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Thursday Watch

Late-Night Headlines
Bloomberg:

- The U.S. Securities and Exchange Commission may seek more feedback on whether to limit short- selling, people familiar with the matter said, prolonging a debate between hedge funds and banks whose shares slid during the financial crisis. The SEC is considering re-opening the comment period on proposals that include reviving the so-called uptick rule, said the people, who declined to be identified before a public announcement.

- Goldman Sachs Group Inc.(GS), the most profitable trader of fixed-income securities in the U.S., said it’s cooperating with government inquiries relating to the credit-default swaps market. The U.S. Justice Department last month confirmed it was investigating the $27 trillion market for trading credit default swaps. The Department is trying to determine whether the banks that own Markit Group Ltd.., a London-based data provider, received advantages as owners and providers of prices and trading patterns for the contracts, according to two people familiar with the matter. Goldman Sachs is one of the shareholders in Markit, along with New York-based JPMorgan Chase & Co., Bank of America Corp. of Charlotte, North Carolina, and Edinburgh’s Royal Bank of Scotland Group Plc, filings show. The investigation is looking at possible anticompetitive practices related to clearing, trading and processing contracts in the market, the Justice Department said July 15. The government also is focused on potential anticompetitive practices by Markit related to negotiations with clearinghouse owners that have set up services to guarantee trades, people familiar with the matter said this week.

- Treasuries declined for a third day after the U.S. announced it will sell a record $75 billion of notes and bonds at next week’s auctions and Goldman Sachs Group Inc boosted its forecast for U.S. economic growth. Thirty-year bond yields touched their highest levels in a week as the government signaled it’s considering the introduction of 30-year Treasury Inflation Protected Securities and ending 20-year TIPS as it finances unprecedented budget deficits. Goldman Sachs, one of the 18 primary dealers that trade with the Federal Reserve, said GDP will grow at an annual rate of 3 percent in the second half of 2009, an increase over its previous forecast of 1 percent growth.

- President Barack Obama warned Republicans that he may soon consider abandoning efforts to get a bipartisan deal on a health-care overhaul and try to push legislation through Congress without their help. “At some point, sometime in September, we are just going to have to make an assessment” about continuing to seek a bipartisan agreement with Republican senators, Obama said in an interview with MSNBC. “I would prefer Republicans working with us on that because I think it’s in the interest of everybody.” Obama said he may consider an alternative course to working with the other party because “failure is not an option” in attempting to pass a health-care bill Earlier this week, New York Senator Charles Schumer, a member of the Senate Democratic leadership team, said his party would consider other ways to get health-care legislation through the Senate if a deal isn’t reached by Sept. 15. Schumer said one option might be to use the budget- reconciliation mechanism, which would allow the Senate to pass the legislation by a simple 51-vote majority. Under Senate procedures, it usually takes 60 votes to bring up contentious legislation and complete debate on it. House Republican leaders have argued that Democrats excluded them from the process of writing health-care legislation that three House committees have approved.

- Hazan Capital Management LLC and owner Steven Hazan agreed to pay $4 million to settle Securities and Exchange Commission claims the firm made naked-short sales, the agency’s first enforcement against the abusive practice. Hazan and the New York-based company were accused of betting that share prices would fall without borrowing and delivering the shares, the SEC said in a statement today. “We’re looking at the conduct of a number of other firms and that part of the investigation is continuing,” Scott Friestad, associate director of the SEC’s enforcement division, said in an interview. “These violations are not limited to smaller broker dealers.”

- American Express Co.(AXP) said write-offs tied to uncollectible credit-card debts fell to 9.2 percent in July, and the economic slump may be easing. The decline from 9.9 percent in June on managed holdings may represent real improvement, since seasonal boosts have worn off, Chief Executive Officer Kenneth Chenault said during an investor presentation today. American Express had also reported fewer write-offs in the two previous months. The company said fourth-quarter defaults will probably stay below 10 percent. While the company isn’t ready to “declare victory,” the economic environment is “stabilizing,” Chenault said. Bankruptcies are rising more slowly than forecast, and the role of the federal stimulus is unclear, the company said.

- The U.S. Securities and Exchange Commission is forming five specialty units of investigators, taking steps to speed subpoenas and giving people more incentive to cooperate with investigations, the enforcement director said. The groups will investigate cases in asset management, structured products, municipal securities and public pensions, foreign corrupt practices and market abuse, Robert Khuzami, SEC director of enforcement, said in a speech today in New York. Supervisors will have authority to issue subpoenas without a vote of commissioners.

