Friday Watch

Late-Night Headlines
Bloomberg:

- Harvard University, the world’s richest school, licensed its name to a maker of designer clothes to take advantage of a taste for seersucker, khakis, loafers and other “preppy” attire. The clothing line, labeled Harvard Yard, will be made by New York-based Wearwolf Group Ltd., which licensed the Cambridge, Massachusetts, school’s name through its Verus Group subsidiary, Verus said today in an e-mailed statement.

- The U.S. Senate rejected a proposal to temporarily halt the “cash for clunkers” auto discount program, during debate before a final vote on making $2 billion available to consumers. Republican Senator Jon Kyl of Arizona said there should be a “time-out” in the program until there is a full accounting of how much money is left of the initial $1 billion authorized. Without such a delay, dealers may be offering discounts that won’t be reimbursed by the government, he said. The Senate voted 57-40 to reject the amendment.

Wall Street Journal:

- Congress plans to spend $550 million to buy eight new jets, a substantial upgrade to the fleet used by federal officials at a time when lawmakers have criticized the use of corporate jets by companies receiving taxpayer funds. The purchases will help accommodate growing travel demand by congressional officials. The new planes augment a fleet of about two dozen passenger jets maintained by the Air Force for lawmakers, administration officials and military chiefs to fly on government trips in the U.S. and abroad. The congressional shopping list goes beyond what the Air Force had initially requested as part of its annual appropriations. Congress turned harshly critical of companies that fly executives on private jets in the weeks following the government bailout of banks and auto makers last year. The 737s, known as C-40s by the military, are designed to be an "office in the sky" for government leaders, according to Air Force documents describing the plane. The plane is configured with all first-class leather seats, worktables, two large galleys for cooking and a "distinguished visitor compartment with sleep accommodations." A Wall Street Journal analysis of congressional records found that foreign travel by members of Congress and aides was increasing. Last year, House members spent about 3,000 days overseas on taxpayer-funded trips, up from about 550 in 1995, according to the Journal's analysis. Lawmakers disclosed they spent about $13 million traveling the world last year, a tenfold increase since 1995, when travel records first were made available electronically. The travel costs are covered by an unlimited fund created by a three-decade-old law. Drew Hammill, a spokesman for Democratic House Speaker Nancy Pelosi, said Thursday, "The speaker is extraordinarily appreciative of the Department of Defense's efforts to accommodate requests from Congress." The C-40 costs about $5,700-an-hour to fly, according to the Department of Defense. The smaller Gulfstream V, called a C-37 by the military, seats as many as 12 passengers and costs about $3,000 an hour to operate.

- A powerful House Democrat who has turned down a Republican's call to subpoena records of a mortgage program at Countrywide Financial Corp. received two home loans from the lender. Some information in the lawmaker's mortgage documents raises the possibility they were made through the program, which provided loans to public figures and other favored borrowers often at lower interest rates or with lower origination fees than were available to the general public. The loans were made to Rep. Edolphus Towns of New York, who heads the House Oversight and Government Reform committee. The panel's ranking Republican, California Rep. Darrell Issa, has been pushing to have the committee subpoena mortgage records showing who received loans through Countrywide's VIP program -- operated under former Chief Executive Angelo Mozilo and known within the company as "Friends of Angelo." The mortgage documents on the loans to Mr. Towns contain a Countrywide address and branch number that correspond to the VIP program.

- Fannie Mae said it will need an additional $10.7 billion from the U.S. Treasury after it posted a $14.8 billion net loss in the second quarter, as rising unemployment led more prime borrowers to default on their loans. The latest infusion will bring the total bailout for Fannie to nearly $46 billion. The Treasury has agreed to provide as much as $200 billion to keep Fannie Mae running, and it has pledged the same amount to its main rival, Freddie Mac. Government regulators took control of Fannie and Freddie last September.

- The Senate confirmed Sonia Sotomayor as the first Hispanic justice on the Supreme Court by a 68-31 vote, handing President Barack Obama a victory right before lawmakers leave town for their August recess.

