now, it looks like second-quarter GDP growth will come in only slightly negative, and third-quarter growth will finally turn positive.

CNBC.com:
- America’s Top States For Business ’09. Overall Rankings:

NY Times:

- It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices. It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets. Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense. These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk. Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs(GS) are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer. And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage. Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy. High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there. Although precise figures are elusive, stock exchanges say that a handful of high-frequency traders now account for a more than half of all trades. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee. High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates. “You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.”

- Big as California’s budget woes are today, so are the problems lurking in its biggest pension fund. The fund, known as Calpers, lost nearly $60 billion in the financial markets last year. Though it has more than enough money to make its payments to retirees for many years, it has a serious long-term shortfall. Meanwhile, local governments in the state are pleading poverty and saying they cannot make the contributions that would be needed to shore it up. Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets. Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure. That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge.

CNNMoney.com:

- A government watchdog raised questions about the Obama administration's estimate that up to four million people could be helped by the president's mortgage modification program. Also, the Government Accountability Office said Thursday the Treasury Department must develop better procedures to ensure loan servicers are equipped to participate in the $75 billion program and adhere to its rules. The report comes as the pressure mounts on the administration to address growing complaints about the program, including that some servicers are violating the rules.

Politico:

- The Congressional Black Caucus is blasting away at Blue Dog Democrats and other fiscal conservatives in their own party for making "spurious" claims about the high cost of the House health reform plan, POLITICO has learned. The issue isn't about race, aides tell me. It's about the CBC, which represents some of the most progressive members in the House, wanting to have a say in final negotiations -- and to prevent party conservatives from dominating. The 42-member caucus, whose support is crucial for the passage of any plan, is worried that intense talks going on between the Dogs, White House Chief of Staff Rahm Emanuel and House leaders will undermine efforts to provide quality coverage to the poor and working class.

Reuters:

- Investors bid up shares of Regeneron Pharmaceuticals Inc (REGN) and Seattle Genetics Inc (SGEN) on Thursday after Medarex Inc (MEDX) agreed to be acquired by Bristol-Myers Squibb Co (BMY) at a 90 percent premium. Analysts speculated that those two companies, which have similar specialties to Medarex, could be the next to be acquired. The $2.4 billion deal for antibody technology specialist Medarex, announced late on Wednesday, marked the latest in a string of windfalls for biotech investors this year.

- ICE Clear Europe and Eurex Clearing AG have been given permission to clear credit default swaps, a type of derivative that exacerbated the global financial crisis, the Securities and Exchange Commission said on Thursday. The SEC approved conditional exemptions that will allow ICE Clear, owned by IntercontinentalExchange Inc (ICE) , and Eurex, a derivatives exchange owned by Deutsche Boerse, to operate as central counterparties.

Financial Times:

- Daniel Mudd, appointed this week chief executive of Fortress Investment Group, plans to spearhead an acquisition strategy that could see the hedge fund buy other financial companies including banks, insurers, traditional money management groups and other hedge funds. Mr Mudd, former chief executive of Fannie Mae, joins Fortress as the hedge fund industry looks for signs that outflows, or investor withdrawals, are beginning to slow. Wes Edens, Fortress founder, told staff this week that the group could pounce on smaller rivals by buying other hedge funds and the assets of funds that are being wound down. “Did you make last year’s losses back? If you are still down by the end of the year, it is all over for you,” Mr Edens said of those hedge funds. Fortress is expected to join the group of investors extending $3bn in rescue funding to beleaguered CIT, according to people familiar with the matter.

- Moves by governments and regulators to shore up banking systems and financial markets risked a push towards financial protectionism, leading bankers warned on Thursday. The bankers, who included senior officials at Deutsche Bank, JPMorgan, Spain’s BBVA and Sweden’s SEB, said they supported “far-reaching” regulatory reforms including changes to pay practices across banks and tougher capital requirements. However, in a report on the future of financial regulation, they voiced concern about swift moves to change rules in the UK and the US that would include curbs on risky compensation practices. The report came just days after Christine Lagarde, France’s finance minister, attacked banks for a return to paying guaranteed bonuses and called on the Group of 20 nations to stop “procrastinating” and curb practices deemed to encourage excessive risk-taking. The Institute of International Finance report said: “There is a danger of a loss of global integration and co-operation, as happened between 1914 and 1945.

Shanghai Securities News:

- China’s new loans this month may decline from June as some banks slowed or suspended lending.

