Wednesday Watch

Evening Headlines
Bloomberg:

• Goldman Sachs(GS) Says Says 'Don't Be Afraid' of Prices Above Par: Credit Markets. The highest corporate bond prices in more than six years show investors reconsidering an aversion to buying debt trading above face value as the Federal Reserve is compelled to take more steps to boost a slowing recovery.
• China Said to Order Banks to Reclaim Loans From Trust Companies. China’s banking regulator ordered banks to transfer off-balance-sheet loans onto their books and make provisions for those that may default, three people with knowledge of the situation said. The assets linked to wealth management products provided by trust companies must be shifted onto banks’ balance sheets by the end of 2011, the people said, declining to be identified as the matter isn’t public. Lenders should prepare provisions equal to 150 percent of potential losses, they said. The move may increase pressure for capital-raising at Chinese banks, which Fitch Ratings last month said had more than 2.3 trillion yuan ($339 billion) of off-balance sheet assets. It also underscores concerns about the health of the banking industry after a person with knowledge of the matter said regulators last month ordered lenders to conduct stress tests to gauge the impact of a 60 percent decline in home prices. The regulator’s order “will plug the loophole that more and more banks now employ to get around government lending curbs,” said Liao Qiang, a Beijing-based analyst at Standard & Poor’s.
• China Industrial Output Growth Weakens on Curbs; Inflation Rises to 3.3%. China’s industrial output grew the least in 11 months in July as the government cracked down on real-estate speculation, curbed credit and closed factories to meet energy-efficiency targets. Production rose 13.4 percent from a year earlier, the statistics bureau said in Beijing today. Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year- earlier base for comparison and rising food costs. Weaker demand from a Chinese slowdown forecast to deepen each quarter this year may ripple across Asia, limiting growth in the nations with the closest economic ties.
• Oil Trades Near Seven-Day Low as Productivity Drop Casts Doubt on Recovery. Crude oil declined for a second day after the Labor Department reported that the productivity of U.S. workers fell in the second quarter, a sign the economic recovery is faltering. Crude oil for September delivery dropped as much as 45 cents, or 0.6 percent, to $79.80 a barrel in electronic trading on the New York Mercantile Exchange, and was at $79.84 at 9:38 a.m. Singapore time.
• Gold Rises on Speculation Federal Reserve Debt Purchase to Spur Inflation. Gold prices rallied in New York, erasing an earlier drop, after the Federal Reserve said it would buy more U.S. government debt. The central bank said it would reinvest principal payments on its mortgage holdings into long-term Treasury securities in a bid to bolster growth. Gold prices have gained 27 percent in the past 12 months, reaching a record $1,266.50 an ounce on June 21, on speculation that record-low borrowing costs and government stimulus programs would spur inflation. “If the Fed keeps printing money to buy more debt, it’s going to be positive for gold,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “Gold is going to keep going higher. It’s an excellent investment.”
• Toyota Brakes Not Used in 35 of 58 Accidents Probed, U.S. Says. Drivers of Toyota Motor Corp. vehicles failed to apply the brakes in 35 of 58 crashes tied to unintended acceleration, U.S. regulators said in a report bolstering the automaker. The National Highway Traffic Safety Administration also saw no evidence of electronics-related causes for the accidents in reviewing the vehicle recorders, known as black boxes, the agency said yesterday in the interim report to lawmakers.
• Europe to Asia Naphtha Halts on Weaker Demand: Energy Markets. Asian petrochemical companies may import little or no naphtha from Europe for a second month in August amid ample supplies and weak demand in Japan. There may be no shipments of the oil product, used to make petrochemicals and gasoline, in August according to the median estimate in a Bloomberg survey of four Europe-based traders, who declined to be identified as they aren’t authorized to speak about transactions. The dearth of cargoes compares with 300,000 metric tons in June and 500,000 tons in May. “Asian demand growth is slowing considerably,” David Wech, head of research at Vienna-based consultants JBC Energy, said by phone Aug. 4. “New refining capacity in China and ethane-based petrochemical capacity in the Middle East are also denting naphtha requirements,” he said.
• Pimco Says Fed Policies 'Good for Risk Assets,' Won't Reduce Unemployment. The Federal Reserve’s decision to buy Treasuries and keep interest rates low will support “risk assets” without bringing down unemployment, said Anthony Crescenzi at Pacific Investment Management Co. “Low volatility tends to be good for the interest-rate climate,” said Crescenzi, who is based in Newport Beach, California at Pimco, manager of the world’s biggest bond fund. “It does push investors out the risk spectrum generally. That tends to be good for risk assets.”
• U.S. Relies on Military at War to Deliver Aid for Pakistani Flood Victims. The U.S. is relying on the military to funnel meals, prefabricated bridges and medical supplies to Pakistan’s flood victims, even as American troops fight a war in neighboring Afghanistan. U.S. State Department officials said yesterday that flood aid to Pakistan would increase by $20 million, to a total $55 million, to help the estimated 14 million people uprooted by country’s worst natural disaster in 80 years. The Obama administration sees Pakistan’s cooperation as vital to defeating the Taliban and al-Qaeda and wants to counter Pakistani suspicions about the U.S. commitment to the region. In a poll released last month by the Pew Research Center in Washington, almost 60 percent of Pakistanis said they consider the U.S. to be an enemy.