- In the wake of a crackdown in Britain that has damped attacks by animal-rights extremists there, the battlefront appears to have shifted to continental Europe, where a series of companies and individuals connected even indirectly to animal research are being targeted by anonymous assailants. Arson has been used in recent months against executives working for NYSE Euronext, which operates the stock exchange where one big animal-research company is listed. Drug maker Schering-Plough Corp. said an employee in Belgium was targeted by animal-rights activists, and animal-rights groups claim they have vandalized the cars and homes of people working for pharmaceutical companies Pfizer Inc. and Bayer AG and British bank Barclays PLC. The matter came to a head this week when Swiss drug giant Novartis AG said someone dug up and stole the ashes of its chief executive's mother from a Swiss cemetery last month, and set his Austrian vacation home on fire Monday.

- Ten Senate Democrats whose votes are pivotal to the success of climate legislation urged the Obama administration on Thursday to support levying tariffs on goods from countries that don't limit their greenhouse-gas emissions. President Barack Obama has resisted the idea, saying it would send "protectionist signals" to the world.In a letter to Mr. Obama, the lawmakers said it was critical to include a "border mechanism" in climate legislation to ensure it would be "trade neutral and environmentally effective." They also warned that it would be "extremely difficult" to support a bill that didn't "deal with these important issues." In response to the senators' letter, a White House spokesman said in a statement that the president "believes that the most effective approach to maintaining a level playing field is to negotiate a new international climate change agreement that ensures that all the major polluters take significant actions to reduce their greenhouse gas emissions."

- France claims it long ago achieved much of what today's U.S. health-care overhaul is seeking: It covers everyone, and provides what supporters say is high-quality care. But soaring costs are pushing the system into crisis. The result: As Congress fights over whether America should be more like France, the French government is trying to borrow U.S. tactics. In recent months, France imposed American-style "co-pays" on patients to try to throttle back prescription-drug costs and forced state hospitals to crack down on expenses. "A hospital doesn't need to be money-losing to provide good-quality treatment," President Nicolas Sarkozy thundered in a recent speech to doctors. And service cuts -- such as the closure of a maternity ward near Ms. Cuccarolo's home -- are prompting complaints from patients, doctors and nurses that care is being rationed. That concern echos worries among some Americans that the U.S. changes could lead to rationing. The French system's fragile solvency shows how tough it is to provide universal coverage while controlling costs, the professed twin goals of President Barack Obama's proposed overhaul.

- Here’s a stumper: In the Treasury financial reform proposal, who comes in for more regulatory retooling: Fannie Mae, or your average 14-man venture capital shop? If you said venture capital, you understand why one of America’s greatest competitive advantages is now at risk in Washington. As part of their regulatory redesign, Team Obama and Congress still don’t have a plan for reforming the giant taxpayer-backed institutions like Fannie that caused the credit crisis. Yet they’re moving to rewrite the rules for investing in tiny technology companies that had nothing to do with the meltdown. Under the proposed rules, venture firms will be declared systemic risks until they can prove themselves innocent. The typical venture capital (VC) firm has nine principals plus five support staff and doesn’t use leverage. Yet Treasury Secretary Timothy Geithner wants VCs to be regulated as investment advisers by the Securities and Exchange Commission.

MarketWatch.com:
- Nvidia Corp. late Thursday reported a smaller second-quarter loss, as Chief Executive Jen-Hsun Huang declared that the chip maker's business is "recovering." Nvidia(NVDA) shares were up more than 4% in after-hours trading.

