Today's Headlines

Bloomberg:
- Fannie Mae(FNM) and Freddie Mac(FRE) sold $3 billion of short-term notes at yields that suggest the U.S. mortgage-finance companies are still capable of financing their businesses without government assistance.
- Goldman Sachs Group Inc.(GS) had its third-quarter earnings estimate cut almost in half by Morgan Stanley analyst Patrick Pinschmidt, who said stock market declines will force the bank to revalue investments. Pinschmidt said Goldman's third-quarter earnings will probably be $1.65 a share, down from his earlier prediction of $3. Principal investments at Goldman include private equity and real estate holdings, as well as stock in the Industrial and Commercial Bank of China Ltd., the nation's biggest lender. ICBC's shares have declined 18 percent since the end of May in Shanghai trading.
- The Baltic Dry Index, a measure of shipping costs for commodities, fell for a sixth straight trading day on weaker demand for so-called panamax ships to haul grains. The index is 40% below its record on May 20^th.
- OAO Gazprom led a jump in the cost of protecting Russian companies from default to the highest in almost five months on investor concern the country's military incursion in Georgia will trigger a rise in borrowing costs. Credit-default swaps on the world's largest natural-gas producer increased 36 basis points to 260 this month, and Moscow-based oil-pipeline operator OAO Transneft rose 33.5 to 265, according to at CMA Datavision prices at 3:15 p.m. in London. Contracts on Russia's government debt climbed 32 to 134, the highest since April 2.
- US mortgage-servicing companies helped a record 192,034 homeowners avert foreclosure last month by setting up repayment plans or changing terms to make loans more affordable, an industry survey showed. The Hope Now Alliance, a coalition of servicers, counselors and investors, helped almost 2.07 million homeowners stay in their homes since July 2007.
- The crisis of confidence that sent Fannie Mae(FNM) and Freddie Mac(FRE) debt costs to record highs above U.S. Treasuries is also providing the mortgage-finance companies with the biggest profits on new investments since at least 1998.
- Oil, natural gas and gasoline rose on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina, as it moves toward production platforms in the Gulf of Mexico.
- Borders Group Inc.(BGP), the bookseller that put itself up for sale in March, jumped as much as 27 percent in New York trading after reporting a second-quarter loss that was narrower than analysts estimated.
- European Central Bank council member Axel Weber said there's no room for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.

Wall Street Journal:
- Joe Biden has fought to preserve Delaware federal courts' disproportionate share of corporate bankruptcies, benefiting law firms in his home state that rank among his top supporters.
- Hedge Funds Help Fill Gap In Lending for Property.
- Infrastructure funds are in trouble. Will the infrastructure builders be next? Quickening inflation and tightening credit are squeezing infrastructure projects in China, India and Middle Eastern countries that mean business for contractors and heavy-equipment makers. About 8%, or $60 billion, of the $750 billion of such projects scheduled for this year have already been delayed or canceled, according to Morgan Stanley, which reckons global infrastructure spending will growth 3% in 2008, down from 10% last year, and might even decline in 2009. That will hurt companies such as General Electric(GE), which makes power generation equipment, Caterpillar(CAT), which produces earth-moving machinery, and Emerson Electric(EMR), a manufacturer of heating and cooling systems.

The Washington Post:
- Sen. Barack Obama sought more than $3.4 million in congressional earmarks for clients of the lobbyist son of his Democratic running mate, Sen. Joseph R. Biden Jr. of Delaware, records show. Obama's campaign has taken a hard stance against the world of lobbying in the nation's capital.

AP:
- The head of a powerful service workers union threatened Tuesday to unleash money from a $10 million "accountability" fund to defeat any political figure — Democrats included — who breaks promises to organized labor. "Any Democrat — or Republican — who said they were going to support us on health care or free choice and turns against us is going to paint a target" on their backs, Andy Stern, president of the powerful Service Employees International Union, told The Associated Press in an interview. "...We're not going to just win this election and hope Barack Obama does well. People want something to happen."

Financial Times:
- The US consumer is not the only one feeling down and out. Since the start of the year, higher food and energy prices have undermined consumer confidence not only in Detroit but also in Dusseldorf, Delhi and Dalian. The upshot: a global slump in personal spending is unfolding, portending rockier times for the global economy and world financial markets.

