Today's Headlines

Bloomberg:

- Mortgage applications in the U.S. rose last week to the highest level in almost three months, led by gains in refinancing and purchases that signal housing is stabilizing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 7.5 percent to 566.4 in the week ended Aug. 21 from 527 in the prior week. The group’s refinancing gauge jumped 13 percent, while the index of purchases advanced 1 percent.

- Purchases of new homes in the U.S. jumped more than forecast and demand for long-lasting goods such as autos and computers climbed, reinforcing signs the economy is rebounding from the worst recession since the 1930s. Home sales increased 9.6 percent in July, the most in four years, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. Another report from the department indicated bookings for durable goods climbed 4.9 percent, also exceeding forecasts and the most since July 2007. The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier. The jump in sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.

- China’s three-year interest-rate swap will decline as banking regulators curb lending to prevent asset bubbles, said China International Capital Corp.

- China’s cabinet said it’s studying curbs on overcapacity in industries including steel and cement as policy makers seek to rein in investment growth fueled by a record credit expansion this year. The government will also increase “guidance” over parts of the coal, glass and power industries, the State Council said on its Web site today.

- Aluminum Corp. of China Ltd., the country’s largest producer, said Chinese smelters, traders and warehouses hold as much as 600,000 metric tons of inventories because of surplus output. Privately held inventories would be equal to two-and-a-half weeks of forecast Chinese demand this year, according to figures from Chalco, as the company is known. It’s also three times more than the reported stocks held by Shanghai Futures Exchange warehouses. “The biggest pressure for the aluminum industry is excessive capacity,” Chalco President Luo Jianchuan told reporters in Hong Kong today. “Both alumina and aluminum producers have stepped up the pace of restarting idled plants since the second quarter.” “It would take three years to turn China’s aluminum market from a surplus to a deficit, along with an economic recovery and demand improvement from users such as builders, automakers and power producers,” Chairman Xiong Weiping said at the same conference.

- Crude oil fell for a second day as the dollar strengthened, undermining demand for assets used to hedge against inflation. Oil dropped as much as 1.9 percent as the dollar advanced on a report by the Xinhua News Agency that China is studying curbs on industrial overcapacity, increasing concern the global economic recovery will slow. Inventories of crude oil rose 128,000 barrels to 343.8 million, the department said today in a weekly report. Supplies were forecast to drop by 1.15 million barrels. The American Petroleum Institute reported yesterday that oil supplies climbed 1.3 percent, the most since April, to 346.7 million barrels. U.S. total daily fuel use averaged 19.2 million barrels in the past four weeks, down 0.9 percent from a year earlier, the Energy Department said. U.S. travel during the Labor Day weekend will decline 13 percent from last year because the holiday falls later than usual, AAA said today. The retail price of regular gasoline will be down about a dollar to $2.60, the group said.

- Public support for charter schools, a component of President Barack Obama’s $100 billion education overhaul, rose to almost two-thirds of Americans this year even as most remained confused about what they are. Sixty-four percent of U.S. adults said they favor charter schools, up from 51 percent a year ago, Gallup Inc. and Phi Delta Kappa International, a public-school advocacy group in Bloomington, Indiana, found in a poll released today.

- The U.S. economy needs the stimulus from low interest rates for some time as it begins a “fragile” recovery from the worst recession since the 1930s, said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. “Overall, the U.S. economy is improving but still fragile,” Lockhart said today in remarks prepared for a speech in Chattanooga, Tennessee. “The FOMC has stated its intention to keep the policy interest rate low for an extended period. I agree that this approach is needed.”

- Senate Banking Committee Chairman Christopher Dodd is considering whether to succeed Edward Kennedy as leader of the Health Committee and give up his post on the panel that steers legislation on the financial industry. Dodd, the second-ranking Democrat on the Committee on Health, Education, Labor and Pensions, said today he will wait before deciding to exercise an option to replace Kennedy, who died yesterday of brain cancer.

