BETWEEN THE HEDGES

Weekend Headlines
Bloomberg:

- The most severe recession in at least five decades may be ending and growth may resume at a rate faster than most economists foresee, former Federal Reserve Chairman Alan Greenspan said. “We may very well have 2.5 percent in the current quarter,” Greenspan said in an interview today on ABC’s “This Week” program. “The reason is there has been such an extraordinarily high rate of inventory liquidation that the production levels are well under consumption.” “I’m short-term optimistic, but with many caveats,” the former Fed chairman said. Housing markets have “stabilized temporarily” though it is “possible” the economy might relapse if there is a further slide in home prices of more than about 5 percent. Economic growth will average 1 percent in the current quarter, according to a Bloomberg News survey of economists in July. “I’m pretty sure we’ve already seen the bottom,” Greenspan said. “In fact, if you look at the weekly production figures for various different industries, it’s clear that we’ve turned, perhaps in the middle of last month, the middle of July.” Greenspan said he sees “a very significant improvement in the financial system,” Greenspan said. “And it’s been the financial system where the problems have been. Collapse, I think, is now off the table.” The so-called Libor-OIS spread, a gauge of bank reluctance to lend, has narrowed to 28 basis points from 364 basis points on Oct. 10. Greenspan said in June 2008 that he wouldn’t consider credit markets back to “normal” until the Libor-OIS spread narrowed to 25 basis points.

- Steel prices in the U.S. rose 13 percent in July, the first gain in a year, after distributors began restocking their inventories. The average price of hot-rolled steel sheet, the benchmark product used in cars and appliances, increased to $430 a ton from $380 in June, Purchasing magazine said today in a monthly update. Cold-rolled sheet climbed 11 percent to $517 a ton. “The falloff in steel consumption has likely reached a trough for the current business cycle and should start to recover gradually -- albeit from very low levels -- in the second half,” the magazine said today. “Improvement is coming from restocking by the service centers of severely depleted inventories and not bookings for end-use manufacturing.”

- Federal Reserve Chairman Ben S. Bernanke won’t raise borrowing costs before 2011 as the threat of deflation remains for the U.S., said Pacific Investment Management Co., which runs the world’s largest bond fund. Benchmark rates will not rise “before 2011 and I’m not only forecasting that as a professional forecaster, but positioning portfolios on that proposition as well,” said Paul McCulley, 52, managing director at Pimco, in an interview that was broadcast by the Australian Broadcasting Corp. today, and taped earlier in the week. “What I’m worried most about is simply a shortfall in global aggregate demand relative to supply potential.” U.S. economic growth will be closer to 3 percent than the range of 5 percent to 7 percent for the past 15 years, Bill Gross, who runs Pimco’s Total Return Fund, said in his August investment outlook last week. The U.S. economy will begin to recover in the second half of 2009, he wrote on Pimco’s Web site.

- China’s policy to boost growth by pumping the economy with money has led to an “unstable” recovery as investments in property and equities surge, paving the way for another slump, said CIMB-GK Securities Pte. The credit boom has led to expansion fueled by “non-productive activities” with limited trickle down to jobs and consumer demand, Song Seng-Wun, regional economist at CIMB-GK Securities in Singapore, said. “If the extra slosh continues to go into property and stocks, obviously the risk of a spectacular collapse is very real because there is no underlying growth of the real economy.” Current bank credit patterns are “not acceptable if the People’s Bank of China is looking for sustainable growth,” Song said.

- Nissan Motor Co. Chief Executive Officer Carlos Ghosn said electric cars will make up at least 10 percent of global vehicle demand by 2020, depending on conditions. “Ten percent by 2020 is very reasonable,” Ghosn said, referring to research by Massachusetts Institute of Technology. Demand estimates are based on Nissan’s assessment of rising energy prices and tougher environmental regulations, Ghosn said at a news conference today after the opening of the automaker’s new headquarters in Yokohama, south of Tokyo.