- Cisco Systems Inc.(CSCO), the largest maker of networking equipment, predicted that revenue will drop for a fourth straight quarter as the recession crimps orders of networking equipment. Cisco, based in San Jose, California, fell 74 cents to $21.43 in late trading after giving the forecast. The shares, up 36 percent this year, closed at $22.17 today on the Nasdaq Stock Market.

- Lenovo Group Ltd., China’s biggest personal-computer maker, reported a smaller-than-estimated loss as improved domestic sales helped compensate for a slump in demand from the U.S. and Europe. The net loss in the fiscal first quarter ended June 30 was $16 million, compared with a $110.5 million profit a year earlier, Lenovo said in a statement today. The company was expected to post a $54 million loss, according to the median of five analysts’ estimates in a Bloomberg survey.

- China’s stocks fell, with the Shanghai Composite Index posting its first back-to-back losses in three weeks, as investors speculated the central bank may rein in lending and commodity prices declined. Citic Securities Co. and Baoshan Iron & Steel Co. retreated more than 3 percent after the People’s Bank of China said it will fine-tune monetary policy where necessary and guide “appropriate” lending growth. Jiangxi Copper Co., the nation’s biggest producer of the metal, slumped 5 percent and PetroChina Co., the world’s most valuable company, slipped 2 percent as copper and crude oil prices dropped. “The ‘fine-tune tone’ is spooking investors who are worried that the central bank will follow up with tightening measures, such as hiking the reserve ratio,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. “With the market at a highflying level, investors are very sensitive to any news related to liquidity.”

Wall Street Journal:

- This just in: former representative William Jefferson (D-LA), has been convicted on 11 of 16 criminal counts. The jury returned its verdict late Wednesday afternoon. The eight-woman, four-man jury convicted Jefferson on 11 of 16 counts that included bribery, racketeering and money laundering.

- Who doesn't like the government's "cash for clunkers" program? Your mechanic, for one. Owners of automotive repair shops say the program to help invigorate sales of new cars is succeeding at their expense. Bill Wiygul, whose family owns four repair shops in Virginia, said he has already had five or six customers decide against repairs. A man who sits on the board of Mr. Wiygul's bank traded in his car rather than repair it. "He'd been a customer at our Reston store since it opened," Mr. Wiygul said.

- Wall Street banks and lawyers could collect nearly $1 billion in fees from the Federal Reserve Bank of New York and American International Group Inc. to help manage and break apart the insurer, according to a Wall Street Journal analysis. That would represent one of Wall Street's biggest paydays -- four times the fees paid to break up AT&T Corp. in 1996, and nearly double those paid for Visa USA's 2008 initial public offering, the largest U.S. IPO ever. The federal government's bailout of AIG has left it with a nearly 80% ownership stake. The government has a multiyear plan to recoup the more than $100 billion in taxpayer money it put at risk in the rescue. Among the biggest beneficiaries is Morgan Stanley, which has earned about $10 million assisting the Fed, but could collect as much as $250 million from various AIG-related deals, according to some banking experts and documents released by the New York Fed. Goldman Sachs Group Inc., Bank of America Corp. and J.P. Morgan Chase & Co. have all gotten assignments in recent months to help dismantle AIG. The situation puts the government in the potentially uncomfortable position of employing some of the same firms it regulates. In theory, actions the government takes in connection with those firms, for example, could affect how effective the firms are at handling their AIG assignments. "I'm confident we can separate the two" issues, said a spokesman for the Treasury.

- Federal Reserve officials could move in the coming weeks to extend the life of a program aimed at reviving consumer and business lending markets. The program -- called the Term Asset-Backed-Securities Loan Facility, or TALF -- will be one of several issues on the table at the Fed's next policy meeting Aug. 11 and 12, when Fed governors meet with presidents of the Fed's 12 regional banks to set a path for interest rates. They also will consider whether to extend a program due to expire in September to purchase $300 billion worth of long- and medium-term U.S. Treasury securities. Officials could decide at the meeting to let that program run its course and stop buying Treasury bonds, though the issue isn't settled.