Wall Street Journal:

• House Vote Deals Another Blow to Renewable Energy Companies. House lawmakers voted Tuesday to slash federal renewable-energy subsidies, to help finance instead a $26 billion emergency aid package for state and local governments. The U.S. House of Representatives voted to transfer $1.5 billion from the renewable-energy and transmission loan-guarantee program, dealing yet another blow to solar, wind and ethanol companies. It was the second reduction in a year and left the program's size at about $25 billion, less than half the amount originally envisioned when the Democratic-led Congress used an economic stimulus package to steer money into alternative energy projects.
• Exchanges Joust As SEC Works to Finalize Flash Order Ban. Nasdaq OMX Group (NDAQ) and NYSE Euronext (NYX) support the U.S. Securities and Exchange Commission's proposal to ban flash orders in all trading, while the Chicago Board Options Exchange opposes it for the options market, according to comments to the SEC that were made public Tuesday.
• Fed Sees Recovery Slowing. Central Bank, Worried About Economic Vigor, Won't Shrink Securities Portfolio.
• Gains in Bioscience Cause Terror Fears. Rapid advances in bioscience are raising alarms among terrorism experts that amateur scientists will soon be able to gin up deadly pathogens for nefarious uses. Fears of bioterror have been on the rise since the Sept. 11, 2001, attacks, stoking tens of billions of dollars of government spending on defenses, and the White House and Congress continue to push for new measures. But the fear of a mass-casualty terrorist attack using bioweapons has always been tempered by a single fact: Of the scores of plots uncovered during the past decade, none have featured biological weapons. Indeed, many experts doubt terrorists even have the technical capability to acquire and weaponize deadly bugs. The new fear, though, is that scientific advances that enable amateur scientists to carry out once-exotic experiments, such as DNA cloning, could be put to criminal use. Many well-known figures are sounding the alarm over the revolution in biological science, which amounts to a proliferation of know-how—if not the actual pathogens.
• Stimulus Pushers. The latest bailout for public unions and spendthrift states. Witness yesterday's 247-161 largely party-line House vote to approve a Senate bill shovelling another $26.1 billion out to state education and Medicaid programs. The White House has promoted the bill as emergency assistance for strained state budgets. But this unique brand of therapy drives states to spend more, not less. The "assistance" is so expensive that several governors were begging for relief even before Mr. Obama signed it into law.

Fox News:

• A Doctor's Prognosis for Obamacare - The Four Essential Problems With the Patient.

NY Times:

• Netflix(NFLX) to Pay Nearly $1 Billion to Add Films to On-Demand Service.

Zero Hedge:

• Fed Bailing Out Pension Plans?

PIMCO:

• Turning Japanese: The Risk of U.S. Deflation. The risk is rising that the U.S. will enter a prolonged period of stagnant growth combined with a risk of outright deflation – similar to the environment that Japan entered in the 1990s.