Wall Street Journal:

- In an effort to keep potentially unsafe children's items from being resold, Toys "R" Us Inc. is launching a program that allows consumers to trade in used cribs, car seats and other baby products for discounts on new items in those categories. For each used item consumers bring in to Babies "R" Us or Toys "R" Us locations nationwide, they will receive a 20% discount on any new product from select manufacturers. Additional products that can be brought in are bassinets, strollers, travel systems, play yards and high chairs.

- The world's largest pilots union said Tuesday it wants bulk shipments of lithium batteries and products containing the batteries immediately banned from passenger and cargo planes because they can start a fire. The Federal Aviation Administration said it wasn't prepared to take emergency action on the issue.

- The U.S. and its allies are planning to reinforce Afghan police and army units guarding Kandahar with American and Canadian troops, a move that acknowledges the deteriorating condition of the south's largest city. According to senior military officials, U.S. and Canadian soldiers will for the first time deploy to bases on the outskirts of the city. The local Afghan forces will be bolstered by an expanded number of embedded American trainers. The plan represents a high-stakes wager that the Afghans have the ability to keep Kandahar safe, a mission they and North Atlantic Treaty Organization forces have so far largely been unable to accomplish. It is also a tacit admission that the U.S. and its NATO allies erred by sending troops to sparsely inhabited parts of eastern and southern Afghanistan instead of to major population centers, such as Kandahar.

- The Justice Department's decision to investigate CIA interrogation practices increased tension between the agencies and prompted a sense of betrayal among some CIA officers, current and former officials said.

- World trade volumes rose at the fastest rate in almost a year in June, another indication that the global economy is emerging from its most severe downturn since the Great Depression. According to figures Wednesday compiled by the Netherlands Bureau for Economic Policy Analysis -- also known as the CPB -- trade volumes increased by 2.5% from May, the largest increase in a single month since July 2008.

CNBC:

- Hedge funds and bank trading desks are hiring again and have already snapped up some of the most talented managers who were dislodged while firms struggled in the credit crisis, industry insiders said.

NY Times:

- This fall, law students are competing for half as many openings at big firms as they were last year in what is shaping up to be the most wrenching job search season in over 50 years.

Washington Post:

- The ranking Republican on the Senate Health, Education, Labor and Pensions Committee has asked President Obama to withdraw his nominee for Department of Labor solicitor, saying she gave inconsistent testimony to the panel about a program she helped launch in New York this year. Obama nominated New York State Labor Commissioner M. Patricia Smith in March to the third-ranking job at the Labor Department. If confirmed, she will serve as general counsel to Labor Secretary Hilda L. Solis after more than 30 years of work on labor issues. In a letter sent Monday to Obama, Sen. Mike Enzi (R-Wyo.) said Smith's testimony before the Senate panel in May contradicted documents obtained by committee staffers about New York's Wage Watch program. The project, started in January and modeled after the Neighborhood Watch program, is an effort to root out companies that do not pay proper wages. Enzi and his staffers suggest that the program unfairly targets small businesses and was developed without input from small-business representatives. Most notably, Enzi said Smith made "at least four significant statements" that contradicted documents describing the program's development, according to his letter. Smith told the committee that the program was developed internally by state officials, but documents show that a union and a public interest entity partially financed by unions were involved in its development, according to Enzi spokesman Michael Mahaffey. Smith also described the program as an educational effort, but documents quote her aides, as well as unions and public interest groups, describing it as an enforcement program. Other statements by Smith about the involvement of labor unions and the future of the program also contradicted information in the documents.

NY Post:

- A union-backed investor called on Whole Foods to oust its controversial CEO John Mackey, charging a recent opinion piece Mackey wrote on health-care reform alienates the pricey grocery chain's left-leaning customer base. CtW Investment Group -- the investor arm for unions including the United Food and Commercial Workers -- said Mackey damaged the upscale supermarket's reputation when he published an Aug. 12 op-ed in The Wall Street Journal.