- Iran’s former president Mohammad Ali Khatami, a backer of the opposition movement, denounced as a sham yesterday’s trial of protestors detained after the country’s disputed re-election of Mahmoud Ahmadinejad. “What has been named the trial of the defendants involved in recent events is against the constitution, regular laws and citizens’ rights,” Khatami was quoted by his Web site as saying yesterday. “Confessions made under certain circumstances are not valid.”

- President Barack Obama has been exhorting lawmakers to use the August recess to read health- care-reform bills currently before Congress. In other words, if the president had gotten his way, members would have voted first and read second legislation to revamp one-sixth of the U.S. economy. No wonder public support for both Obama and his health-care plan is eroding, according to recent polls. Yes, people are resistant to change, as the president noted, especially when it comes to something as important as their doctor. But maybe something else is at play: the growing realization that the numbers don’t add up.

- A Chinese town and its surrounding areas were quarantined after a man died of pneumonic plague and 11 others were infected, the local health authority said.

- Venezuela’s closing of 32 radio stations and 2 television stations is an example of “Cuban- style” repression, an executive at a company that owns some of the stations said today. “This is part of a package of measures against freedom of expression in the best Cuban style,” Nelson Belfort, president of Caracas-based Circuito Nacional Belfort, which owns 5 of the closed radio stations and 5 other stations, said in a telephone interview. “The government doesn’t accept a single criticism.”

- Last week the public learned what Washington insiders have long known: the Blue Dog Democrats don’t hunt. The Blue Dogs are a group of moderate Democrats, many from the South, who make a big show of forcing concessions by liberal colleagues who seek to increase taxes and expand the role of big government. In the end, as happened last week, the Blue Dogs are nothing more than role players in a Kabuki theater that is designed to deceive voters. They don’t stop bad legislation, and the concessions they extract are meaningless. Here’s how it works. Democrats propose something radical and unpopular, like President Barack Obama’s health-care plan. Then the Blue Dog Democrats traipse onto the public stage claiming to carry the banner of fiscal responsibility and moderation. The show is covered the same way by the media every time. The virtuous, “centrist” Blue Dogs share the concerns of the American people, the story goes, and have enough votes to stop Nancy Pelosi and the fringe from radicalizing American policy. After “tough” negotiating sessions, the Democrats cave in to Blue Dog demands, producing a bill that is moderate and reasonable. Except that it’s all just nonsense, meant to create the illusion that Pelosi isn’t dictating the details of Democratic bills in the House. In fact, she is.

Wall Street Journal:

- Federal health agencies, seeking to hand out stimulus funds to research the effectiveness of various medical treatments, said they will include projects that look in part at the cost of drugs and other treatments. The approach -- which was unveiled in a report to Congress this week by the Agency for Healthcare Research and Quality and the National Institutes of Health, both agencies under the Department of Health and Human Services -- could provide more fodder to conservatives worried that the government might use the results of such studies to limit health care to consumers.

- The two big oil and natural-gas exchange-traded funds will be in the hot seat this week amid the escalating debate over the role of speculation in the commodities markets. The chief investment officer of the widely watched funds known as U.S. Oil Fund and U.S. Natural Gas Fund is one of several people expected to testify Wednesday at a Commodity Futures Trading Commission hearing as part of the agency's efforts to curb speculation. The two funds have swelled in the past year and now account for significant buying in their respective markets. Regulators and market players are concerned about whether commodity funds are influencing the price of the futures they are designed to track. The U.S. Natural Gas fund accounts for as much as 30% of the gas futures market, according to Citigroup analysts. The U.S. Natural Gas fund has ballooned to $4.5 billion assets under management from $727 million just four months ago. The U.S. Oil fund is now at $2.3 billion, having peaked at $4 billion in February. Hedge funds are among the top holders of both funds. In July, the CFTC said it was considering imposing position limits on exchange-traded funds. In February, it started investigating trading activities around the U.S. Oil fund. Analysts at Raymond James in Houston wrote in a recent note that U.S. Natural Gas has grown "well beyond its critical mass" and has become "a bigger market influence than planned." While Teri Viswanath, director of commodities research at Credit Suisse Group, estimates the gas fund pushed up prices by 50 cents a million British thermal units from May through early July. Others expected to testify Wednesday include Michael Masters, a money manager who has waged a campaign against speculators; John Arnold, whose Centaurus Advisors hedge fund trades in the natural-gas market; as well as energy users. Paul Cicio, president of the Industrial Energy Consumers of America, a lobbying group that represents manufacturers, is expected to testify that oil and gas ETFs are disrupting the market.

