Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Outsized Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Gaming longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 1.37% and is very high at 25.21. The ISE Sentiment Index is around average at 150.0 and the total put/call is slightly below average at .76. Finally, the NYSE Arms has been running around average most of the day, hitting 1.68 at its intraday peak, and is currently .80. The Euro Financial Sector Credit Default Swap Index is rising 2.79% today to 76.35 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising .38% to 111.87 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.10% to 30 basis points. The TED spread is now down 436 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.5% to 40.69 basis points. The Libor-OIS spread is falling 4.15% to 26 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.88%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. US stocks are experiencing another healthy consolidation after recent outsized gains today. However, REITs(IYR) and Airlines are sharply outperforming, jumping 4.7%+. This is the best percentage up day for (IYR) in several months, which is a large broad market positive. Paper, networking, education, homebuilding, bank and insurance shares are also posting meaningful gains. Retail and energy stocks are underperforming today. Nikkei futures indicate an +70 open in Japan and DAX futures indicate an +11 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear, diminishing commercial real estate pessimism, technical buying and more earnings optimism.

Today's Headlines

Bloomberg:

- The number of contracts to buy previously owned homes in the U.S. rose in June for a fifth straight month and exceeded economists’ forecasts, as lower prices and mortgage rates attracted buyers. The 3.6 percent gain in the index of signed purchase agreements, or pending home resales, followed a 0.8 percent gain the prior month that was larger than previously estimated, the National Association of Realtors said today in Washington. Pending resales are considered a leading indicator because they track contract signings. All four regions in the U.S. saw an increase in pending sales, today’s report showed, led by a 7.1 percent gain in the South and a 2.9 percent increase in the West. The Realtors’ group’s affordability index, which takes into account home values, household incomes and mortgage rates, reached a record high of 178.8 in April. The index was at 159.2 in June. Readings greater than 100 indicate a family earning the median income can afford a median-priced home at current borrowing costs.

- The U.S. Securities and Exchange Commission plans to ban flash trades that give some brokerages an advance look at orders, Senator Charles Schumer said, citing a conversation with SEC Chairman Mary Schapiro. Flash orders represented 2.4 percent of the total shares traded in June, according to the New York brokerage Rosenblatt Securities Inc. At Direct Edge, which handles most of the flash volume, revenue from its Enhanced Liquidity Provider program has helped it cut other trading fees and more than double its market share since November.

- Four of the top five models sold so far under the U.S. “cash for clunkers” program, aimed at boosting the auto industry, are made by foreign automakers, the Transportation Department said today. Ford Motor Co.’s(F) Focus was the top seller as of today, followed by Toyota Motor Corp.’s Corolla, Honda Motor Co.’s Civic and Toyota’s Prius and Camry, the department said in a statement.

- GMAC Inc., the lender that received $13.5 billion in government bailout funds, reported a $3.9 billion second-quarter loss tied to rising loan defaults and said part of its insurance operations may be sold. The loss, GMAC’s seventh in the past eight quarters, rose from $2.48 billion a year earlier.

- Ken Griffin’s $12 billion Citadel Investment Group LLC said it will return $250 million on Oct. 1 to investors who asked to withdraw money, after its main funds jumped about 44 percent in the first seven months of this year. Chicago-based Citadel said it will make a “similar distribution” to clients at the end of the year, according to a letter sent to its investors today. Chicago-based Citadel suspended redemptions in its Wellington and Kensington funds last year after they tumbled 55 percent.

- PepsiCo Inc.(PEP) agreed to take control of its two biggest bottlers for about $7.8 billion, ending a three-month standoff and allowing the world’s second-largest soda maker to save money by bundling snacks and drinks. PepsiCo will pay $36.50 a share for Pepsi Bottling and $28.50 a share for PepsiAmericas, half in cash and half in stock, based on the July 31 closing price of PepsiCo, the companies said today in a statement. PepsiCo offered about $6 billion in April, a bid the bottlers rejected. PepsiCo shares rose as much as 6.1 percent today.

- A 1993 interview with President Barack Obama shows he had a budding interest in elective office and an awareness of the media’s importance in achieving political goals. The recently discovered, unaired interview is part of a new documentary on Obama’s early career in Chicago, where he worked as a community organizer and led a voter-registration project. In it, he alluded to his future electoral aspirations.

