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Tuesday Watch

Late-Night Headlines
Bloomberg:

- China’s industrial output growth accelerated on record loans and stimulus spending. Industrial production climbed 10.8 percent in July from a year earlier after a 10.7 percent advance in June. Urban fixed- asset investment for the seven months to July 31 rose 32.9 percent. Consumer prices fell 1.8 percent last month. The statistics bureau released the figures at a briefing today in Beijing. Policy makers are wrestling with how to avert property and stock bubbles and bad loans after first-half lending tripled to $1.1 trillion as banks backed the government’s stimulus package. The gain in industrial output was less than the 11.5 percent median estimate of 23 economists. Producer prices dropped a record 8.2 percent, compared with a 7.8 percent fall in the previous month.

- The euro is poised to test support levels of $1.4077 and $1.4007 after its “poor weekly close” against the dollar, according to a Citigroup Inc. technical analysis report. “Euro-dollar is at risk of at least testing the 55-day moving average at $1.4077,” technical strategists Tom Fitzpatrick in NY and Shyam Devani in London wrote today. “A breach of that on a close basis would suggest a test of $1.3832 in the short term.”

- AT&T Inc.(T) says there will be life after the iPhone. As time ticks down on the biggest U.S. phone company’s exclusive rights to carry the Apple Inc.(AAPL) device, it is looking beyond mobile phones for growth. The company’s next bet may be a camera, electronic-book reader or dog-tracking collar, executives of its wireless unit said in interviews last week.

- Goldman Sachs Group Inc.(GS) was ordered by a federal judge to turn over the employment records of Sergey Aleynikov, the former Goldman computer programmer charged last month with stealing sophisticated trading software. U.S. District Judge Paul Crotty in Manhattan today told Goldman that it must provide the court with Aleynikov’s job application, peer reviews, performance reviews and any complaints filed against him as a Goldman employee. Goldman lawyer Matt Friedrich argued that parts of his personnel file were proprietary information while Aleynikov’s attorney, Sabrina Shroff, said she needs the files to negotiate with prosecutors. The proprietary code, worth millions of dollars, lets the firm do “sophisticated, high-speed and high-volume trades on various stock and commodities markets,” prosecutors said in court documents. Facciponti said a person misusing the code might be able to “manipulate markets.”

- James Hoffa, president of the International Brotherhood of Teamsters, is bracing for what he called the “embarrassment” of a potential strike by his own employees. Hoffa, in a letter to officers of the union, warned that contract negotiations with workers in the Washington office “are not going well.” The workers “refuse to acknowledge the current economic conditions,” he said. Hoffa wrote that the union members “have a right to take strike action, and their union knows the embarrassment that such an event would create.” The Teamsters represent U.S. truck drivers, airline employees, workers in the solid waste industry, and other workers.

- Manhattan office leasing rose last month as tenants took advantage of lower rates, CB Richard Ellis Group Inc. said. Midtown landlords leased 1.58 million square feet of space, 50 percent more than in June and more than the five-year monthly average of 1.32 million, Los Angeles-based CB Richard Ellis, the largest publicly-traded commercial property broker, said in a report. The net amount leased when accounting for space given up by tenants was 420,000 square feet, the first increase of the year. “July is traditionally a slower time for leasing activity,” said Peter Turchin, a CB Richard Ellis executive vice president, on a conference call. “And if you talk to people, it seems there are more deals being worked on.”

Wall Street Journal:

- Obama’s Tone-Deaf Health Campaign. The president shouldn’t worry about the protestors disrupting town hall meetings. He should worry about the Americans who have been sitting at home listening to him.

- Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too.

