Today's Headlines

Bloomberg:

- The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 4 basis points to 561, according to JPMorgan Chase & Co. prices at 11:56 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a rise indicates deterioration in the perception of credit quality; a decline signals the opposite.

- Crude oil fell to a one-month low in New York as sales of existing homes unexpectedly slumped, bolstering skepticism about the speed of the economy’s recovery from the recession. Oil declined as much as 4.6 percent as the National Association of Realtors said that purchases dropped 2.7 percent to a 5.1 million annual rate. An Energy Department report yesterday showed a larger-than-forecast gain in U.S. fuel supplies, bolstering speculation that a glut in supply is forming in the world’s biggest energy-consuming country. “There comes a point when you have to pay attention to the fundamentals,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Today we are looking at a much more convincingly bearish picture,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “We are not only looking at high inventory levels. The dollar is showing some strength and the S&P 500 is convincingly down.” Global oil consumption will drop 1.9 million barrels a day to 84.4 million this year, according to an International Energy Agency report released on Sept. 10. U.S. gasoline stockpiles surged 5.41 million barrels last week, more than 10 times what was forecast by analysts in a Bloomberg News survey, according to yesterday’s Energy Department report. Inventories of distillate fuel, a category that includes heating oil and diesel, rose 2.96 million barrels, almost double what was estimated. “There’s no question that yesterday’s report was extremely bearish,” Mueller said. “It fell enough to break through some support lines, which got the attention of the technical guy.” The November contract broke below the 100-day moving average of $69.53 yesterday, a signal to so-called technical traders that prices will move lower.

- Copper prices tumbled to a one- month low as rising metal inventories and downbeat economic reports stoked concern that demand may dwindle. Stockpiles in warehouses monitored by the London Metal Exchange have jumped 14 percent this month. Sales of existing U.S. homes unexpectedly fell in August, and German business confidence trailed analysts’ forecasts. Copper prices are headed for a fourth straight weekly decline. “People are trying to determine what the next direction in copper will be, and they’re getting worried that demand is not strong,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “The rising inventories are causing concern.” LME inventories increased 2.7 percent today to 340,875 tons, the highest since May 20.

- Obama Pledge to Engage UN Runs Into Resentment of US Power.

- The Internal Revenue Service told its auditors in Manhattan to develop cases against offshore hedge funds and foreign companies it said are trying to avoid taxes on income from loans they make in the U.S. The agency, in a Sept. 22 directive, urged the Manhattan field director of the IRS financial services section to pursue a transaction the agency says seeks to improperly take advantage of an otherwise legal tax break. The agency also urged the official to be watchful for similar techniques. “We understand that foreign corporations and non-resident aliens may have used other strategies to originate loans in the United States, giving rise” to tax obligations, Steven Musher, the top lawyer in the IRS’s international department, wrote in a memo to Kathy Robbins, the Manhattan field director. “We encourage you to develop these cases and we stand ready to assist you in the legal analysis,” Musher wrote.

- Beijing’s traffic-choked streets will be almost devoid of cars on Oct. 1 as China’s capital enacts strict controls to make way for a military parade that will include nuclear missiles, tanks and aircraft. About 7,000 traffic police will be on hand to enforce the city’s biggest traffic restriction “in history,” deploying along the roads circling Beijing and other points of access to its center to block entry for most vehicles, the official Xinhua News Agency reported today. China celebrates 60 years of rule by the Communist Party on Oct. 1, staging a 300 million yuan ($44 million) military parade to showcase the country’s achievements and boost national pride. The parade will include the country’s “newest nuclear missiles” among the 52 weapons, the official China Daily reported, citing People’s Liberation Army General Gao Jianguo.

- Investors should sell shares of most dry-bulk commodity shipping companies because charter rates will probably extend their decline, according to Fearnley Fonds ASA, an investment bank that specializes in shipping. The Baltic Dry Index dropped 49% from this year’s high in June as China imported less coal and iron ore. “We have a sell recommendation on the dry bulk sector and weaker dry-bulk rates have historically affected all companies independent of contract coverage,” Rikard Vabo, an Oslo-based analyst at Fearnley, said. “With potential weaker rates we are negative on most share prices.” China’s iron-ore imports fell 14% in August while stockpiles rose this month to the highest level since data became available in 2006. Coal imports fell 15% last month. The expansion of the dry-bulk fleet may also affect vessel demand. Net growth has quickened to an annualized rate of 8-9% from about 3% in the first quarter. Meantime, the ratio of the capsize fleet tied up by port congestion has dropped to 4% from as much as 15% during the Northern Hemisphere’s summer, he wrote.

- Iran’s government is developing detonators capable of setting off a nuclear bomb, an Iranian resistance group said. The detonators, which use conventional explosives and are designed to ignite the uranium payload of a nuclear weapon, are being developed as prototypes at a secret site called Metfaz in a military zone about 30 kilometers (19 miles) east of Tehran, the National Council of Resistance of Iran said today. The research center for the project is in Pars in eastern Tehran.

- The Federal Reserve said it will shrink its emergency programs that auction loans to commercial banks and Treasury securities to bond dealers, citing “continued improvements” in financial markets. The Term Auction Facility will sell $50 billion in 70-day funds next month, down from $75 billion in 84-day funds in September, with the auctions’ size and maturity decreasing more in November and December, the Fed said today in a statement in Washington. The Term Securities Lending Facility will shrink to $50 billion, and then $25 billion, from $75 billion.

- Rite Aid Corp.(RAD), the third-largest U.S. drugstore chain, cut its full-year forecast, saying it expects customers will remain focused on discounts in a “tough economy.” The shares declined as much as 14 percent.