- Iran confirmed the arrest of three U.S. citizens in the Kordestan province bordering Iraq, the state-run Fars news agency reported. “These three individuals, whose identity is not yet known, were arrested on the Malakh-Khor border in the Marivan area,” Iraj Hassanzadeh, a deputy governor of the northwestern province, told Fars. “They are being detained and no confessions have yet been made,” he said, adding that the three had Syrian and Iraqi visas stamped in their passports.

- Colorado State University today said the 2009 Atlantic season will generate four hurricanes, down from a prediction of five that the school’s forecasters made in June.

- United Airlines(UAUA) parent UAL Corp. led the Bloomberg U.S. Airlines Index toward its longest climb as increased travel demand signaled the worst of the industry’s slump has ended. UAL rose 82 cents, or 19 percent, to $5.03 at 12:58 p.m. in Nasdaq Stock Market trading, the biggest intraday climb since March 4. The airline pulled the group of 12 carriers up 4.7 percent as the index headed for a ninth straight gain, the most since its creation in June 1999.

- Copper prices rose for the fourth straight session after a report showed the number of contacts to buy previously owned U.S. homes rose for a fifth month. Pending home resales rose 3.6 percent in June, the National Association of Realtors said today. Economists forecast the index would increase 0.7 percent, the median of 35 projections in a Bloomberg News survey. Builders are the biggest users of copper in the U.S. Before today, the metal surged 94 percent this year on speculation that global demand would climb.

- General Electric Co.(GE), the world’s biggest maker of locomotives and medical imaging equipment, agreed to pay $50 million to settle U.S. regulatory claims it manipulated earnings to meet analysts’ estimates. The company broke accounting rules four times in 2002 and 2003 to increase earnings or avoid reporting negative financial results, the Securities and Exchange Commission said in a civil lawsuit in federal court in New Haven, Connecticut, today. One violation helped GE continue a nine-year stint of meeting or beating analysts’ quarterly estimates that started in 1995, the SEC said. “GE bent the accounting rules beyond the breaking point,” SEC Enforcement Director Robert Khuzami said in a statement. “Overly aggressive accounting can distort a company’s true financial condition and mislead investors.”

- Traders Fired in Shakeout Migrating to Firms Off of Wall Street.

- Goldman Sachs Group Inc.(GS), which earns more money trading equities than any U.S. bank, sent a letter to clients explaining its high-frequency trading as regulators and politicians step up their scrutiny of the practice.

Wall Street Journal:

- General Electric Capital Corp. launched $2 billion in 10-year notes Tuesday, according to a person familiar with the deal. The notes from the finance arm of industrial conglomerate General Electric Co. (GE) were launched at 235 basis points over Treasurys.

- Former U.S. President Bill Clinton met with North Korean dictator Kim Jong Il on Tuesday in Pyongyang, state-run media said, apparently in an attempt to secure the release of two U.S. journalists held there since March. According to a report from South Korea's Yonhap news agency, North Korean radio stations late Tuesday reported that Mr. Kim hosted a dinner for Mr. Clinton.

- A funny thing happened on the way to saving the world’s poor from the ravages of global warming. The poor told the warming alarmists to get lost. This spring, the Geneva-based Global Humanitarian Forum, led by former U.N. General Secretary Kofi Annan, issued a report warning that “mass starvation, mass migration, and mass sickness” would ensue if the world did not agree to “the most ambitious international agreement ever negotiated” on global warming at a forthcoming conference in Copenhagen. According to Mr. Annan’s report, climate change-induced disasters now account for 315,000 deaths each year and $125 billion in damages, numbers set to rise to 500,000 deaths and $340 billion in damages by 2030. The numbers are hotly contested by University of Colorado disaster-trends expert Roger Pielke Jr., who calls them a “poster child for how to lie with statistics.” There’s a lesson in this for those who believe that the world’s environmental problems call for a new era of dirigisme. And there ought to be a lesson for those who claim to understand the problems of the poor better than the poor themselves. If global warming really is the catastrophe the alarmists claim, the least they can do for its victims is not to patronize them while impoverishing them in the bargain.

- 5 Stock Picks for Your Recovering Portfolio.