- Citigroup(C) has been garnering investor interest amid optimism on Wall Street that the worst is over for the beleaguered banking company. The bullish case for Citi is that it has put concerns to rest about its viability and capital adequacy. And, based on tangible book value, a conservative measure of shareholder equity, its stock looks inexpensive.

- Chrysler Group LLC is dropping an incentive plan that offered to double the government's "cash for clunkers" rebates amid complaints from dealers that inventory is running short.

- Exchange-traded funds designed to turbo-charge index returns have been raking in money. They're also in the penalty box. The Financial Industry Regulatory Authority and the Massachusetts Securities Division in recent months launched inquiries into inverse and leveraged ETF sales practices. Massachusetts regulators on Friday sent subpoenas to Ameriprise, UBS, LPL and Edward Jones, requesting information on sales of the products, the revenue generated from those sales, and broker training and marketing materials. Even brokerage firms that haven't suspended sales of the funds are sounding cautionary notes. Morgan Stanley Smith Barney, a joint venture of Morgan Stanley and Citigroup Inc., said it is reviewing sales of these ETFs, while Charles Schwab Corp. recently issued a report warning investors of the products' intricacies. The crackdown by brokerage firms and regulators is a sharp reversal for these ETFs, which have vacuumed up assets as markets swung. Leveraged and inverse ETFs held $32.8 billion at the end of June, up from $11 billion at the start of 2008, and the number of these products jumped 86% over the same period, to 119, according to State Street Global Advisors.

- U.K. market regulator the Financial Services Authority is examining the impact a new breed of high-frequency trading firm is having on the U.K. equity market. The regulator has in the past month approached as many as 10 asset managers to discuss the effect of these high-frequency companies' strategies on the U.K .market, to establish whether intervention is needed, according to three sources close to the watchdog.

- Ford Motor Co.(F) saw an increase in its July sales, the first year-over-year jump for the auto maker in almost two years, according to the company's sales analyst. The increase was the first reported by any of the six largest auto makers since August 2008 and the first bump up for Ford since November 2007, sales analyst George Pipas said in an interview Sunday. He would only describe the retail bump as "notable," and the overall increase in monthly sales as less than that. But any monthly gain for the same period a year ago could be one of the strongest indicators yet that the trough in auto sales has been reached and the industry may be on its way to a recovery, however slow. The last time any of the six largest auto makers reported a year-over-year increase in monthly sales was Nissan Motor Co. in August 2008, according to Mr. Pipas. Ford saw that the most-traded-in vehicle was a Ford Explorer and most buyers drove out with new Ford Focus.

- John McCain is red in the face and hopping mad. I’m sitting in his office in the Senate Russell Office Building, and he’s just rushed in after delivering a speech on the Senate floor where he seethed about the earmarks in the Homeland Security Bill. “Can you believe they are putting $6 million of pork into Homeland Security?” he asks with his trademark clenched-fists. “They promised they wouldn’t do that. Ben Nelson [the Democratic senator from Nebraska] just inserted a $200,000 museum in Omaha into the legislative branch appropriations bill. These earmarks are a creeping disease. First members condemn them, then they condone, then they embrace them.” Then Mr. McCain adds, “Eight or nine Republican appropriators routinely vote for this pork.” Shaking his head he says, “It’s killing our party.”

Barron’s:

- The IRS is examining questionable practices at college endowment funds across the country. PLUS: Whistleblowers who raised the red flags about Harvard Management.

