Today's Headlines

Bloomberg:
- The cost of protecting corporate bonds from default fell amid speculation that the Federal Reserve will leave interest rates unchanged today and as declining oil prices helped ease inflation concerns. Credit-default swaps on the Markit CDX North America Investment Grade Index fell 2 basis points to 132 as of 11:02 am in NY.
- Corporate defaults in Europe are unlikely to reach levels triggered in 2001 when Internet-related companies collapsed and terrorists attacked New York, said analysts at S&P. European company defaults climbed to .47% in July from zero in June, according to S&P. The rate would increase to 4.4% if there are defaults at the eight companies that S&P rates B- or lower, and are most likely to be downgraded. That’s less than half the default rate to 10.6% at the nadir of the dot-com collapse in the second quarter of 2002, S&P said.
- Wachovia Corp.(WB), the fourth-biggest U.S. bank, rose as much as 8 percent in New York trading after Chief Executive Officer Robert Steel met with Wall Street analysts yesterday for the first time. Wachovia isn't likely to issue new capital and doesn't anticipate management changes after the chief financial officer and chief risk officer step down, Steel told about 20 analysts at the company's midtown Manhattan office.
- The US dollar touched the highest in more than seven weeks versus the euro on speculation Federal Reserve policy makers will highlight concern that inflation needs to be contained while leaving interest rates unchanged. The U.S. currency also rose against the South African rand, Norwegian krone and Canadian dollar after crude oil fell to the lowest since May. The Australian dollar fell to a four-month low after the central bank signaled it may cut borrowing costs for the first time in almost seven years.
- China, where auto plants are running at about 70 percent of their potential, said vehicle export growth slowed in the first half, stoking concerns about excess capacity in the world's second-largest car market. ``Tight monetary policies are making it difficult for automakers to find capital and that led to the decline in exports,'' Fu said. Concerns about excess capacity and falling prices have caused SAIC Motor Corp., China's largest automaker, to plunge 70 percent this year in Shanghai trading. China's stockpile of unsold vehicles rose about 50 percent in the six months ended June to a four-year high, the National Development and Reform Commission said last month. That helped cause average vehicle prices to fall about 3 percent.
- China, the world's biggest soybean importer, may slow buying of oilseeds and vegetable oil as domestic stockpiles surge amid easing demand. Cooking oil inventories are at capacity. Soybeans on the Chicago Board of Trade plunged to the lowest since May today and palm oil slumped to a nine-month low on prospects for a larger-than-expected U.S. oilseed output this year on improved weather conditions. ``At the moment soybean oil and soybean meal face large inventories and weak demand,'' with many crushers throughout China shutting down, the China National Grain and Oils Information Center said in an e-mailed report today.
- China's home-appliances makers, the world's largest exporters of the products, are cutting purchases of copper as shipments of air conditioners and fridges slow, Jiangxi Copper Co. said. Shares fell the most in four months. Metal consumption may grow less than 10 percent this year in China, slower than 2007, Zhao Mingwang, general manager of rod and wire sales at the nation's second-biggest maker of the metal, said today by phone. Slowing global economic growth and a rising yuan have sapped China exports growth, with shipments gaining at the slowest pace in four months in June. ``Small and medium-sized companies such as air-conditioner makers were seriously hurt by a slump in exports,'' Zhao said in an interview from Jiangxi. China's copper apparent consumption grew only 2 percent in the first half as higher prices prompted consumers to use up stockpiles.
- Corn fell to the lowest price since March and soybeans dropped to a three-month low on speculation that Midwest rains have boosted the yield potential of crops in the U.S., the world's largest producer. ``The crops are improving dramatically,'' said Roy Huckabay, the executive vice president at the Linn Group in Chicago. ``This week's rains are million-dollar-crop makers for soybeans,'' which are beginning to develop pods that will be filled with beans later this month, Huckabay said.
- Crude oil fell to a three-month low as meteorologists forecast Tropical Storm Edouard will miss most offshore production facilities in the U.S. Gulf Coast while approaching Texas.
- Delta Air Lines Inc.(DAL), the third- largest U.S. carrier, said it will add Internet and messaging service on all aircraft used for its main U.S. flights.
- Goldman Sachs Group Inc.(GS), the most profitable U.S. securities firm, had its third-quarter earnings estimate cut 35 percent by Merrill Lynch & Co. because the company may be hurt by results from its commodities and hedge fund businesses. Merrill's Guy Moszkowski trimmed his per-share estimate for New York-based Goldman to $2.80, which would be the lowest since the second quarter of 2005, from $4.28. He also lowered his price target to $205 from $212.
- Syngenta AG, the world's biggest maker of agricultural chemicals, dropped the most since January in Zurich trading after falling crop prices raised concerns about pesticide and fertilizer demand. Syngenta, based in Basel, Switzerland, dropped 5.6 percent, or 16.75 Swiss francs. ``A mix of several factors has caused crop prices to decline, and this directly affects the demand for pesticides and fertilizers,'' said Martin Schreiber, a Zuercher Kantonalbank analyst with an ``overweight'' rating on the stock. Crop protection accounts for about 8 percent of farmers' costs, so when prices fall it hits demand for pesticides.''
- European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods. Sales in the 15-nation euro area fell 3.1 percent from a year earlier, the largest annual decline since the European Union's statistics office in Luxembourg began collecting the data in 1995.
- U.K. factory production unexpectedly shrank for a fourth month in June as record commodity prices sapped economic growth, bringing the British economy closer to a recession. Factory output fell 0.5 percent from May and was 1.3 percent lower than a year earlier, the Office for National Statistics said today in London.