Politico:

• GOP Tries for Health Reform Repeal. Republicans are continuing to telegraph their opposition to health care reform by filing another petition that would force the House to vote on repealing the legislation. Rep. Wally Herger (R-Calif.) filed a discharge petition Tuesday that would get rid of the Democrats’ health care reform and replace it with a Republican alternative.
• Liberals Still Steamed at Gibbs. At first they were just angry. Now liberal critics are steaming mad. The Obama administration’s attempts to blunt press secretary Robert Gibbs’s frustrations about the “professional left” in a newspaper interview published Tuesday haven’t changed much. Gibbs’s backtracking — he said he spoke “inartfully” to The Hill — and deputy press secretary Bill Burton’s assertion that his boss “answered honestly” when he derided liberal critics, seemed only to make matters worse.
• Bennet Survives; Deal, Handel Deadlocked. Colorado Sen. Michael Bennet beat back a tough Democratic primary challenge from former state House Speaker Andrew Romanoff Tuesday, holding off the electoral wave that has already claimed two incumbent senators and threatened to drown Bennet’s short political career.

Reuters:

• Disney(DIS) Profit Beats Expectations, Shares Rise. Hit movies like "Toy Story 3" and higher advertising sales lifted Walt Disney Co's (DIS) quarterly profit above Wall Street's expectations, despite dwindling theme park attendance in the United States.
• Bearish Bets in U.S. Stocks Ease in Late July. Bearish bets eased in late July, stock exchanges said on Tuesday, suggesting investors retreated to the sidelines as U.S. equities closed out their best month in a year. Short interest on NYSE dipped 0.5 percent in late July compared to the middle of the month, while short bets decreased by 1.1 percent on the Nasdaq.
• Cree(CREE) Quarterly Profit up Sharply, Shares Fall. Cree Inc (CREE), which makes LED lighting, on Tuesday reported a more than fivefold increase in quarterly profit on Tuesday, but its revenue outlook for the current quarter fell short of Wall Street estimates. Shares of Cree dropped 8 percent in post-market trading.
• US Pushing for Significant Bank Capital Boost - Barr. The United States is pushing hard in international negotiations for a "significant increase" in capital held by financial firms as a buffer against catastrophic failures that could threaten the global economy, a senior U.S. Treasury official said on Tuesday.

Financial Times:

• Buy-Out Groups Eye Stakes in Morgan Stanley(MS) Fund. US private equity firms have approached Morgan Stanley about buying a stake in its troubled real estate funds management business, according to people familiar with the matter. KKR and TPG, both private equity firms that lack a substantial property operation, have expressed tentative interest in Morgan Stanley Real Estate Fund, or MSREF.

Shanghai Securities News:

• China will face "intense" trade friction over the next two to five years with trade barriers a regular issue, Zhang Monan, a researcher with the State Information Center wrote. A new wave of yuan appreciation pressure will likely emerge at the same time, Zhang wrote.
• Chinese wages along the country's eastern seaboard have risen 20 to 25% since the beginning of the year, citing Huang Libin, an official from China's Ministry of Industry and Information Technology.
  

Evening Recommendations
Citigroup:

• Reiterated Buy on (DISH), target $24.
  

Night Trading

• Asian equity indices are -1.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 119.0 +5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 113.75 +3.25 basis points.
  
• S&P 500 futures -.62%.
  
• NASDAQ 100 futures -.58%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (M)/.28
• (CSC)/.89
• (CSCO)/.42
• (AAP)/1.03

Economic Releases
8:30 am EST

• The Trade Deficit for June is expected to come in at -$42.1 Billion versus -$42.3 Billion in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -2,784,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +250,000 barrels versus a +729,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,750,000 barrels versus a +2,173,000 increase the prior week. Finally, Refinery Utilization is expected to fall by -.5% versus a +.6% gain the prior week.

2:00 pm EST

• The Monthly Budget Deficit for July is estimated to come in at -$169.0 Billion versus -$180.7 Billion in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The $24 Billion 10-Year T-Note Auction, weekly MBA Mortgage Applications Report, Jefferies Industrial Conference, CSFB Industrial Conference, Oppenheimer Telecom/Media/Tech Conference and the Morgan Keegan Defense Conference could also impact trading today.
  