- Former Federal Reserve Chairman Paul Volcker criticized the Obama administration’s plan to subject “systemically important” financial firms to more stringent regulation by the Fed. Volcker told lawmakers today that such a designation would imply government readiness to support the firms in a crisis, encouraging even more risky behavior in a phenomenon known as “moral hazard.” “Whether they say it or not, that carries the connotation in the market that they’re too big to fail,” Volcker, who is chairman of the White House Economic Recovery Advisory Board, said in testimony to the House Financial Services Committee. “The danger is the spread of moral hazard could make the next crisis much bigger,” said Volcker, who serves as an outside economic adviser to Obama. Volcker has criticized key elements of the Obama administration regulatory plan in recent public statements, and his remarks today largely reprised those criticisms. Volcker also called for stricter controls on commercial banks and bank holding companies than the Obama administration has proposed, saying they should be barred from owning or sponsoring hedge funds and private equity funds and forbidden to engage in proprietary trading. He also criticized an administration proposal to create a council of regulatory agencies that would be headed by the Treasury Department.

- Luxury hotel owners risk defaulting on their debt as the recession cuts occupancies and the credit crunch constrains refinancing. Loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default, according to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities. Some of the biggest loans, put on the company’s watch list because of late payments, decreasing occupancies or cash flow, were made to luxury properties where rooms can cost more than $850 a night.

- Sales of existing U.S. homes unexpectedly fell last month for the first time since March, signaling the housing recovery will be slow to gain speed. Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008.

Wall Street Journal:

- Maybe Senate Finance Chairman Max Baucus should put a gag order on Douglas Elmendorf too. On Tuesday, the Congressional Budget Office director told Mr. Baucus's committee that its plan to cut $123 billion from Medicare Advantage—the program that gives almost one-fourth of seniors private health-insurance options—will result in lower benefits and some 2.7 million people losing this coverage. Imagine that. Last week Mr. Baucus ordered Medicare regulators to investigate and likely punish Humana Inc. for trying to educate enrollees in its Advantage plans about precisely this fact.

- Terror suspect Najibullah Zazi was indicted Thursday by a federal grand jury in New York on charges that he conspired to use weapons of mass destruction. The 24-year-old airport-shuttle driver in Aurora, Colo., and former longtime resident of the New York City borough of Queens, faces a single count in the indictment after having already been charged with lying to authorities in a terrorism investigation. Mr. Zazi, an immigrant from Afghanistan, is a legal permanent resident of the U.S. and was expected to appear in federal court in Denver later today on the original charge of making false statements to investigators.

- The Obama administration has dropped plans for legislation to authorize the indefinite detention of accused terrorists, and instead plans to rely on existing legal authority if necessary, administration officials said. Democrats in Congress and human-rights groups have fiercely opposed plans, outlined by President Barack Obama in a high-profile national security speech at the National Archives in May, for a new regime to indefinitely detain some prisoners who may not be put on trial but are deemed too dangerous to release.

- Benefits for seniors on Medicare emerged as a flashpoint Thursday as senators writing a sweeping health-care overhaul began their third day of slow-moving deliberations with tempers flaring. The Senate Finance Committee voted 13-10, along party lines, to reject an amendment by Sen. Orrin Hatch (R., Utah) that would have delayed coverage for the uninsured if a million or more people who now have insurance wound up having to pay higher premiums as a result of the legislation. Mr. Hatch said his amendment was intended to protect seniors who signed up for private insurance plans through Medicare and could lose some benefits as a result of cuts to the commercial plans. About 10 million seniors are now signed up through the private plans, about one-fourth of Medicare recipients. The "Medicare Advantage" plans can offer enhanced benefits because the government pays them more than it costs to care for seniors in traditional Medicare.

- Twitter, the messaging web site that has become an Internet sensation, is nearing a deal to close as much as $100 million of new funding from as many as seven investors, according to people familiar with the deal. The investor group includes mutual fund giant T. Rowe Price and private-equity firm Insight Venture Partners, which are new investors to Twitter. The $100 million investment is about twice as much as Twitter was reportedly expected to haul in this latest round of fund-raising.

CNBC:

- Tony Crescenzi, a market strategist and portfolio manager at PIMCO, told CNBC that the re-regulation of the financial system in Group of 20 countries will constrain bank lending and growth. (video)

- Treasurys pared some of their earlier gains despite an auction that seemed to fetch decent demand. The sale of seven-year Treasury notes saw solid buying despite a disappointing debt auction from the previous day.

NY Post:
- For Goldman Sachs(GS) CEO Lloyd Blankfein, an embarrassment of riches has turned into embarrassing riches. Goldman's bonus pool is expected to swell to an estimated $16 billion after what's expected to be another stellar quarter, and Blankfein is struggling to figure out how to pay his employees in a way that keeps them happy while avoiding another round of populist and political outrage like the bank experienced over the summer. According to people familiar with the matter, Goldman's human-resources department is toying with a number of changes to employee compensation, including imposing longer vesting periods for stock options. Also under consideration is paying top executives' bonuses almost entirely in stock to keep from making the biggest cash payments. And while a typical CEO would be cheering such news, for Blankfein another gold-plated quarter represents a huge headache, as the firm's success has been greeted with intense scorn on both Wall Street and Main Street.

- Hell hath no fury like a first lady of New York scorned! Michelle Paterson yesterday lashed out at President Obama for pushing Gov. Paterson not to run for election next year, particularly since the slight to the state's first black governor came from the nation's first black president. "I never heard of a president asking a governor not to run, a sitting governor not to run, so I thought it was very unusual that this would be asked of David, and I don't think this is right," she told The Post during a luncheon hosted by columnist Cindy Adams. She said her husband was hurt to learn he did not have Obama's support, and she did not spare the Democratic Party her wrath, saying she "most definitely" feels the party has abandoned the governor.

BusinessWire:

- This month's new vehicle sales (including fleet sales) are expected to be 742,000 units, a 22.9 percent decrease from September 2008 and a 41.1 percent decrease from August 2009, according to Edmunds.com, the premier online resource for automotive information. Edmunds.com analysts predict that September’s Seasonally Adjusted Annualized Rate (SAAR) will be 9.34 million, down from 14.06 in August. “The aftereffects of Cash for Clunkers are being felt in two ways: first, a significant number of September sales were pulled ahead into August, and second, the low inventories and often higher prices give shoppers few reasons to buy,” noted Edmunds.com CEO Jeremy Anwyl.