NY Times:

- When China announced three weeks ago that its economy had grown by 7.1 percent in the first half of this year, this country appeared to be a lone bright spot during the global recession. But many economists now worry that too much of China’s growth was fueled by aggressive, state-directed lending that could eventually result in a soaring number of bad loans and mounting government debt. While banks in the United States and Europe are still reluctant to make loans because of fears they will not get their money back, Chinese banks issued a record 7.4 trillion yuan, or $1.1 trillion, in loans during the first six months of this year, mostly to big state-owned companies and government infrastructure projects. “Surging investment, fueled by the most rapid bank lending in history, accounted for nearly 90 percent of China’s G.D.P. growth in the first half of this year. And that is worrisome.” Analysts say that in China, new loans have grown this year at nearly three times the pace of a year ago and that some of those loans may have been funneled into the resurgent Chinese stock and property markets, creating the risk of new asset bubbles. A similar lending binge in the 1990s led to an explosion of bad debt that left the biggest state-owned Chinese banks nearly insolvent after the Asian financial crisis, until they were bailed out by the government in a series of moves that ended in 2004. There is one thing economists agree on: The pace of lending in China must slow significantly in the second half of this year, if Beijing is to avert a crisis. In the first half of this year, China’s bank loans were up more than 300 percent from a year ago, to more than 7 trillion yuan, about equivalent to 25 percent of China’s gross domestic product in 2008. “If you tell bankers, lend as much as you like — lend, lend, lend, and don’t worry about the risk, never in history has there not been a large increase in misallocated capital,” said Michael Pettis, a professor of finance at Peking University. “It’s never happened.” Andy Xie, an economist based in Shanghai, said that one of the side effects of this huge lending spree was speculation in commodities, stocks and property — all of which could saddle the banks and local governments with huge debts, once prices fell. “This could be a national debt issue,” Mr. Xie, a former Morgan Stanley economist, said. “All of this is government money.” With exports down more than 20 percent from a year ago, China appears to be stimulating growth with loans to state-owned companies and government works. But how long can that last?

- The Federal Trade Commission said on Thursday that it would begin policing the petroleum industry with penalties for anyone trying to manipulate energy prices. The rule, which will go into effect in November, is aimed at anyone dealing with crude oil, gasoline and petroleum distillates. It prohibits market distortions through false or misleading statements about stockpiles, prices or crude and fuel output. “This new rule will allow us to crack down on fraud and manipulation that can drive up prices at the pump,” the agency chairman, Jon Leibowitz, said in a statement.

- Such cutbacks, in response to the recession that has eroded state finances even while swelling Medicaid ranks, is the reason Washington’s Democratic governor, Christine Gregoire, is among governors from both parties who fear the implications of the health care overhaul now being devised in Washington, D.C. The governors worry Congress will give the states expensive new Medicaid obligations without providing enough new money to pay for them. “We can’t afford to have Congress raise the eligibility for Medicaid coverage without paying for it,” Ms. Gregoire said in an interview. If anything, the states’ fears were stoked further last week when House lawmakers drafting health legislation reached a cost compromise with conservative Blue Dog Democrats that would force states to take on a greater Medicaid spending burden than an earlier version of the bill. “This is profoundly disappointing and makes a bad situation much worse,” said Doug Porter, Washington State’s Medicaid director. In most respects, Ms. Gregoire is an outspoken supporter of President Obama’s effort to overhaul health care. But she knows Washington State’s Medicaid program is already under strain. And Mr. Porter, the state’s Medicaid director, warns that an increasingly thin safety net could break if Congress expands Medicaid eligibility. “I can foresee a situation where states would say ‘I don’t have enough in general funds to put up my share of this new expanded Medicaid program, and I have to get out of the Medicaid program,’ ” he said. “That’s what I think the doomsday scenario is here. ”Under the various strands of legislation under consideration in Congress, as many as 11 million people who are now uninsured could become eligible for Medicaid. The Congressional Budget Office had projected that federal Medicaid spending under the House bill could increase by over $430 billion over 10 years. The open question now is how much of that might become the states’ new burden. Criticism from state governors resonates because of its nonpartisan nature. But it is especially significant coming from Washington State, which has a politically liberal tradition of broad support for health care. No state has yet dropped out of the federal Medicaid program since it was created in 1965. So it seems unlikely that a liberal state like Washington would be the first to do so. It has a tradition of generous Medicaid services, as well as state-subsidized medical coverage for low-income working people who do not qualify for Medicaid. But it is within every state’s power to slash its own Medicaid spending by tightening eligibility, limiting covered services and cutting reimbursement rates for health care providers. And during these fiscal hard times, that is precisely what Washington and many other states have done. Trimmed or gone altogether in various states is coverage for things like dental care, optometry, hearing aids and speech therapy, according to state Medicaid directors, who say that rising costs and expanding Medicaid rolls all but guarantee that more cuts will come.