Handelsblatt:
- K+S AG, Europe’s largest producer of potash used in fertilizers, plans to expand its potash production in the coming years. In light of the expansion of the potash market, that will mean a production increase of as many as three million tons and investments of more than $2.94 billion in the next 5-10 years.

Bear Radar

Style Underperformer:

Large-cap Growth +.76%

Sector Underperformers:

Airlines irlind (-2.53%), Medical Equipment (+.11%) and Restaurants (+.16%)

Stocks Falling on Unusual Volume:

AMLN, ALKS, SOLF, UAUA, JCG, DY and PPC

Stocks With Unusual Put Option Activity:

1) MTH 2) AMLN 3) FRX 4) DISH 5) MAS

Durable Goods Orders Jump Again

- Durable Goods Orders for July rose 1.3% versus estimates of unch. and an upwardly revised 1.3% gain in June.

- Durables Ex Transports for July rose .7% versus estimates of a .7% decline and an upwardly revised 2.4% gain in June.

BOTTOM LINE: Orders for US durable goods unexpectedly increased in July and June orders were revised higher, Bloomberg reported. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, rose 2.6%, the most since April. Shipments of those items, which are used to compute GDP, rose .6% versus a .4% gain the prior month. Gains in orders for machinery, metals, communications gear, automobiles and aircraft all contributed to the increase in demand in July. I expect Durable Goods to continue to remain firm through year-end on inventory rebuilding and better-than-expected demand. Tomorrow's preliminary 2Q GDP report should show a meaningful revision higher from an original 1.9% estimate.

Bull Radar

Style Outperformer:

Small-cap Growth (+.96%)

Sector Outperformers:

Homebuilders (+2.17%), Steel (+2.09%) and Construction (+2.03%)

Stocks Rising on Unusual Volume:

TSO, FTO, VIP, LFC, KNDL, CRY, SINT, ANEN, CLNE, HAIN, CSUN, APSG, DXPE, SMTS, NTES, COCO, RAIL, DGIT, MNRO, APWR, RMBS, FSYS, NTAP, AGNC, BIOD, IKN, TLB, GLP, XCO and TBH

Stocks With Unusual Call Option Activity:

1) NTAP 2) NUAN 3) MIR 4) FHN 5) BIG

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill Lynch & Co.'s Chief Executive Officer John Thain and plans to raise its stake. Temasek, Merrill’s biggest shareholder, received U.S. antitrust approval yesterday to increase its holding in the third-largest U.S. securities firm from 9.4 percent. Temasek said it wants to lift it to between 13 percent and 14 percent.
- Emerging-market bonds fell, pushing yields relative to Treasuries to their widest in more than a month, amid signs economic growth in Europe is slowing. “There are mounting concerns that the global slowdown is spreading,” said Nick Chamie, head of emerging-market research for RBC Capital Markets in Toronto. “It’s most obvious in Europe now. People are downgrading growth expectations, and that’s hurting emerging-market assets.”
- Paladin Energy Ltd., the Australian producer of uranium in Africa, said output is set to more than double this year as volumes increase at the Langer Heinrich mine in Namibia and a new project starts in Malawi. Production should rise to 3.6 million pounds of uranium oxide in the year ending June 30, 2009, from 1.71 million in the preceding 12 months, Managing Director John Borshoff said on a conference call. Output should increase to 6.8 million pounds the following year, to 7.4 million in 2010-11 and 9.3 million in 2011-12, he said.
- John McCain, in a speech to military veterans, questioned Democratic presidential rival Barack Obama's ``moral clarity'' in times of international crisis. U.S. leaders should speak of the nation's role in the world ``with confidence, gratitude, and above all with moral clarity,'' McCain, an Arizona senator, told members of the American Legion National Convention in Phoenix. ``My opponent had the chance to express such confidence in America when he delivered a much-anticipated address in Berlin. He was the picture of confidence, in some ways,'' McCain said. ``But confidence in oneself and confidence in one's country are not the same.''
- A decline in the number of completed new houses sitting on the market is a sure sign that builders are getting supply under control, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. The number of new houses for sale at all stages of construction dropped last month to 416,000, the lowest in almost four years, after peaking at a record 570,000 in June 2006. The number of completed houses still on the market has been dropping since January, a sign that inventories may start coming down faster. “That is a big deal for us,” Stanley said. “Builders have culled down the pipeline so dramatically that there is much less new supply coming on the market.” The reduction in completed houses is “a key factor behind future construction and price changes,” Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois, said in a note to clients. As builders make headway in trimming the glut of completed properties, construction and prices will not need to be cut as much, making the housing slump a smaller headwind for the economy.
- The South Korea won's slump to the weakest since 2004 against the dollar is a ``worry'' and the government will take action when needed, said the finance ministry's key currency official.