Washington Times:

- A month after they voted to punish some corporate executives for taking hefty bonus payouts, members of the House of Representatives quietly gave their own staffers a new potential bonus by making even their top-earning aides eligible for taxpayer dollars to repay their student loans. The change, which took effect in May, means House employees earning up to $168,411, or the top level, are now eligible for government-funded subsidies to help pay down their student loans.

zerohedge:

- Hedge Funds Have Failed To Participate In Equity Rally.

Rassmussen:

- Seventy percent (70%) of likely voters now favor a government that offers fewer services and imposes lower taxes over one that provides more services with higher taxes, according to a new Rasmussen Reports national telephone survey. That’s up five points over the past month and is the highest level measured in nearly three years. Just 19% would prefer a government that provides more services in exchange for higher taxes, down five points from July and the lowest level in over two years. This marks the first time the percentage of voters who prefer this type of government has fallen below 20%.

Politico:

- Edward Moore Kennedy, Camelot’s youngest brother who never reached the White House but grew into the most accomplished legislator of his generation in the Senate, died late Tuesday night at home in Hyannis Port after a long battle with cancer.

LA Times:

- Mortgage delinquencies will continue to rise and set records the rest of this year in California, according to projections to be released today by TransUnion, one of the three big U.S. credit-reporting companies. The good news from TransUnion's number-crunching is that, even in the tarnished Golden State, the trend may finally reverse itself by the middle of next year. In the immediate future the percentage of California home loans that are delinquent at least 60 days or are in foreclosure is projected to skyrocket to more than 14% by year's end from 9.7% as of June 30, TransUnion said. In the region including Los Angeles, Orange, Ventura, Riverside and San Bernardino counties, the delinquency rate also was expected to hit 14% at the end of the year, up from 10.7% as of June 30. "We think that's about as bad as it's going to get," Guarrera said.

USA Today:

- Cash for clunkers ended this week — for cars. But old energy-hogging refrigerators and freezers qualify for recycling and cash from more than 60 utilities across the nation. And the federal government is making money available to states so consumers could get rebates of $50 to $200 for new, more energy-efficient appliances later this year in a so-called "cash for appliances" program. Combined, the appliance initiatives have a goal similar to the cash-for-clunker program for autos: They get less-efficient appliances off the nation's energy grid in favor of newer efficient ones. The government's rebate program, in which the Department of Energy is providing states with $300 million approved earlier this year as part of President Obama's $787 billion stimulus plan, serves another goal similar to the cash-for-clunker program: It's designed to boost the economy.

Reuters:
- U.S. regulators have been negotiating until the last minute on highly anticipated guidelines for private equity investments in distressed banks. The Federal Deposit Insurance Corp is meeting later on Wednesday and is expected to soften the private equity guidelines first proposed in July, in an attempt to attract more investors to the assets of distressed banks.

Financial Times:
- More investment thanks to China’s rescue package threatens to worsen the already severe overcapacity, while the cash injection is already creating asset bubbles. The reason for China’s stimulus is simple. While it did not suffer a western-style financial crisis, it was hit hard by the second-order effects, as exports suddenly collapsed. In 2007, the growth rate of exports was 25.7 per cent, and exports made up 36 per cent of GDP. In November last year the exports shrank 2.2 per cent on the year, and have fallen continuously since then. In May 2009, exports plunged 26.4 per cent against a year earlier. The fall of exports may have cut GDP growth 3 percentage points. If its indirect impact is included, it may have shaved more than 5 points off China’s 2008 growth. The most important component in the stimulus package is investment in infrastructure. Fixed asset investment has long been the most important driving force for China’s economic growth, and has been growing faster than GDP since the turn of the century. Due to the dual role of fixed asset investment in creating demand in the short run and supply in the long run, an increasing investment rate will create immediate excess demand for a while, then the economy will shift from a phase of overheating to overcapacity. Correspondingly, inflation pressure will be replaced by deflation pressure. It is right that China should adopt an accommodating monetary policy in response to the global financial crisis and domestic slowdown. However, China did not suffer a liquidity shortage and credit crunch. Its monetary multiplier has been more or less stable. China does not need a helicopter to drop money from the sky. The excess liquidity has led to the resurgence of asset bubbles.