CNNMoney.com:

- You've got a job. Good. Now keep yourself off a potential-layoff list by avoiding bad office behavior. 15 horror stories straight from the trenches.

Reuters:

- U.S. and European corporate credit default swaps have outperformed equity markets in recent weeks, which may presage a further rise in equity prices, research firm Credit Derivatives Research said on Thursday. Average spreads of five-year credit default swaps in the United States and Europe are at their tightest levels in more than a year, analyst Dave Klein said in a report. "As CDS levels blow past one-year tights, we find the credit market anticipating economic recovery, which would translate into strong near-term equity performance," he said. Strength in credit markets is often viewed as a leading indicator to equity moves, said Klein, and "we often refer back to the old saw that credit anticipates and equity confirms." "If CDS levels hold up, we anticipate strong equity performance," he said.

- The U.S. Senate approved and sent to the White House on Thursday a $2 billion extension of the "cash for clunkers" autos sales incentive program.

- American International Group Inc(AIG), the insurer that has received about $180 billion of federal bailouts, on Thursday named former American Express Co chief executive Harvey Golub as its non-executive chairman.

- Twitter and Facebook suffered service problems from hacker attacks on Thursday, raising speculation about a coordinated campaign against the world's most popular online social networks. The attacks, which came a month after the White House website was targeted in a similar online assault, left millions unable to carry out daily routines that have assumed an increasingly central part of their lives. The incidents also underscored the vulnerability of fast-growing Internet social networking sites that have been heralded as powerful new political tools to counter censorship and authoritarianism.

Financial Times:

- Assets invested globally in exchange traded funds have reached a record high of $862bn on the back of the partial recovery in stock markets and the continuing strong demand for passive investment, according to data from Barclays Global Investors. Net new inflows account for about half of the rebound in ETF assets, with the remainder the result of the rising value of existing assets. Deborah Fuhr, global head of ETF research at BGI, forecast: “We’re on track for assets to reach $1,000bn by the year-end.”

- Morgan Stanley(MS) is to pay $950m to sever yet another link to the US government’s bail-out plan, buying back warrants it gave the authorities as part of a $10bn capital injection at the height of the crisis last year.

The Australian:
- Blackstone(BX) war chest eyes bank sector.

China Daily:

- China's State-owned property developers have been blamed for the soaring property prices in Beijing and Shanghai, after they bought land in these cities at record high prices. Industry analysts are now worried that the buying frenzy would extend into second tier cities also, where the average income levels are much lower. Land sales and property taxes account for a substantial portion of local government revenues and it is only reasonable that government is keen on pump priming the property market. Land sales enriched the government coffers by nearly 200 million yuan per day between the second half of May and the first half of July, according to a report by China Business News on Wednesday. State-owned property developer, was crowned the new "land king" in Suzhou, a neighboring city of Shanghai, in Wednesday's land auction. "Land King" is a newly coined word in Chinese to mock real estate developers who pay the highest price to buy a piece of land in a certain geographic area. Analysts have warned that this kind of revenue growth is unhealthy and not sustainable. State-owned enterprises borrow from the State-owned banks and give the money to the local government at land auctions. "The money circulates within the big government pocket. Tomorrow's non-performing loans, if prices collapse, are just today's fiscal revenue," Xie Guozhong, board member, Rosetta Stone Advisors, said in his blog. Some economists feel that much of the country's massive 4-trillion-yuan stimulus package and record lending in the first half have not been spent for real economic activities and have created asset bubbles. "How far the bubble would go depends on the government's liquidity policy. The current bubble wave is very much driven by the government as it encourages banks to lend at low interbank interest rates," said Xie, adding that the bubble will be pricked when the dollar recovers, possibly in 2012.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (NFLX), target $56.