- Hedge-fund manager Leda Braga posted gains of 43.4% last year, even as many of her peers reported steep losses. But this year, as many markets have rallied, Ms. Braga's roughly $7 billion BlueTrend Fund is down about 5.5%. Others trend-followers experiencing similar problems include Man Group PLC's $20.4 billion AHL Fund and Winton Capital Management Ltd.'s $11 billion fund, both of the U.K. AHL and Winton are down 12.5% and 8.4% this year, respectively.

MarketWatch.com:
- Toyota Motor Corp. President Akio Toyoda said Thursday the Japanese auto maker will launch an electric vehicle in the U.S. by 2012, with the auto market there expected to fully recover soon, reports said.

- Following an uproar earlier this year over indications the Obama administration might strip companies of their ability to defer U.S. taxes on their overseas profits, the topic has receded from the political spotlight. But according to second-quarter lobbying reports, large technology firms -- which tend to keep large portions of their profits tucked away overseas to avoid U.S. taxes -- have continued pressing Washington, D.C. lawmakers and regulators on the issue. Their persistence underlines the high stakes still at play, as companies such as Oracle Corp.(ORCL) and Microsoft Corp.(MSFT) eye a threat to significant amounts of income made and held offshore. "Clients are still very anxious," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, even as many now see it as "a next-year issue."

NY Times:

- Lloyd C. Blankfein has a story about the cataclysm that nearly brought down all of Wall Street. It goes something like this: One by one, lesser banks were swept away by the financial storm of 2008. And as the floodwaters rose, no one, not even Goldman Sachs(GS), seemed safe. The question, in Mr. Blankfein’s eyes, was how high the water would rise. But Washington stepped in with all those bailouts before the surge reached Goldman. The story, which was recounted by several friends and colleagues, represents a sobering private admission from Mr. Blankfein, Goldman’s chief executive. Publicly, it is a different story. Now that Goldman is minting money again, the bank insists that it was never in any real danger.

Politico:

- With the fight over health care reform absorbing all the bandwidth on Capitol Hill, Democrats fear a major climate change bill may be left on the cutting-room floor this year. A handful of key senators on climate change are almost guaranteed to be tied up well into the fall on health care. Democrats from the Midwest and the South are resistant to a cap-and-trade proposal. And few if any Republicans are jumping in to help push a global warming and energy initiative. As a result, many Democrats fear the lack of political will and the congressional calendar will conspire to punt climate change into next year.

Rasmussen:

- One-in-three likely voters (33%) now say the United States is heading in the right direction, according to the latest Rasmussen Reports national telephone survey. Most voters (60%) continue to believe the nation is heading down the wrong track.

The Washington Post:

- The Obama administration launched a broad government effort this week to overhaul mortgage giants Fannie Mae and Freddie Mac and is considering splitting the companies and putting their troubled assets in a new federally backed corporation, administration officials said. Such an approach would keep the government on the hook for losses into the indeterminate future but would also clear the way for the revamped companies to play a critical role of financing home loans throughout the country. The move would dispense with one of the biggest burdens created by the financial crisis: the hundreds of billions of dollars in money-losing home loans owned by District-based Fannie Mae and Freddie Mac. The government has already pledged nearly $2 trillion, including $85 billion in direct aid, to keep the mortgage market working through the firms. The companies' regulator, James B. Lockhart III, director of the Federal Housing Finance Agency, who announced he is resigning Wednesday, confirmed that the administration is discussing the "good bank bad bank" model.

Reuters:

- Shares of battered financial companies including insurer American International Group Inc (AIG) and lender CIT Group (CIT) soared on Wednesday, as investors rushed to buy shares to cover short positions in the companies. AIG shares closed up 62.7 percent on the New York Stock Exchange, ahead of its quarterly earnings report due on Friday and as a new chief executive prepares to take up his position on Monday. "It seems like the short sellers were hoping that these financial institutions would show some signs of insolvency," said Joseph Cusick, senior market analyst at online brokerage optionsXpress in Chicago. "Over the last couple of days we have seen money flow into these stocks because of the perception of their cheap valuation ... now we are seeing shorts being squeezed and potentially covering their positions," he said. Dick Bove, a bank analyst with Rochdale Securities, said AIG and CIT Group were also benefiting from a growing appetite for risk. "Money is now pouring into the junk bonds, the high grades, commercial paper and everything financial," Bove said. The broader KBW Banks index .BKX rose 3.54 percent.