- The brutal recession is opening up the landscape to vulture investors as never before. New data show that distressed-debt deals -- in which creditors use their debt positions to seize ownership of troubled companies -- are running close to double the pace of 2008. Some 140 of the deals have been struck during 2009, compared with 102 transactions for all of last year, according to data provider Dealogic. The deals are valued at $84.4 billion altogether, dwarfing the $20 billion figure from 2008.
- President Barack Obama will spend the week trying to convince Americans with health insurance that legislation in Congress would benefit them, holding three town-hall meetings, a venue where Democrats have faced loud complaints. The Democratic National Committee, taking its cues from the White House, said it is mobilizing supporters to attend local meetings that have been dominated by health-overhaul opponents. Organizing for America, Mr. Obama's grass-roots advocacy group, has started sending locally targeted emails to notify supporters when their lawmaker is holding an event in their town.

MarketWatch.com:
- After years of boom followed by years of bust, the U.S. economy is likely settling into a extended period of slow, steady, boring growth, according to a top forecaster. "It looks like we are in a turning phase," said Jim O'Sullivan, an economist for UBS, who's been predicting since December that a "slow recovery" would take hold in the second half of the year. Now, he says, he's starting to see signs of "positive feedback loops" in the economy, in which positive numbers lead to more positive numbers.

CNBC.com:
- The worst is over for the housing market, as low interest rates and strong demand are bringing stabilization to the pressured sector, said Patrick Lashinsky, President and CEO of ZipRealty. "We've gotten supply better under control, new homebuilders aren't putting as many homes on, we've got demand in a good place, [and] interest rates are in a good position," Lashinsky told CNBC.

- August will be a make-or-break month for the drive to revamp health care, as members of Congress use the recess to either sell the need for an overhaul to voters or continue criticism of the insurance industry, the chief of the insurers' main lobbying arm said Monday. Karen Ignagni, president of America's Health Insurance Plans, told editors and reporters from The Associated Press that if lawmakers use their break to vilify her industry, "members of Congress will come back to Washington without a strong sense that health care reform is doable. And that would be a lost opportunity. We think health care reform is going to be won or lost in August." Hoping to buttress support for their effort to reshape health care, President Barack Obama and his Democratic allies have targeted the insurance industry with some of their sharpest barbs. Ignagni said such attacks are designed as a distraction as the health care debate becomes more contentious, saying, "When polls are slipping, people turn to tried-and-true tactics." Ignagni said a federally run plan would drive insurance companies, hospitals and doctors into bankruptcy, leaving only the government to provide coverage, often called single payer. Obama and other Democrats say they have no intention of setting up such a system. "It is a very short step to a single payer, and that's what this whole discussion is about," she said. Despite Democrats' claims that private insurers would continue to compete for business, "the reality is it's never going to work that way," she said. Months ago, the insurance industry proposed easing several of its longtime restrictions, like refusing to issue policies to many sick people or charging them higher rates. In exchange, the industry wants health care legislation to require that nearly all individuals purchase insurance coverage -- a proposal that would bring insurance companies millions of new customers and which Democrats support. Democratic lawmakers have held numerous town-hall meetings that have been disrupted by unruly opponents. Democrats have said many of the disturbances have been instigated by industry-backed groups, but Ignagni said, "None of those people you've seen on TV are ours."

IBD:

- Now under new management and creative talent, Chico's FAS (CHS) seems to be getting some of its groove back.

Business Week:
- Anybody who was still wondering if Facebook had noticed the rapid rise of Twitter need wonder no more. Today, Facebook announced it’s buying FriendFeed, the news- and information-sharing service founded by four ex-Google engineers. The move is a blatant acknowledgment by the huge social networking service that Twitter, with at least 45.5 million unique visitors a month, has stolen a significant chunk of mindshare from Facebook lately.

CNNMoney.com:

- Down the drain: $1.2 trillion. That's half of the $2.2 trillion the United States spends on health care each year, according to the most recent data from accounting firm PricewaterhouseCoopers' Health Research Institute. What counts as waste? The report identified 16 different areas in which health care dollars are squandered. But in talking to doctors, nurses, hospital groups and patient advocacy groups, six areas totaling nearly $500 billion stood out as issues to be dealt with in the health care reform debate. Doctors ordering tests or procedures not based on need but concern over liability or increasing their income is the biggest waste of health care dollars, costing the system at least $210 billion a year, according to the report. The problem is called "defensive medicine."