- AN INTERVIEW WITH ALAN MULALLY: Ford's talented CEO is not shy about touting his company. What he sees for the economy, auto sales -- and more. Mulally: No, the bankruptcies at GM and Chrysler haven't put us at a disadvantage. Yes, they have negotiated deals with the UAW and restructured debt. But it's not my perception that GM and Chrysler have more strength in dealing with the union. If it would have been an advantage for us to go to bankruptcy, we would have gone to bankruptcy. But we think that we can recreate a viable company without that, and we are already on that path. Every company has a slightly different business model. We negotiated things that were important to us. They negotiated things that were important to them. In fact, the GM and Chrysler bankruptcies may have helped our sales. There is a survey showing that 97% of all the people in the United States know that GM and Chrysler declared bankruptcy and are taking taxpayer money. And another study shows that new-car buyers were looking first at Ford, Toyota and Honda because of that. Buyers like our products, they like the fact that we are creating a strong long-term viable business, and they feel that they are dealing with a company that will be here for the long haul.

MarketWatch.com:

- A high-tech robotic surgical system may help save thousands of cancer patients. (video)

- With summer in full swing, the last thing on many students' minds is going back to school. But with billions of dollars in sales at stake, technology companies have already launched many of their efforts to entice students, and their parents, with new products and gadgets to take back to campus. And in the words of Stephen Baker, director of IT research at NPD Group, it should come as no surprise what the hot tech devices are for this back-to-school season.

IBD:
- Flickers of smiles are appearing on dentists' faces, says Stanley Bergman, chairman and chief executive of Henry Schein (HSIC). And that means better business for his company, the largest U.S. supplier of products and equipment to dental practices. Schein also sells to medical and veterinary practices, but 65% of revenue comes from business with dentists.

NY Times:

- Thirteen federal agencies took nearly half a billion dollars off the top of Congressional earmarks for administrative expenses in 2008, nearly 3 percent of the total amount that members of Congress had directed to pet projects in federal spending bills. The findings, summarized in a report from the White House Office of Management and Budget, provide the first governmentwide look at how much federal agencies keep from earmarked money.

- This interview with John T. Chambers, chairman and chief executive of Cisco Systems(CSCO), was conducted and condensed by Adam Bryant.

- Despite repeated denials by President Hugo Chávez, Venezuelan officials have continued to assist commanders of Colombia’s largest rebel group, helping them arrange weapons deals in Venezuela and even obtain identity cards to move with ease on Venezuelan soil, according to computer material captured from the rebels in recent months and under review by Western intelligence agencies.

- With its ability to collect articles and sell advertisements against them, Google(GOOG) has already become a huge force in the news business — and the scourge of many newspapers. Now its subsidiary YouTube wants to do the same thing to local television.

- In a few weeks, the Treasury Department’s czar of executive pay will have to answer this $100 million question: Should Andrew J. Hall get his bonus? Mr. Hall, the 58-year-old head of Phibro, a small commodities trading firm in Westport, Conn., is due for a nine-figure payday, his cut of profits from a characteristically aggressive year of bets in the oil market. There is little doubt that Mr. Hall is owed the money under his contract. The problem is that his contract is with Citigroup, which was saved with roughly $45 billion in taxpayer aid.

- For Frank P. Quattrone, the dot-com banker sidelined for four years as he fought and ultimately beat charges of obstruction of justice, that vacuum has provided the opportunity to insert himself once again into Silicon Valley’s thorniest negotiations and most lucrative deals.