South China Morning Post:

- Chinese colleges fake jobs for graduates. Teachers sign up students to fictional companies to boost records.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded .

- Reiterated Buy on (CELG), boosted target to $63.

- Reiterated Buy on (MSFT), target $28.

- Reiterated Buy on (AMZN), target $100.

- Reiterated Buy on (XRX), target $10.

RBC:

- Rated (PSYS) Outperform, target $30.

Night Trading
Asian Indices are +.25% to +1.50% on average.

Asia Ex-Japan Inv Grade CDS Index -1.05%.
S&P 500 futures -.49%.
NASDAQ 100 futures -.65%.

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Economic Releases

10:00 am EST

- Final Univ. of Mich. Consumer Confidence for July is estimated to rise to 65.0 versus a prior estimate of 64.6.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed's Bernanke, Treasury's Geithner; FDIC's Blair Testifying on Regulatory Reform could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technology shares in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher, Boosted by Gaming, REIT, Airline, Homebuilding, Insurance, Biotech, Oil Service and Alt Energy Shares

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In Play

Stocks Soaring into Final Hour on Diminishing Healthcare Reform Worries, Short-Covering, Technical Buying, Less Economic Fear and Earnings Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are rising and volume is heavy. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is rising 1.36% and is high at 23.79. The ISE Sentiment Index is low at 90.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running around average most of the day, hitting .97 at its intraday peak, and is currently .80. The Euro Financial Sector Credit Default Swap Index is dropping another 6.72% today to 82.33 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 3.88% to 119.13 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .58% to 32 basis points. The TED spread is now down 434 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .15% to 42.94 basis points. The Libor-OIS spread is falling .37% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 11 basis points to 1.92%, which is down 72 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The market is exploding higher through technical resistance today on good volume. Gaming, REIT, Homebuilding, Insurance, Biotech, Alt Energy, Construction, Bank, Telecom, Networking and Oil Service stocks are all posting very strong 3.5%+ gains. The AAII % Bulls rose to 37.6%, while the % Bears fell to 42.4% this week, which remains a large positive given recent market gains. As well, the ISE Sentiment Index hit an extraordinarily low 67.0 this morning and the VIX is actually rising this afternoon, despite today’s huge surge, which is also a big positive. The Euro Financial Sector Credit Default Swap Index is continuing its recent plunge, falling to the lowest level since August 8^th, 2008, which remains a large positive. It is noteworthy that the US Dollar is slightly higher on the day, which is very bullish considering today’s stock gains and better economic sentiment. This may portend a trading move higher in the currency, which would prevent another economic recovery-killing move higher in energy prices. Record short interest and much-better-than expected earnings are sending shares of my of my long-held longs, (ISRG), skyrocketing 26%. While the stock is extended short-term, I expect it to move substantially higher from current levels over the intermediate/long-term. Nikkei futures indicate an +278 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, technical buying, diminishing government healthcare reform worries and earnings optimism.

Today's Headlines

Bloomberg:

- U.S. stocks rose, sending the Dow Jones Industrial Average above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. posted better-than-estimated results and home resales increased more than forecast.

- Senate Majority Leader Harry Reid said the Senate will wait until September to vote on health- care legislation, missing President Barack Obama’s deadline for a vote by the August recess. Reid, a Nevada Democrat, told reporters that Republicans wanted more time to work on the measure overhauling the nation’s health-care system. “It’s better to have a product based on quality and thoughtfulness rather than just jamming something through,” he said today in Washington. “There was a decision last night not to do this legislation” before September, he said. Obama had called on the Senate and the House of Representatives to pass their separate versions of the legislation by next month and to have a bill on his desk by October.

- Home resales in the U.S. rose in June for a third consecutive month, spurred by tax incentives, lower borrowing costs and foreclosure-driven declines in prices. Purchases climbed 3.6 percent to an annual rate of 4.89 million, stronger than forecast and the highest level since October, the National Association of Realtors said today in Washington. Median prices fell 15 percent. “We have finally bottomed out,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. Improved affordability “is stalemating the drag from higher unemployment.” The gain last month was based by a 14 percent jump in purchases of condominiums. Sales of single-family houses increased 2.4 percent and were up 0.2 percent from June 2008, the first year-over-year gain since September. The number of houses on the market fell 0.7 percent to 3.82 million in June, NAR said. At the current sales pace, it would take 9.4 months to sell those homes, compared with 9.8 months in May.