Newsweek:

- The Fed's portfolio of mortgage-backed securities has risen from zero last year to $685 billion today. If they go bad, guess who pays? And while the subprime industry may sleep with The Sopranos, there's a new subprime lender in town: the First National Bank of You and Me.

LA Times:

- The biggest find in the state in 35 years, somewhere in Kern County, could herald new exploration in California and the U.S., experts say. Occidental's engineers may have done it. The Westwood company revealed in July that it had found the equivalent of 150 million to 250 million barrels of oil and natural gas in an undisclosed part of Kern County using techniques that the oil company's executives would rather not talk about. It was California's biggest find in 35 years. "Certainly this kind of success will send other people back to California to rethink the geology and rethink the theories of the area," said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates and author of the Pulitzer Prize-winning history of the oil industry "The Prize: The Epic Quest for Oil, Money and Power." Joe Hahn knows firsthand the significance of finding that much crude in California.

NYDailyNews.com:

- The backlash has begun. Today's Marist poll finds 62 percent of New Yorkers think it was wrong for President Obama to stick his nose into local politics and pressure Gov. David Paterson not to run in 2010. Even a majority of Obama's fellow Democrats (51 percent) agree the administration was meddling and should let New York manage its own political affairs. When presented with the scenario that Paterson's low poll numbers will drag down other Democratic candidates, New Yorkers are unmoved. Sixty percent continue to say the White House should butt out.

AppleInsider:

- While Apple has until December of 2010 to implement new rules for reporting its earnings, a report predicts that Apple will adopt the changes by its next financial quarter. In his latest research note to investors, analyst Gene Munster with Piper Jaffray said that the changes to generally accepted accounting principles (GAAP) from the Financial Accounting Standards Board, formally adopted Wednesday, will boost the company's reported earnings per share from $5.71 to $8.21. In addition, he believes the impact in the 2010 fiscal year will go from $6.00 per share to $8.90. Munster has raised his price target for AAPL stock to $235, up from $186.

Rassmussen:

- President Obama is scheduled to be the first U.S. chief executive to chair a meeting of the Security Council, but the views most U.S. voters have of the United Nations remain largely unchanged. A new Rasmussen Reports national telephone survey finds that just 29% of voters see the United Nations as an ally of the United States, while 15% regard the international organization as an enemy. For 47%, the U.S. falls somewhere in between the two.

Insurance Claims And Issues:

- Insurers have in the past invested happily in hedge funds. However, hedge funds in recent months have reportedly returned 25 percent losses. There is reportedly an even greater loss in value to investors in hedge funds, greater even than the loss of return on invested money. Reportedly, hedge funds have lost two characteristics that attracted Insurance Company investments: Steady returns and low volatility. These losses in hedge fund value have caused many investing Insurance Companies to bid hedge funds farewell. See Kevin Crowley, "Lloyd's of London Insurers Punish Hedge Funds After 2008 Losses" (Bloomberg.com, Thursday, September 17, 2009).

USA Today:

- Despite being in the minority in Congress, Republican campaign committees outraised Democrats by $1.7 million in August as they have aggressively collected political cash amid the rancorous debate over health care. Republicans also held an edge over Democrats in the amount of money available, when counting debts, as both parties set the stage for the 2010 elections, in which more than three dozen competitive House and Senate seats are at stake. The GOP spike is a departure. In each of the past four years, the party in power — whether Democrat or Republican — raised more than the minority's fundraising committees in August, a USA TODAY review of campaign records shows.

Reuters:
- A study of rapid influenza tests found they miss many cases of swine flu and U.S. health experts said on Thursday they are not worth the trouble for this flu season.A study looking at the effectiveness of a rapid flu test in the first few weeks of the H1N1 pandemic in May found it detected less than half of the cases later confirmed by more sophisticated tests.

- A U.S. Treasury Department watchdog will study decisions by General Motors Co [GM.UL] and Chrysler to cut more than 2,000 dealers, a key bailout watchdog said on Thursday. Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said his office will examine the process used by the automakers to identify which dealerships to maintain or terminate, as part of their restructuring processes. The Obama administration's autos task force has provided more than $60 billion in bailout financing from the TARP fund for GM and Chrysler, which have both emerged from bankruptcy. Hundreds of dealers assert that their rights were trampled on during the automakers' bankruptcies, leaving them with little or no legal recourse.

Financial Times:
- “Stop, children, what’s that sound, everybody look what’s going down”. Buffalo Springfield knew what was what back in 1967, and Ben Bernanke knows what is going down now. On Wednesday, the Federal Open Market Committee left the target interest rate near zero and told investors to expect it to remain low for some time yet. What is the Fed so worried about? What’s going down are broader measures of money supply. Notes and coins, as well as deposit, savings and money market accounts, or M2, has been falling since the end of June, for example. That fall hardly seems possible given that the so-called monetary base (currency in circulation plus bank reserves) has more than doubled in the past year, almost entirely due to the Fed’s emergency lending programs. Bank reserves have exploded from $50bn to almost $850bn in 12 months. But the frightening reality is that bank lending is now contracting faster than the Fed is buying assets from the non-bank private sector, as part of its efforts to lower yields and revive failed markets. No matter how much the Fed seems to do, banks are not extending loans. US consumer credit, for example, fell at an annualized 10 per cent in July. Total debt outstanding is where it was a year ago. Some wonder about the wisdom of attempting to mend the wreckage of a debt-bubble with yet more debt. Even so, the economic consequences of shriveling broad money do not bear thinking about – the long-term growth rate of M2, for example, is normally about 10 per cent per year. So forget about inflation. Goldman Sachs notes that inflation has the highest correlation to broader measures of money supply.