Washington Post:
- Congress and the CIA: Time to Move On by Leon Panetta. Last month, at a meeting overseas of intelligence service chiefs, one of my counterparts from a major Western ally pulled me aside. Why, he asked, is Washington so consumed with what the CIA did in the past, when the most pressing national security concerns are in the present? It was a very good question. In fact, I've become increasingly concerned that the focus on the past, especially in Congress, threatens to distract the CIA from its crucial core missions: intelligence collection, analysis and covert action. Together, the CIA and Congress must find a balance between appropriate oversight and a recognition that the security of the United States depends on a CIA that is totally focused on the job of defending America. The time has come for both Democrats and Republicans to take a deep breath and recognize the reality of what happened after Sept. 11, 2001. The question is not the sincerity or the patriotism of those who were dealing with the aftermath of Sept. 11. The country was frightened, and political leaders were trying to respond as best they could. Judgments were made. Debates over who knew what when -- or what happened seven years ago -- miss a larger, more important point: We are a nation at war in a dangerous world, and good intelligence is vital to us all. That is where our focus should be. When President Obama visited the CIA in April, he told agency officers, "I am going to need you more than ever." The men and women of the CIA truly are America's first line of defense. They must run risks and make sacrifices to acquire the intelligence our country needs for its safety and security. Having spent 16 years in the House, I know that Congress can get the facts it needs to do its job without undue strife or name-calling. I also know that we can learn lessons from the past without getting stuck there. That is what the American people expect. The CIA is ready to do its part. The nation deserves no less.

CNNMoney.com:

- Even as top banks delivered abysmal performances last year, they still managed to pay out billions of dollars employee bonuses, according to a study published Thursday by New York Attorney General Andrew Cuomo. In an analysis of compensation practices of the original nine banks that received money under the Troubled Asset Relief Program, or TARP, most financial firms paid out compensation that was nowhere close to their overall yearly performance.

Business Week:
- While investors expect the market -- up more than 80 percent this year -- to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst. Beijing is trying to tighten credit controls without derailing the economic revival or causing a market crash -- a risky path at a time when Chinese leaders say a recovery is not firmly established. "It's a very serious threat. The Chinese government is walking a tightrope," said Mark Williams, Asia economist for Capital Economics in London. "There is the question of what happens if they rein in lending, because there is really no strong evidence that private sector demand is picking up."

Sacramento Bee:

- From the perspective of many California environmentalists, the proposed offshore oil drilling project at Tranquillon Ridge in Santa Barbara County is like a movie monster that fails to die. After all, the drilling proposal – made a part of Gov. Arnold Schwarzenegger's legislative budget package – was soundly rejected by members of the state Assembly on July 24. Before that, the plan was given the heave-ho not once but twice by the State Lands Commission. And 63 state environmental groups have come forward to oppose the proposal. But in the face of all that criticism and political heat, advocates of the PXP plan promise that it will be back. They say rethinking the 40-year moratorium banning oil drilling off California's petroleum-rich shores makes good sense for an energy-thirsty, deficit-plagued state that continues to teeter on the edge of insolvency.

Politico:

- Senate Finance Committee Chairman Max Baucus (D-Mont.) runs the health care negotiations like the patriarch of a sprawling clan, urging his members to keep their feuds within the family. But internal clashes about the government insurance option have begun to spill into the open — as Sen. John Rockefeller (D-W.Va.) has gone public with his case against consumer-owned health care cooperatives, which are viewed as a compromise between progressives who want a public competitor to private insurers and Republicans who don’t want a new government plan. “I will be darned if I support or allow to move forward — to the extent that I can make a noise about it — something which sounds user-friendly,” Rockefeller said in an interview. “What I have to worry about is, are co-ops going to be effective taking on these gigantic insurance companies? And from everything I know from people who represent them, the answer is a flat ‘no.’” With four of five congressional committees having endorsed health care bills with a public plan, the focus now turns to the Finance Committee, where debate on the issue has been heated and mostly private up until now. It’s the only committee proposing a private-sector insurance cooperative, rather than a government-run plan, as a mechanism to hold private insurers accountable. But the passage Friday of a House Energy and Commerce Committee bill with a strong public plan puts another squeeze on the odd man out, the Finance Committee.