Night Trading
Asian Indices are -1.0% to unch. on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.11%.
NASDAQ 100 futures -.05%.

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Economic Releases

8:30 am EST

- The Change in Non-farm Payrolls for July is estimated at -325K versus -467K in June.

- The Unemployment Rate for July is estimated to rise to 9.6% versus 9.5% in June.

- Average Hourly Earnings for July are estimated to rise .1% versus unch. in June.

3:00 pm EST

- Consumer Credit for June is estimated to fall to -$5.0B versus -$3.2B in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The (SGP) shareholders meeting and (SOLR) shareholders meeting could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Airline, Hospital, Biotech, Alt Energy and Homebuilding Shares

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In Play

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

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, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 4.26% and is very high at 25.96. The ISE Sentiment Index is below average at 135.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .58. The Euro Financial Sector Credit Default Swap Index is rising 2.24% today to 81.50 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 falling 1.73% to 111.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.49% 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 3.95% to 44.44 basis points. The Libor-OIS spread is falling .28% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.90%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Today’s action has been pretty sloppy overall. The bears continue to lack conviction. Retail and internet shares are actually higher on the day. One of my longs, (GOOG), continues to trade very well even on market pullbacks, which bodes well for further gains. It is noteworthy that oil is slightly higher today despite US dollar strength, equity weakness and another plunge in nat gas. There have been rumors of large upward revisions to prior months’ job losses. However, I expect the change in non-farm payrolls for July to come in around or better than estimates of 328K. Moreover, I believe the unemployment rate could unexpectedly drop. Nikkei futures indicate an +22 open in Japan and DAX futures indicate a -10 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 and diminishing commercial real estate pessimism.

Today's Headlines

Bloomberg:

- The cost of protecting U.S. corporate bonds from default dropped to the lowest in more than 13 months, according to traders of credit-default swaps. Contracts on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, fell 1 basis point to 110 basis points at 11:48 a.m. in New York after earlier dropping to as low as 109 basis points, according to Phoenix Partners Group. That’s the lowest since June 17, 2008, according to CMA DataVision. The index is a benchmark for the cost of protecting bonds against default, and a decline signals improving perceptions of credit quality.

- MBIA Inc.(MBI), the largest bond insurer by total guarantees, jumped as much as 26 percent in New York trading after the company said it may recover more than $1 billion on home-equity loans from lenders. The company’s shares rose 77 cents, or 14 percent, to $6.30 at 11:46 a.m. in New York Stock Exchange composite trading, after earlier climbing to $6.95, the biggest percentage gain since Feb. 18.

- Mortgage rates in the U.S. fell for the first time in three weeks, boosting the potential for further stabilization in the housing market. The average 30-year rate dropped to 5.22 percent from 5.25 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate averaged 4.63 percent for the week ending today.

- The trustee liquidating Bernard Madoff’s investment company won court approval of a $14.7 million bill for four months’ work by his law firm, overcoming challenges from victims. The payment to trustee Irving Picard and his firm, Baker & Hostetler LLP, was approved today by U.S. Bankruptcy Judge Burton Lifland in New York. Some victims argued Picard isn’t paying Madoff clients fast enough and is wasting money that should go to them.

- Nasdaq OMX Group Inc., owner of the second-largest U.S. stock exchange, agreed to stop allowing brokerages to make so-called flash orders that Senator Charles Schumer says give some investors an unfair advantage. Nasdaq will shut down the system on Sept. 1, according to a statement distributed today.