- Could another AIG-style disaster shake the financial markets again? It is not an entirely idle question. This month, there has been plenty of hand-wringing about the anniversary of the Lehman Brothers collapse. But behind the scenes the issue of AIG – and its links to the credit derivatives market – is currently provoking even more debate among some finance officials. After all, when AIG imploded in September 2008, the potential losses on its credit derivatives contracts were so devastating for the system, because they were so concentrated, that the US government used tens of billions of dollars to honour the deals, benefiting groups such as Goldman Sachs, Société Générale and Barclays. And that money, remember, will not return to the Treasury’s purse. the grim fact remains that the CDS sector still faces a peculiar contradiction. When credit derivatives were first developed 15 years ago, they were presented as products which would encourage the dispersion of credit risk, among banks, hedge funds, asset managers and companies. In practice, many corporate users have never really adopted the instruments on any scale. That is in stark contrast to the world of interest or currency swaps, where such instruments are very widely used. That pattern has left the CDS market marked by striking levels of circularity, since a limited pool of large financial players dominate much activity. In some respects, this sense of concentration has actually risen – not fallen – in the last year, because hedge funds and other players (including AIG) have been forced out of the sector. The Banque de France, for example, calculates that the 10 largest dealers now account for 90 per cent of trading volume (it was below 75 per cent in 2004). In the US, JPMorgan Chase alone now apparently represents 30 per cent of the US market. This is similar – ironically – to its share a decade ago when it first pioneered the CDS world.

- Despite all this pain, the remaining financial market participants gained significant benefits from government bailouts. The Group of 20 nations’ average support for the financial sector is more than 30 per cent of gross domestic product (including capital injections, guarantees, treasury lending and asset purchases, liquidity provision, and other central bank support). In our political response to this crisis, new forms of fiscal burden-sharing will be needed. One of these is a global financial-transaction tax.

- Barack Obama has opened an unprecedented United Nations session, laying out his vision of a nuclear-free world, even as his agenda faces mounting obstacles in Washington.

Globe and Mail:

- Canadians continued to pile up credit card debt in the second quarter of this year in lockstep with rising joblessness and personal bankruptcies. The country's charge-off rate – a measure of credit default – hit a record 4.8 per cent in the quarter, said Moody's Investors Service in its latest credit card indices report for Canada. It expects charge-offs will worsen further in the coming months, though the rate of deterioration should ease. At 4.8 per cent in the quarter, the Canadian charge-off rate index is up almost 60 per cent from a year earlier. It's the tenth straight quarter of year-over-year increases for the index.

Haaretz.com:

- Prime Minister Benjamin Netanyahu told Haaretz on Wednesday that he would not agree to a Palestinian demand that Israel accept the 1967 borders as a condition for renewing peace negotiations. Netanyahu also gave a condition of his own, saying Thursday that he would never drop his demand that the Palestinians recognize Israel as a Jewish state. "I told Abu Mazen [Abbas] I believe peace hinges first on his readiness to stand before his people and say, 'We...are committed to recognizing Israel as the nation-state of the Jewish people'," Netanyahu said. "I will not drop this subject and other important issues under any final peace agreement," Netanyahu said.

Bear Radar

Style Underperformer:
Small-Cap Value (-2.32%)

Sector Underperformers:
I-Banks (-4.0%), Hospitals (-3.35%) and Alt Energy (-3.0%)

Stocks Falling on Unusual Volume:
CKP, IOC, CCJ, MICC, VIP, SU, AA, BCS, IMO, BAC, CPRT, IPSU, PSEC, ATPG, DDRX, DNDN, PAYX, CHNG, TTEK, CFSG, SAIA, AGNC, BBBY, FELE, SWIR, ODFL, AMSC, SCHL, VOLC, RIMM, GET, HGR, PHH, ARE, WR, PPS, PXN, ELV, EXI and HNP

Stocks With Unusual Put Option Activity:
1) MHK 2) MCO 3) EXM 4) NLY 5) M

Bull Radar

Style Outperformer:
Large-Cap Value (-.75%)

Sector Outperformers:
Software (+.02%), Utilities (-.04%) and Telecom (-.04%)

Stocks Rising on Unusual Volume:
CTAS, CTXS, VPRT and AM

Stocks With Unusual Call Option Activity:
1) RHT 2) CTXS 3) PAYX 4) BBBY 5) NLY

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Thursday Watch

Late-Night Headlines
Bloomberg:

- Copper prices fell for the first time in three sessions as inventories rose to a four-month high, renewing concern that demand is easing. Copper stockpiles in warehouses monitored by the London Metal Exchange increased 175 metric tons to 331,950 metric tons, the most since May 22. LME supplies gained for 17 straight sessions before slipping yesterday. Prices have dropped for three consecutive weeks on signs that copper use may falter. “The rise in inventories has gotten people worried,” said Lannie Cohen, the president of Capitol Commodity Services Inc. in Indianapolis. “There’s some fear about a slowdown in demand.” “Rising exchange inventories and slower Chinese imports of refined metal have capped the market in the short term,” Robin Bhar, an analyst at Credit Agricole SA’s Calyon unit in London, said in a report dated yesterday.

- Crude oil declined for a second day in New York after a U.S. Energy Department report showed an unexpected increase in fuel stockpiles in the world’s largest energy consuming nation. Crude inventories climbed 2.86 million barrels last week, the department said yesterday, compared with the 1.4 million- barrel drop forecast in a Bloomberg News analyst survey. Oil also fell after the dollar rose against the euro, reducing the attractiveness of commodities as a hedge against inflation. “There are big concerns around the supply side,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne. “We didn’t see much of a drawdown in gasoline supplies over the summer months in the U.S., and we continue to see these builds of distillate stocks ahead of winter.” Crude oil inventories rose to 335.6 million barrels, the biggest increase since the week ended July 24, the Energy Department report showed. The gain left stockpiles 9.1 percent above the five-year average. Imports climbed 10 percent to 9.79 million barrels a day, the highest since July. Stockpiles of distillate fuels rose 2.96 million barrels to 170.8 million, the highest since January 1983, according to the department. Analysts forecast a 1.45 million-barrel gain. Gasoline supplies rose 5.41 million barrels to 213.1 million, the biggest increase since January, according to the report. That left stockpiles 6.5 percent above the five-year average for the period. A 500,000 barrel gain was forecast. Refineries operated at 85.6 percent of capacity last week, down 1.4 percentage points from the previous week, the Energy Department said. U.S. fuel consumption dropped 3.3 percent to 18.5 million barrels a day, the lowest since the week ended June 26. Gasoline use slipped 2.3 percent to 8.79 million barrels a day, the lowest since January.