- Flat-screen maker LG Display Co Ltd said on Thursday its computer monitor panel sales in July rose 75 percent from a year earlier to a record 4.2 million units, helped by its recent capacity expansion. South Korea-based LG Display, the world's No. 2 maker of liquid crystal display (LCD) screens, said in a statement that replacement demand was helping the monitor panel market despite the global downturn. Global LCD monitor shipments are expected to resume growth to increase by 3 percent in 2010 and 8 percent in 2011, after contracting by 5 percent in 2009, according to DisplaySearch forecasts provided by LG.

- Bank supervision and consumer protection should not be separated, said Federal Reserve Chairman Ben Bernanke in a letter to a U.S. lawmaker obtained by Reuters on Wednesday regarding the Obama administration's proposal to create a Consumer Financial Protection Agency. "We believe that prudential supervision and consumer compliance supervision are complementary and should not be separated," Bernanke wrote to Republican Representative Spencer Bachus in the letter dated July 28. Bernanke's statement was one of the clearest signals so far of the Fed's position on the administration's proposal to strip the central bank and other bank regulators of consumer protection duties and centralize them in a new agency.

Financial Times:

- The US Securities and Exchange Commission should fund itself directly from industry fees, a system that would allow it to tackle more complex investigations and invest more in technology and skilled people, Mary Schapiro, its chairman, told the Financial Times. The SEC rakes in more than $1bn annually in registration and transaction fees but, unlike other US financial regulators, cannot spend any of it without going to Congress each year to have its budget approved. That has made it difficult to plan ahead and invest in multi-year information technology projects.

- Google(GOOG) is set to go head-to-head with Apple(AAPL) in China as the country’s largest mobile operator prepares to launch a range of customized smartphones based on Google’s Android operating system. China Mobile, the world’s largest mobile operator by subscribers, will fire the opening shot in a battle for high-value subscribers with the launch of the 3G OPhone, which runs the Android source code. The launch of the OPhone by China Mobile comes as smaller rival China Unicom is nearing an exclusive agreement with Apple to sell the iPhone in China for three years. A deal with Apple would give China Unicom a powerful tool to poach young mobile users from the market leader. The OPhone, the first of China Mobile’s 3G smartphones, is made by Lenovo Mobile . The OPhone could launch as early as next week provided the marketing is ready, sources close to Lenovo Mobile said. China Mobile will also launch a version of HTC’s Android-based Magic smartphone simultaneously. The device will trade under the Dopod brand used by Taiwan’s HTC in China, industry sources said. According to industry sources, China Mobile is expected to offer a subsidy of up to Rmb2,000 on the OPhone, almost half the price of the device, to its pre-paid and contract customers.

- Investment banking, an industry that was on life support as recently as last autumn, is booming again as companies and governments raise vast amounts of fresh capital to shore up their finances. The top 12 investment banks have raked in total revenues of $136bn before expenses in the first half of the year, according to new research compiled by analysts at Morgan Stanley. Goldman, JPMorgan Chase, Credit Suisse, Deutsche Bank and BarCap have emerged as winners amid the fallout from the credit crunch. With many of its other competitors on Wall Street now under strict government oversight, Goldman, which has earned nearly $22bn in the first half of 2009, is expected to solidify its position as liquidity returns to the market and mergers and acquisitions activity finally picks up. The firm, recently dubbed a "great vampire squid wrapped around the face of humanity," by Rolling Stone magazine, has already set aside $11.4bn to pay staff for the first six months of the year. If its second-half earnings stay on track, it would pay out an average of $770,000 to each of its 29,400 employees.

- Rupert Murdoch has vowed to charge for all the online content of his newspapers and television news channels, going well beyond his prediction in May that the company would test pay models on one of its stronger papers within the year. The comments by News Corp’s chairman came as he predicted a “high single digit” rebound in the group’s operating profits next year. The worst of the media sector slump might be behind the company, he said, as he reported “some good signs of life” in advertising. The sweeping decision by the owner of titles including The News of the World and The Australian to abandon the practice of giving away news in exchange for attracting a large audience for advertisers could embolden other publishers warily examining paid content models. “We intend to charge for all our news websites,” Mr Murdoch said. “If we’re successful, we’ll be followed by all media,” he added, predicting “significant revenues” from charging for differentiated news online.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (RIG), target $100.

CSFB:

- Reiterated Outperform on (PWR), target $27.

Night Trading
Asian Indices are -.75% to +.50% on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.34%.
NASDAQ 100 futures -.59%.