TheDeal.com:

- After a recess that ends Aug. 10, the Senate will take up an employee compensation House bill that casts a wide shadow over all financial institutions, including hedge funds, with more than $1 billion under management. Reports indicate, however, this bill will not go through and that the Senate would more likely back a 'say-on-pay' arrangement, in which investors could make a nonbinding vote on compensation. In that case, it's not clear how hedge funds would be affected because very few are publicly listed. But what would even be the point of limiting employee compensation at hedge funds? It's not as if they took any government aid, as did a score of other institutions! Right, they shouldn't be included, and the only reason that they are is because lawmakers, generally speaking, don't understand hedge funds or their effect on the economy. In fact, hedge funds serve as a prime example of capitalism at work. Consider the growth of the hedge fund industry: Investors put money in hedge funds. More hedge funds launch to keep up with demand. Financial crisis hits. Hedge funds perform poorly. Investors redeem money. Excess hedge funds close. Ah, such a lovely story of supply and demand that it would make Adam Smith do a jig in his grave. What's more, many investors that have continued to invest in hedge funds, particularly institutional investors, have negotiated lower fees with managers, and as managers' pay is largely based on fees, compensation has declined.

Seeking Alpha:

- News Digest: What Hedge Funds Are Up To.

onwallstreet:

- With private equity becoming harder to raise, investors hoping to clean up from the mortgage market's wreckage are turning to a vehicle that has fallen in and out of vogue over the years: the real estate investment trust. On Thursday, a REIT set up by Private National Mortgage Acceptance Corp. raised $335 million through an initial public offering. The company, which is run by former Countrywide Financial Corp. executives, said it plans to use the proceeds to buy distressed residential mortgage assets, something PennyMac has been doing through private-equity funds it manages since last year.

CFO:

- About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives.

NYPost:

- Days after Lehman Brothers' stunning collapse last Sept. 15, then-Treasury Secretary Hank Paulson placed an urgent call to JPMorgan Chase CEO Jamie Dimon and asked the banking veteran to buy rival Morgan Stanley to save it from suffering a similar fate, according to an upcoming book. Dimon, who had come to be seen as the banker of last resort after acquiring Bear Stearns in a government-sponsored takeover the previous March, had misgivings on such a move, though, and passed on the opportunity. The reason, according to the book, was that it would be too difficult to integrate the two similarly structured businesses and that there would need to be massive job cuts, something Dimon was not keen on undertaking. Rumors of a proposed JPMorgan Chase-Morgan Stanley hook-up have bounced around Wall Street since last fall, but Dimon's tale of the Paulson call is the first time it has been backed up. "The government was desperately seeking to stave off what could have been a wipeout of Wall Street," writes Duff McDonald in "Last Man Standing," the story of Dimon's rise, fall and rebirth on Wall Street. "And here was Paulson, offering Dimon Morgan Stanley for absolutely nothing."

Reuters:

- Top U.S. officials said on Sunday it may be necessary to extend jobless benefits to firm up an economic recovery unlikely to create jobs until next year and declined to rule out future tax increases to tame massive budget deficits.

Financial Times:

- Goldman Sachs’(GS) reputation among both the general public and financially sophisticated Americans has been damaged by the events of the past year, according to research conducted for the Financial Times. In a survey of 17,000 Americans, Brand Asset Consulting found that Goldman’s stature – as measured by several gauges of brand strength – had suffered in 2008 and 2009. “Goldman Sachs still has that Gordon Gekko look to it among the general public,” said Anne Rivers, who oversaw the survey, referring to the villain of the 1987 film Wall Street. Goldman’s long-time rival, Morgan Stanley(MS), also suffered a decline in stature in the survey. But respondents liked and respected Morgan Stanley more than Goldman, a reversal of respondents’ sentiment in 2006. In recent months, Goldman has faced an unprecedented spate of negative publicity as a variety of lawmakers, corporate governance experts and magazines have accused the bank of causing last year’s financial crisis, vilified its plans to pay bonuses on a par with those handed out in the frothy days of 2006 and 2007, and claimed Goldman was relying on its alumni network in Washington to insulate it from the consequences of the failure of AIG, the insurance group. The onslaught of criticism began slowly following the collapse of Lehman Brothers and the rescue of AIG last September, built gradually over the intervening months as the US plunged into the worst recession in decades, and reached a crescendo in recent weeks after Goldman paid back its taxpayer rescue funds and posted record profits, thus positioning the firm to ladle out bonuses as though last year’s financial crisis had never occurred. In Rolling Stone last month, Goldman was described as a “great vampire squid wrapped around the face of humanity”. The headline on the cover of New York magazine last week asked: “Is Goldman Sachs evil? Or just too good?” The subsequent article argued in favor of the former, with a tip of the cap to the latter. Some marketing professionals say the storm will pass. “All of this giant squid language they can pretty much brush off,” said William Barker of Brand Finance.

