Today's Headlines

Bloomberg:

- Citigroup Inc.(C), Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds under the Troubled Asset Relief Program, according to a report by New York Attorney General Andrew Cuomo. In the report, the state analyzed 2008 bonuses at nine banks that received TARP financing from the U.S. government. New York-based Citigroup and Merrill, since taken over by Bank of America Corp., received TARP funding totaling $55 billion, Cuomo said in his report. “When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.” The report, called “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture,” comes as Congress and the Securities and Exchange Commission examine whether to limit the compensation paid to top corporate executives.

- A legislative outline of a new U.S. regulatory regime for the $592 trillion over-the-counter derivatives market leaves open for debate whether to ban so- called naked credit-default swaps. House Financial Services Committee Chairman Barney Frank and Agriculture Committee Chairman Collin Peterson said their plan is a “responsible” compromise for market regulation. A three-page summary shows lawmakers have yet to agree on whether to outlaw derivatives where the buyer doesn’t own the underlying asset, or to determine disclosure rules and trading limits. Lawmakers don’t want to ban any particular derivatives products or “even severely diminish them” as a financial risk tool, Frank said. Some lawmakers and regulators have said they are looking more closely into whether credit-default swaps were manipulated by short sellers to spread false rumors about financial companies such as Lehman last year to drive down stock prices. 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 cost to protect against defaults on U.S. corporate bonds using a benchmark credit-default swaps index fell to the lowest in more than 13 months. Credit swaps on the Markit CDX North America Investment- Grade Index, which is used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, dropped 4 basis points to 111 basis points as of 7:36 a.m. in New York, according to broker Phoenix Partners Group. The index has fallen about 20 basis points in July and is headed for its fifth monthly decline as investors speculate that the global recession may be easing.

- Crude oil rose more than $3 a barrel and gasoline surged the most in four months after better-than- expected corporate earnings and as jobless claims held below late-June levels.

- Exxon Mobil Corp.(XOM), the biggest U.S. oil company, said its crude and natural-gas production will accelerate in this year’s second half as new projects come online. Company spokesman David Rosenthal commented on production prospects today on a conference call with investors after Irving, Texas-based Exxon Mobil reported its lowest quarterly profit in more than five years. The company didn’t change its forecast for a 2 percent increase in full-year production after output fell 3.3 percent in the second quarter.

- Anyone taking up President Barack Obama on his pledge to disclose “every dime” spent from the economic stimulus package can find details on more than 22,000 contracts valued at $73 billion at recovery.org. The catch: That Web site is run by Onvia Inc., a Seattle company that tracks government spending. The administration’s stimulus site at a similar address -- recovery.gov -- lists 1,000 contracts so far, according to spokesman Ed Pound. Five months after Obama signed the $787 billion combination of tax breaks and government spending intended to revive the U.S. economy, the administration is still working to provide the transparency promised by the president, and Onvia is benefiting.

- European retail sales fell for a 14th month in July as job cuts hurt household spending, the Bloomberg purchasing managers index showed. The measure of euro-area sales declined to 47.3 from 47.5 in June when adjusted for seasonal swings. It has remained below the 50 mark, indicating contraction, since June of last year.

- Natural gas futures, which fell to a two-week low yesterday, will move lower as the price has dropped below the 10-day and 40-day moving averages, according to a technical analysis by MF Global Ltd. “It’s becoming increasingly harder with each passing day for the low of $3.155 to be challenging,” Michael Fitzpatrick, a vp for energy at MF Global in NY, said.

- Dow Chemical Co.(DOW), the largest U.S. chemical maker, posted second-quarter profit that topped analysts’ estimates as demand improved from earlier in the year, signaling the worst of the global recession has passed. “Business results improved sequentially, reflecting volume growth, our ability to hold price in the quarter, as well as the acceleration and realization of our cost reductions and synergies,” Liveris said in the statement. “The United States economy has found bottom but will be slow in recovering as unemployment continues to be a drag on consumer spending.”

- The Treasury yield curve is poised to flatten with 10-year notes set to rally after the Federal Reserve forecast inflation will be low for an extended period of time, according to RBS Securities Inc. “The momentum is up near oversold territory and looking like it’s running out of bearish gas,” wrote William O’Donnell, head of Treasury strategy at Stamford, Connecticut-based RBS, in a note today.

- Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, won’t be able to repay all of the $84.9 billion in federal aid they have received since being seized by the government last year, their regulator said. “Some assets and senior preferreds will have to be left behind as they come out of conservatorship, and that means some of those losses will never be repaid,” Federal Housing Finance Agency Director James Lockhart said at a speech in Washington today. “Their book is so large, it’s hard for me to see that they will be able to repay all of that.” Fannie Mae and Freddie Mac, which have posted $150 billion in losses going back to the third quarter of 2007, will continue losing money “for at least the next year or so,” and won’t return to “strong profits” for another two to three years, Lockhart told reporters after his speech. “It’s hard to predict at this point,” Lockhart said.

- Sanofi-Aventis SA agreed to buy Merck & Co.’s half of their Merial animal-health venture for $4 billion and said the two companies may again work together to form the world’s biggest maker of pet and livestock treatments. Sanofi will pay cash for the 50 percent it doesn’t own of Merial, which makes a bird flu vaccine for poultry and Frontline, the best-selling flea spray for pets. Sanofi can also combine Merial with the veterinary unit Merck gets when it buys Schering-Plough Corp., the companies said in a statement today.

Wall Street Journal:

- Ford Motor Co.(F) has slowed the bidding process for its Volvo unit in an effort to get a better price for the Swedish car brand, according to a person close to the U.S. company. The knowledgeable person said Ford has decided to wait for General Motors Co. to wrap up its sale of Adam Opel GmbH unit, and is hoping to invite a loser in that two-way bidding race to bid for Volvo.

- Investors have developed a voracious demand for short-term debt issued by U.S. and European banks, and an important global lending benchmark has fallen to an all-time low -- welcome signs that bank credit markets have improved. But beneath the demand for short-term bank debt, known as commercial paper, and a drop in the London interbank offered rate, or Libor, significant kinks remain lodged in the bank markets: Banks are using the fresh cash to repay existing debt, or simply hoarding it. That cash buildup is potentially stymieing efforts by regulators to circulate funds to borrowers and the most needy banks.

- China Investment Corp. has selected Morgan Stanley's(MS) asset-management unit and Blackstone Group LP(BX) to oversee hundreds of millions of dollars in allocations as it ventures into the U.S. hedge-fund business. China's $200 billion sovereign-wealth fund has finalized an allocation of $500 million to Blackstone Group's fund-of-funds unit, so called because it farms out clients' money to dozens of individual hedge funds, and also has earmarked additional money to be overseen by Morgan Stanley's asset-management unit, according to people familiar with the situation. CIC has shown a strong interest in so-called alternative investment firms, or firms that invest in hedge funds, private equity or other assets outside of publicly traded securities.

CNBC:

- Cities in the U.S. Sun Belt states of California, Florida, Nevada and Arizona dominated the record foreclosure spree in the first half of the year, but distress in other regions emerged as joblessness spread, RealtyTrac said on Thursday. Metro areas with populations of at least 200,000 in those four states accounted for 35 of the 50 highest foreclosure rates. Mortgages have failed the fastest in the areas with the greatest overbuilding, purchases by speculators and reliance on riskier loan products to improve affordability. But the source of the mortgage trouble has swung from lax lending standards to unemployment.

- The bond market got a bit of relief Thursday, as a $28 billion auction of seven-year notes went somewhat better than expected.

Rasmussen:
- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 28% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Forty percent (40%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -12. That’s the lowest rating yet recorded for President Obama (see trends). Forty-nine percent (49%) now say that America’s best days have come and gone. Just 38% believe they are still to come. Thirty-four percent (34%) say the country is heading in the right direction. Seventy-five percent (75%) want the Federal Reserve to be audited.

- In an effort to defuse a national controversy, President Obama is hosting a black Harvard professor and the policeman who arrested him at the White House today, but just 30% of U.S. voters give the president good or excellent marks for his handling of the situation over the past week. A new Rasmussen Reports national telephone survey finds that 44% believe Obama has done a poor job dealing with the situation in recent days.