The Scotsman:

- JUSTICE secretary Kenny MacAskill was last night under pressure to reveal more details of the medical evidence that led to the release of the Lockerbie bomber, after it emerged that only one doctor was willing to say Abdelbaset Ali Mohmed al-Megrahi had less than three months to live. Labour and Conservative politicians have demanded the Scottish Government publish details of the doctor's expertise and qualifications, amid suggestions he or she may not have been a prostate cancer expert. The parties have also raised questions over whether the doctor was employed by the Libyan government or Megrahi's legal team, which could have influenced the judgment. The evidence provided by the doctor is crucial as compassionate release under Scots law requires that a prisoner has less than three months to live. Doubts about Megrahi's life expectancy have already been raised by American relatives of the 270 victims of the bomb that blew up Pan Am flight 103 over Lockerbie on 21 December, 1988. But last night the Scottish Government said it would not publish details of the individual who gave the crucial advice.

Bild:

- Germany faces “dramatically” higher costs for its health system from 2020 as the population is getting older, citing a forecast by the health-system-research. Services by the country’s health insurances will have to be reduced.

Bear Radar

Style Underperformer:
Mid-Cap Value (-.39%)

Sector Underperformers:
Coal (-2.08%), Steel (-1.85%) and Gold (-1.73%)

Stocks Falling on Unusual Volume:
RTP, UNT, ABB, JCP, ISLE, HAIN, WCRX, OVTI, LANC, CWEI, ITWO, CPTS, BOLT, CISG, WPPGY and DY

Stocks With Unusual Put Option Activity:
1) MAR 2) AMX 3) MHS 4) BMC 5) FNM

Bull Radar

Style Outperformer:
Small-Cap Value (+.01%)

Sector Outperformers:
Homebuilders (+1.75%), Airlines (+1.58%) and Networking (+1.27%)

Stocks Rising on Unusual Volume:
DLTR, LFC, STJ, CHDX, LOW, TGT, HD, AIXG, TXT, GEOY, T, COP, SUN, MYGN, BAMM, BCSI, KIRK, HGSI, MDAS, BWLD, GRMN, IIVI, CHDX, CSTR, NETL, BBBY, FRED, DNDN, LIHR, RMBS, IRF, WSM and DSW

Stocks With Unusual Call Option Activity:
1) MYGN 2) DLTR 3) INTU 4) BCSI 5) TXT

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Corn fell the most in two weeks and soybeans dropped after the government said crop conditions improved, signaling higher yields in the U.S., the world’s biggest grower and exporter. About 70 percent of the corn crop was in good or excellent condition on Aug. 23, up from 68 percent a week earlier and 64 percent a year earlier, the Department of Agriculture said yesterday. An estimated 69 percent of soybeans got the top ratings, up from 66 percent a weak earlier and 61 percent last year. “The health of the U.S. crops is very good, and that’s an indication to expect bigger yields,” said Joe Victor, a vice president of marketing at Allendale Inc. in McHenry, Illinois.

- U.S. crude oil futures gave up some more ground in post-settlement trading on Tuesday after industry data from the American Petroleum Institute showed an

unexpectedly large increase in crude inventories last week. Earlier, October crude futures settled more than 3 percent lower as traders booked profits after the contract failed to break through resistance at $75. Prices fell as sell stops were triggered by a slew of long liquidations, traders said, despite positive home prices and consumer confidence reports, which had lifted Wall Street earlier. The API said that for the week to Aug. 21, domestic crude stocks shot up 4.3 million barrels to 346.7 million barrels as imports rose sharply, defying a forecast in a Reuters poll of

analysts for a 1.1 million barrel drawdown. "The API's report of a big build in crude stocks is obviously based on higher imports. This proves that the sharp decline in imports in the week to Aug. 14 was an aberration as it looks like shipments that were held either because of pricing considerations or because of weather fears finally got onshore last week," said Phil Flynn, analyst at PFGBest

Research in Chicago.