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Earnings of Note
Company/EPS Estimate
- (EAT)/.49

- (WEN)/.06

- (GBE)/-.35

- (BX)/.09

- (CKP)/.12

- (ATK)/1.96

- (WMB)/.17

- (MXIM)/.06

- (CSC)/.51

- (VRSN)/.31

- (SQNM)/-.27

- (ASEI)/.88

- (IPI)/.23

- (BZH)/-1.84

- (HANS)/.60

- (DTV)/.43

- (NILE)/.19

- (MCHP)/17

- (ACS)/.97

- (PSA)/1.20

- (EP)/.20

- (CBS)/.07

- (CMCSA)/.26

- (NVDA)/-.02

- (KCP)/-.27

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 580K versus 584K the prior week.

- Continuing Claims are estimated to rise to 6250K versus 6197K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The EIA natural gas inventory report, ICSC Chain Store Sales report, Oppenheimer Healthcare IT Conference, (VPRT) shareholder meeting and the (THQI) shareholder meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by energy and shipping 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.

Stocks Finish Lower, Weighed Down by HMO, Biotech, Defense, Oil Service and Telecom Shares

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In Play

Stocks Lower into Final Hour on Profit-Taking, Healthcare Reform Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising .36% and is very high at 25.0. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .73. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .42. The Euro Financial Sector Credit Default Swap Index is rising 4.28% today to 79.61 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 .96% to 112.95 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .51% to 29 basis points. The TED spread is now down 437 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 4.50% to 43.56 basis points. The Libor-OIS spread is falling 1.29% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 6 basis points to 1.94%, which is down 72 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Today’s overall action marks another healthy consolidation day, in my opinion. Many market leading stocks have displayed relative strength throughout the day. It is a large positive to see resilience in the major averages, despite rolling pullbacks in select groups. This is a healthy technical development. Moreover, as long as (IYR)/(XLF) remain so strong a meaningful broad market correction is highly unlikely. Cyclicals are also showing relative strength again today. I still believe energy prices and long-term rates will remain rangebound, which is also a large broad market positive. On the negative side, healthcare-related stocks are very weak today on continuing healthcare reform worries and energy-related stocks are displaying meaningful weakness despite oil's recent rise. Nikkei futures indicate an +93 open in Japan and DAX futures indicate an +40 open in Germany tomorrow. I expect US stocks to trade modestly 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 group Congress set up to shine light on the Treasury’s handling of the $700 billion financial system bailout is facing internal criticism about its own secrecy. The Congressional Oversight Panel, headed by Harvard Law School professor Elizabeth Warren, has split along partisan lines over drafting a budget and releasing transcripts of its weekly meetings. The group’s two Republicans, whose demands for more public information have been rejected by the three Democratic appointees, say the panel needs to follow the same rules it demands of the Treasury. “This is not the Justice Department, where we’re talking about launching midnight raids,” said Representative Jeb Hensarling, a Texas Republican and panel member who has failed three times to get the transcripts released. “We ought to err on the side of full disclosure to the American people.”

- Childbearing is making a comeback in the world’s wealthy industrialized nations including the U.S., after fertility dropped in the late 20th century, a study suggests. From 1975 to 2005, fertility dipped in countries as economic development rose, then began to rise in places that reached the highest levels of development, according to a study in the journal Nature. The bounce back of fertility suggests that advanced development doesn’t have to mean a vanishing population as some had feared, the research found.

- Ford Motor Co.(F), General Motors Co. and Chrysler Group LLC are among the recipients of $2.4 billion in federal grants President Barack Obama announced today to encourage the development of hybrid and electric vehicles. The funds include $1.5 billion for makers of batteries and $500 million for companies making electric motors and drive components. An additional $400 million will be used to test a system for recharging electric-powered cars.

- American International Group Inc., the insurer bailed out by the U.S., gained 38 percent to a one- month high after Radian Group Inc. posted a profit, boosting shares of financial guarantors. AIG advanced $5.17 to $18.69 at 12:46 p.m. in New York Stock Exchange composite trading. The insurer has plunged 97 percent in the past 12 months after the U.S. was forced to save the company from insolvency with a bailout that swelled to $182.5 billion. Traders “are pointing to the Radian numbers that are taking all the financial guarantors higher,” said Robert Bolton, managing director for trading at Mendon Capital Advisors Corp. Radian gained 51 percent, the most since going public in 1992 after posting a second-quarter profit on lower provisions for mortgage defaults. MGIC Investment Group Inc., Ambac Financial Group Inc. and Triad Guaranty Inc. each surged more than 15 percent.