- A group of mortgage lenders has raised concerns that a recovery in Europe's housing market will be put at risk by "hasty and excessive" proposals formulated in Brussels. Suggestions for stricter criteria for property loans in the European Union have been put forward in recent days as a possible addition to the bloc's capital requirements directive, which sets ground rules for financial markets and is being substantially amended after the financial crisis.

- Sovereign wealth funds are regaining their appetite for deals in western markets after making the lowest number of foreign investments during the first quarter since 2005, following a series of disastrous bets in high-profile public companies. State-owned investment funds from oil-rich countries and Asian exporters made just 26 investments worth a total $6.8bn in the first three months of the year, according to Monitor Group, the advisory firm, and Fondazione Eni Enrico Mattei, an international research centre.

- Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say. The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilize the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party. However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price. The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. “You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

- The biggest private equity groups are sitting on a $400bn debt mountain that needs to be repaid over the next five years, putting the future of some of the largest buy-out deals in doubt.

EETimes:

- Second quarter global handset shipments increased 4.7 percent in the second quarter, marking the first sequential growth since the second quarter of 2008, according to market research firm iSuppli Corp. Worldwide shipments amounted to 265 million units in the second quarter, up from 253 million in the first quarter, iSuppli (El Segundo, Calif.) said Friday (July 31). "The moderate increase indicates the worldwide mobile handset market is bottoming out and now is returning to growth," said Tina Teng, senior analyst, wireless communications for iSuppli, in a statement.

South China Morning Post:

- Las Vegas Sands Corp.(LVS) is seeking $400 million in short-term funding to ease a cash crunch and possibly restart construction in Macau.

TheStandard:

- No travel alerts will be issued just yet by Hong Kong's Security Bureau after a pro-Uygur group called for attacks on Chinese all over the world. Abdul Haq al-Turkistani, described by an al- Qaeda-linked website as the leader of the Turkistan Islamic Party, posted a video on Saturday on an Islamist subscription-required website that urged violent action against Chinese in the mainland and abroad. TIP is a pro-Uygur group with a base in northwest Pakistan. The bureau is monitoring developments. "We note the relevant press reports," a spokeswoman told The Standard. "The bureau will continue to monitor the situation and, when necessary, issue travel alerts based on our assessment of the risk level faced by Hong Kong residents traveling overseas."

Mehr News Agency:

- Iran signed an agreement with China on a project costing between $2 billion and $3 billion to expand the capacity of Abadan and Persian Gulf Star oil refineries. National Iranian Oil Products Distribution Company and a group of Chinese companies will build 210,000 barrels a day of refining capacity, which will eventually reach 360,000 barrels, the report said. China National Petroleum Corp. signed a memorandum of understanding to buy a stake in South Azadegan oil field, Shana reported on July 29.

Weekend Recommendations
Barron's:
- Made positive comments on (AAPL), (SQM), (EBAY), (NTRS) and (BHP).

- Made negative comments on (POT).

Citigroup:

- Reiterated Buy on (FL), target $13.

- Reiterated Buy on (JCP), added to Top Picks Live list, target $43.

Night Trading
Asian indices are -.25% to +.75% on avg.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures +.16%.
NASDAQ 100 futures +.33%.