- Maurice “Hank” Greenberg, who led American International Group Inc. for 38 years until his ouster amid state and federal accounting probes in 2005, will pay $15 million to settle U.S. claims he manipulated the insurer’s earnings. Greenberg, 84, and former AIG Chief Financial Officer Howard Smith “directed several different accounting transactions to materially affect AIG’s reported financial results,” the Securities and Exchange Commission said in a lawsuit filed today in federal court in Manhattan. Smith will pay $1.5 million to resolve the suit.

- The arrests of five men charged with planning a suicide attack on an army barracks near Sydney is a wake-up call to the dangers of Islamic radicalization in Australia, a Somali community leader said today. “We are shocked, we are almost numb about it,” Aden Ibrahim, president of the Somali Cultural Association in Melbourne, said of this week’s dawn raids, which police say foiled potentially the most serious terrorist attack on Australian soil.

- President Barack Obama’s approval rating is falling amid concerns about the U.S. economy and his push to revamp the U.S. health-care system, a Quinnipiac University poll shows. Exactly half of the registered voters surveyed from July 27 to Aug. 3 by Quinnipiac said they approve of the job Obama is doing, compared with 42 percent who disapprove. That’s down from 57 percent approval and 33 percent disapproval in a poll taken in late June, according to results released today. Americans are upset about rising unemployment and worried that health-care plans making their way through Congress will add to the U.S. budget deficit, said Peter Brown, assistant director of the Hamden, Connecticut-based polling institute. The combination has helped drive down the president’s ratings. A “willingness to give him the benefit of the doubt is, among some voters, evaporating,” Brown told reporters in Washington yesterday. The poll found that voters disapprove of the way Obama is handling the economy by 49 percent to 45 percent. On his effort to overhaul of the health-care system, 52 percent disapprove of his handling of the issue while 39 percent approve.

- Emerging-market stocks in Europe, the Middle East and Africa, which rallied 72 percent in five months, have hit the “top,” Credit Suisse Group AG said, citing six “tactical” indicators. The MSCI EMEA Index’s 200-day moving average as well as the advance-decline ratio, risk appetite, cash levels, fund flows and seasonality of developing-economy stocks have “turned negative,” Alexander Redman, an analyst at Credit Suisse in London, wrote in a client note today. This typically points to a change in market direction, he said.

- China, the world’s biggest carbon- dioxide polluter, is balking at the cost and effectiveness of extracting greenhouse gases from hundreds of coal plants and storing them underground. China can achieve larger emissions cuts instead by spending money improving the energy efficiency of buildings and vehicles and investing in alternative power sources such as wind and solar, said Su Wei, director-general of the climate-change unit at China’s National Development and Reform Commission. “Carbon capture and storage, particularly for China, is not one of the priorities -- the cost is an issue,” Su said in an Aug. 4 telephone interview from Beijing.

- The largest U.S. natural-gas producers may be doing too well at the wellhead for their own good, pumping so much of the heating and power-plant fuel that prices won’t soon recover from last year’s market collapse.

- The National Oceanic and Atmospheric Administration cut the number of Atlantic hurricanes it expects this year to a range of three to six of the storms.

- Ford Motor Co.(F), the only major U.S. automaker to avoid bankruptcy, is accelerating new-model introductions and will replace as much as 90 percent of its North American lineup by 2012 to boost sales.

Wall Street Journal:

- Americans are now seeing the damage that polls and focus groups can inflict on White House decision-making. President Barack Obama is no longer shaping the public dialogue on health-care reform. Instead, he is losing control of his agenda and resorting to rhetorical tricks and evasions. Every administration has to take into account public opinion. Without doing so, Abraham Lincoln said, little can be achieved. But too much polling doesn’t raise presidential vision. It narrows and pulls it down. Substituting a weekly dose of opinion surveys for thoughtful consideration is causing White House aides to find new scapegoats whenever administration policy initiatives get into trouble.

NY Times:

- Your business has prospered. You have a good income and substantial assets (even after the past year). Maybe it’s time to join the heavy hitters and look into hedge funds. Or maybe not.