CNBC:

- The Austrian holiday home of Novartis Chief Executive Daniel Vasella was set on fire early on Monday morning, the latest of a string of attacks on the drugmaker, a spokesman for the Swiss group said on Tuesday. Austrian police said they had not made any concrete findings yet but said on Monday that they were not ruling out arson. The Novartis(NVS) spokesman said that an investigator had told him that a fire accelerant had been found at the scene. "There have been a series of terrorist-like attacks on individuals and company buildings. Last week, the graves of Dr. Vasella's parents were desecrated and the urn with the ashes of his mother was stolen," the spokesman said. "In the case of the desecration of the grave, it was animal right activists," he said, adding that the authorities were currently investigating the incident.

Barron’s:
- A little over two weeks after ComScore (SCOR) reported its data for June U.S. search engine market share, the firm last night reported International search stats after the bell. The report doesn’t provide year-over-year comparisons, just month over month. Google (GOOG) continued to dominate global search with greater percentage than in the U.S. Reflecting on the data this morning, Thomas Weisel analyst Christa Quarles writes in a note to clients that “Google continues to gain audience market share from its competitors and dominates the rankings in the U.S. and globally.” Quarles notes that June was the first month to reflect Microsoft’s push for its Bing search engine, and “while the data indicates a very modest near-term bounce, we will be watching closely to see if any query pickup is sustainable.” Quarles rates Google “Overweight” with a $530 price target.

NY Times:

- Private equity is starting to need help from stock market investors, Breakingviews writes. Last year, buyout fund values dropped less than stocks — on paper, at least. But buyout firms’ investors, known as limited partners, need more certainty, and want some cash back, too. That means these firms need to sell assets. A revival of investor interest in initial public offerings might help them do just that.

- Investors seem to have finally concluded that Barclays’s(BCS) stock is cheap. Having recently traded at a small discount to the British bank’s forecast 2010 book value, its shares rose more than 8 percent after the release of its financial results on Monday. Shareholders are right to be hopeful, Breakingviews.com writes.

MarketWatch:
- Balyasny Asset Management, a $2 billion hedge fund firm run by Dmitry Balyasny, is betting President Barack Obama's drive to reform healthcare will founder and has hired a team of traders from Barclays Capital to focus on the sector. The proprietary trading team at Barclays Capital(BCS) , headed by Matt Jenkin, joined Balyasny recently to manage a healthcare portfolio for the firm, Balyasny wrote in a letter to investors. MarketWatch obtained a copy of the letter. "Healthcare reform appears to be severely wounded," Balyasny said in the letter. "This is a significant positive for the sector and if legislation dies this fall, we expect a number of companies to be positively re-rated." "We are running slightly net long as we grow our healthcare exposure and anticipate a lot of opportunity here in the fall," he added.

- Caterpillar Inc.(CAT) shares rose early Tuesday after the heavy machinery giant said it will benefit from an eventual economic recovery, though it didn't pinpoint when that would occur.

NYPost:

- Goldman Sachs(GS) CEO Lloyd Blankfein has warned his employees to avoid making big-ticket, high-profile purchases as the gold-plated Wall Street firm hunkers down amid a firestorm of public and political anger over outsize bonus payments. According to sources at the bank, Blankfein has Goldman in particular, should be toned down in light of the billions in bailout money that banks, including Goldman, have gotten from Uncle Sam. "This is a sensitive time for us, and [Blankfein] wants to make sure that we're not being seen living high on the hog," said one Goldman exec. A Rolling Stone article referred to the firm as "a great vampire squid wrapped around the face of humanity," while a recent New York magazine piece floated the idea that Goldman benefited from the rescue of troubled insurance giant American International Group. A spokeswoman declined to comment. Goldman's speedy recovery in the wake of the global recession and the demise of many of its rivals has drawn more outrage than awe. Observers question everything from the bank's massive pay to its uncanny ability to serve as a incubator for Washington policymakers. Goldman alumni include former Treasury Secretaries Henry Paulson and Robert Rubin, and Jon Corzine, the current New Jersey governor and former US senator. Goldman accepted $10 billion in rescue funds from Uncle Sam to help it stay afloat last year amid a crisis of confidence on Wall Street but quickly repaid the money thanks to record revenues.