- President Barack Obama’s effort to revamp the U.S. health-care system is drawing increasing disapproval from Americans worried about higher deficits, a Quinnipiac University poll shows. The July 27-Aug. 3 poll found that 52 percent of American voters disapprove of the way Obama is handling the health-care issue and 39 percent approve. That’s a switch from the 46 percent who approved and 42 percent who disapproved in late June, the university’s polling institute said. Almost three-quarters of the respondents said they don’t believe Obama’s promise that Congress can pass a health-care measure without adding to the budget deficit. And 57 percent say the legislation should be dropped if it adds “significantly” to the deficit, Quinnipiac said. “It’s obviously a problem for the people who are trying to push health-care reform,” said Peter Brown, assistant director of the Hamden, Connecticut-based polling institute, in an interview with Bloomberg Television. “The White House and Democratic leadership are very concerned that the month of August not become the time when the plan died.” “The average voter out there is skeptical about government,” Brown told reporters in Washington today. A plurality of 39 percent of respondents said they don’t think proposed changes would affect their own care, while 36 percent said the legislation would hurt the quality of their care and 21 percent said they would expect an improvement. Almost three-fifths say Congress shouldn’t pass a health-care measure unless it receives at least some Republican support. A requirement that individuals obtain insurance drew fire from respondents, with 68 percent opposed and 26 percent in favor. All the plans so far have some sort of mandate on Americans to obtain coverage, with help for those with lower incomes. The poll included 2,409 registered voters nationwide and has a margin of error of plus or minus 2 percentage points.

- The global financial crisis has blown a hole in the ``efficient markets'' theory on which modern economics and modern finance have been based, said Richard Thaler, a professor of economics and behavioral science at the University of Chicago. Writing in the Financial Times, he said the theory assumes that everyone in the economy behaves rationally, which is like leaving friction out of account when doing physics.

- Crude Oil fell after a government report showed a bigger-than-projected supply increase and U.S. service industries contracted in July, signaling that demand will be slow to rebound in coming months. Stockpiles gained 1.67 million barrels to 349.5 million last week, the Energy Department said. A 600,000-barrel gain was forecast, according to a Bloomberg News survey. Supplies rose at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored. Crude oil supplies at Cushing rose 1.2 million barrels to 33.3 million barrels in the week ended July 31, leaving stockpiles the highest since March.

- Copper rose for a fifth day, touching a 10-month high, as reports signaling a global economic rebound boosted the demand outlook for industrial commodities.

Companies in the U.S. cut fewer jobs in July as the worst recession since the Great Depression eased, a report from payroll-servicer Automatic Data Processing Inc. showed today. Europe’s manufacturing and service industries contracted at the slowest pace in a year last month, Markit Economics said today. Copper has almost doubled in 2009 on signs of reviving demand. “Copper is rising on the continuation of the optimism for the economy,” said Donald Selkin, National Securities Corp.’s chief market strategist in New York. “There’s anticipation that demand will be higher.”

- Goldman Sachs Group Inc.(GS) made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months. “It’s very counterintuitive to think that they’d be able to generate this much profit and this much revenue in the middle of an ongoing recession,” said William Cohan, a former banker at JPMorgan Chase & Co. and Lazard Ltd. and author of “House of Cards” about the collapse of Bear Stearns Cos. “But the fact that so many of their competitors are out of business or severely wounded has put them in a very strong position.” Goldman Sachs’s trading results reflected the firm’s willingness to take on more risk during the period. Value-at- risk, an estimate of how much the firm could lose in any given day, rose to an average of $245 million in the second quarter from $240 million in the first quarter and $184 million in the second quarter of 2008. Most of the increase in the second quarter came from bets on equities, the company said.

- The U.S. Senate is poised to inject $2 billion into the “cash for clunkers” program, as Democrats secured enough support to pass the measure and Republicans said they won’t block a vote.

- Government added almost as many jobs as business during the past decade in California, according to the Bureau of Labor Statistics. California’s municipal governments together added 363,100 employees on a non-seasonally adjusted basis – an 18.8% increase – to create a 2,295,200-person workforce. The state’s private sector during the same period added 447,200 jobs – a 4% increase – for a total of 11,821,200 employees. “Over the last 10 years, California’s responsibilities grew rapidly,” Matt Fabian, a managing director with Municipal Market Advisors in Westport, Connecticut, said. In effect, what it means to be California is changing.”