Forbes:

- America’s Best Colleges.

FINalternatives:

- The economic crisis took an ever bigger toll on hedge funds than previously thought, according to one industry barometer. Assets under administration by hedge funds and funds of hedge funds plummeted an eye-popping 34% in the year ended March 31. That period corresponds nicely with the worst of the hedge fund crisis and the biggest redemptions suffered by most firms. Hedge funds managed $2.5 trillion at the end of the first quarter, according to Carbon360° Research. That’s down a stunning $1.3 trillion from a year earlier. And the industry hasn’t bottomed out just yet: Carbon360° predicts that the hedge fund industry assets will drop a further $300 billion by the end of the year. Funds of hedge funds alone accounted for $400 billion of the decline through March. Funds of funds managed $824 billion on March 31, down 33% from more than $1.2 trillion a year earlier.

Rassmussen:

- As far as the public is concerned, the embattled U.S. news media is on its own. A new Rasmussen Reports national telephone survey shows that just 25% of American adults favor the creation of a White House commission to help save journalism jobs and find ways for struggling news organizations to survive. Fifty-five percent (55%) oppose the creation of a commission such as the one proposed by former CBS newscaster Dan Rather in a speech last week.

Politico:

- Senate Majority Leader Harry Reid (D-Nev.) is trying to downplay any talk of using fast-track budget rules to force the health care bill through the Senate, but he’s leaving the option of reconciliation out there just in case. “We’re not even discussing [it],” Reid told reporters Thursday. “We believe health care should be bipartisan. We believe we have the opportunity to do that.” Reconciliation is a rarely used procedural tool that allows the Senate to push through certain bills on a simple majority. It basically bypasses a filibuster. But when asked whether the option was on the table, as Sen. Chuck Schumer (D-N.Y.) said earlier this week, Reid quipped: “I’ve never known Schumer to say anything wrong.”

- House Speaker Nancy Pelosi moves in a rarefied world of high society and high-level politics — and nothing underscores that fact quite like her plans for the August recess. Pelosi will spend next weekend quietly tending to top party donors and political allies at a series of private events in Northern California. The two-day “issues conference” starts next Friday night with a dinner for roughly 170 guests on the back lawn of Pelosi’s multimillion-dollar home in the fashionable Pacific Heights neighborhood in San Francisco. The following day, Pelosi will shepherd her guests to a Napa Valley winery with buildings designed by world-famous architect Frank Gehry; the speaker and her husband, investor Paul Pelosi, own a nearby vineyard worth between $5 million and $25 million, according to her annual financial disclosure report.

Pension Pulse:

- Pension managers and mutual fund houses have been among the biggest buyers of the Dow Jones industrial average .DJI in recent weeks, underscoring the growing belief the recession is over, according to an analysis conducted by Thomson Reuters. Between July 14 and July 21, when the Dow gained almost 600 points to 8915, net buying by pension managers and mutual fund managers -- or so-called "long-term" or "big" money managers -- totaled $1.9 billion, said Jeff Shacket, vice president of corporate services at Thomson Reuters, who analyzed settlement records of the Dow components. "There is some momentum lost among pensions and mutual fund investors, but the move is still generally positive," Shacket said on Tuesday. "These buyers are saying that this market is going to go higher -- and not lower any time soon." Hedge funds, which have appeared to miss the huge rally in recent weeks, also are becoming less bearish. The Greenwich Alternative Investments Macro Sentiment Indicator -- which is based on hedge fund investors employing a macro view who collectively manage a total of $30 billion in assets -- showed that 50 percent of those macro managers expect the S&P to continue to move lower. That's down from 60 percent in July. "All of this suggests how investors overreacted to the downside during the first quarter," Shacket said. The case for more upside was made today by Mark Dow, fund manager at Pharo Management, a global macro hedge fund with about $2 billion of assets. Dow believes the market can "continue to grind higher for a while" for a number of reasons:

Memphis Business Journal:

- Allenberg Cotton Co. plans to purchase long-time rival Dunavant Enterprises Inc. Dunavant employees in Memphis were told the news Wednesday. The company's employees will be able to interview for their positions with Allenberg. Dunavant CEO William B. Dunavant III confirmed in a phone interview Thursday that the Memphis-based companies were in negotiations to merge their global cotton operations.