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

Stocks Declining into Final Hour on Rising Economic Pessimism, Profit-Taking, More Shorting, China Concerns

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 22.30 +.72%
  
• ISE Sentiment Index 96.0 -25.58%
  
• Total Put/Call 1.07 +32.10%
  
• NYSE Arms 1.16 +11.27%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 105.25.0 bps +2.18%
  
• European Financial Sector CDS Index 112.34 bps +10.65%
  
• Western Europe Sovereign Debt CDS Index 125.50 bps +4.30%
  
• Emerging Market CDS Index 212.11 bps +1.61%
  
• 2-Year Swap Spread 19.0 -1 bp
  
• TED Spread 26.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% unch.
  
• Yield Curve 224.0 -4 bps
  
• China Import Iron Ore Spot $145.10/Metric Tonne +.42%
  
• Citi US Economic Surprise Index -33.0 unch.
  
• 10-Year TIPS Spread 1.81% +2 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -56 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Lower: On losses in my Retail and Technology long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 is trading off session lows despite rising worries over China's economy and dovish US Fed rhetoric. On the positive side, Telecom, Utility, Wireless, Drug, Food, Medical, Computer Service and Gold stocks are relatively strong, rising on the day. Weekly retail sales rose +3.0% this week versus a +2.9% gain the prior week and a +2.8% increase two weeks ago, which is a positive considering recent sentiment readings. On the negative side, Semi, Computer, Coal, Gaming, Education and Homebuilding shares are especially weak, falling 1.5%+. Cyclical and Small-cap shares are underperforming. Tech stocks have also underperformed throughout the day. The 10-year yield is falling another -6 bps to 2.77%, which is a negative. The Spain sovereign cds is rising +4.9% to 202.34 bps and the UK sovereign cds is rising +5.16% to 60.15 bps. The US Muni CDS Index is gaining +3.75% to 217.09 bps. The large increase in the Euro Financial Sector CDS Index is a big negative. As well, I am concerned by the recent action in the tech sector and that investors are paying attention to China's difficulties again. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and mostly positive earnings reports.

Today's Headlines

Bloomberg:

• Fed to Reinvest Mortgage Proceeds Into Treasuries. Federal Reserve officials will reinvest principal payments on their mortgage holdings into long-term Treasury securities, the central bank’s first attempt to bolster growth in more than a year. “The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.” The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period.” Stocks pared losses, the dollar weakened and Treasuries rallied. With growth weakening in the second quarter and company job gains in July falling short of estimates, today’s step signals that risks of a downturn have increased enough for the Fed to delay its exit from unprecedented stimulus. Chairman Ben S. Bernanke told Congress last month that the Fed was “prepared to take further policy actions as needed.” The Fed said it will “continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.” The reinvestment policy applies to agency debt and agency mortgage- backed securities held by the central bank.
• U.S. Economy: Productivity Unexpectedly Fell in Second Quarter. Productivity in the U.S. unexpectedly decreased in the second quarter after employers expanded the workweek by the most in four years even as the world’s largest economy cooled. The measure of employee output per hour fell at a 0.9 percent annual rate, the first drop since late 2008, the Labor Department said today in Washington. Hours worked climbed at a 3.6 percent rate, leading to a 2.6 percent increase in the amount of goods and services produced. A lengthening workweek signals employers have reached efficiency limits after productivity climbed by the most in five decades in the 12 months to March. The Labor Department revised the first-quarter gain in efficiency to a 3.9 percent pace from 2.8 percent. Labor costs after adjusting for the drop in efficiency rose at a 0.2 percent pace, less than estimated and the first increase in a year, today’s report showed. The increase in expenses followed a 3.7 percent drop in the first three months of the year that was larger than previously estimated. Economists projected costs would rise at a 1.5 percent pace, according to the survey median. For Joel Naroff, the data show additional gains in employment may be on the way. “This could be a turning point,” Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, said in a note to clients. “If working people longer and harder is no longer bringing larger returns to businesses, executives may have to find other ways to expand production. They might actually have to hire more workers.” Among manufacturers, productivity increased at a 4.5 percent pace as output climbed faster than hours worked. Labor costs at factories dropped at a 6.1 percent pace from the previous three months.
• Sovereign Debt Swaps Rise to Two-Week High on Recession Concern. Credit-default swaps on European governments from Spain to Germany rose to the highest level in two weeks amid concern the U.S. Federal Reserve may signal the world’s biggest economy is in need of support. The Markit iTraxx SovX Western Europe Index of swaps on 15 nations climbed 1 basis point to 123.5 basis points, the highest since July 26, according to data provider CMA. Contracts on Spanish government debt climbed 6 basis points to 201.5 basis points, while swaps on Germany rose 2 to 42.3. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed 9 basis points to 479, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 105. The costs of hedging against losses on bank debt also rose with the Markit iTraxx Financial Index of 25 banks and insurers climbing 4 basis points to 121.5 basis points.
• Petrobras(PBR), Regulator Disagree on Price for Oil Swap, Estado Says. Petroleo Brasileiro SA and Brazil’s National Petroleum Agency disagree on the price per barrel in a planned share-for-oil swap, O Estado de S. Paulo reported, without saying where it got the information.
• The Baltic Dry Index, a measure of commodity shipping costs, jumped for a fourth session in London as iron ore demand strengthened. The gauge rose 98 points, or 4.6%, to 2,212 points, according to the Baltic Exchange in London. Iron ore-carrying capesize vessels jumped 13% to $24,153 a day. "It's more demand for iron ore generally" that's driving up shipping rates, Kjetil Sjuve, a director at Oslo-based shipbroker Lorentzen & Stemoco AS, said.
• Apollo Said to Close Down Metals Hedge Fund in London. Apollo Management LP, a private- equity firm co-founded by Leon Black, closed its metals hedge fund in London, according to two people with direct knowledge of the matter.
• Chief Executives in U.S. Less Confident on Jobs, Survey Shows. Confidence among U.S. chief executive officers fell this quarter for the first time in a year as their outlook on sales, employment and the economy weakened, a private survey showed. The Young Presidents’ Organization’s gauge of sentiment fell to 57.5 in July from 61 in April, according to the Dallas- based group. A reading higher than 50 shows more chief executives had a positive outlook than a negative one. Sixty-two percent of CEOs surveyed said they plan to hold employment steady in the coming year, while fewer officials expect to boost staff. Forty-two percent of CEOs said they expect business to be better in six months than it is today, and 20 percent said it will be worse. In the April survey, 64 percent were optimistic and 8 percent pessimistic. The proportion of CEOs indicating they’ll keep staff levels at about the same a year from now increased to 62 percent in the July survey from 58 percent in the April poll. Those who expected to expand staff by at least 10 percent dropped to 30 percent from 36 percent. The percentage of CEOs projecting a sales gain of at least 10 percent in the coming year fell to 57 percent in July, from 69 percent in April, the survey showed. Thirty-five percent expected revenue to be unchanged, up from 26 percent. Sixty-six percent of CEOs projected fixed investment would be about the same or lower in the next 12 months, up from 60 percent in the prior report. CEO confidence was most negative in the construction industry and most positive in manufacturing, where more than 70 percent of companies forecast sales would rise in the next 12 months. Thirty-one percent of builders projected higher sales. Thirty-five percent of small companies, defined as those with fewer than 100 workers, said they expect to hire in the coming year, compared with 24 percent for large firms, which have more than 500 workers. Twenty-eight percent of medium-sized companies, those with 100 to 500 workers, expect to hire in the next year. Small businesses also were more optimistic about sales gains than larger companies, the report said.
• India Expresses Concern on 'Discriminatory' U.S. Bill. India called a proposed U.S. bill that could double visa costs as “highly discriminatory” and said such a measure will erode the competitiveness of the nation’s software services companies. In a letter to U.S. Trade Representative Ron Kirk, India’s Trade Minister Anand Sharma said the legislation will hurt primarily companies of Indian origin, according to a statement on the government’s website today. “Though the need of the U.S. government to strengthen their border security is understandable, it is inexplicable to our companies to bear the cost of such a highly discriminatory law,” according to the Indian government statement. Indian companies account for less than 12 percent of the visas issued in the U.S., it said.
• California City With $800,000 Manager Gets Junk Rating. Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut five steps to junk by Standard & Poor’s on concerns about the city’s ability to refinance or pay debt due Nov. 1. S&P lowered Bell’s general obligation and pension bond ratings to BB, two levels below investment grade, from A-, and put it on a watchlist for potential further downgrade.