USA Today:
- There's a glimmer of hope in the neon city of Nevada, where home sales are starting to heat up after two dismal years. In fact, sales in Las Vegas have risen over the past six months. Bank-owned foreclosed properties are setting the pace. With prices falling, the homes are grabbing attention. The median home price was $225,000 in June, down from a peak of $315,000 in June 2006. Las Vegas was one of the first areas hit by the subprime mortgage collapse. Many foreigners love to visit the city, and some are eager to take advantage of the lower prices and favorable currency exchange rates. "We're getting a lot more people from Canada and other foreign countries who are able to pick up property that they can afford," Kelley says. Local residents may also help lift the housing market after some new casinos open at the end of the year and in late 2009 and produce jobs, Schwer says. While Las Vegas may have been one of the first cities to suffer from the housing crisis, it now may lead the way out of the slump, he says.

Reuters:
- Venezuelan President Hugo Chavez said on Tuesday "it's good" that oil prices have come down, saying $150 per barrel would be irrational. The leader of OPEC member Venezuela has said several times recently that $100 per barrel is a fair price for oil. Venezuela under the leadership of socialist Chavez has been one of OPEC's most ardent price hawks, consistently seeking higher oil prices even as other OPEC members express worries that high prices reduce global demand.

Interfax:
- Russian weapons exports may exceed $8 billion this year, up from $7.5 billion in 2007, citing Mikhail Dmitriyev, head of the Federal Service of Military-Technical Cooperation. Dmitriyev said the Russian defense industry has 10-15 “regular trading partners,” including China, India, Algeria, Morocco and Venezuela.

Sueddeutsche Zeitung:
- The German economy shrank 1% in the second quarter from the first. Experts forecast the economy would shrink .5% and if the contraction continues in the third quarter Germany will have technically slid into a recession, Sueddeutsche said. The Federal Statistics Office will publish a first estimate of second quarter gross domestic product on Aug. 14. Record oil prices, accelerating inflation and a stronger euro weigh on the economic outlook and may prompt the German government to cut its forecast for full year growth from 1.2%.

Irish Times:
- The decline in commercial property values in Ireland is gathering pace with the latest property index showing that capital values fell by 7.2 per cent in the three months to the end of June. The fall in values has been triggered by a sudden collapse in investor confidence and is more than double the 3.3 per cent decline in values recorded in the first quarter of the year.

Bear Radar

Style Underperformer:

Mid-cap Growth +.77%

Sector Underperformers:

Gold irlind (-2.71%), Coal (-.98%) and Construction (-.21%)

Stocks Falling on Unusual Volume:

WTI, DNR, CLF, LIHR, SA, JRCC, RTP, RACK, TWGP, SNHY, OTTR, AMSC, GTLS, PTEN, PAAS, TAP, UTR, MVL, RRI, WTI and DNR

Stocks With Unusual Put Option Activity:

1) S 2) AMED 3) GRA 4) AVP 5) CCL

ISM Non-Manufacturing Rises More Than Estimates

- ISM Non-Manufacturing for July rose to 49.5 versus estimates of 48.8 and a reading of 48.2 in June.