NJ.com:

- A new poll shows Republican Chris Christie is widening his lead in the New Jersey gubernatorial election. The Monmouth University/Gannett New Jersey Poll showed him ahead of incumbent Democrat Jon Corzine 50 percent to 36 percent among likely voters. Nearly three in five likely voters said they disapprove of the job Corzine has done.

Washington Post:

- Late last month, the Securities and Exchange Commission was poised to file suit against a subsidiary of Alabama-based Regions Financial for selling nearly $1 billion in troubled investments. But the agency faced a new dilemma: Regions was on the list of the nation's most troubled large banks and had received $3.5 billion in taxpayer aid. SEC officials considered that filing suit to force Regions to buy back the troubled investments could hurt the bank. Should the agency act, or should it hold off to protect the government's investment? The SEC decided to file. But the quandary shows the difficulty facing the nation's top Wall Street cop at a time when the economic crisis has left the U.S. government as the part-owner or controller of an unprecedented array of financial companies. Protecting investors on the one hand could mean harming taxpayer-owners on the other. And some troubled firms could wind up paying penalties with taxpayer money from the federal bailout.

MultichannelNews:

- Netflix(NFLX), ahead of pay-TV providers, continues extending its own “TV Everywhere” strategy to more devices. Next up: The company will soon offer the Watch Instantly video-streaming feature on Apple(AAPL) iPhones and iPod Touch devices and the Nintendo Wii gaming console, according to an industry executive familiar with Netflix’s plans.

Rassmussen:

- Fifty-four percent (54%) of Americans oppose any further funding for the federal “cash for clunkers” program which encourages the owners of older cars to trade them in for newer, more fuel-efficient ones. A new Rasmussen Reports national telephone survey finds that just 33% of adults think Congress should authorize additional funding to keep the program going now that the original $950 million allocated for it has run out.

Politico:

- Angry protesters shouted down Democrats at public events from Texas to Pennsylvania over the weekend, leaving the party only one real hope for getting its message out over recess: a backlash. In Austin, Texas, Rep. Lloyd Doggett was drowned out by a group of noisy, sign-waving demonstrators who shouted, “Just say no” as he tried to talk about health care reform.

- Liberal Democrats in the House are holding their ground on a key issue in health reform, reiterating their opposition to any health care bill that would require government-sponsored coverage plans to negotiate payments with doctors or other health care providers. In a letter to Speaker Nancy Pelosi, leaders of the 82-member Congressional Progressive Caucus reaffirmed their stand against a deal cut with four conservative Blue Dog Democrats on the Energy and Commerce Committee. These liberal lawmakers are particularly concerned with comments the speaker made to a small group of reporters Friday that were included in a Monday Washington Post story about lingering divisions in her caucus after last week's fractious Energy and Commerce vote. "Are you asking me, 'Are the progressives going to take down universal, quality, affordable health care for all Americans?' I don't think so," Pelosi said with a laugh.

Reuters:
- The "Cash for Clunkers" auto rebate program is not only helping automakers; it is also likely to boost steel and aluminum producers who supply the metals to Detroit carmakers, analysts said on Monday. Already, AK Steel Holding Corp (AKS) and Alcoa Inc (AA) say they expect to benefit from the program, which gives drivers rebates to turn in old, gas-guzzling cars to buy new, more fuel-efficient models.

- Disagreement within the Obama administration over reshaping U.S. financial regulation flared on Tuesday, with top bank regulators defending their turf against key parts of a broad bank supervision overhaul plan. The officials' defiance, voiced before the Senate Banking Committee, came despite a stern warning from Treasury Secretary Timothy Geithner on Friday about the need for administration officials to line up behind White House priorities. In expletive-laced remarks at a private meeting, Geithner urged regulators to end turf battles and support President Barack Obama's plan, said a person familiar with the matter. But that seemed to make little impact on the regulators, who took issue with administration proposals for consolidating bank supervision and taking other steps to tighten oversight of banks and markets amid the worst financial crisis in decades.

- Global sales this year at LG Electronics Inc are likely to beat last year's record-breaking revenue of $44.72 billion, Chief Executive Nam Yong said on Tuesday. The South Korean-based group posted last month a record quarterly profit on strong mobile phone and TV sales although analysts were concerned about potentially weaker margins going forward. "Global sales will be probably be better than last year. Up until now for the first half we had 16 percent more revenues than last year already," Nam told journalists at a news conference in Kiev after visiting LG's Ukrainian operations.