- The U.S. Treasury plans to sell a record $75 billion in its quarterly auctions of debt next week and indicated plans to expand inflation-indexed securities next year as it finances unprecedented budget deficits. The Treasury plans to auction $37 billion in three-year notes on Aug. 11, $23 billion in 10-year notes Aug. 12 and $15 billion in 30-year bonds Aug. 13. The amounts matched the median forecast of analysts surveyed by Bloomberg News.

- Massachusetts’s state pension system plans to cut its investment in hedge funds after an overall record loss of 24 percent in the fiscal year ended June 30. The fund’s board of trustees voted today to lower the amount of money invested in hedge funds to 8 percent, or about $3 billion of the $37.7 billion it had under management at the end of June, from 12 percent, which is about $4.5 billion. The vote reverses a five-year effort by the pension system to boost returns by expanding exposure to such alternative investments.

Wall Street Journal:

- A former Enron trader who is one of the energy markets' largest speculators plans to make a surprising recommendation to commodities regulators: rein in the ability of traders like him to influence prices. John Arnold, head of the $5 billion hedge fund Centaurus Advisors, is expected to argue before the Commodity Futures Trading Commission on Wednesday that trading should be limited in the benchmark natural-gas futures contract at certain points on the New York Mercantile Exchange because in-and-out activity can distort the underlying or "physical" gas price. In other testimony, Michael Masters, a hedge-fund manager and commodity-speculation critic, will suggest broader restrictions on oil and gas investing -- including banning investors such as pension funds from trading in major oil and natural-gas futures. The testimony comes amid increasing criticism of speculation in the oil market, as the CFTC considers changes in the markets. In hearings, the CFTC is examining ways to prevent "excessive speculation." Investors from individuals to institutions could be curtailed in betting on commodities prices after a flood of new futures-related products introduced in recent years. Mr. Masters is expected to testify that "passive investors" with no physical stake in the underlying commodity should be banned from trading. Such passive investors hold and roll a position in a single commodity or in a vehicle designed to duplicate an index of multiple commodities, such as the S&P-Goldman Sachs Commodity Index. Passive investors compete with physical commodity consumers and make it harder for them to hedge, Mr. Masters plans to testify. Their activity, he argues, obscures the natural price. Goldman executives object to suggestions the index distorts prices.

- Over the August Congressional recess, warned Nancy Pelosi last week, Republicans and insurance companies will resort to “carpet bombing, slash and burn, shock and awe” to bring down ObamaCare. Which makes us wonder how the House Speaker would describe what Democrats are doing to each other. The Dresden fire-bombing? The real political news this month isn’t Republicans vs. Democrats, and certainly not insurance companies vs. Democrats. If anything, the health-care business lobbies are helping Democrats by keeping quiet and hoping their silence buys their survival as heavily regulated utilities. If the insurance companies were any quieter, they’d be Trappists. The news is how the political left and its lobbies are roughing up fellow Democrats who won’t get with President Obama’s government-run program. They’re treating the centrists who helped make them a majority as if they were Newt Gingrich without the social conscience.

- Mortgage applications filed last week rose a seasonally adjusted 4.4% from the week before, as rates on fixed-rate mortgages dropped, the Mortgage Bankers Association said Wednesday. Total application volume was up 18% for the week ended July 31, compared with the same week in 2008, according to the MBA's weekly survey, which covers about half of all U.S. retail residential mortgage applications. Refinance applications rose an unadjusted 7.2% last week, compared with the week before; refinance application volume has risen 35% since its recent low at the end of June, the MBA said. The volume of applications for mortgages to purchase a home was up a seasonally adjusted 0.9% last week; volume for purchase mortgages has changed little over the last three weeks, according to MBA data. The four-week moving average for all mortgages was up 1.2%. Rates on fixed-rate mortgages fell, according to the survey, with the 30-year fixed-rate mortgage averaging 5.17% last week, down from 5.36% the week before. Fifteen-year fixed-rate mortgages averaged 4.60% last week, down from 4.75% the week before.

- For North Korean dictator Kim Jong Il, Bill Clinton's one-day visit provided a respite from a difficult summer during which he's contended with increasing reports of unrest at home and growing pressure from abroad.

- John Mackey, the chief executive of upscale grocer Whole Foods Market Inc.(WFMI), is planning to reposition the struggling Austin, Texas, chain as a champion of healthy living in a return to its natural-foods roots.