Politico:

- Senate Majority Leader Harry Reid is no longer promising that the Finance Committee will finish work on the health care reform bill before the start of the August recess, as the bipartisan committee negotiations have stalled. “We're trying to do some really crazy stuff on a really short time frame," Sen. Mike Enzi (R-Wyo.), a member of the Finance committee, said Thursday. "This is a train wreck.”

WashingtonTimes:

- Associate Attorney General Thomas J. Perrelli, the No. 3 official in the Obama Justice Department, was consulted and ultimately approved a decision in May to reverse course and drop a civil complaint accusing three members of the New Black Panther Party of intimidating voters in Philadelphia during November's election, according to interviews. The department's career lawyers in the Voting Section of the Civil Rights Division who pursued the complaint for five months had recommended that Justice seek sanctions against the party and three of its members after the government had already won a default judgment in federal court against the men. Front-line lawyers were in the final stages of completing that work when they were unexpectedly told by their superiors in late April to seek a delay after a meeting between political appointees and career supervisors, according to federal records and interviews.

NY Times:

- In May, Amazon(AMZN) introduced the electronic book reader Kindle DX, touted as a new way to read textbooks, newspapers and other large documents. This fall, six colleges and universities will test the technology in a pilot, which includes making the textbooks for certain courses available online. The Kindle DX (for “deluxe”) is searchable and portable, a plus for students accustomed to toting heavy backpacks. But there is another reason that some institutions jumped at the chance to try it out: the technology could substantially reduce their use of paper.

Lloyd’s List:

- Oil companies hired four very large crude carriers to store crude, citing Optima Shipbrokers Ltd. and London brokers it didn’t identify. Three more may be hired, citing a ship broker at Galbraith’s Ltd. There are now 27 supertankers storing crude.

- DP WORLD chief executive Mohammed Sharaf has described the first six months of 2009 as the “most challenging operating environment our industry has ever known”. The comments came as DP World reported a 10% fall in consolidated half year container volumes at its 49 terminals worldwide, which handled 12.3m teu in the six months to June. “The unpredictable trends in global trade we have seen in the first half of the year continue into the second half of the year.

USAToday:

- The USA TODAY/IHS Global Insight economic outlook index predicts GDP growth for October through December, the first increase since September 2008. Helping fuel the growth was improvement in financial indicators, such as the stock market, and increases in building permits. The rate of decline in the number of hours worked has also stabilized.

- A national campaign against first-time drunken-driving offenders is gaining ground as states and the federal government weigh mandatory use of devices requiring violators to prove their sobriety before their engines start. Three more states have enacted laws this year requiring all violators to install devices called alcohol ignition interlocks, bringing to 11 the number of states with such rules. The instrument blocks a vehicle engine from starting if it detects alcohol on the breath of drivers.

Reuters:
- U.S. financial regulators would gain the power to restrict holdings of over-the-counter derivatives under legislation to be considered this fall, the chairmen of two House committees said on Thursday. Chairmen Barney Frank of the Financial Services Committee and Collin Peterson of the Agriculture Committee said antispeculation provisions would be part of legislation to bring the $450 trillion OTC derivatives market under federal regulation. The bill also clamps down on a type of derivative called credit default swaps (CDS), which have been blamed for magnifying global economic distress by spreading losses from bets on risky mortgages and other debt.

- Ford Motor Co (F) has seen a sharp increase in sales over the past week since its

dealers began accepting trade-ins under the U.S. government's "cash for clunkers" incentive program, the automaker's U.S. sales chief said on Thursday. "We were having a strong month before (cash for clunkers) started," said Ken Czubay, who heads Ford's U.S. marketing and sales operations. "The pace of sales has picked up dramatically."

- United Therapeutics Corp (UTHR) said U.S. health regulators approved its inhaled drug to treat pulmonary hypertension, sending its shares soaring as much as 13 percent. The Food and Drug Administration approved Tyvaso inhalation solution for the treatment of pulmonary arterial hypertension (PAH) using the Tyvaso inhalation system, the company said.

- One hundred ninety-seven years, one month and 14 days after its founding, Citigroup Inc has given a roughly 34 percent stake to U.S. taxpayers. While a few technical details still remain, the bank has completed a months-long effort to convert preferred shares held by the U.S. government into common stock.

- Bank of America Corp (BAC) plans to set up a wholly owned subsidiary in China to expand in the world's fastest-growing major economy, people briefed on the plan said. The largest U.S. bank plans to expand its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.