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Earnings of Note
Company/Estimate
- (CLX)/1.21

- (B)/.16

- (CNA)/.59

- (L)/.89

- (MGM)/-.09

- (ASF)/.25

- (TAP)/.96

- (MRO)/.53

- (TSN)/.22

- (HUM)/1.67

- (APC)/-.64

- (CKEC)/.21

- (PHM)/-.72

- (WMS)/.47

- (FST)/.46

- (CHK)/.51

- (VMC)/.20

- (PPS)/.29

Upcoming Splits

- None of note

Economic Releases

10:00 am EST

- ISM Manufacturing for July is estimated at 46.5 versus 44.8 in June.

- ISM Prices Paid for July is estimated to rise to 51.5 versus 50.0 in June.

- Construction Spending for June is estimated to fall .5% versus a .9% decline in May.

Afternoon:

- Total Vehicles Sales for July are estimated to rise to 10.0M versus 9.7M in June.

Other Potential Market Movers
- The (CAT) analyst event could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and financial stocks in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Click here for Wall St. Week Ahead by Reuters.

Click here for Stocks to Watch Monday by MarketWatch.

There are several economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – ISM Manufacturing, ISM Prices Paid, Construction Spending, Total Vehicle Sales

Tues. – Weekly retail sales, Personal Income, Personal Spending, PCE Core, Pending Home Sales, ABC Consumer Confidence

Wed. – Weekly EIA energy inventory report, weekly MBA mortgage applications report, Challenger Job Cuts, ADP Employment Change, ISM Non-Manufacturing, Factory Orders

Thur. – Initial Jobless Claims, ICSC Chain Store Sales, weekly EIA natural gas inventory report

Fri. – Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Consumer Credit

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Clorox Co.(CLX), Barnes Group(B), Loews Corp.(L), MGM Mirage(MGM), Administaff(ASF), Molson Coors(TAP), Marathon Oil(MRO), Tyson Foods(TSN), Anadarko Petroleum(APC), Carmike Cinamas(CKEC), Pulte Homes(PHM), Chesapeake Energy(CHK), Vulcan Materials(VMC), Post Properties(PPS)

Tues. – DR Horton(DHI), Simon Property(SPG), St Joe(STJ), Diebold(DBD), Archer-Daniels-Midland(ADM), Duke Energy(DUK), CVS Caremark(CVS), Kraft Foods(KFT), Cephalon(CEPH), Electronic Arts(ERTS), Whole Foods(WFMI), BMC Software(BMC), IntercontinentalExchange(ICE), Emerson Electric(EMR), Papa John’s(PZZA), Rowan Cos(RDC)

Wed. – March & Mclennan(MMC), Baker Hughes(BHI), Procter & Gamble(PG), Foster Wheeler(FWLT), Polo Ralph Lauren(RL), News Corp(NWSA), Prudential Financial(PRU), Allstate(ALL), Career Education(CECO), Cisco Systems(CSCO), Murphy Oil(MRO), Devon Energy(DVN), Vornado Realty(VNO), XTO Energy(XTO)

Thur. – Wendy’s(WEN), Blackstone(BX), Williams Cos(WMB), Computer Sciences(CSC), Beazer(BZH), DirectTV Group(DTV), Public Storage(PSA), Microchip Tech(MCHP), Brinker Intl(EAT), El Paso Corp.(EP), Nvidia(NVDA), Comcast(CMCSA)

Fri. – HHGregg(HGG), Mirant(MIR)

Other events that have market-moving potential this week include:

Mon. – (CAT) analyst event

Tue. – The Fed’s Tarullo speaking, (CAT) analyst event

Wed. – (AXP) financial community meeting, BMO Capital Healthcare Conference

Thur. – Oppenheimer Healthcare IT Conference, (VPRT) shareholder meeting, (THQI) shareholder meeting

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week mixed as less financial sector pessimism, diminishing economic fear, investment manager performance anxiety and mostly positive earnings reports offset more shorting, profit-taking and higher long-term rates. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

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