Politico:

- Three leading Republican governors on Monday defended the heated exchanges and vigorous protests taking place at health care town hall events across the country. “I think you see a heightened emotion and passion and, you say anger, because people are scared,” said Hawaii GOP Gov. Linda Lingle, during a conference call with reporters organized by the Republican Governors Association. “You’re talking about hundreds of billions of dollars in cuts in spending on Medicare, and that’s why you see members of the AARP separated from their leadership on this issue, because they’re scared,” the Hawaii governor said. “The heightened anger is out of fear for what it’s going to mean for their lives and the lives of their families.”

USA Today.com:

- Hundreds of thousands of "clunkers" headed for scrappers may cause already rising prices for used cars to head even higher, dealers and market analysts warn. The popular cash-for-clunkers program, extended by Congress last week with $2 billion more in federal incentives, requires that all the old fuel guzzlers traded in are scrapped — not resold. That means up to 750,000 vehicles will never find their way into the hands of another owner. Many are at the end of their useful lives, but others, with years of life left in them, normally would be resold. "Those are the cars that lower-income families need," says Geoff Smartt, owner of Smartt Cars in Caldwell, Idaho. The clunker program could cause prices to rise 5% to 10% more, especially for vehicles worth $4,500 or less, says Alec Gutierrez, senior market analyst for Kelley Blue Book. "It's going to drive prices up of some of the most affordable vehicles we have on the road." Sen. Tom Coburn, R-Okla., called that provision "nuts" during debate in the Senate last week. He said that in his state, one trade-in had less than 10,000 miles on the odometer. "We're going to destroy the opportunity for somebody less fortunate to have that automobile," he said. Used car dealers agree. They say fewer older cars are at auction. Too few older cars at reasonable prices could put some dealers out of business, says Tim Swift, general manager of the Corry Auto Dealers Exchange, an auction operation for dealers in Corry, Pa."It's was tough finding them before, and now, it's even worse," says Mike Williams, owner of Auto Wise in Shelbyville, Ky. "The $3,000-to-$5,000 car is just gone."

Reuters:

- NASA plans to use $50 million of federal economic stimulus funds to seed development of commercial passenger transportation service to space, agency officials said on Monday. Aspiring spaceship operators will have 45 days to submit proposals, which will be competitively evaluated. Awards for the Commercial Crew Development program are expected to be announced before the end of September.

- Lone Star Funds joined other big private equity names in opposing proposed U.S. rules for investments in failed banks, as a designated period for public comment on the draft regulations comes to an end on Monday. The Federal Deposit Insurance Corp (FDIC) kicked up a storm last month when it proposed tough guidelines for private investors seeking to buy failed banks, suggesting such groups should have to maintain higher capital levels and support the banks they buy. The proposed guidelines have drawn critical comments from many investors who argue that they unfairly place an onerous burden on them and warn that the rules, if finalized as they are, would chill private investments in banks.

- Renewable energy leaders on Monday said the United States is moving too slowly to turn the economy green, despite support of the administration of President Barack Obama. Executives from wind and solar, and other industries in the expanding world of "cleantech" argued utilities should be required to buy much more renewable energy and warned that unless the federal government closes a hole in climate legislation, the energy can't reach homes that need it. Former President Bill Clinton and others called for more loan guarantees and federal spending on efficiency while speaking at the National Clean Energy Summit sponsored by Senate Majority Leader and Nevada Democrat Harry Reid.

Financial Times:

- The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street’s most active recruiters of financial talent. The New York Fed – the arm of the US central bank that implements its monetary policy – plans to increase the staff in its markets group to 400 by the end of the year – up from 240 at the end of 2007. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks.