BOTTOM LINE: Service industry activity in the US exceeded economists’ estimates during July as employment gained, Bloomberg reported. The New Orders component fell to 47.9 from 48.6 in June. The Prices Paid component fell to 80.8 from 84.5 the prior month. The Employment component jumped to 47.1 from 43.8 in June. Weekly Retail Sales rose 2.9% year-over-year this week, which is back to long-term average levels and the best showing since the week of April 10^th, 2007, despite the diminishing effects of the tax rebate checks and numerous perceived headwinds. Weekly retail sales have averaged 2.75% gains over the last month, up from a .6% average increase during the month of February. This is a large positive and now food and energy prices are falling dramatically. Investors are significantly underestimating the positive ramifications for the US economy from the recent plunge in commodities, in my opinion. This is likely for two main reasons. The overwhelming majority of investors don’t believe the commodity bubble has really burst and expect prices to inflate again. As well, the global economy is currently slowing too much and investors are worried about another down-leg developing in the US economy as a result of slowing exports. However, if the commodity bubble continues to deflate, the hugely positive ramifications for global inflation and growth could prevent the global economy from slowing much further. This would result in a massive move higher in developed market stocks, in my opinion. Emerging market stocks will participate, as well, but would likely underperform developed markets as their economies are heavily dependent on commodity exports. Most investors expect the Fed to leave rates unchanged and adopt slightly more dovish rhetoric this afternoon. However, I wouldn’t be surprised to see rhetoric regarding inflation concerns remain about the same as the last announcement. This may initially pressure stocks, but would be a longer-term positive as it would likely boost the US dollar further and pressure commodities even more, which should help keep long-term rates low as inflation expectations continue to fall at a meaningful rate. There are many reasons why the financial sector ETF(XLF) has a negative -.95 correlation with oil. Thus, this would also help the financial sector, in my opinion, which is of great concern to the Fed.

Bull Radar

Style Outperformer:

Small-cap Value (+2.04%)

Sector Outperformers:

Airlines (+5.21%), Gaming (+4.35%) and Retail (+3.65%)

Stocks Rising on Unusual Volume:

IRE, AIB, GEOY, USMO, PFG, AXA, FTO, EPL, BAS, TIE, BW, MASI, IIVI, CPHL, NNDS, BLKB, VRUS, AFAM, QGEN, CUTR, ATHN, CLDN, PTRY, TNDM, CEDC, SAFT, AIMC, HSIC, AAUK, AEIS, EVVV, NPO, HEW, AIN, PDX, ATE and WLK

Stocks With Unusual Call Option Activity:

1) VIP 2) MNST 3) AMCC 4) HNT 5) KMX

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The US dollar rose, approaching a six- week high against the euro, before a Federal Reserve decision today at which policy makers may leave interest rates on hold and emphasize risks to inflation. The currency also traded near a seven-month high versus the yen after crude oil fell to a 13-week low, bolstering the economic outlook of the U.S., the world's largest consumer of the fuel. The Australian dollar traded near a three-month low on speculation the nation's central bank will signal after a meeting today policy makers are preparing to cut borrowing costs.
- Merrill Lynch & Co.(MER), the U.S. securities firm that booked almost $19 billion of net losses in the past four quarters, may become profitable soon, Chief Executive Officer John Thain said. ``We will shortly be back to profitability,'' Thain told CNBC.
- Wheat prices will drop 17% on average in the current quarter from the second quarter after farmers planted more, setting the stage for a 9% jump in output by June next year, Rabobank International said. Wheat futures on the Chicago Board of Trade will average $7 a bushel in the quarter ended Sept. 30, down from $48.46 in the second quarter, Luke Chandler, a senior commodity analyst, said in a montly report today.
- New Zealand, the world's largest exporter of dairy products, is forecasting further declines in world prices through 2009 as the country's herd increases and farmers in the U.S., Europe and Australia boost production. Global production will rise as Australia and New Zealand output recovers from drought and yields in the U.S. industry improve, New Zealand's Ministry of Agriculture said in an annual forecast today. A 2 percent increase in the European Union's production quota will also add about 2.8 million tons of output starting this year.
- Copper plunged to a six-month low as rising inventories on the London Metal Exchange and a slowing global economy signaled weaker demand for the metal. Stockpiles monitored by the LME jumped 19 percent since July 1 and are the highest since February. Manufacturing in China, the world's biggest metals buyer, contracted in July for the first time since a survey began in 2005. The price of copper used for electrical wires and plumbing is down 19 percent from a record in May. ``Copper is just looking ugly,'' said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. ``With the global economic slowdown, and a steady rise in stockpiles, it's hard to see any reason that copper won't continue to drop. Prices could fall quite a bit fairly quickly.''
- Wheat fell to the lowest in two months on speculation that demand for the grain as an alternative livestock feed will slow after the price of corn plunged. Wheat's premium to corn rose to more than $2 a bushel last week from 89 cents on July 7. Corn, the main ingredient in feed, dropped to the lowest price since March today and is down 30 percent from a record in June, as warm, wet weather revived Midwest crops. Rising supplies also are eroding the value of wheat. World production will rise 8.8 percent to a record this year, the U.S. Department of Agriculture said last month.
- Children who regularly skip an hour's sleep double their chances of being overweight, a study found.
- Fannie’s(FNM) Mudd Soothed Asian Investors as Bonds Rose.
- The value of all land and buildings on farms in the US averaged $2,350 an acre at the start of this year, a new record and up 8.8 percent from a year earlier, the U.S. Department of Agriculture said today in an annual report.
- Australian demand for services shrank for a fourth month in July as the highest interest rates in 12 years forced consumers and businesses to cut spending on transport, hotels and restaurants. The performance of services index fell 2.6 points to 42.8 from June, the lowest reading since the survey began in February, 2003. A reading below 50 indicates the sector is contracting.
- Michael Vogelzang, chief investment officer of Boston Advisors LLC, says oil may fall below $100/bbl. (video)