- Ford Motor Co.(F), the only U.S. automaker to decline a federal bailout, posted a second-quarter loss that beat analysts’ estimates as Chief Executive Officer Alan Mulally pared expenses and added domestic market share. Ford rose 43 cents, or 6.7 percent, to $6.81 at 10:02 a.m. in New York Stock Exchange composite trading. The shares touched $6.99 earlier for the biggest intraday advance since April 30. They have almost tripled this year for the third-largest gain in the Standard & Poor’s 500 Stock Index. Credit-default swaps protecting Ford bonds dropped to the lowest level in a year, falling 4.2 percentage points to 30.5 percent upfront, according to CMA DataVision.

- The Panama Canal Authority has begun to see “signs of recovery” in shipping traffic, including from freighters transporting cars, said Alberto Aleman, the authority’s chief executive officer. Aleman said he expects traffic in the fiscal year ending in September to total about 295 million tons, up from a previous range he had given of about 290 million to 295 million tons. Traffic in the 95-year-old canal totaled 310 million tons in 2008. Revenue this year will be “similar” to last year’s record $2 billion, Aleman said. “Amid the crisis, amid the recession, this is good,” Aleman, who’s run the canal since 1996, said in a telephone interview from Panama City. Car shipments have “declined as was to be expected given the problems that we’ve seen in the automobile industry worldwide but we’ve seen signs of recovery in this segment.”

- The cost of protecting U.S. corporate bonds from default dropped to the lowest in 13 months as AT&T Inc. and Ford Motor Co. joined more than 100 other companies in the Standard & Poor’s 500 index posting better- than-estimated results for the second quarter. Contracts on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, declined 6 basis points to 118 basis points at 12:54 a.m. in New York, according to broker Phoenix Partners Group. That’s the lowest since June 19, 2008, according to CMA DataVision. Lower credit-default swaps signal an improvement in investor confidence, as 75 percent of the 177 companies in the S&P 500 index that have reported earnings beat analyst estimates, prompting fewer credit-rating downgrades and more upgrades. The ratio of upgrades to downgrades rose this quarter to the highest since 2007, according to S&P data. The ratio of credit-rating upgrades to downgrades is 0.64 percent in the third quarter, up from 0.24 percent in the three months ended in June, according to S&P data compiled by Bloomberg. That’s the highest since the fourth quarter of 2007.

- The Baltic Dry Index, a measure of shipping costs for commodities, fell for a fourth consecutive session in London, led by declining rates for hauling iron ore. The index tracking transport costs on international trade routes dropped 52 points, or 1.5%, to 3,355 points. “Speculation has likely played an important role over the past few months – particularly after annual negotiations between China’s steel mills and major mines ran into difficulty,” said Judy H. Zhu and Helen Henton, analysts at Standard Chartered. “Trading houses accumulated cargoes before finding buyers.”

- Aluminum Corp. of China, the nation’s largest producer of the metal, said a price recovery for the lightweight metal will lag behind other base metals because of high inventories. A demand revival from the auto and building industries hasn’t had “an obvious” impact on aluminum yet, Chairman Xiong Weiping said today in an interview in Beijing while attending a conference. Aluminum inventories monitored by the London Metal Exchange quadrupled in the past year to a record 4.6 million metric tons, forcing Chinalco and rivals including Aloca Inc. to cut output.

- Natural gas futures declined for the first time in six days in New York after a government report showed a bigger-than-average gain in U.S. supplies. “There was probably a whisper number out there in the low 60s and when that didn’t happen there was disappointment,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “At the end of the day, there’s a lot of gas out there and we’re still running well above storage on a year-over- year and five-year average basis.” Below-normal to seasonal temperatures are expected to cover an area from Chicago to New York and south to Texas through Aug. 6, according to MDA Federal Inc.’s EarthSat Energy Weather of Rockville, Maryland. “This leaves us speculating on just how much can fit into storage, which has a potential capacity of 4 or 4.1 trillion cubic feet,” he said. U.S. power-plant output was down 6.9 percent from a year earlier for the week ended July 16, according to an analysis by Genscape Inc. Gas consumption at factories is forecast to tumble 8.2 percent this year because of the recession, the Energy Department said on July 7 in a monthly outlook. Overall U.S. consumption is expected to contract 2.3 percent.

- Treasuries fell for a second day as stocks rose and the U.S. announced plans to sell a record $115 billion in debt next week, accelerating the unprecedented pace of borrowing to stimulate the economy and service deficits. Ten-year notes declined the most in over a week as the Dow Jones Industrial Average touched above 9,000 for the first time since January. It will be only the second time the Treasury auctions three so-called coupon issues and an inflation-linked maturity in a single week since the U.S. started issuing debt regularly in 1976.