- Manhattan apartment rents dropped an average of at least 8 percent in the year’s most active leasing season as Wall Street job cuts and the recession rippled through the economy, real estate broker Citi Habitats said today. Rents for studio apartments fell 11 percent to an average of $1,763, according to the broker’s data on deals in May through August compared with the same period a year earlier. The cost of a one-bedroom declined 8 percent to an average of $2,425. Two-bedrooms declined 11 percent to $3,421 and three- bedroom units fell 8 percent to $4,633. Rising unemployment drove rents lower, reversing a four- year streak of increases, New York-based Citi Habitats said.

- The chief executives of Caterpillar Inc. and FedEx Corp. said they prefer a tax on carbon dioxide emissions and criticized the cap-and-trade measure being debated in Congress. The legislation approved by the House in June gives certain industries free pollution permits that would distort the market, said Fred Smith, CEO of FedEx, the package-shipping company based in Memphis, Tennessee. “We very much believe that a straightforward graduated tax on carbon is better than the cap-and-trade,” Smith said in Washington today. He was among a group of executives who participated in an energy conference. Republicans and some Democrats oppose the approach taken in the Waxman- Markey bill, and may be seeking an alternative to that approach. “I’m a little concerned about the House bill,” said James Owens, CEO of Peoria, Illinois-based Caterpillar, the world’s largest maker of construction equipment, who said he prefers a tax.

- Russian government and central bank assurances that the nation’s financial industry is on the brink of recovery may be premature as asset quality continues to deteriorate, industry executives said. “There are few quality borrowers, and banks may cease lending to most companies until market conditions improve,” Andrei Sharonov, managing director of Moscow-based Troika Dialog, Russia’s oldest investment bank, said in an interview in the Black Sea coast city of Sochi. “Companies are losing cash flow and becoming unable to service debt.” Lenders are amassing bad debts at a pace of $2 billion a month, according to Sharonov. Russia’s faltering banking sector threatens to prolong a decline in the world’s biggest energy exporter after oil, gas and metals prices plunged, sending gross domestic product plunging a record 10.9 percent last quarter. The support measures didn’t prevent overdue bank loans from rising to 5.5 percent of total lending in July, compared with 5 percent a month earlier. Bank interest rates on corporate loans rose last month for the first time this year, rising to 15.1 percent on average in August, even after the central bank cut rates, Bank Rossii data show. The pace of increases in delinquent loans will accelerate until the middle of next year, according to Mikhail Zadornov, a former Finance Minister and chairman of VTB-24, the retail unit of VTB Group, Interfax reported yesterday. Overdue loans at the country’s 30 biggest banks jumped 8.5 percent in August, the news wire cited Zadornov as saying. Russian banks may face a surge in “troubled assets” that could total $213 billion, Standard & Poor’s said in June. As much as 38 percent of all assets held by banks at the end of last year may become “problematic” by the end of 2011, S&P said.

- U.S. credit-card defaults rose to a record in August and more losses may lie ahead as delinquencies climbed for the first time since March, according to Moody’s Investors Service. Write-offs rose to 11.49 percent from 10.52 percent in July, Moody’s said today in a report. Loans at least 30 days delinquent rose to 5.8 percent from 5.73 percent. “Early- stage” delinquencies, or loans overdue 30 to 59 days, surged to 1.65 percent, from 1.41 percent, signaling higher losses in coming months. Banks typically write off loans after 180 days.

- Brazilian President Luiz Inacio Lula da Silva said he’ll visit President Mahmoud Ahmadinejad in Tehran next year after the Iranian leader comes to Brazil, adding he can’t judge Iran’s elections or nuclear ambitions. “I defend for Iran the same rights with respect to nuclear energy that I do for Brazil,” he said, adding that Brazil had clout to engage Iran in talks on its nuclear program because it’s the only country in the world whose constitution bans it from seeking nuclear weapons. “If anyone is ashamed of having relations with Iran, it’s not my case.” Lula has drawn criticism from Jewish and human rights groups in Brazil and abroad for seeking closer ties to Iran at a time that other world leaders are shunning Ahmadinejad over concerns about his nuclear program, disputed elections, his human-rights record and comments against Israel. Lula downplayed Ahmadinejad’s questioning of the Holocaust, saying that “if he thinks differently, it’s his problem not mine.”

- Afghanistan’s ambassador to the U.S. said his country needs “more boots on the ground” and that he is concerned the White House’s indecision over sending additional forces may undermine international security efforts and Afghans’ confidence. “Wavering will cause confusion among our allies and partners in Europe and frustration among the Afghan people,” Ambassador Said Jawad said today in an interview. “What we need to hear is for the administration to indicate clearly their commitment to success” in Afghanistan, even if that means sending more troops.

- Japan’s exports fell for an 11th month in August as the economic recovery struggled to gain traction. Shipments abroad dropped 36 percent from a year earlier compared with a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second straight decrease. Today’s report suggests the boost in overseas demand that helped the economy expand in the second quarter may be moderating as governments exhaust stimulus spending.