- Goldman Sachs Group Inc.'s(GS) second-quarter results might have attracted some unwanted attention from the government. The investment bank said Wednesday in a regulatory filing that the government has launched investigations into pay practices and credit-derivatives trading. Goldman said it was cooperating with the request, but declined to give further details.

NY Times:

- A pair of nuclear-powered Russian attack submarines has been patrolling off the eastern seaboard of the United States in recent days, a rare mission that has raised concerns inside the Pentagon and intelligence agencies about a more assertive stance by the Russian military. The episode has echoes of the cold war era, when the United States and the Soviet Union regularly parked submarines off each other’s coasts to steal military secrets, track the movements of their underwater fleets — and be poised for war. But the collapse of the Soviet Union all but eliminated the ability of the Russian Navy to operate far from home ports, making the current submarine patrols thousands of miles from Russia more surprising for military officials and defense policy experts.

Rassmussen:

- Fifty-four percent (54%) of U.S. voters say tax cuts for the middle class are more important than new spending for health care reform, even as President Obama’s top economic advisers signal that tax hikes may be necessary. A new Rasmussen Reports national telephone survey, taken Monday and Tuesday nights, finds that 34% disagree and say new spending for health care reform is more important. Twelve percent (12%) are not sure.

Politico:

- The debate over health care reform has exposed divisions among Senate Democrats — including a divide between those elected in the anti-Bush referendum of 2006 and the Obama wave of 2008. Four Democrats in the Senate class of 2006 have emerged as outspoken advocates for a government-run public insurance option, and they seem nervous about the direction that the Finance Committee is moving in its closed-door, bipartisan health care talks. But nine members of the 2008 class are encouraging the talks, downplaying fears that the negotiators will jettison a public option and insisting that a bipartisan bill is the best way to go.

FINalternatives:

- Third Point is scrapping its restrictive lock-up and redemption policies in favor of some more investor-friendly rules. The New York-based activist hedge fund shop told investors that it was doing away with both its one-year hard lock-up period for new investments, as well as its annual redemption policy.

Unwiredview.com:

- RIM(RIMM) might have found a solution to the resistive or capacitive dilemma. At least for their high end Blackberry devices. Just merge the damn things, make a touchscreen display with both resistive and capacitive touch sensors/controllers. And they filed a patent app for that.

Reuters:
- James Lockhart, the regulator for Fannie Mae and Freddie Mac, will soon step down after more than three years as overseer for the mortgage finance companies, an administration official said.

- Research and development spending in the technology sector, a critical component in an industry where innovation is king, should hold up well this year despite slumping sales and deep cost-cuts. Technology corporations are choosing to slash spending on areas such as marketing or staff while keeping research expenditures fairly constant as a percentage of sales. Some have even bumped up spending, hoping to cash in once the U.S. economy emerges from its longest recession since the Great Depression. While R&D spending at many large U.S. technology companies is down from a year ago, as a percentage of sales it is generally remaining in line, recent earnings reports show -- a trend that analysts say is likely to continue.

- The world's largest commercial oil storage hub at Cushing, Oklahoma, has added tanks over recent months and now has capacity for nearly 50 million barrels, NYMEX said on Wednesday. As of March, Cushing held around 47.5 million barrels in storage capacity, New York Mercantile Exchange managing director for Energy Research Robert Levin said. Cushing capacity is "approaching" 50 million barrels, he said. "Cushing has significant excess capacity," Levin said in a web seminar.

China Tech News:

- U.S. electronics retailer Best Buy(BBY) has announced that it has reached a strategic cooperation with China Unicom to sell the latter's 3G products in its stores in China. These products will include China Unicom's 3G mobile phones, data cards, packages, and 3G Internet services.

Bear Radar

Style Underperformer:
Small-Cap Growth (-1.61%)

Sector Underperformers:
HMOs (-2.85%), Oil Service (-2.62%) and Tobacco (-2.11%)

Stocks Falling on Unusual Volume:
ONXX, CLMT, OSIS, FEIC, SLH, HCP, APEI, VCLK, ASCA, TKLC, ERTS, CTRP, MOLX, KIRK, HQH, CRL, SXE, KSP, MOH, FCN, LDR, ESE and DF

Stocks With Unusual Put Option Activity:
1) GRMN 2) DVA 3) DTG 4) RL 5) WFMI