- At a recent meeting with senior military staff, James Jones, Barack Obama’s national security adviser, warned that any request for more US troops in Afghanistan would prompt a presidential “WTF” moment. WTF, in the highly acronymic Pentagon culture, literally means “whisky tango foxtrot”. But in practice it means: “What the f***?” Having already “surged” an additional 21,000 troops to Afghanistan bringing US forces up to a peak of 68,000, Mr Obama could be forgiven for responding with expletives. At a time when the US president is under acute pressure to rein in a huge US fiscal deficit and when the Pentagon is severely overstretched, another hefty troop request would be hard to satisfy. Yet it would be even harder to turn down. Having sacked David McKiernan, the previous military commander in Afghanistan, and replaced him with David McChrystal, Mr Obama is beholden to the thinking on the ground. Gen McChrystal, an expert in the troop-intensive ways of fighting counter-insurgencies, is readying a much-awaited assessment report, which is expected to include a request for at least another 10,000 troops. In fact, there are credible rumors that Gen McChrystal could even be planning to ask for as many as 20,000 to 30,000 more. Any such request would be likely to get the backing of David Petraeus, the head of Central Command, which oversees Afghanistan, and author of the counter-insurgency troop surge in Iraq. It would also meet with the approval of most experts, who point out that the ratio of troops to population in Afghanistan is too low to guarantee success.

TimesOnline:

- Britain’s financial markets regulator is ready to resist American-led pressure for tighter controls on trading in the London oil market. It is understood that the Financial Services Authority (FSA) invited up to 30 market participants, including traders, banks and funds, to a private meeting last Wednesday to discuss transparency and regulation in the oil market. The meeting was held as the Commodity Futures Trading Commission (CFTC), the FSA’s American equivalent, held a hearing in Washington that is expected to result in the introduction of stricter rules in the American energy futures market, including new limits on trading positions. No formal statement was issued by the FSA, but industry analysts said that delegates, including those from the FSA, had expressed opposition to making similar moves in Britain.

MailOnline:

- The bank where Tony Blair is an adviser is the target of an unprecedented probe involving billions of pounds of customers' funds, the Daily Mail can disclose. JP Morgan Chase, whose chief executive Jamie Dimon last year recruited the former prime minister as an adviser, is being investigated by the City's watchdog, the Financial Services Authority for allegedly failing to keep track of £8.5billion of clients' money. The FSA has called in a top firm of accountants to examine the bank's London activities after evidence emerged that JP Morgan had mixed customers' funds with its own.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (CELL) to Buy, target $9.

- Upgraded (SAT) to Buy, target raised to $21, Added to Top Picks Live list.

Night Trading
Asian Indices are -.25% to +.50% on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.16%.
NASDAQ 100 futures -.17%.

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Earnings of Note
Company/EPS Estimate
- (BOBE)/.52

- (CREE)/.16

- (CLWR)/-.34

- (WRC)/.48

- (FOSL)/.20

- (AMAT)/-.08

Economic Releases

8:30 am EST

- 2Q Preliminary Non-farm Productivity is estimated to rise 5.5% versus a 1.6% gain in 1Q.

- 2Q Preliminary Unit Labor Costs are estimated to fall 2.5% versus a 3.0% gain in 1Q.

10:00 am EST

- Wholesale Inventories for June are estimated to fall .9% versus a .8% decline in May.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, IDB/TIPP Economic Optimism Index, ABC Consumer Confidence reading, Pacific Crest Tech Forum, CanaccordAdams Growth Conference, Oppenheimer Communications/Tech/Internet Conference, Morgan Keegan Security/Safety/Defense Conference, Morgan Keegan Tech Conference and the Jeffries Industrial Summit could also impact trading today.