Wall Street Journal:

- The terror probe that burst into the spotlight in New York last week may have led authorities to the first active al Qaeda cell uncovered inside the U.S. since the Sept. 11, 2001, attacks, according to officials familiar with the matter. Current and former U.S. officials say the allegations in the case embody their worst fears -- that a legal U.S. resident could quietly leave the country, receive explosives training from al Qaeda in a lawless region of Pakistan, then return to U.S. soil.

- Three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union's threat to protect other U.S. industries after winning a recent trade decision against China. The petitioners said the timing of their complaint, on the eve of the G-20 economic summit here, was coincidental. But it threatens to raise tensions between the U.S. and its trading partners, particularly China, which is smarting from President Barack Obama's decision this month to place hefty tariffs on imported Chinese tires.

- When it comes to the U.N. and Israel, our thoughts often turn to those East German Olympic judges during the Cold War: Their bias was so transparent it could almost pass without notice. But a new report from a U.N. "fact finding mission" about January's war in the Gaza Strip marks a new low, employing logic and arguments that will be felt wherever the West confronts terrorism. The Goldstone report—named after principal author, South African jurist Richard Goldstone—is a creature of the U.N.'s Human Rights Council, which in its three short years has condemned Israel more often than the U.N.'s other 191 member states combined, according to Hudson Institute scholar Anne Bayefsky. Mr. Goldstone's report devotes the bulk of its 575 pages to denouncing Israel for what it calls "a deliberately disproportionate attack designed to punish, humiliate and terrorize a civilian population." For this, it adds, Israeli soldiers could be individually liable for criminal prosecution in international courts, while Israel itself is held guilty of "a crime against humanity."

- GMAC Inc., the former General Motors Co. finance company that was rescued by the government, is using its new access to low-cost capital and the rising prominence of its Ally bank to compete more directly with banks such as J.P. Morgan Chase & Co. and Wachovia Corp. A key part of the aid GMAC got from the Obama administration was a green light to turn itself into a bank-holding company. That allowed it to expand its retail banking business, which now serves as a growing source of funds for lending, particularly as it looks to chase more business in the used-car market and lend on non-GM vehicles. Backed by rising deposits at its bank, GMAC on Thursday plans to begin offering new auto-related financial products to car dealers called the Ally Dealer Rewards program, GMAC President Bill Muir said in an interview. The goal is to boost revenue by giving cash incentives to dealers -- regardless of brand -- who use an increasing amount of GMAC products, from car loans to extended-service warranties to insurance. The program also is a further test of the new Ally brand. GMAC has been tied to GM for more than 90 years but was tainted when both needed U.S. bailouts.

- How’s this for awkward timing? Even as President Obama tries to persuade other countries gathered at the U.N. climate confab and upcoming G-20 meeting that the U.S. will take action on climate change, senators from both parties are moving to limit what his administration can do to fight climate change. At issue are two amendments to a huge government spending bill nearing a vote in the Senate that would pare the Environmental Protection Agency’s authority to regulate various industries’ greenhouse-gas emissions.

- Talks have stalled between the Obama administration and U.S. banks on how to fix the only federal effort geared toward homeowners who owe much more on their mortgages than their homes are worth.

- As Digital Learning Programs Grow, Educators Hope to Prevent Teens From Feeling Isolated; Student Government Via the Web.

- InterContinental Hotels Group PLC is seeing signs of a recovery in the business-travel market but it will be next year before the "trickle" of bookings becomes a flow, its chief executive said Wednesday.

- A study commissioned by Microsoft Corp.(MSFT) estimates that the unlicensed "white spaces" spectrum coveted by the software giant and other technology companies could be worth more than $100 billion over the next 15 years. The study, by consultant Richard Thanki of Perspective Associates, suggests that by augmenting current unlicensed wireless networks, such as Wi-Fi hot spots, the white spaces could generate between $3.9 billion and $7.3 billion in value annually over 15 years.

- The near-certainty that hedge funds will be obliged to register with regulators is creating anxiety for some of the investment advisers who directly manage client money. For some, the question is: Do I manage enough money to justify hiring a compliance officer and making major changes to my business model? Advisers to many hedge funds, particularly larger ones, already voluntarily register with the Securities and Exchange Commission or operate as if they did. Others, however, including many smaller ones, are having to prepare for the likelihood the government soon will make them do so. "People are starting to get their heads around that its going to happen," says Jay Gould, a San Francisco-based hedge-fund attorney. They may have to act on short notice. As proposed by the Obama administration in July, the Private Fund Investment Advisers Registration Act of 2009 would require registration by all advisers who manage more than $25 million in hedge funds, private equity or venture-capital funds. And, as written, it doesn't provide a grace period for putting regulatory affairs in order. There won't be much room to slip up, given the SEC's heightened focus on investigation and enforcement, says Gould. "These new registrants will be right in the cross hairs," he says. Advisers to smaller hedge funds that could be required to register will face the most compliance challenges, says Edwards. Someone who manages a fund of $30 million, for example, will have to consider whether revenues can support a compliance program and someone to oversee it. Hedge funds may have to redefine their businesses if the numbers don't add up, he says. One choice is to become a commodity pool operator or a commodity trading adviser, both of whom register with the National Futures Association. That would require limiting portfolios to a futures context that can operate similarly to hedge funds, he says. One somewhat extreme solution: Advisers to smaller funds can move their operations offshore, away from the scrutiny of U.S. regulators.

- It sounded to White House advisers like a good idea. Put President Barack Obama on five Sunday morning talk shows. This would focus attention on health care, re-establish momentum, and show off Mr. Obama's passion, intelligence, and persuasive abilities. It didn't work. Mr. Obama made a classic mistake of politicians on a downward-bending arc. He jumps out in front of the cameras without having something fresh to offer. As a result, he was on the defensive and failed to win over the slice of America that opposes his plans. His refusal to sit down with Fox News's Chris Wallace made him look petulant if not fearful, and his answers weakened his credibility.