GlobeAndMail:

- People who consume, on average, more than one alcoholic drink daily face a significantly higher risk of developing six types of cancer, according to sobering new Canadian research. The study, published in Tuesday's edition of the medical journal Cancer Detection and Prevention, is one of the most detailed examinations of the relationship between drinking and cancer ever done. It found that moderate and heavy drinkers of beer and spirits are markedly more likely to develop cancer than teetotallers or occasional drinkers.

Dagens Industri:

- Volvo Cars, the Swedish automaker owned by Ford Motor Co., has seen an increase in orders in Sweden and is likely to raise its 2009 sales outlook by 10,000 vehicles to 195,000, citing Volvo Cars.

InternationalBusinessTimes:

- Senior officials from Apple Inc(AAPL) are to visit China to restart the top level negotiations with China Unicom on iPhone's entry into the huge Chinese market, local media Sina.com reported on Tuesday morning (Beijing time).

Bear Radar

Style Underperformer:
Large-Cap Growth (-.76%)

Sector Underperformers:
Oil Service (-2.13%), HMOs (-1.63%) and Oil Tankers (-1.16%)

Stocks Falling on Unusual Volume:
RDC, EEP, PTNR, FMR, BAM, UBS, AIXG, ACOR, STEC, PTRY, IPHS, TXRH, SMSI, MASI, PPL, GB, HLF and FCN

Stocks With Unusual Put Option Activity:
1) CHRW 2) WFMI 3) LLTC 4) TXT 5) EK

Bull Radar

Style Outperformer:
Small-Cap Value (+.75%)

Sector Outperformers:
Airlines (+4.36%), Gaming (+2.0%) and REITs (+1.17%)

Stocks Rising on Unusual Volume:
UTR, OB, PAS, PBG, DISH, EGO, CAT, CNH, LBTYA, PAAS, BW, OFG, FTT, CS, HURN, WMGI, SVVS, CTSH, LOPE, WATG, HMIN, POWL, SYKE, HGSI, EBIX, EXBD, DWSN, CPHD, WYNN, WIRE, AGNC, BRKR, MIDD, CPL, PEP, TRW, NPO, BKD, WMS and NTG

Stocks With Unusual Call Option Activity:
1) NUAN 2) MBI 3) AGN 4) ALL 5) LLTC

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
Chart Toppers
Real-Time Intraday Quote/Chart
HFR Global Hedge Fund Indices

Tuesday Watch

Late-Night Headlines
Bloomberg:

- Chinese stocks may fall by as much as 18 within the next three months as the benchmark Shanghai Composite Index’s plunge on July 29 is a “warning” to investors of steeper declines, said Carter Worth, chief market technician at Oppenheimer & Co. The Shanghai index is rising at an “unjustifiably steep angle” and recent declines in the benchmark, including the 5% drop last week, are occurring in unusually heavy volume, he said today from New York. Worth is recommending clients reduce their holdings in Chinese stocks by as much as half. “The market does not go higher from here,” Worth said. “There has been virtually no pullbacks and it needs to pull back to be healthy.” Worth said the odds of China stocks falling or “trading sideways” in the next 10 to 154 weeks are 90%.

- A third of Russia’s 42,000 clothing retailers will close by the end of this year after the economic crisis hurt local spending, according to the head of the European Fashion and Textile Export Council. The likely retail failures and order cutbacks in Russia mean companies in fashion-exporting nations such as Germany will deliver less apparel for the winter season, said Reinhard Doepfer, who leads the Brussels- and Stuttgart-based industry group. He said the Council surveyed German clothing makers and found an average of 35 percent of their deliveries to Russia would be unsold this summer.

- Macau casino billionaire Stanley Ho underwent brain surgery after suffering a head injury in a fall and is in intensive care in a Hong Kong hospital, Apple Daily reported today, citing people it didn’t identify.

Wall Street Journal:

- Stocks powered their way to two new milestones Monday amid a growing belief that the recession is over and better days lie ahead. Eleven days after the Dow Jones Industrial Average surpassed 9000, Standard & Poor's 500-stock index broke through 1000, and the Nasdaq Composite Index passed 2000.

- Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting. The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf. Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair. Friday's roughly hourlong meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies. Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators. "You are talking about tremendous regulatory power being invested in whatever this entity is going to be," Ms. Bair told the Senate Banking Committee last month. "And I think, in terms of checks and balances, it's also helpful to have multiple views being expressed and coming to a consensus." Officials from the Federal Reserve and the Office of the Comptroller of the Currency, meanwhile, have questioned the creation of a new federal agency to oversee consumer regulations, a move that would take away powers from both institutions. In addition to Mr. Bernanke, Ms. Bair and Ms. Schapiro, other attendees at Friday's meeting were: Fed Governor Daniel Tarullo, Comptroller of the Currency John Dugan, Commodity Futures Trading Commission Chairman Gary Gensler and Office of Thrift Supervision Acting Director John Bowman. The top Republicans on these committees, Sen. Richard Shelby (R., Ala.) and Rep. Spencer Bachus (R., Ala.), have also expressed skepticism over ceding too much power to the Fed."A rush to judgment where they basically throw these things together without any consensus is going to be a disaster," Rep. Bachus said.

- Robert Mueller deals in chemicals for a living -- things that can unstick glue, thin paint, make plastic -- but he'd never seen an order like the one he got for sodium silicate. The compound is typically used to repel bugs or seal concrete, but this buyer's online order form betrayed a whole different intent: "To Kill Car Engines." "That worried me a little, so I picked up the phone and called the gentleman," recalls Mr. Mueller, an owner of chemical-firm CQ Concepts Inc. in suburban Chicago. What Mr. Mueller discovered is that sodium silicate is the designated agent of death for cars surrendered under the federal cash-for-clunkers program. To receive government reimbursement, auto dealers who offer rebates on new cars in exchange for so-called clunkers must agree to "kill" the old models, using a method the government outlines in great detail in its 136-page manual for dealers: Drain the engine of oil and replace it with two quarts of a sodium-silicate solution. At dealerships across America, mechanics accustomed to fixing engines are battling for the chance to ruin them. "Everybody wants to go first, so I'm probably going to have to make them draw straws," says Jim Burton of Randy Curnow Buick Pontiac GMC in Kansas City, Kan. As service manager, however, he might reserve that thrill for himself. "I can't wait," he says.

- Hospitals are costly places. Andrew Thompson hopes his company can help keep people out of them. His Silicon Valley start-up, Proteus Biomedical Inc., is testing a miniature digestible chip that can be attached to conventional medication, sending a signal that confirms whether patients are taking their prescribed pills. A sensing device worn on the skin uses wireless technology to relay that information to doctors, along with readings about patients' vital signs.

- With plenty of videogames available for downloading, gamers no longer have to leave their bedrooms. But investors should beware pulling the plug on GameStop(GME).

- Placement agents’ worst nightmares have come true, as the Securities and Exchange Commission Monday released the full, 114-page documentation supporting proposals on ending pay-to-play problems at public pension funds that it made last month. The documentation affirms what many placement agents had feared after reading the short initial proposal from the SEC, which was somewhat vague: under the new rules, private equity firms would be banned from using placement agents to solicit business from government pension fund clients.

- China's banking regulator may limit a popular capital-boosting technique in a way that could put a crimp on loan growth, a person familiar with the situation said Monday. The China Banking Regulatory Commission may deem subordinated bonds issued by a bank ineligible as capital if those bonds are held by another bank, the person said. The banking regulator estimates about half the subordinated bonds in circulation are held by other banks. Already this year, Chinese banks have issued 210.9 billion yuan ($30.87 billion) of subordinated bonds, nearly triple the 72.4 billion yuan issued in all of 2008. Analysts said any curb on how subordinated debt can be used would likely slow lending, because it would limit the appetite of the market's biggest investors, which are banks. She Minhua, an analyst at Haitong Securities, said, "Changing the rules would effectively cause a further decline in banks' capital adequacy ratios, so the fastest way for them to maintain a healthy ratio would be to cut loans." Analysts say Chinese authorities have grown concerned that high levels of lending this year will result in an increase in bad debt. Chinese banks extended 7.4 trillion yuan in new loans during the first half of this year, equivalent to half of the country's gross domestic product for the period.