Financial Times:
- We’re not PhD quant-level statisticians here on FT Alphaville, so we won’t be able to explain exactly how they do it; but all those peculiarities in the USO and UNG ETFs do suddenly seem to make a lot of sense. This is especially so if you consider statistical arbitrageurs look for pairs of securities that consistently revert to mean, but offer large amounts of “relative-value” in the trading day. Relative-value would have been incrementally increased in commodity ETFs by the contango and the volatility stemming from a descending price. So yes, commodity ETFs were not responsible for upswings in the price in 2008! The increased flows they attracted counter-intuitively this year, meanwhile — in a descending market– may have had nothing to do with retail investors being keen to take a view on the underlying market. The flows may have stemmed from huge arbitrage opportunities presented to statistical arbitrage firms via the contango and price volatility. In which case, if the structurers of these ETFs are aware of the problem, marketing these securities forcefully to retail investors does indeed raise some important questions.

- Eurozone consumers increasingly expect prices to tumble in the year ahead even as the region’s economy recovers from its severe recession, according to a European Commission survey that could stoke fears of deflation. Expectations about trends in consumer prices in the next year were this month more skewed towards falls than at any point since comparable Commission data started in 1985. The results came ahead of official data on Friday that are expected to show eurozone annual inflation falling further into negative territory. The news suggested that even as the economy recovers, considerable slack remains. Headline inflation has dropped largely because of a plunge in energy costs, but evidence is mounting that price falls are becoming more widespread. The survey also indicated that consumers see little inflationary threat from the massive amounts of liquidity injected into the bank system by the European Central Bank.

TimesOnline:

- Organic food is no healthier than other produce, according to the UK Government’s food watchdog.

Aftenposten:

- Norwegian electric carmaker Think signed a letter of intent with Japan Post to equip one-fourth of the postal service’s 22,000 vehicles with battery-driven engines, citing Think spokesman James Andrew.

Xinhua:

- China will strengthen cooperation in financial supervision with the United States to promote global financial stability and economic recovery, Chairman of China Banking Regulatory Commission (CBRC) Liu Mingkang said on Wednesday.

Bear Radar

Style Underperformer:

Large-Cap Growth (+1.65%)

Sector Underperformers:

Medical Equipment (-.31%), Semis (+.22%) and Biotech (+.38%)

irlind

Stocks Falling on Unusual Volume:

WSH, BCO, RGC, HRBN, AKAM, SYMC, NTRI, YHOO, RCRC, DRIV, ITRI, AMAG, AMMD, LEAP, GTLS, BCSI, TOO, OCR, BDX, GHL, ENL, RGR, BCO and RUK

Stocks With Unusual Put Option Activity:

1) AKAM 2) ADM 3) ABC 4) UTHR 5) MAS

Bull Radar

Style Outperformer:

Small-cap Value (+3.10%)

Sector Outperformers:

REITs (+4.80%), Steel (+4.14%) and Gaming (+3.92%)

Stocks Rising on Unusual Volume:

BT, CLF, GE, RTP, MBT, TXT, PCZ, SU, BCS, HBC, LPHI, AMSC, AIXG, MANT, GSIC, SHOO, GMCR, FIRE, THOR, ASGR, XRAY, ASIA, TRLG, SYNT, BABY, PLCE, PRAA, WYNN, ORLY, WTFC, CBT, CAB, MA, AIZ and CVC

Stocks With Unusual Call Option Activity:

1) AKAM 2) ABC 3) MA 4) GMCR 5) FLS

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Thursday Watch

Late-Night Headlines
Bloomberg:

- Oil extended its declines after falling the most since April yesterday as a government report showed an unexpected gain in supplies in the U.S., the world’s biggest energy consuming nation. Crude stockpiles increased 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. Supplies were forecast to decline, according to the median of analyst estimates in a Bloomberg News survey. The gains in stockpiles “show us the U.S. consumer is struggling and additional builds could follow,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “A drop back under $60 could easily take place.”