- Google Inc.’s(GOOG) YouTube will let users get a portion of the site’s advertising revenue when a video goes “viral” and draws a wide audience. A clip will qualify for the program if it meets certain criteria, including the number of views and its so-called virality, the company said today. Users who regularly produce content can already make money through YouTube’s ad-partnership program. The new policy would apply to one-off hits. Running more ads on viral videos will increase revenue for both users and YouTube, helping bring the site closer to its goal of turning a profit.

- Investors should buy March Fed funds futures, betting the Federal Reserve won’t raise interest rates until at least six months after dropping the phrase “extended period” from its policy meeting statement, according to RBC Capital Markets. “Extended period” is the current version of “considerable period,” a phrase the central bank used earlier this decade to describe how long it intended to keep rates low, RBC market economist Tom Porcelli and strategist Christian Cooper wrote in a note to clients dated yesterday. The Fed removed it from a statement in January 2004 and in June 2004 it began raising rates, they wrote. The central bank used “extended period” in the statement it issued Aug. 12 after its last policy meeting. It next meets Sept. 23. “This analog seems a useful guide for the current ‘it’ phrase ‘extended period,’” New York-based Porcelli and Cooper wrote. “This general six-month rule aside, we continue to believe the economic backdrop will warrant a significant additional period of low rates.” Investors should also buy the March fed funds futures contract because it is “aggressively priced,” they wrote.

- Japan’s export slump deepened in July, indicating the boost in demand that helped pull the country out of its recession last quarter may be short-lived. Shipments abroad fell 36.5 percent from a year earlier, steeper than June’s 35.7 percent drop, the Finance Ministry said today in Tokyo.

Wall Street Journal:

- Hedge funds made an outsize bet on financial stocks in the second quarter, according to a closely watched report on hedge-fund holdings. During the quarter, hedge funds increased their ownership in financial stocks by 55% to $70 billion, compared with the previous quarter. The funds now own 3.7% of the sector's market capitalization, according to a Goldman Sachs research report released Monday. That's an all-time high, the report said. Among their favorites were the big banks, including Bank of America Corp.(BAC) and J.P. Morgan Chase & Co(JPM). The number of funds holding Bank of America more than doubled, while 38 hedge funds took first-time positions in J.P. Morgan. Net short exposure of financials rose only 8% to $63 billion, while long exposure increased 55% to $70 billion. Hedge funds were net long financials at the end of the second quarter, after being net short in the first.

- On Monday the Obama administration released a 2004 CIA inspector general's report on the agency's detention and interrogation program. Yesterday, the New York Times reported some gruesome abuses on its front page, above the fold: "Excessive physical force was routinely used, resulting in broken bones, shattered teeth, concussions, and dozens of other serious injuries over a period of less than two years, a federal investigation has found. . . . [D]espite rules allowing force only as a last resort. 'Staff at the facilities routinely used uncontrolled, unsafe applications of force, departing from generally accepted standards,' said the report." Actually, these abuses were not committed by the CIA. They were committed by officials at four juvenile residential detention centers in New York state. The details came from a Justice Department report that recounted how "workers forced one boy, who had glared at a staff member, into a sitting position and secured his arms behind his back with such force that his collarbone was broken." While officials at the New York state detention facilities failed to report the abuses ("the ombudsman's office charged with overseeing the youth prison centers had virtually ceased to function," the Times reported), the CIA inspector general's report describes a well-run, highly disciplined CIA interrogation program, where clear guidelines were established and abuses or deviations from approved techniques were stopped, reported and addressed.

- Federal air-safety regulators have launched an investigation into how unauthorized parts were installed on at least 42 Southwest Airlines Co.(LUV) jets, and why the carrier's maintenance control procedures failed to flag the problem, according to people familiar with the details.

- Overleveraged private real-estate funds are gasping for money, but public property companies have been chugging down cash from the capital markets. Now, they are poised to emerge as more-dominant players when the commercial-property-market starts to recover. Many expect the landscape change to be as profound as it was in the early 1990s, when many real-estate developers went public to avoid bankruptcy and helped turn real-estate investment trusts into a major force in the property market. Most of the leading private real-estate funds during that time vanished from the scene. REITs are poised once again to pick up the pieces.