BOTTOM LINE: Asian indices are slightly higher, boosted by technology and insurance 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 REIT, Airline, Homebuilder and Steel Shares

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In Play

Stocks Lower into Final Hour on Profit-Taking, More Shorting, China Bubble Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Steel longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising 2.3% and is very high at 25.33. The ISE Sentiment Index is about average at 140.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running below average most of the day, hitting .36 at its intraday trough, and is currently .83. The Euro Financial Sector Credit Default Swap Index is falling 3.5% today to 77.50 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 1.54% to 105.17 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 5.42% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 5.19% to 44.56 basis points. The Libor-OIS spread is falling .56% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.95%, which is down 71 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is down 2 basis points today. The bears remain unable to gain any meaningful downside traction. Cyclical shares that have experienced the sharpest gains of late are underperforming today. There are few stocks down on volume, several sectors in positive territory and overall breadth isn’t bad today. Restaurant, HMO, Hospital, Medical Equipment, Disk Drive and Alt Energy shares are all posting .5%+ gains today. It is also a big positive to see the Euro Financial Sector CDS Index to come in a bit after last week’s rebound. I still believe US stocks will tread water near-term, before another surge higher commences. Nikkei futures indicate an +31 open in Japan and DAX futures indicate a -7 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as profit-taking, more shorting and China worries offset lower long-term rates and diminishing healthcare reform concerns.

Today's Headlines

Bloomberg:

- The Baltic Dry Index, a measure of shipping costs for commodities, fell for an eighth consecutive session in London as the supply of ships exceeded demand. The index tracking transport costs on international trade routes fell 83 points, or 3 percent, to 2,689 points, according to the Baltic Exchange. That’s 23 percent lower than before the declines began. Last week’s 17 percent slide was the steepest drop since the end of October. “Charterers out there seem to be well covered for their requirements, and as such we do not expect any turnaround in the short-term,” Rikard Vabo and Lars Erich Nilsen, analysts at Oslo-based Fearnley Fonds ASA, said in a note. “Congestion is also coming down quite significantly.” The number of capesize vessels waiting to offload in China fell to 64 from 81 last week, the analysts said, citing data from Global Ports. All vessel classes slid today, led by a 4.2 percent drop in rates for panamax vessels that carry coal, iron ore and grains.

- Echelon Corporation (NASDAQ:ELON) announced today that it has entered into a long-term agreement with Duke Energy (NYSE:DUK), the nation’s third-largest electric utility, to supply Echelon’s Networked Energy Services (NES) system as a key part of Duke Energy’s smart grid program. Answers to some background questions about what was announced today follow.

- Freddie Mac, the mortgage-finance company under government control being supported by taxpayers, said the collapse of lender Taylor, Bean & Whitaker Mortgage Corp. may cause it “significant” losses. Taylor Bearn, the 12^th-largest US mortgage originator, shuttered its lending business last week after being suspended by US agencies and Freddie Mac. The Federal Housing Administration cited possible financial-statement fraud.

- Gold declined the most in more than a week as falling equities and a rising dollar reduced demand for bullion as a hedge against accelerating consumer prices. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, slipped 3.97 metric tons to 1,068.9 tons as of Aug. 7, data on the company’s Web site show. The fund reached a record 1,134.03 tons on June 1. “With physical demand very low and ETF investors carrying out further pockets of redemptions, the metal is reliant on further fund/speculative buying to fuel rallies,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 12 percent in the week ended Aug. 4, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 193,514 contracts on Comex.

- Crude oil fell for a third day in New York after gasoline futures declined on signs of slowing seasonal demand for auto fuel late in the U.S. summer. “Oil’s looking a little bit vulnerable to some more downside in the first couple of days this week,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. The dollar’s rally “really undermines a lot of these commodities including oil,” he said. Weak demand through late summer and the “massive overhang of stockpiles” in the U.S. may also limit any price gains from storms and hurricanes in the Gulf of Mexico, he said. Total daily fuel use averaged 18.9 million barrels in the four weeks ended July 31, 3.1 percent less than a year earlier, the Energy Department said last week.

- Pequot Capital Management Inc., once the world’s biggest hedge-fund manager, was cited in at least 44 private reports from exchange watchdogs in the past four years alerting U.S. regulators to potential insider trading, market manipulation or other misconduct, government documents show.