Wall Street Journal:
- Beijing Olympics Reveal China Reform Fantasy.
- Downshifting China’s Economy. China's National Development and Reform Commission reported last month that unsold inventories of cars in China rose to a four-year high of 170,000 units, a rise of roughly 50% from the beginning of the year. That inventory bulge was little noticed in the popular financial press, but it represents a potential trigger for the unwinding of what has appeared up to now to be a bulletproof growth boom for the Chinese economy. The sharp inventory increase in such a strategically important industry is a dangerous red flag. Up to now, record investment has been driving booming GDP growth, which in turn has been slowly but surely pushing up consumer spending. Surging automobile sales have been a key barometer of this trend, especially since 2004, when foreign capital inflows began to surge into China, and -- not coincidentally -- the economy started to take off into the current boom, which suddenly looks vulnerable. That such a large number of cars have gone unsold this year is a sign that consumers are increasingly reluctant to ramp up their spending. It's especially worrying since, given the complexity of automobile manufacturing, a slowdown in auto sales can ripple through the larger Chinese economy via the large network of suppliers supporting the industry. Worse than the inventory overhang itself is the fact that there isn't an easy policy solution.
- Mutual-fund firm Third Avenue Value Management LLC, known for its deep value-investing style, where managers look for cheap stocks, is planning to raise a private-equity fund to invest in distressed companies. Led by well-known investor Marty Whitman, the New York-based firm has been investing in distressed securities since the 1980s, mainly through its flagship Third Avenue Value mutual fund.
- The auto industry said federal regulators are pushing too far, too fast in their effort to raise fuel-mileage rules. The complaints from the industry, which had previously voiced support for tougher standards, underscore how economic hardship is affecting a major policy debate. Auto makers are objecting to new rules being crafted by the National Highway Traffic Safety Administration. The rules would require car makers to achieve a fleet-wide average fuel efficiency of at least 31.6 miles per gallon for cars and trucks by 2015, up from about 25 mpg today. The rules are a first step toward Congress's goal of achieving average fuel economy of at least 35 mpg by 2020.
- The New York Mercantile Exchange said it plans to introduce a futures contract based on prevailing market prices for hot-rolled steel coil in the U.S. Midwest region early in the fourth quarter. The contract will be financially settled against an index developed by CRU Indices Ltd., a subsidiary of CRU International Ltd., a supplier of steel-industry information.

MarketWatch.com:
- Mutual funds that invest in U.S. companies are consistently outperforming their international counterparts for the first time in more than five years as rising inflation and slowing growth in China and India sting the markets. Domestic funds have beaten international funds in six of the past nine months, the best domestic-fund run since the category outperformed international funds in eight of the 10 months beginning in August 2002.
- Federal Reserve policymakers are not going to give a clear signal of where rates are headed after their meeting on Tuesday, economists said. Economists expect a "neutral" statement that won't prepare markets for a rate hike in the near term.