MarketWatch.com:
- Goldman’s(GS) town hall. Commentary: How Wall Street’s ‘vampire squid’ might face the public. Town-hall meetings have been flashpoints for America's debate over health care, but what if a certain Wall Street firm accused of gaming the system faced its critics in public ...

CNBC.com:
- Discussing how a crackdown on commodity speculation could impact traders, with Gary Gensler, CFTC chairman and CNBC's Maria Bartiromo. (video)

- With a September deadline from the White House on Iran's nuclear program only weeks away, it remains unclear whether the United States can impose sanctions against the Islamic state in the face of possible opposition from Iran's economic allies. If proposed negotiations between the U.S. and Iran lead nowhere—and at this point the sides aren't talking—the Obama administration, and Secretary of State Hillary Clinton in particular, have promised Iran would be hit with new and crippling sanctions. Supporters of tougher sanctions against Iran believe Asia and Europe hold an enormous amount of power over Iran because they invest so heavily in Iran's energy infrastructure. They point out that, despite its proclaimed aim of developing nuclear energy, Iran is in the process of developing nuclear weaponry."It is quite clear Iran is developing nuclear weapons, and that we are at a crucial junction," said Gabriela Shalev, Israel's ambassador to the United Nations. "Nobody should doubt it." A new round of sanctions could target Iran's gasoline imports. Despite being the world's fourth largest oil producer, Iran imports 40 percent of its gasoline and sanctions against Iranian gasoline imports would cripple the country's economy. Iran's government subsidizes the price of gasoline, capping it right now at about 40 cents a gallon. A bulk of that refined gasoline comes from France, Switzerland, Holland, Great Britain and Russia's Lukoil.

Forbes:

- Here's a look at some key points in Bernanke's first term as Fed chairman:

- Top 20 Franchises To Start.

Washington Post:

- Many of the lenders eligible to receive billions of dollars from the government's massive foreclosure prevention program helped fuel the housing crisis by issuing risky subprime loans, according to a report to be issued Wednesday by the Center for Public Integrity. Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations. Much "of this money is going directly to the same financial institutions that helped create the sub-prime mortgage mess in the first place," Bill Buzenberg, executive director of the center, said in a statement. For example, J.P. Morgan Chase(JPM), Wells Fargo and Countrywide, which has been purchased by Bank of America(BAC), are eligible to receive billions of dollars under the program, according to the report.

Politico:

- New financial disclosure reports filed by Rep. Charlie Rangel (D-N.Y.) show that the veteran lawmaker failed to report more than $660,000 in assets during 2007, a potential violation of House ethics rules. Rangel, chairman of the powerful House Ways and Means Committee, also had previously stated that he sold a Florida condominium in 2007, but an amended report covering that year – filed in mid-August – now makes no mention of that transaction. It appears that Rangel no longer owns the condo as it is not listed on his 2008 financial report, filed last month. The latest revelations on Rangel’s personal finances may prove problematic for the New York Democrat, who is already the target of a wide-ranging ethics investigation. That probe, which Rangel and House Democratic leaders had hoped would last a few months, is now coming up on its one-year anniversary. The ethics panel is looking into Rangel’s use of several rent-stabilized apartments in a luxury Harlem apartment building, his failure to fully pay taxes on a vacation home in the Dominican Republic, and the lawmaker’s fundraising on behalf of the Charles B. Rangel Center for Public Service at City College in New York City. The ethics committee recently broadened the Rangel investigation to include Caribbean trips taken by Rangel and four other lawmakers.