Wall Street Journal:

• Fed to Keep Balance Sheet From Shrinking. Federal Reserve officials moved to prevent the Fed's huge balance sheet from shrinking, an attempt to spur the U.S. economy's recovery and avoid deflation.
• Frenzy in Energy Partnerships. Lured by hefty yields, investors are pouring billions of dollars into a small corner of the stock market—energy-focused master limited partnerships—which has seen a huge rally of 15% this year. And that makes some people nervous. MLPs are mostly companies that own and operate pipelines, primarily for natural gas and oil. Benefiting from the tremendous expansion of energy infrastructure in the U.S., MLPs essentially collect rent from energy producers who use their facilities. Over the past decade, the Alerian MLP index, the main benchmark for the group, is up about 11% a year. That is a handsome payoff compared with the Standard & Poor's 500-stock index, which is down 2.6% a year. Their major appeal is payouts to investors these days averaging around 7% a year at a time when bond yields are at all-time lows. MLPs are expected to increase those distributions by another five percentage points or so a year.
• Smart Money Missed Wheat, Commodities Surge. The smart money didn’t see this coming. Hedge funds and other speculative traders were caught flat-footed by the surge in wheat and related commodity prices have been playing a furious game of catch-up lately. Just a few weeks ago, many of these investors were downright bearish about wheat, arguing that heavy inventories and limp demand would drag prices down. On June 15, “non-commercial” investors, including hedge funds, commodity trading advisors and similar investors, held net short positions of nearly 56,000 wheat lots, close to the largest level of negative positions since at least 1986, according Barclays Capital. “A lot of people initially got caught on the wrong side of the trade,” says a senior trader who requested anonymity.
• Trading of Emerging-Market CDSs Rose to $658 Billion in 2Q - EMTA. Trading of emerging-market credit default swaps rose to $658 billion in the second quarter, underscoring an increase in demand for credit protection as concerns over the European debt crisis amplified, industry group EMTA said in the results of a survey released Tuesday. The second-quarter total represents an 85% increase from the same period a year ago and a 35% jump in activity from the first quarter of this year.

NY Times:

• Merrill's Risk Disclosure Dodges Are Unearthed. Barely visible to any but a few inside Merrill, Pyxis was created at the height of the mortgage mania as a sink for subprime securities. Intended for one purpose and operated off the books, this entity and others like it at Merrill helped the bank obscure the outsize risks it was taking. The Pyxis story is about who knew what and when on Wall Street — and who did not. Publicly, banks vastly underestimated their exposure to the dangerous mortgage investments they were creating. Privately, trading executives often knew far more about the perils than they let on.

Business Insider:

• Are Official Statistics Masking Blistering Hot 33% Inflation in China?

Washington Times:

• Agents' Union Disavows Leaders of ICE. The union that represents rank-and-file field agents at U.S. Immigration and Customs Enforcement has unanimously passed a "vote of no confidence" for the agency's leadership, saying ICE has "abandoned" its core mission of protecting the public to support a political agenda favoring amnesty. The National Immigration and Customs Enforcement Council of the American Federation of Government Employees, which represents 7,000 ICE agents and employees, voted 259-0 for a resolution saying there was "growing dissatisfaction and concern" over the leadership of Assistant Secretary John Morton, who heads ICE, and Phyllis Coven, assistant director for the agency's office of detention policy and planning. The resolution said ICE leadership had "abandoned the agency's core mission of enforcing U.S. immigration laws and providing for public safety," instead directing its attention "to campaigning for programs and policies related to amnesty and the creation of a special detention system for foreign nationals that exceeds the care and services provided to most U.S. citizens similarly incarcerated.

KTUU.com:

• Stevens Killed in Crash Near Dillingham. Dave Dittman, a former aide and longtime family friend of former Sen. Ted Stevens says Stevens was killed in a plane crash near Dillingham Monday night. Nine people were on board, including former NASA Chief Sean O'Keefe. Five people were killed in the crash, but other identities were not known, nor are the conditions of the survivors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Politico:

• Charlie Rangel: 'Fire Your Best Shot'. From the well of the House chamber, embattled Rep. Charles Rangel told his colleagues Tuesday that a 13-count ethics case against him will not force him to resign just to make their lives easier. "You're not going to tell me to resign to make you feel comfortable," the 80-year-old New York Democrat said after reminding the Democratic side of the aisle that "I'm the guy that was raising money in Republican districts to get you here."