NY Times:

- The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy. These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks. “That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,” said James T. Hackett, chairman and chief executive of Anadarko Petroleum. More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. Just this month, BP said that it found a giant deepwater field that might turn out to be the biggest oil discovery ever in the Gulf of Mexico, while Anadarko announced a large find in an “exciting and highly prospective” region off Sierra Leone. It is normal for companies to discover billions of barrels of new oil every year, but this year’s pace is unusually brisk. New oil discoveries have totaled about 10 billion barrels in the first half of the year, according to IHS Cambridge Energy Research Associates. If discoveries continue at that pace through year-end, they are likely to reach the highest level since 2000. While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity. While the industry is celebrating the recent discoveries, many executives are anxious about the immediate future, fearing that lower prices might jeopardize their exploration drive. The world economy is weak, oil prices have tumbled from last year’s records, corporate profits have shrunk, and global demand for oil remains low. After falling to $34 in December, oil prices have doubled, stabilizing near $70 a barrel. But if the world economy does not pick up, some analysts believe the price could fall again. “In 30 years I’ve been in the business, the Gulf of Mexico has been called the Dead Sea countless times,” said Bobby Ryan, the vice president of global exploration at Chevron. “And yet it continues to revitalize itself.”

IBD:

- The governing strategy of Ulta Salon, Cosmetics & Fragrance (ULTA) is to bring together beauty products and services that had previously been sold through different channels.

Business Week:
- Why losses at GE(GE) Capital Real Estate could continue even after the property market stabilizes.

The Business Insider:

- Surprise, surprise: It seems the only folks eager for a newspaper bailout are: Newspapers and Politicians who have friends at newspapers. Support for a newspaper bailout is so low that only 2 in 10 actual Americans would not oppose one. Why are Americans so appalled by the idea of a newspaper bailout? In part because they don't read newspapers anymore, and in part because they think online news organizations are actually doing a fine job.

Politico:

- A week after undercover videotapes made it the butt of a national joke, the Association of Community Organizations for Reform Now is launching a three-pronged effort to rebuild its reputation and try to hold on to the millions of dollars in funding it gets each year from the federal government. First, ACORN’s top officials have been on a media apology tour and have dismissed the wayward employees in the infamous pimp video as bad apples who shouldn’t diminish the important work the group does in housing and low-income assistance. Then on Wednesday afternoon, ACORN went on the legal offensive, suing conservative filmmakers James O’Keefe and Hannah Giles for secretly videotaping in their office. And finally, the group is launching a charm offensive on Capitol Hill, as its Washington lobbying shop has been quietly meeting with sympathetic congressional offices, reminding them that ACORN’s services help low-income residents of urban areas. “We were just as shocked and horrified as the American public was” over the pimp video, ACORN CEO Bertha Lewis said in a conference call with reporters Wednesday.

- Defense Secretary Robert Gates will have the U.S. commander in Afghanistan’s request for additional troops by the end of the week, Pentagon spokesman Geoff Morrell told reporters Wednesday. The widely anticipated request from Gen. Stanley McChrystal will stay with Gates until President Barack Obama and his national security team – busy this week at the U.N. General Assembly in New York and the G-20 meeting in Pittsburg – are ready to consider it, Morrell said. The announcement of the request, which could call for a surge of up to 40,000 troops, comes as lawmakers on Capitol Hill, including House Majority Whip Rep. Steny Hoyer (D-Md.), have called for McChrystal to testify about his assessment of the president's strategy in Afghanistan.

Rasmussen:

- Just one-in-three voters (33%) now believe the United States is heading in the right direction, according to the latest Rasmussen Reports national telephone survey. That’s down two points over the past week and matches the level found during the first week of September.

Washington Post:

- The new head of the Census Bureau said he decided to drop ACORN as an agency partner because the bureau's link to the community organization was hurting efforts to get Americans to participate in the count. Robert M. Groves, who was confirmed in July, said in a news conference Wednesday that census officials in the Chicago office had reported difficulties enlisting other community groups because of the controversy over ACORN. The bureau is trying to hook up with 100,000 local groups, some as small as neighborhood block associations, to help spread the message that it's safe and vital to fill out and mail the 2010 census form.

Reuters:

- The Senate Finance Committee battled over insurance plans for seniors on Wednesday and rejected a Republican effort to delay a final vote on a broad healthcare overhaul as it slowly waded through a crush of amendments. Democrats, the majority party in the Senate, repeatedly dismissed Republican proposals on a series of largely party-line votes through a long day that barely made a dent in the hundreds of pending amendments to the proposal by Chairman Max Baucus. Democrats defeated Republican efforts to spare cuts in some areas of Medicare, the government-run insurance program for the elderly, and rejected a controversial measure sparked by the probe over a letter from insurer Humana Inc. (HUM) to its customers. Republicans also demanded more information on the bill's budgetary impact and called for the Democratic-controlled panel to slow its deliberations on the reform plan, which Baucus had hoped to bring to a final vote this week.

- The U.S. Securities and Exchange Commission charged a Texas man with insider trading for reaping $8.64 million of illegal profit related to Dell Inc's planned purchase of Perot Systems Corp. According to a complaint filed on Wednesday with the federal court in Dallas, Reza Saleh, 53, bought 9,332 call option contracts on Perot through two TD Ameritrade brokerage accounts between September 4 and September 18, after learning about merger talks through his employment. The SEC said the Richardson, Texas resident sold the contracts after the $3.9 billion takeover was announced on September 21, resulting in the illicit profit.