Reuters:
- A new technique has given researchers a "big picture" look at the genome of the AIDS virus, the first time its entire gene map has been decoded. The technique may not only lead to new treatments against the fatal and incurable virus, but for other viruses such as influenza and the bugs that cause the common cold, they said on Wednesday. "We are hopeful that this is going to open up many new opportunities for drug discovery," Kevin Weeks of the University of North Carolina, who led the research, said in a telephone interview. "We have a big list of things we can try."

- Almost half of Afghanistan is at a high risk of attack by the Taliban and other insurgents or is under "enemy control", a secret Afghan government map shows, painting a dire security picture before presidential elections. The threat assessment map, a copy of which was obtained by Reuters, shows 133 of Afghanistan's 356 districts are regarded as high-risk areas with at least 13 under "enemy control". The map, which bears the logos of Afghanistan's Interior Ministry and the army as well as the United Nations Department of Safety and Security, was produced in April 2009, before a dramatic escalation of violence ahead of the Aug. 20 ballot.

- U.S. stocks have entered a new bull market, and the S&P 500 index could rise as much as 10 percent from current levels by the end of this year, Goldman Sachs strategist Abby Joseph Cohen said on CNBC on Thursday. Goldman Sachs sees the benchmark Standard & Poor's 500 index in a range of 1,050-1,100 toward year-end, said Cohen, the firm's senior investment strategist and president of its Global Markets Institute. That range, she said, "is where we should be toward the end of this year. "We do think the new bull market has begun," Cohen said. "It may prove it began in March of this year."

- For many money managers who bet exclusively that securities will fall, July may go down in history as their personal Waterloo. When performance data is announced in the next few days, the numbers will show high single-digit or even double-digit losses at so-called dedicated short-sellers, industry analysts and investors forecast. "Every few years short-sellers have their day in the sun," said Brad Alford, founder of Alpha Capital Management, an advisory firm that invests in hedge funds. "Then things revert to normal where the markets rise and life becomes so difficult for them that many just go out of business," he added.

Financial Times:
- The appetite for risk has returned to derivatives trading, MF Global, the world’s biggest broker of exchange-listed futures and options, said on Thursday as it reported quarterly profits ahead of Wall Street expectations even as they dropped by two-thirds from last year.

Bear Radar

Style Underperformer:
Mid-Cap Growth (-1.45%)

Sector Underperformers:
Hospitals (-4.79%), Airlines (-2.62%) and Biotech (-2.30%)

Stocks Falling on Unusual Volume:
MFC, SLF, AA, PG, TUP, BKE, MED, OSK, TTM, DF, ENOC, STEC, TNDM, KNDL, LEAP, CSTR, ANDE, GRMN, CBST, LAMR, DCP, RHB, EAT, BGC, FCN, VE and KNM

Stocks With Unusual Put Option Activity:
1) VMED 2) CSIQ 3) NRG 4) UAUA 5) HOT

Bull Radar

Style Outperformer:
Mid-Cap Value (+.10%)

Sector Outperformers:
REITs (+1.23%), Retail (+.78%) and Banks (+.77%)

Stocks Rising on Unusual Volume:
AGO, HIG, CHL, CBEY, UN, UL, NSANY, TM, BCS, HBC, CLMT, COLB, SXCI, HMIN, MEND, EPAY, THOR, CSIQ, ANSS, ROCK, CENT, FUQI, ATVI, ZUMZ, CNQR, BBBB, MELI, NILE, JCOM, IART, SWM, ENS, UL, ESS and CXW

Stocks With Unusual Call Option Activity:
1) FRE 2) FNM 3) PCS 4) MBI 5) HIG