- The mayors of Hoboken, Ridgefield and Secaucus, New Jersey, and several rabbis are among 44 people charged today as part of a public corruption and money- laundering investigation by U.S. authorities. Hoboken Mayor Peter Cammarano, 32, Secaucus Mayor Dennis Elwell, 64, Ridgefield Mayor Anthony Suarez, 42, all Democrats, Jersey City Council President Mariano Vega Jr., 59, and State Assemblyman Daniel Van Pelt, 44, a Republican from Ocean Township, and Assemblyman L. Harvey Smith, a Jersey City Democrat, were charged by the Federal Bureau of Investigation. They will appear in federal court in Newark, New Jersey, today. The corruption probe, based in Hudson County, netted many public officials accused of pledging assistance for bribes. The money laundering suspects were accused of moving “at least tens of millions of dollars through charitable, non-profit entities controlled by rabbis in New York and New Jersey,” according to a release by acting U.S. Attorney Ralph Marra.

- Japan’s exports fell in June at the slowest pace this year as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months and adding to evidence the economy is on the path to recovery. Shipments abroad dropped 35.7 percent from a year earlier, easing from a 40.9 percent decline in May, the Finance Ministry said today in Tokyo. Compared with a month earlier, shipments rose 1.1 percent.

Wall Street Journal:

- Gannett Co.'s(GCI) flagship newspaper, USA Today, said it has begun collecting Kindle book-sales data for its widely read weekly best-seller list and will include the data starting with Thursday's rankings.
- As Democrats splinter over ObamaCare, the stakes paradoxically rise for some Republicans. Democratic leaders will become more desperate than ever to get GOP cover for their anxious moderates, especially in the Senate and especially from Chuck Grassley. We trust the Iowa Republican appreciates that his choice on this issue is momentous for the country and could well define his political legacy.

CNBC:

- US Airways Group Inc. is seeing “signs of recovery that are encouraging” in the air-travel market, Chief Executive Officer Doug Parker said. “The pricing environment is still weak but on the leisure side at least it’s coming back,” Parker said.

- Prospects for the U.S. economy are picking up, but there are questions about how sustainable the rebound will be, Dallas Federal Reserve Bank President Richard Fisher said Thursday. "The outlook for real activity over the next several quarters is improving," Fisher said at a fixed income forum in Carlsbad, California.

Schaeffer’s Research:

- Stocks Advancing Amid Heavy Short Interest.

CNNMoney:

- The first big government bailout of the financial crisis -- the takeover of mortgage finance giants Fannie Mae and Freddie Mac -- is poised to be the most expensive and complicated to complete. Since Congress essentially wrote a blank check to the Treasury Department in July 2008 to do what needed to be done to inject capital into the two firms, Fannie (FNM) has received $34.2 billion of direct government support while Freddie (FRE) has received $51.7 billion. While that's lower than the $117.5 billion poured into insurer AIG (AIG) by the Federal Reserve and the $200 billion given to the nation's largest banks through the Troubled Asset Relief Program, or TARP, the current cost of the Fannie and Freddie bailouts dwarfs original estimates from a year ago. When Congress was debating the bailout of Fannie and Freddie last July, the official estimate from the Congressional Budget Office was that a bailout would most likely cost taxpayers $25 billion, with only a 5% chance of the price tag reaching $100 billion between them. In addition, both Fannie and Freddie are likely to need billions of dollars more after they report second quarter results in the coming weeks. Experts believe the cost will only continue to rise in the next year.

LA Times:

- Reporting from Beirut -- Iran's political crisis intensified Wednesday when the nation's main opposition figure announced that he would create a political organization to "lay the groundwork for a large-scale social movement" stemming from his disputed election loss to President Mahmoud Ahmadinejad. Many supporters of Mir-Hossein Mousavi had feared the announcement would amount to a disavowal of the civil disobedience campaign that has sprung up since the June election in which the government has been accused of massive vote fraud. Instead, Mousavi explicitly praised the protest movement as a cornerstone for change in Iran.

- In the complex tango between movies and video games, Hollywood may be losing its lead.