CNBC.com:
- In a move to drum up much needed capital and offset a likely multi-billion writedown, officials at Lehman Brothers Holdings(LEH) have held conversations about the possible sale of the firm's entire investment management division, which includes its Neuberger & Berman asset management unit as well as stakes in hedge funds and private equity funds, according to a people with knowledge of the matter.
- U.S. drivers found more relief at the pump as the national price for gasoline dropped to its lowest level in 11 weeks, the government said on Monday. The price for regular, unleaded gasoline declined 7.5 cents over the last week to an average $3.88 a gallon, the federal Energy Information Administration said in its weekly survey of service stations.

NY Times:
- Lilly(LLY), Amylin’s(AMLN) Byetta May Extend Diabetics’ Lives.
- Many Chinese have been expecting a post-Olympics economic slowdown, but it has already started and the Games have not even begun. Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles. The trends, which actually have little to do with the Olympics (the Games themselves, which open Friday, are small compared with the size of the economy), are being felt worldwide.

BusinessWeek.com:
- How Cloud Computing Is Changing the World. A major shift in the way companies obtain software and computing capacity is under way as more companies tap into Web-based applications.
- That iPhone Nano Rumor…

IBD:
- Drug Companies Look To Outsource For Oversight Of Clinical Trials.

USA Today.com:
- Toxic plastic toys could go the way of dinosaurs.

Reuters:
- OPEC’s crude-oil production advanced for a third month on increased production from Saudi Arabia, the world’s top oil exporter. Supply climbed to 32.6 million barrels a day in July, from 32.3 million barrels a day in June, according to a Reuters survey of oil companies, OPEC officials and analysts. Saudi Arabia’s production rose to 9.7 million barrels a day, up from earlier estimates of 8.9 million.
- A union representing oil workers in Brazil’s main offshore oil production region decided to cancel a strike scheduled for tomorrow after accepting a contract offer from state-controlled Petrobras(PBR).

Financial Times:
- Best Buy(BBY) is to push ahead with a more aggressive roll-out of stores in the UK than analysts and competitors had expected, with some 200 stores planned over the long-term. The plans underline the scale of the US electronic retailer's ambition for its European venture with Carphone Warehouse.

The Economic Times:
- After warnings from global ratings firms — Standard and Poor’s (S&P) and Fitch, it’s Moody’s turn now to voice concerns on India’s sovereign outlook. According to the agency, risks for the economy have grown, but not to the extent that the ratings would be threatened. In a report released on Monday, the agency said, “Higher oil prices and lack of fiscal policy reactions amidst high pent-up price pressures are putting the burden of macro-economic adjustment on monetary authorities. As a result, policy as well as market interest rates could rise, and a sharp deceleration in growth may follow.”

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TTEC), target $20.
- Reiterated Buy on (LMT), target $119.
- Downgraded (FIG) to Sell, target $9.
- Reiterated Buy on (PBI), target $51.

Night Trading
Asian Indices are -1.75% to -.25% on average.
S&P 500 futures +.10%.
NASDAQ 100 futures +.10%.

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Earnings of Note
Company/EPS Estimate
- (ADM)/.69
- (COV)/.66
- (EAT)/.42
- (MVL)/.44
- (EMR)/.80
- (MGM)/.42
- (PG)/.78
- (WY)/-.19
- (RDC)/1.05
- (JOE)/.11
- (DNR)/.54
- (TAP)/1.15
- (AMSC)/-.05
- (CKP)/.43
- (DHI)/-.90
- (HEW)/.45
- (PDX)/.79
- (DUK)/.24
- (NWS/A)/.35
- (CSC)/.76
- (GGC)/-.47
- (PZZA)/.41
- (FST)/1.50
- (JBX)/.51
- (WMS)/.35
- (PCLN)/1.41
- (CSCO)/.39
- (VMC)/1.18
- (N)/-.01
- (WFMI)/.31
- (ONXX)/.07
- (NILE)/.18
- (BID)/1.38
- (VNO)/1.41
- (WEN)/.37
- (KCP)/-.12

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- The ISM Non-Manufacturing Composite for July is estimated to rise to 48.7 versus 48.2 in June.

2:15 pm EST
- The FOMC is expected to leave the benchmark fed funds rate at 2.0%.

Other Potential Market Movers
- The weekly retail sales reports, BMO Capital Healthcare Conference, RBC Tech/Media/Communications Conference, (MU) analyst conference and Pacific Crest Tech Forum could also impact trading today.

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