Financial Times:

- The Federal Reserve is looking to team up with the money-market mutual fund industry as part of its strategy to ensure that its unconventional policies to stimulate the economy do not produce a bout of post-crisis inflation. The central bank envisages eventually draining liquidity from the financial system by engaging in trades called “reverse repos” with the deep-pocketed money-market funds. In these, the Fed would pledge mortgage-backed securities and Treasuries acquired during the crisis as collateral for short-term loans from the funds. The discussions about the strategy form part of a Fed effort to ensure it will be in a position to raise interest rates when it decides the moment is right – even though most officials believe it is still many months away from having to do so. In its policy statement, issued after a two-day meeting, the Federal Open Market Committee on Wednesday signaled a slightly brighter outlook for the economy. Indicating that it does not expect a double-dip recession, the Fed said it expected a “strengthening of economic growth”. The US central bank said it would complete its planned $1,450bn purchases of securities and debt issued by Fannie Mae and Freddie Mac at a reduced pace, allowing it to stretch out the buying to March 2010. However, it indicated it is slowly retiring some of the tools used to fight the crisis, saying it would “continue to employ a wide range of tools to promote recovery” rather than “all available tools” as in past months. The central bank reiterated that it expects to keep interest rates near zero for an “extended period”. The Fed said activity has “picked up” and noted signs of a rebound in activity in the housing market. But policymakers still appeared very unsure about the prospects for household spending – which they said “seems to be stabilizing, but remains constrained”. Most policymakers presently anticipate that the first rate hike will not come before the second half of 2010. However, the Fed wants to establish the mechanisms for doing this well in advance, which is why it is exploring the idea of transactions with money funds. The obvious counterparties for reverse repo deals are the Wall Street primary dealers. However, the Fed thinks they would only have balance sheet capacity to refinance about $100bn of assets. By contrast, the money-market funds have $2,500bn in assets, which means they could plausibly refinance as much as $500bn in Fed assets. Officials think there would be appetite on the part of the funds, which are under pressure from regulators and investors to stick to low-risk liquid investments.

- Microsoft(MSFT) threw down the gauntlet to game rival Sony in the race to develop a challenger to Nintendo’s Wii, saying that most top game publishers were developing products for the US group’s Xbox 360 motion controller. Publishers that accounted for 70 per cent of third-party software sales were making games for the Natal controller, said Don Mattrick, head of Microsoft’s videogame division. Natal uses an infrared camera to measure a gamer’s motion in three dimensions and turn it into input for a game. In one demonstration, a user can drive a car by turning an imaginary steering wheel and pressing an imaginary pedal, without the need for a physical controller. Natal and Sony’s equivalent, both due out next year, are at the heart of the battle to differentiate between the consoles and compete with Nintendo’s Wii.

- Plans to make the UK’s biggest banks prepare “living wills” so they could be dismantled more easily in a crisis could hurt their credit ratings, it emerged on Wednesday. Large UK banks would have to spell out what businesses they would sell to raise emergency funds and allow them to wind up their trading books within 60 days of a collapse, under plans drawn up by the Financial Services Authority, the UK regulator. This would help reassure nervous creditors. Moody’s, the ratings agency, warned that as the government withdraws support, this could result in “very notable...downgrades” unless banks strengthen their own credit profile by measures such as beefing up capital. The introduction of living wills means that a second big obstacle preventing the government from pulling the plug on a bank would be removed. This, in turn, means the issue would become a political decision.

- Eurozone economic growth has picked up further this month, securing the region’s escape from recession, but the pace of recovery could be losing momentum, according to a survey. September’s purchasing managers’ indices for the 16-country region showed a second consecutive monthly expansion in private sector economic activity. However, the improvement was less than expected and the survey indicated that job cuts were being accelerated. The results strengthen the European Central Bank’s case that the eurozone’s economic recovery remains highly fragile and at risk of going into reverse. “We are very cautious still. There is a lot of uncertainty,” Erkii Liikanen, ECB governing council member, told the Financial Times in an interview conducted before the latest data.

Guardian:

- The Iranian president, Mahmoud Ahmadinejad, faced a series of walkouts at the United Nations general assembly last night after launching a renewed attack on Israel, which he accused of genocide, barbarism and racism. Within minutes of his criticism of Israel for its treatment of the Palestinians, delegations from various countries began to rise from their seats and noisily left the chamber. Many other countries had left before he even began, partly because it was the evening and partly in protest over his brutal crackdown on the Iranian opposition after June's election and partly over comments last week again questioning whether the Holocaust had taken place. When he finished, he was given a loud round of applause by many of those still in the chamber.

The Economic Times:

- NEW DELHI: The government has decided to stop Chinese welders, plumbers and other semi-skilled workers from working in India in a move that is aimed at opening up more jobs for Indians but may end up delaying several key power projects using Chinese equipment. “We have decided that for jobs where labor is available locally like welders, plumbers and fabricators, we will not allow Chinese companies working in various projects in India to get people from their country,” an external ministry official told ET.

Late Buy/Sell Recommendations
Citigroup:

- Now is not the time to buy homebuilders. Reiterated Sell on (DHI).

- Reiterated Buy on (HAL), raised target to $34.

- Upgraded (CPN) to Buy, target $16.50.

- Reiterated Buy on (BBBY), raised estimates, boosted target to $45.

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

Asia Ex-Japan Inv Grade CDS Index 105.0 -4.0 basis points.
S&P 500 futures -.25%.
NASDAQ 100 futures -.17%.

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
- (MKC)/.54

- (COMS)/.05

- (AM)/.06

- (OHB)/-.52

- (TXI)/-.06

- (SCS)/.01

- (MTN)/-1.09

- (SCHL)/-.83

- (RAD)/-.16

- (NEOG)/.26

- (ALOG)/.26

- (CBK)/-.14

- (FINL)/.20

- (PSEM)/.03

- (RIMM)/1.00

- (TSCM)/-.08

- (TIBX)/.11

Economic Releases

8:30 am EST

- Initial Jobless Claims are estimated to rise to 550K versus 545K the prior week.

- Continuing Claims are estimated to fall to 6183K versus 6230K prior.

10:00 am EST

- Existing Home Sales for August are estimated to rise to 5.35M versus 5.24M in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Evans speaking, weekly EIA natural gas inventory report, Treasury’s 7-year Note Auction, G-20 Meeting, BOJ Minutes, (HPQ) analyst meeting, (DNDN) analyst day, (CDE) analyst day, Stern Agee Ag Conference and the (DD) investor day could also impact trading today.

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