Wall Street Journal:
- Europe’s Gloom Is Boon to Dollar. Currency Sheds Whipping-Boy Role As Recession Fears Stir Euro Zone, UK. Early Tuesday, a surprisingly weak reading on a key measure of business confidence in Germany sent the euro skidding to a six-month low against the dollar. The British pound, meanwhile, dropped to its weakest point against the dollar in two years. Analysts say the path ahead is likely down as investors adjust to a world where major economies outside the U.S. experience a sharper-than-expected slowdown and might even tip into recession.
- Retailers Take a Slower Road in India. Coping With Competition, Tepid Growth; ‘Everyone Has Miscalculated’ the Pace. India's expected retail boom hasn't taken off, leaving companies large and small to rethink their expansion plans.
- A JPMorgan Chase(JPM) research report that suggested China is considering spending as much as $58 billion to stimulate the country’s economy was its “own analysis and not a government lead,” citing the report’s author. Figures contained in the Aug. 19 report, which caused stocks in China to rise, were based on the bank’s “own research,” citing Frank Gong, chief China economist at JP Morgan.

MarketWatch.com:
- Crude oil prices "could" fall below $100 per barrel over the next 18 months on slowing worldwide demand and an increase in oil production, Energy Information Administration (EIA) chief Guy Caruso said Tuesday. "I think [prices] could fall below $100 a barrel on slowing global demand and rising production in the US, Brazil and Canada, and from OPEC states such as Saudi Arabia and Angola," Caruso said. Caruso said that even if oil prices continued to fall, it would be unlikely that many policies, such as the Renewable Fuels Standard, which requires the use of 9 billion gallons of biofuels in the US in 2008, might be rolled back or reduced. "There's no going back," he said. "We're near a tipping point here."

NY Post:
- Obama Trails McCain Since Choosing Biden. Barack Obama got exactly zero bounce from his new running mate, Joe Biden, according to a surprising new poll released today - three days after the selection. In fact, John McCain leads in the Gallup Poll, 46 to 44 percent - the Republican candidate's best showing in almost three months. Although McCain's lead still falls within the poll's margin of error, the numbers are a worry for Obama supporters who were counting on Biden's selection as running mate - and the Democratic convention this week - to give them momentum.

CNNMoney.com:
- Six senators join calls to lift drilling ban. Bipartisan ‘Gang of 16’ continues the push for a bill that would allow offshore drilling in southeastern US coast and eastern Gulf of Mexico. Three Democrats and three Republicans joined the so-called Gang of 10, making it the Gang of 16. The group supports a bill that would lift a ban against drilling for oil and natural gas in the eastern Gulf of Mexico and off the southeastern U.S. coast. The bill would also invest $20 billion in the development of petroleum-free motor vehicles and extend tax credits for renewable energy.

Greentechmedia.com:
- Archer Daniels Midland Co. (ADM), Deere & Co. (DE) and Monsanto Co. (MON) said Tuesday that they have teamed up to research and explore technologies for the harvesting, storage and transportation of corn stover for cellulosic ethanol. Corn stover includes the stalks, leaves and cobs of corn plants, and it is among the feedstocks being used by companies to produce large amounts of cellulosic ethanol affordably. While many companies are figuring how to make the biofuel at a commercial scale, the partnership among ADM, Deere and Monsanto will focus on overcoming the challenges of getting the feedstock to biorefineries. The trio's findings will also support the infrastructure for corn stover's other uses, such as animal feed or an energy source for making steam and electricity. Cellulosic-ethanol advocates say the technology to make ethanol from materials like switchgrass, wood chips and corn stover could significantly boost the amount of the fuel that can be made without competing with crops for food.