- The mayor of the North Jersey town where Libyan leader Muammar al-Qadhafi might stay next month during a diplomatic visit to nearby New York City blasted federal officials on Tuesday, from members of Congress all the way up to President Barack Obama, for not doing enough to stop the visit. “The truth is that it seems like they’re just going through the motions and it’s a fait accompli,” Englewood Mayor Michael Wildes told POLITICO. “I’m disappointed that nobody’s got moxie.” “If this is the change that our president has endorsed and is directing our country where we’re reaching out to countries like Iran, Syria and Libya,” he added, “I would have bargained for another one.” Wildes, a Democrat who supported Obama, said he continues to “have great confidence in his leadership. It’s just that there’s collateral damage that is unfathomable.”

Federal Reserve Bank of NY:

- The Federal Reserve considers the record rate of mortgage delinquencies, foreclosures and their impacts on communities an urgent problem. The Federal Reserve Bank of New York has therefore used its expertise and knowledge to provide detailed data on US credit conditions to the public in order to establish a strong body of factual data for use in forming policy decisions and developing mortgage foreclosure mitigation efforts. (US Credit Conditions Map)

Home Textiles Today:

- The final days of the “Cash for Clunkers” program may have diverted consumers’ attention during the third week of August, sending comp sales down 4.4% over last year, the Johnson Redbook reported today. “Back-to school fundamentals will be easier to assess in September, when the summer-to-fall seasonal transition is largely complete,” said Catlin Levis, Redbook analayst. Month-over-month showed a 0.7% drop for the week ended Aug. 22 compared to July as consumers’ retail spending remained focused on food and household supplies. Comps at department stores fell 7.1% following a 6.6% decline the previous week. Comps at discounters slipped 2.9%, improving on a 3.4 drop a week earlier. With back-to-school off to a halting start, retailers are becoming more aggressive, said Levis. “Stores are rolling out buy-one/get-one-free and penny promotions on school suppliers,” she added.

Reuters:

- Paper and packaging producer International Paper Co(IP) said demand for its products has stagnated, and it sees no immediate signs of the U.S. economy improving. "I don't think we've seen anything that could be called a trend other than the flat market," Chief Financial Officer Timothy Nicholls told the Reuters Paper and Packaging Summit on
Tuesday.

- The U.S. national debt will nearly double over the next 10 years, government forecasts showed on Tuesday, challenging President Barack Obama's economic and healthcare overhaul agenda. The White House midsession budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars. The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO pegged the total at $7.1 trillion because it assumed higher revenues as tax cuts expire. The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the total sum the government owes, while the deficit is the yearly gap between revenues and spending. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone," said Senate Republican leader Mitch McConnell, adding that economic stimulus funds should be diverted to pay down U.S. debt.

- A major fund-raiser for Barack Obama, Hillary Clinton and other Democrats was charged by federal prosecutors in New York in connection with a scheme to defraud Citigroup Inc. Hassan Nemazee, 59, was accused of one count of bank fraud for allegedly seeking a fraudulent $74 million loan from Citigroup's banking unit, U.S. Attorney Preet Bharara and the Federal Bureau of Investigation said on Tuesday. Nemazee will be released Wednesday on $25 million bond and be confined to his apartment on Park Avenue in Manhattan, with no access to computers. The bond is secured by the apartment and another home in Katonah, New York. Nemazee was a national finance chair of Hillary Clinton's 2008 presidential campaign, and a supporter of Sen. John Kerry's run for the White House in 2004. He typically donates more than $100,000 annually to Democratic political candidates, including Senate Majority Leader Harry Reid and Sen. Charles Schumer, and sits on the board of the Iranian American Political Action Committee. Bill Clinton, when he was president, had nominated Nemazee to be U.S. ambassador to Argentina. Nemazee is listed as having been among the top "bundlers" of contributions to Obama's presidential campaign, according to OpenSecrets.org, a website maintained by a nonpartisan research group, the Center for Responsive Politics.