- Morgan Stanley(MS) and Wells Fargo & Co.(WFC) are reviewing whether to continue sales of leveraged and inverse exchange-traded funds as regulators caution that the securities might not be suitable for individual investors. Assets in leveraged and inverse funds have increased 51 percent to $32.8 billion this year, according to data from State Street Corp., the world’s largest money manager for institutions whose products include ETFs. That’s 5.5 percent of the $593 billion in U.S.-listed ETF assets at midyear, according to data compiled by the Boston-based company.

- General Electric Co.(GE), Harley- Davidson Inc.(HOG) and manufacturers with finance businesses should be allowed to keep the units under a revision of rules to govern banking, U.S. Representative Barney Frank said in an interview. Companies that already have finance arms or industrial loan businesses known as ILCs should be able keep them without being subject to Federal Reserve oversight of their manufacturing operations, Frank said. GE, based in Fairfield, Connecticut, said on a conference call with investors yesterday it has been “very active” in opposing any rules that might force it to split off its GE Capital finance unit, which has $557 billion in assets.

- China’s central bank said it will use market tools to control lending growth and pledged to maintain a “moderately loose monetary policy” to support the nation’s economic recovery. In the second half of this year, the central bank will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending growth,” said People’s Bank of China Deputy Governor Su Ning in Shanghai, according to a statement on its Web site late yesterday.

Wall Street Journal:

- Support for President Barack Obama's health-care effort has declined over the past five weeks, particularly among those who already have insurance, a Wall Street Journal/NBC News poll found, amid prolonged debate over costs and quality of care. In mid-June, respondents were evenly divided when asked whether they thought Mr. Obama's health plan was a good or bad idea. In the new poll, conducted July 24-27, 42% called it a bad idea while 36% said it was a good idea. Among those with private insurance, the proportion calling the plan a bad idea rose to 47% from 37%. Declining popularity of the health-care overhaul reflects rising anxiety over the federal budget deficit and congressional debate over the most contentious aspects of the legislation, including how to pay for it. The poll also shows concern over the role of government in determining personal medical decisions. In the Journal poll, only two in 10 people said the quality of their own care would improve under the Obama plan; just 15% of those with private insurance thought it would. Twice as many overall, and three times as many with private coverage, predicted their own care would get worse. "You can't pass a substantial health reform unless privately insured people see there's a benefit for them," said Bill McInturff, a Republican pollster who conducts the poll with Democrat Peter D. Hart. "People are properly skeptical about any proposals out of Washington that speak to cost because they've been singed by past experience," said the senior Obama adviser. Overall, Mr. Obama's ratings fell on a series of measures. His job approval now stands at 53%, down from a high of 61% in April. That is three points higher than President George W. Bush had in June 2001, following a contentious election victory. The share of those who said he could be trusted to keep his word fell to 48% this month from 58% in April. The poll also found a rising sense of partisanship. More than three in 10 surveyed said the current Congress has been more partisan and divided than in the past, compared with just 11% who said it has been less partisan. In February, people were more likely to blame Republicans by a two-to-one margin. This month, they were divided over who to blame, with most saying both parties were at fault. On other issues, the poll found: Falling support for the economic stimulus plan, with 34% in favor, down from 44% in February; 43% now say it is a bad idea. Two-thirds of people said they knew enough about the controversy surrounding the arrest of Harvard professor Henry Louis Gates Jr. to form an opinion. Of them, about one in three said both Mr. Gates and the police officer were equally at fault, 27% said Mr. Gates was more at fault and 11% said the officer was more to blame.

- A Senate panel has subpoenaed financial institutions, including Goldman Sachs Group(GS) Inc. and Deutsche Bank AG(DB), seeking evidence of fraud in last year's mortgage-market meltdown, according to people familiar with the situation. The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year's financial crisis. Earlier this week, a bipartisan group of 10 members of Congress sent a letter to Federal Reserve Chairman Ben Bernanke, questioning whether Goldman Sachs is being too lightly regulated and too generously backed by taxpayers. An idea for taxing high-value health insurance plans has even become known on Capitol Hill as the "Goldman Sachs tax," after criticisms of its executives' $40,000 health plans. A Goldman Sachs spokesman declined to comment on the criticisms from Congress.

- Republican Sen. Kay Bailey Hutchison of Texas said she would resign her seat in October or November to challenge Gov. Rick Perry in the GOP gubernatorial primary in March.