USA Today.com:
- Despite an economy starting to wobble, incomes were up and more people had health insurance last year, the Census Bureau reported Tuesday. Income inequality even shrank a bit.

Washington Post:
- The carbon emissions of China's electric power sector will jump by about a third this year and surpass the total emissions of the U.S. electric power industry for the first time, according to a report by the Center for Global Development, a Washington- based think tank.

BusinessWeek.com:
- Exchange-traded funds, once hailed as innovative, became a fad. Now investors are starting to sour on these increasingly esoteric investments.

Reuters:
- Sales of business database software made by Microsoft Corp (MSFT) and Oracle Corp (ORCL) are holding up strongly this year after the companies gained share from IBM (IBM) in 2007, according to market research firm Gartner.

Financial Times:
- Lehman Brothers(LEH) has told three private equity firms - Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital - that they remain in the bidding for its asset management arm even though the investment bank has yet to make a final decision on whether to sell the unit. Lehman is considering options to raise cash before its earnings report next month - including selling a stake in itself or selling all or part of its asset-management arm or its commercial real estate portfolio, according to people familiar with the discussions.
- Pension funds are starting to move into the market for loans that fund indebted companies and buy-outs as they see opportunities for investment bargains. The funds' new investment, although still a small part of the loan market, is a potential boost to the cash-starved lending system. In the past six to eight months, US pension funds have allocated money to invest in leveraged loans through funds managed by groups such as BlackRock, Eaton Vance and ING, and special vehicles set up by private equity funds.
- Shares in Fannie Mae (FNM) and Freddie Mac surged on Tuesday after Citigroup (C) analysts said the two government-sponsored mortgage financiers could withstand losses up to the end of the year and an imminent government rescue was unlikely. Brad Ball, analyst at Citigroup, recommended the stock of both government-sponsored mortgage financiers.

TimesOnline:
- The energy industry has claimed that the public would bear the brunt of a windfall profits tax, giving warning that there was serious risk of bills going up. Half of Britain's energy companies have already raised their bills twice this year and the remainder are set to follow suit before the autumn, taking average household bills just shy of £1,500 a year. The industry said that a windfall tax would lead to more inflation-busting increases, with companies struggling to find money to invest in ageing power stations and networks.

Telegraph:
- The British pound could slide as low as $1.50 against the dollar in the coming years as the exodus of foreign investors from sterling gathers pace, experts have warned. The days of the $2 pound are gone for at least five years, they added, as sterling dropped to a new two-year low against the greenback. Chris Turner, head of FX strategy at ING, said: "The dollar has been in a bear trend since 2002. That is now reversing and we are now embarking on a four- to five-year dollar bull market.

Shanghai Securities News:
- Fund management companies in China lost more than $79 billion in the first half of this year, citing local data provider TX Investment Consulting Co.

Late Buy/Sell Recommendations
Citigroup:
- Rated (INCY) Buy, target $15.
- Rated (RIGL) Buy, target $32.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures +.02%.
NASDAQ 100 futures +.04%.

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Earnings of Note
Company/EPS Estimate
- (BWS)/.06
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- (JAS)/-.66
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Economic Releases
8:30 am EST
- Durable Goods Orders for July are estimated unch. versus a .8% increase in June.
- Durable Goods Orders Ex Transports for July are estimated to fall .7% versus a 2.0% increase in June.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,100,000 barrels versus a +9,390,000 barrel increase the prior week. Gasoline supplies are expected to fall by -2,450,000 barrels versus a -6,202,000 decline the prior week. Distillate inventories are estimated to rise by +600,000 barrels versus a +481,000 barrel rise the prior week. Finally, Refinery Utilization is expected to rise by .23% versus a -.2% decline the prior week.

Upcoming Splits
- (SYNA) 3-for-2

Other Potential Market Movers
- The Fed’s Lockhart speaking and weekly MBA mortgage applications report could also impact trading today.

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