- Short interest on U.S. stock markets edged up in the first half of August, the exchanges said on Tuesday, suggesting bearish sentiment was creeping back after a prolonged rally. The rally has put the squeeze on short investors and forced them to buy back the borrowed shares at a higher price and swallow losses. Some analysts have pointed to this short squeeze as fueling the stock market's ascent. As of Aug. 14, short interest on the New York Stock Exchange rose 1.3 percent to about 14.2 billion shares from 14.02 billion shares as of the end of July. The short interest was equal to 3.71 percent of total shares outstanding. On the Nasdaq, for the same time period, short interest rose 0.4 percent to about 6.80 billion shares from 6.78 billion shares. The Nasdaq said the short interest represents 2.92 days' average daily volume, compared with an average of 3.09 days for the previous period. Banks were among companies that saw an increase in short interest, including Citigroup (C) ,whose short position jumped 81 percent.

Financial Times:

- A federal judge on Tuesday raised fresh questions about the US Securities and Exchange Commission’s settlement with Bank of America(BAC) over bonus disclosures, calling the regulator’s explanation for why it did not charge individuals “puzzling”. The SEC, in a court filing on Monday, said BofA’s alleged failure to disclose bonuses paid to Merrill Lynch employees before the companies merged was largely the work of attorneys who advised the banks. The regulator said it was constrained by the fact that the bank had not waived attorney-client privilege. But Judge Jed Rakoff questioned why the SEC accepted the statements by bank executives that they relied on lawyers’ advice. “If the SEC is right in this assertion, it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel . . . and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny,” he wrote. “This seems so at war with common sense.” The settlement did not require BofA to admit or deny the commission’s allegations that BofA failed to tell the public at the time it bought Merrill that the Wall Street firm would pay $5.8bn in year-end bonuses. Mr Rakoff demanded to know why BofA agreed to pay $33m if it believed it had properly disclosed bonuses. If the bank did so “to curry favor with the SEC or to avoid retaliation by the SEC, the court needs to know the specifics”, he said.

China Daily:

- China is expected to take retaliatory measures if US President Barack Obama agrees next month to a plan to impose tariffs on some Chinese-made tires, experts said yesterday. "The prospect is not very positive, and we have to be ready for the worst," said He Weiwen, a council member of the China Society for American Economy Studies. "China's government should not tolerate unreasonable and unfair behavior by the US and must fight back firmly and quickly," He said. If approved by the president, duties of up to 55 percent will be imposed on Chinese-made tires exported to the United States, which could lead to a loss of 100,000 jobs in Chinese manufacturing sectors. Last Wednesday, under the leadership of Vice-Minister of Commerce Zhong Shan, a team headed for the US to consult with authorities. The results were not positive, an unnamed official from the ministry's bureau of fair trade of imports and exports said. "The Obama administration is under great pressure from labor unions and other groups," the official said. Experts said China should prepare to retaliate if the US approves the tariffs. "If the US says no to tires from China, China could take measures to limit automobile imports from the US," He said.

Late Buy/Sell Recommendations
Citigroup:

- Rated (FISV) Buy, target $57.

- Reiterated Buy on (MYGN), target $34.

Night Trading
Asian Indices are -.50% to +.75% on average.

Asia Ex-Japan Inv Grade CDS Index 133.50 -1.5 basis points.
S&P 500 futures -.13%.
NASDAQ 100 futures -.02%.

Morning Preview

BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (CHRS)/.04

- (WSM)/-.09

- (DSW)/.11

- (CWTR)/-.05

- (TIVO)/-.05

- (JAS)/-.39

- (GES)/.43

- (DLTR)/.53

Economic Releases

8:30 am EST

- Durable Goods Orders for July are estimated to rise 3.0% versus a 2.2% decline in June.

- Durables Ex Transports for July are estimated to rise .9% versus a 1.6% gain in June.

10:00 am EST

- New Home Sales for July are estimated to rise to 390K versus 384K in June.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -1,150,000 barrels versus a -8,397,000 barrel decline the prior week. Gasoline supplies are expected to fall by -800,000 barrels versus a -2,177,000 barrel decline the prior week. Distillate inventories are estimated to rise by +400,000 barrels versus a -650,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.28% versus a +.52% gain the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, Fed’s Lockhart speaking, Fed’s Bullard speaking, $39 bln 5-year Treasury Note Auction and the Morgan Stanley Semi/Semi Equipment Conference could also impact trading today.

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