- The future of the New York Stock Exchange is inside the red-brick building that is rising from the ground here about 35 miles from Wall Street. Right now, the mammoth facility being constructed on the site of an old quarry is a largely empty shell with a jumble of high-tech gear. In about a year, the building is expected to house several football fields of cutting-edge computing equipment for hedge funds and other firms that engage in high-frequency trading, or the use of computers and complex algorithms to trade at lightning speed. "When people talk about the New York Stock Exchange, this is it," said NYSE Euronext Co-Chief Information Officer Stanley Young. "This is our future." As trading goes increasingly electronic, the last bastion of floor trading is embracing high-frequency trading as part of its race to keep up with competitors such as Nasdaq OMX Group Inc. High-frequency trading now accounts for more than half of all stock-trading volume in the U.S. as banks, hedge funds and institutional investors seek to gain an edge by trading before rivals. But even as the Big Board and other exchanges scramble to win more business, some regulators are growing concerned about the risks that high-speed trading potentially poses to the broader financial system. As trades flow at an ever-quicker pace, a computer glitch at even just one firm could trigger a wave of selling that sets off huge losses across financial markets, some people worry. "Unfettered access by unregulated entities into a market where trades can ripple through multiple markets can rise to the level of systemic risk," said David Shillman, associate director of the Securities and Exchange Commission's division of trading and markets. "The very high-frequency traders could be doing more of these activities that could go awry." SEC officials are particularly wary about "sponsored access," in which registered brokers lend out their identification numbers to high-speed trading firms. That effectively allows the firms to trade using a broker-dealer's code, helping them remain anonymous. A rogue firm engaging in aggressive trading could destabilize parts or even all of the market, Mr. Shillman said. Controversy also is growing over a practice known as "flash" orders, in which exchanges allow traders to briefly see and react to certain orders ahead of the rest of the market. The SEC is looking into the practice and is widely expected to ban it, according to people familiar with the matter. The NYSE is rolling the dice that it will become a go-to venue for high-speed trading and is even offering space to other exchanges. The aim behind the site is to get firms' computers as close as possible to the trading site, helping shave of tiny amounts of time -- trades here are calculated not in milliseconds but in microseconds, or millionths of a second.

- The Federal Deposit Insurance Corp., grappling with the worst banking crisis since the 1990s, is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers. The strategy, which is likely to begin soon, is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.

- The mayor of Dongguan said the southern Chinese manufacturing hub's gross domestic product growth rate so far this year is at 0.6%, far short of its full-year target of 10%, highlighting the severity of the global slowdown even as economists identify signs of a recovery for Chinese exporters. Li Yuquan, mayor of the city of 10 million people just north of Hong Kong, said the global slowdown has hit Dongguan far harder than other Chinese cities because of its reliance on manufacturing exports of garments, footwear and furniture. Exports, he said, are down by 24% this year in the city that has prided itself as, among other things, "The World's Shoe City." "Dongguan is closely linked to the international markets, so the financial crisis has had a strong impact on us," Mr. Li said to a group of foreign reporters. He attributed a 10% dropoff in employment this year to a deep slide in manufacturing orders, as well as a broader industrial restructuring that has shut down polluting cement and brick factories.

- Although the venture capital industry is having a hard time convincing endowments, pension funds and other limited partners to invest new capital in the asset class, the majority of venture firms still plan to raise a new fund in the next 12 months - if a new survey from Pepperdeine University is to be believed. Of the 185 respondents, 59% indicate they plan to raise funds over the next year, a surprising figure considering that venture capital fund-raising plunged 63% in the first half as cash-strapped investors stopped committing capital. Of those in the survey planning a fund-raising campaign, 43% report they plan to raise more than $100 million, followed by 29% that plan to raise between $50 million and $100 million.

- Samuel Palmisano has been busy. The previously low-profile chief executive of International Business Machines Corp.(IBM) has crisscrossed the globe in recent months, talking to government leaders about promoting the use of technology to improve everything from roads and water systems to the environment and health care. Government spending on such programs can stimulate economic development, argues Mr. Palmisano. And it has another benefit: boosting IBM's bottom line.