USA Today:

• Federal Workers Earning Double Their Private Counterparts. At a time when workers' pay and benefits have stagnated, federal employees' average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds. Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade. Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available. The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year. "Americans are fed up with public employee pay scales far exceeding that in the private sector," says Rep. Eric Cantor, R-Va., the second-ranking Republican in the House. Sen. Ted Kaufman, D-Del., says a pay freeze would unfairly scapegoat federal workers without addressing real budget problems. Federal workers received average benefits worth $41,791 in 2009. Most of this was the government's contribution to pensions. Employees contributed an additional $10,569. The average federal salary has grown 33% faster than inflation since 2000. USA TODAY reported in March that the federal government pays an average of 20% more than private firms for comparable occupations. The analysis did not consider differences in experience and education. Federal compensation has grown 36.9% since 2000 after adjusting for inflation, compared with 8.8% for private workers.

Reuters:

• New RIM(RIMM) Offer to Saudis is BlackBerry 'Codes' - Source. BlackBerry maker Research In Motion, aiming to avert a ban on its Messenger service in Saudi Arabia, has agreed to hand over coveted "codes" to users' phones, an industry source familiar with the talks told Reuters on Tuesday.

Financial Times:

• Time to Regulate Volatile Food Markets. With the current extreme price increases for wheat, we are observing potentially the early stages of another global food-price crisis. Even if this does not evolve into something as dramatic as the crisis of 2007-08, when prices of major agricultural commodities from corn to rice shot up to record levels, triggering food riots from Bangladesh to Haiti, it is a stark indication of the perilous state of the world food market. Some lessons have been learned from 2008, but too little has been done to prevent future crises. In particular the malfunctioning of world grain markets has not been addressed – a failure now haunting world markets. The fixing of international food prices today is the result of three forces: expectations on future supply and demand; the growing role of speculators in commodity markets, and the importance of food prices for political stability in countries such as Egypt. Today, low-income countries and the poor are actually more vulnerable than before the last food crisis.
• Contrarian Institutional Investing, Hedge Fund Edition. A third of institutional investors – by common consent the holy grail of hedge fund clients thanks to their willingness to ride out a little bit of vega – say they’re looking to up their allocations to hedge fund managers, according to a new survey.

Maeil Business Newspaper:

• Hyundai Motor Co. and affiliate Kia Motors Corp. may increase capacity in the U.S. to meet growing demand, citing a company executive.

Bear Radar

Style Underperformer:

• Small-Cap Value (-2.15%)

Sector Underperformers:

• 1) Semis -3.74% 2) Coal -3.56% 3) Disk Drives -3.20%

Stocks Falling on Unusual Volume:

• GEOY, LRCX, PEGA, NUAN, BBBB, LOPE, ROSE, PRXL, QGEN, STX, CTRP, INTC and MR
  

Stocks With Unusual Put Option Activity:

• 1) WFR 2) ABK 3) LO 4) MTG 5) ALL
  

Stocks With Most Negative News Mentions:

• 1) JBLU 2) DAR 3) INTC 4) HPQ 5) KKR
  

Bull Radar

Style Outperformer:

• Large-Cap Value (-.84%)

Sector Outperformers:

• 1) Utilities -.15% 2) Drugs -.21% 3) Telecom -.34%

Stocks Rising on Unusual Volume:

• FOSL, RGC, CL, VLTR, TI, STEC, TMX, SYUT, QNST, NFLX, KIRK, TSTC, PANL, PSEM, TWGP, ENDP, POWR, AKAM, KRO, IT, SMG, TTM and TDG
  

Stocks With Unusual Call Option Activity:

• 1) NTAP 2) NTRS 3) NFLX 4) HPQ 5) HBC
  

Stocks With Most Positive News Mentions:

• 1) WEN 2) RIMM 3) SMG 4) FOSL 5) AAPL