- Lilly Ventures, the venture capital arm of Eli Lilly & Co., has spun out from its parent in an effort to compensate its members more like a traditional venture firm.

Barron’s:

- ONLINE-FINANCIAL-SERVICES COMPANY E*Trade Financial (ticker: ETFC) has seen egregious losses during the recession, as the stock has fallen from the high $20s in 2006 to below a dollar this year on its subprime exposure. But one hedge fund seems to see glimmers of hope for the overlooked technology aspects of the businesses and is now a 5% owner. On July 29, Coatue Management disclosed that it owns 56,057,572 shares, or a 5.03% stake in E*Trade.

CNBC.com:
- Frustrated with the pace of bipartisan talks, Democratic leaders on Monday promised to push a sweeping health care bill through the Senate whether they get Republican support or not. Sen. Chuck Schumer, D-N.Y., the third-ranking Senate Democrat, raised the prospect of the leadership crafting a bill to Democratic specifications and using a rare legislative procedure to expedite legislation fulfilling President Barack Obama's top domestic priority. Schumer said Democratic leaders continue to look at invoking a procedural maneuver that would allow them to pass the health bill with 51 instead of 60 votes. A spokesman for Senate Minority Leader Mitch McConnell, R-Ky., scoffed at Schumer's complaints. He noted that Schumer himself hasn't committed to supporting whatever the Finance negotiators produce and that other Democrats have also criticized the plan that's taking shape.

NY Times:

- A small placenta can endanger a fetus by limiting the delivery of food and oxygen. Now researchers at Yale have developed an easy method of measuring the volume of the placenta during pregnancy.

- An extremist Shiite group that has boasted of killing five American soldiers and of kidnapping five British contractors has agreed to renounce violence against fellow Iraqis, after meeting with Iraq’s prime minister. The prime minister, Nuri Kamal al-Maliki, met with members of the group, Asa’ib al-Haq, or the League of the Righteous, over the weekend, said Ali al-Dabbagh, a spokesman for the prime minister, confirming reports. “They decided they are no longer using violence, and we welcome them,” he said in a telephone interview.

CNNMoney.com:

- Does General Electric(GE) need to put aside more cash to handle bad loans at its finance arm? GE says it doesn't -- it even insists it has higher loan loss reserves than the biggest US banks. But investors aren't fully convinced. And a look at just one small slice of GE Capital's $650 billion of assets suggests why they are right to be skeptical.

Forbes:

- Analysts don't anticipate that The IntercontinentalExchange(ICE) will be hurt by possible upcoming regulatory changes. Meanwhile, ICE continues to try to build a transparent market place for derivative securities and credit default swaps.

Rasmussen:

- A new Rasmussen Reports national telephone survey finds that only 22% expect the situation there to get better, down seven points from a month ago. The plurality (41%) says things will get worse in the coming months, an increase of two points since the beginning of July.

USA Today.com:

- The stock market may be roaring, but mutual fund investors are snoring. The Dow Jones industrial average has soared 9.9% since June 30, and gains like that usually attract big inflows to stock funds. Not this time. In fact, fund investors are far more interested in bonds than stocks. Investors bought a net $2.3 billion of stock funds the week ended July 22, according to the Investment Company Institute, the funds' trade group. Net purchases for July 1 through July 22, the latest figures available: $4.1 billion. But investors remain far more interested in bonds, which have fared far better than stocks the past decade. Total purchases for bond funds from July 1 through July 22: $28.8 billion. TrimTabs.com, which tracks fund flows, estimates that another $5.2 billion has flowed into stock funds the past five days — more than in the previous four weeks combined. But even that figure is dwarfed by TrimTabs.com's estimate of $12.3 billion that sloshed into bond funds the past five days.

Reuters:

- A U.S. bank regulator is expected to move quickly in finalizing guidelines on private equity investments in failed banks, possibly easing one of its most controversial proposals, sources said on Monday. The rules could be finalized as soon as this month and could see a key measure that is being proposed for banks to be bought by private equity, the Tier 1 leverage ratio, reduced from a proposed 15 percent to around 10 percent, industry sources said. Uncertainty over the Federal Deposit Insurance Corp's rules has stalled plans by investors to buy banks, and slowed some deals already in the works, sources previously told Reuters.