Washington Post:

- Tucked into the voluminous congressional plan for U.S. military spending next year is $160 million intended to help Mexico's police buy U.S.-made first-responder radios. It is a major purchase that one radio manufacturer got rolling, 12 members of Congress formally requested and a powerful defense appropriations chairman championed, according to records and congressional staff members. But details of the plan to pump Pentagon money into Mexico's crime-fighting efforts are cloaked in vaguely worded language in the House defense bill. The program is one of many congressional requests in the measure, which also includes 1,080 projects worth $2.7 billion tacked on at lawmakers' request. The language in the $636 billion bill, which the House Appropriations defense subcommittee approved last week, discloses neither the specific purpose of the radio project nor the dozen lawmakers who asked Chairman John P. Murtha (D-Pa.) to include it.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 29% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-six percent (36%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -7 (see trends).

- Confidence in the $787-billion economic stimulus plan proposed by President Obama and passed by Congress in February continues to fall. A new Rasmussen Reports national telephone survey finds that only 25% of U.S. voters now say the stimulus plan has helped the economy. That’s a six-point drop from a month ago. Thirty-one percent (31%) say the stimulus actually hurt the economy, little changed from a month ago. However, this is the first poll showing that more voters believe the plan hurt rather than helped. A plurality (36%) says the plan has had no impact.

Politico:

- A big chunk of the House climate change bill is in the hands of Senate Environment and Public Works Committee Chairwoman Barbara Boxer — and some of its supporters are worried that she’s not up to the task. In private conversations, Senate staffers say that Boxer’s abrasive personal style helped tank the climate bill that Sen. Joe Lieberman (I-Conn.) and former Sen. John Warner (R-Va.) sponsored last year. And several recent embarrassing episodes involving the California Democrat have them worried about a repeat performance. During a committee hearing in June, Boxer upbraided a brigadier general for calling her “Ma’am” rather than “Senator.” During another hearing this month, Boxer found herself in a testy exchange with the CEO of the National Black Chamber of Commerce, who accused her of “condescending” to him.

StreetInsider.com:

- Highlights From Intuitive Surgical’s(ISRG) Q2 Conference Call; Strong Growth in Procedures and Revenues.

Reuters:
- Dendreon Corp (DNDN) hired JPMorgan Chase & Co (JPM) as an adviser to help it find an international licensing partner for its prostate cancer vaccine Provenge, a source familiar with the situation said. Dendreon is not looking to sell itself outright, but instead wants a partner for Provenge sales outside the United States, the source said.

- Shares of Celgene Corp (CELG) rose 16 percent on Thursday after it surprisingly announced that a clinical trial involving its multiple myeloma drug Revlimid showed clear benefit in newly diagnosed patients. A trial known as MM-015 showed a highly statistically significant improvement in progression-free survival for patients taking Revlimid as a first-line treatment for multiple myeloma, suggesting it could be approved for use in this setting earlier than expected.

- Shares of United Parcel Service Inc (UPS), rose on Thursday as the world's largest package delivery company said its domestic and global businesses appeared to be stabilizing.

Financial Times:
- North Korea has rejected US suggestions that a wide-ranging package of incentives could entice it to dismantle its nuclear arms, with officials launching an extraordinary verbal attack on Hillary Clinton, the US secretary of state, calling her “stupid” and “a funny lady”. In recent days, the US has said it will pursue a ”two-track” approach to North Korea, explaining it will keenly pursue sanctions but will also liaise with its allies to secure enticement to be offered to the North if it agrees to scrap its nuclear work.“The comprehensive package is nonsense,” said Ri Hung-sik, one of the relatively junior North Korean diplomats who are representing their country at the Asean Regional Forum conference in the Thai resort town of Phuket. Another North Korean official also launched a personal attack on Mrs Clinton through the official North Korean news agency. “Sometimes she looks like a primary schoolgirl and sometimes a pensioner going shopping,” an unnamed foreign ministry spokesman told the agency. “Her words suggest that she is by no means intelligent.”

National Post:

- Hezbollah may be collecting intelligence in Canada as it prepares to retaliate against the West if Iran's nuclear program is attacked, according to recently declassified intelligence reports. The Canadian government reports say Hezbollah has been "rearming and recruiting" for another war with Israel, as well as readying to strike Western targets in the event Iran's nuclear sites are destroyed.

Bear Radar

Style Underperformer:
Large-cap Growth (+2.30%)

Sector Underperformers:
Restaurants (-2.59%), Education (-1.06%) and Defense (-.91%)

Stocks Falling on Unusual Volume:
FLIR, GR, SWY, MCD, NTGR, SNDK, CYOU, LOGI and GR

Stocks With Unusual Put Option Activity:
1) MCO 2) NIHD 3) ACL 4) AEP 5) ATVI