- Mountains of coal are piling up along the winding roads of Central Appalachia, a boon to buyers and a bane to miners. Coal companies centered in this region, which includes parts of Kentucky, Tennessee, Virginia and West Virginia, are seeing far fewer shipments to utility companies and steelmakers, resulting in contract renegotiations or cancellations for many of them. A new analysis says the coal sector will have to cut production 50 million tons this year, on top of even steeper cuts earlier in the year, to get supply in line with demand.

- Even many Democrats are revolting against Speaker Nancy Pelosi’s 5.4% income surtax to finance ObamaCare, but another tax in her House bill isn’t getting enough attention. To wit, the up to 10-percentage point payroll tax increase on workers and businesses that don’t provide health insurance. This should put to rest the illusion that no one making more than $250,000 in income will pay higher taxes. To understand why, consider how the Pelosi jobs tax works. Under the House bill, firms with employee payroll of above $250,000 without a company health plan would pay a tax starting at 2% of wages per employee. That rate would quickly rise to 8% on firms with total payroll of $400,000 or more. A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers. So who bears the burden of this tax? The economic research is close to unanimous that a payroll tax is a tax on labor and is thus shouldered mostly if not entirely by workers. Employers merely collect the tax and then pass along its costs in lower wages or benefits. This is the view of the Democratic-controlled Congressional Budget Office, which advised on July 13: “If employers who did not offer health insurance were required to pay a fee, employee’s wages and other forms of compensation would generally decline by the amount of that fee from what they otherwise would have been.”

NY Times:

- President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans’ ability to choose their doctor and course of treatment, according to the latest New York Times/CBS News poll. Americans are concerned that overhauling the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills and limit their options in choosing doctors, treatment and tests, the poll found. The percentage who describe health care costs as a serious threat to the American economy — a central argument being made by Mr. Obama — has dropped over the past month. “We need to fix health care, but if the government creates the system, I’m afraid the quality of care will go down and costs will go up: We will pay more taxes,” Mary Bevering, a Democrat from Fort Madison, Iowa, said in a follow-up interview. She added: “It’s going to come down to regulation. What also worries me is whether we will be told what physician we can have.” There has been a 10-point drop in Mr. Obama’s job approval rating since a high-point in April. And despite Mr. Obama’s efforts to address public misgivings — in speeches, news conferences, town hall meetings and other forums — 69 percent of respondents in the poll said they were concerned that the quality of their own care would get worse if the government created a program that covers everyone.

IBD:

- HMS Holdings (HMSY) is an exception. The company works with government health care programs to make sure claims are paid correctly and by the responsible party.

CNNMoney.com:

- In a note to clients issued Wednesday morning, Kaufman Bros.’s Shaw Wu reported on some interesting trends from his latest iPhone supply chain checks:

Politico:

- House Speaker Nancy Pelosi spent half of Wednesday finalizing a deal with the Blue Dogs — and the other half quelling a brewing rebellion among progressives who think conservatives have hijacked health care reform. Liberals, Hispanics and African-American members — Pelosi’s most loyal base of support — are feeling betrayed after House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) reached an agreement with four of seven Blue Dogs on his committee who had been bottling up the bill over concerns about cost. The compromise, which still must be reconciled with competing House and Senate versions, would significantly weaken the public option favored by liberals by delinking reimbursement rates to Medicare. “Waxman made a deal that is unacceptable,” said Rep. Jerrold Nadler (D-N.Y.), one of about 10 progressives who met repeatedly with Pelosi and Majority Leader Steny Hoyer (D-Md.) on Wednesday. “We signed a pledge to reject any plan that doesn’t include a robust public option, and this plan doesn’t have a robust public option,” he added. By sundown Wednesday, the outcry from the left had become so loud that Waxman was forced to scrap a scheduled markup of the compromise measure. He rescheduled the meeting for Thursday morning and convened a mass question-and-answer session for a deeply divided Democratic Caucus — a meeting that is expected to be extremely contentious.

Seeking Alpha:

- Over at Bespoke Premium, we provide members with a regular look at financial default risk through our Bank and Broker CDS Index. The index measures credit default swap (CDS) prices for global financial firms on a cap weighted basis. Below is a chart of our index that shows the huge spike in default risk that occurred during the peak of the financial crisis in late 2008 and early 2009. As things have settled down, default risk has now moved well below the levels it was at just before the Lehman bankruptcy. Our CDS index is currently at its lowest level since June 23rd, 2008, and it's down a whopping 67% from its all-time high.