Financial Times:

- Market traders and investors will get a chance to express their views on proposed new short-selling rules in Europe next month, when the Paris-based Committee of European Securities Regulators holds a public hearing on its planned two-tier disclosure system. Under the CESR proposals, outlined in July, hedge funds and other short sellers could be obliged to reveal short positions of as little as 0.1 per cent of a company’s outstanding equity to the regulator of the most liquid market for the stock. These disclosures would remain private – between the investor and the regulator – but a short position which reached 0.5 per cent of more of the outstanding stock would have to be publicly disclosed. Market participants would also need to take account of any position that amounted to an “economic exposure” to a particular share – so that exchange-traded and over-the-counter derivatives would also be covered by the proposed rules. US regulators have also said they are watching international developments closely and would consider amending their plans if an international consensus begins to develop.

- The prices of the most traded risky European and US loans have reached their highest levels for more than a year, in a further sign of improving conditions in credit markets. Over the past week, European leveraged loan prices reached 89.11 per cent of face value, a high not seen since July 10, 2008, according to Standard & Poor’s LCD and Markit. The same is true for riskier US loans, for which the average price bid rose above 90 per cent of face value for the first time since June 24, 2008. Growing confidence in an economic recovery was further highlighted by a fall in a key barometer of financial stress, the spread between three-month dollar Libor – the rate banks charge each other to borrow – and three-month US Treasury bills. This so-called TED spread fell to its lowest level for two years on Monday – 29.3 basis points – having reached a high of 464bp last October. The rally in loan prices above a key threshold of 80-85 per cent of face value will also reduce pressure on collateralised loan obligations, complex funds that pool loans, which at the height of the credit boom accounted for 60 per cent of the demand for leveraged loans. As the price of their assets fall below 85 per cent, or more commonly 80 per cent, of face value, CLO managers have to mark-to-market those loans, which can lead to them breaching collateral tests and cutting off management fees. Rating agencies have warned about the potential systemic risk posed by CLOs because many of them were exposed to the same borrowers. Moreover, the rising loan prices should reduce the risk of a growing number of zombie CLOs – funds where managers have reduced management operations owing to the lack of fees, which threatened to make restructuring corporate debt difficult. The recovery in prices has led to an “outstanding” year for loan funds, according to one loan investor. Returns to European loan funds were up 22 per cent, and up 32 per cent for US loan funds during the first half of 2009, according to Standard & Poor’s. Loan funds in the US and Europe were down by about 30 per cent in 2008.

Shanghai Securities News:

- Property transactions in the Chinese cities of Beijing, Shanghai, Guangzhou and Shenzhen fell last month from June because of high prices, citing analysts.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (DOW), target $27.

William Blair:

- Rated (MYGN) Outperform.

Night Trading
Asian Indices are +.50% to +1.50% on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.15%.
NASDAQ 100 futures -.15%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (THC)/-.03

- (SPG)/1.37

- (HSIC)/.76

- (MLM)/.77

- (UPL)/.46

- (HEW)/.60

- (IT)/.17

- (MVL)/.32

- (JOE)/-.20

- (PPL)/.39

- (DBD)/.33

- DHI)/-.21

- (DUK)/.25

- (DISCA)/.32

- (EMR)/.57

- (ADM)/.44

- (CAM)/.47

- (CVS)/.64

- (KFT)/.54

- (CEPH)/1.31

- (ERTS)/-.14

- (WFMI)/.20

- (BMC)/.49

- (JACK)/.57

- (ED)/.50

- (PZZA)/.34

- (ICE)/1.13

- (CNO)/.22

- (ONXX)/.20

- (RDC)/.74

- (OPEN)/.04

- (DNR)/.17

Economic Releases

8:30 am EST

- Personal Income for June is estimated to fall 1.0% versus a 1.4% gain in May.

- Personal Spending for June is estimated to rise .3% versus a .3% increase in May.

- The PCE Core for June is estimated to rise .2% versus a .1% gain in May.

10:00 am EST

- Pending Home Sales for June are estimated to rise .7% versus a .1% gain in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Tarullo speaking, weekly retail sales reports, ABC Consumer Confidence reading and the (CAT) analyst event could also impact trading today.

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