Reuters:

- The top U.S. futures regulator on Wednesday expressed concern that exempting some investors from proposed position limits on futures contracts could undermine efforts to clamp down on excessive speculation in energy trading. "While I believe that we should maintain exemptions for bona fide hedgers, I am concerned that granting exemptions for financial risk management can defeat the effectiveness of position limits," CFTC Chairman Gary Gensler said at a second hearing looking into tightening regulatory oversight of U.S. futures markets. "We believe that eliminating or limiting swap dealer hedge exemptions not only will not address the 'swap loophole' but actually will have several negative consequences," said Donald Casturo, managing director of Goldman Sachs Group Inc. "I don't see a Goldman Sachs swap desk or J.P. Morgan swap desk as a passive mechanic," said Gensler, a former partner at Goldman Sachs. "It is a highly sophisticated risk business and it's an important component of our financial market." The representatives of the two financial companies maintained they were not asking for special treatment.

- It is too early to declare victory but investors seem increasingly confident that the healthcare industry may not take a big profit hit from reforms being hammered out in Washington. "The inevitable scaleback in order to have something bipartisan bodes well for all sectors," said Kim Monk, a healthcare analyst for Capital Alpha Partners, referring to a wide range of companies with much at stake, including insurers and hospitals. Wall Street and others are still awaiting final legislation, but the prognosis is improving for the industry with investors more inclined to take bets. "There's a sense of confidence now that we're going to get something a little more centrist," said Craig Miller, vice president of healthcare trading at Stifel Nicolaus. "Investors are comfortable getting into the space."

- Japan Petroleum Exploration Co has entered negotiations with Iraqi authorities to develop a giant oilfield in the Middle Eastern country, the Nikkei business daily said on Thursday.

Financial Times:

- The Obama administration’s plan to give US states more power to protect consumers from unfair banking practices would make it more difficult and costly for large lenders to operate across the country, a financial regulator has warned. John Dugan, who oversees national banks as comptroller of the currency, told the Financial Times that the proposals to create a federal consumer protection agency and give states more leeway to crack down on unfair practices would have negative “ramifications for companies operating across state lines”. “To have a single set of standards has been very beneficial to developing and innovating products,” Mr Dugan said, adding that he wanted to keep national banks “immune” from state regulation. The remarks by the head of the Office of the Comptroller of the Currency, which is part of the Treasury, the department behind the proposed rules, shows the political high stakes surrounding the post-crisis regulatory framework. Mr Dugan said this would cause legal uncertainty and additional red tape for banks, creating a situation akin to the state-based regulation of insurance – a system that has been criticized for its complexity and bureaucracy.

- Chinese bubble fears as funds flow into IPOs.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (NKE), target $65.

UBS:

- Rated (GOOG) Buy, target $525.

Piper Jaffray:

- Rated (DISCA) Overweight, target $30.

Night Trading
Asian Indices are -1.25% to +.25% on average.

Asia Ex-Japan Inv Grade CDS Index -.25%.
S&P 500 futures +.21%.
NASDAQ 100 futures +.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (NYX)/.45

- (QSII)/.45

- (PTEN)/-.12

- (STRA)/1.97

- (EXPE)/.31

- (GT)/-.70

- (STE)/.40

- (ADP)/.45

- (CNX)/.80

- (FSS)/.05

- (IP)/.00

- (ABC)/.39

- (CI)/.96

- (DOW)/-.07

- (EK)/-.36

- (MOT)/-.04

- (COL)/.90

- (K)/.83

- (APA)/1.02

- (DIS)/.51

- (FSLR)/1.66

- (MET)/.69

- (MWW)/.01

- (MORN)/.47

- (N)/.00

- (XOM)/.99

- (CL)/1.05

- (BDX)/1.23

- (MFE)/.57

- (TRV)/1.27

- (MA)/2.42

- (AVP)/.24

- (WYNN)/.00

- (PBI)/.59

- (CVC)/.28

- (CMI)/.25

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 575K versus 554K the prior week.

- Continuing Claims are estimated to rise to 6300K versus 6225K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The $28 bln 7-yr Treasury Note Auction, EIA weekly natural gas inventory report and (MSFT) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and shipping shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.