- State Street Corp.(STT) may deplete the $625 million set aside in 2007 to settle legal claims stemming from losses linked to subprime mortgages. The reserve “may not be sufficient to address ongoing litigation” if the U.S. Securities and Exchange Commission sues State Street and seeks monetary penalties, the Boston-based custody bank said in a regulatory filing today.

- Epix, the new premium movie service owned by three Hollywood studios, will be available online for customers of Verizon Communications Inc.’s(VZ) FiOS before the first broadcast on Oct. 1. Verizon’s fiber-optic TV customers will get early online access to 160 movies in high-definition including “Iron Man,” Emil Rensing, New York-based Epix’s chief digital officer, said in an interview.

- Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade. Cash and short-term investments accounted for about $1.98 trillion, or 8.2 percent, of assets at the end of the second quarter for companies in the Standard & Poor’s 500 index, up from about $1.6 trillion, or 6.4 percent, a year earlier, Bloomberg data show. Cash reached a record $2 trillion in the first quarter, 8.3 percent of assets.

- McDonald’s Corp.(MCD), the world’s largest restaurant company, said global sales gained 4.3 percent in July, more than some analysts estimated, on demand for McCafe coffees and international sales. The stock rose in U.S. trading. Sales at U.S. restaurants open at least 13 months climbed 2.6 percent, while European orders increased 7.2 percent, Oak Brook, Illinois-based McDonald’s said today in a statement. Sales in Asia, the Middle East and Africa rose 2.1 percent.

- Priceline.com Inc.(PCLN), the online travel agency, rose the most in almost six months in Nasdaq trading after second-quarter earnings topped analysts’ estimates as travelers sought discounts during the recession. Priceline.com climbed $17.34, or 13 percent, to $148.66 at 10:18 a.m. New York time after earlier reaching $149.54, the biggest intraday gain since Feb. 19.

- Consumer bankruptcies show no sign of abating after rising more than a third this year and may hit 1.4 million by Dec. 31 as jobs are lost and loans are harder to get, according to the American Bankruptcy Institute. More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4.

- Treasury 10-year notes rose for the first time in six days as yields at their highest levels in two months lured buyers before the U.S. sells a record $75 billion of notes and bonds this week.

Wall Street Journal:

- Next year’s census will determine the apportionment of House members and Electoral College votes for each state. To accomplish these vital constitutional purposes, the enumeration should count only citizens and persons who are legal, permanent residents. But it won’t. Instead, the U.S. Census Bureau is set to count all persons physically present in the country—including large numbers who are here illegally. The result will unconstitutionally increase the number of representatives in some states and deprive some other states of their rightful political representation. Citizens of “loser” states should be outraged. Yet few are even aware of what’s going on.

- Economists don't see much relief for unemployed teenagers in a recession that has trimmed hires and pulled many adults into the scramble for jobs typically held by teens.

Unemployment of people ages 16 to 19 was a seasonally adjusted 23.8% in July after hitting a quarter-century high of 24% in June, the government said last week. That compared with last year's summer peak of 20.5%.

- The Taliban have gained the upper hand in Afghanistan, the top American commander there said, forcing the U.S. to change its strategy in the eight-year-old conflict by increasing the number of troops in heavily populated areas like the volatile southern city of Kandahar, the insurgency's spiritual home. Gen. Stanley McChrystal warned that means U.S. casualties, already running at record levels, will remain high for months to come. In an interview with The Wall Street Journal, the commander offered a preview of the strategic assessment he is to deliver to Washington later this month, saying the troop shifts are designed to better protect Afghan civilians from rising levels of Taliban violence and intimidation.

- A provider of subscription e-textbooks for college students is making its 7,000-plus titles accessible on Apple Inc.'s(AAPL) iPhone and iPod Touch as interest heats up in the digital-textbook arena. The new applications, free for subscribers to CourseSmart LLC, will let students access their full electronic textbooks, read their digital notes and search for specific words and phrases. "Nobody is going to use their iPhone to do their homework, but this does provide real mobile learning," said Frank Lyman, CourseSmart's executive vice president. "If you're in a study group and you have a question, you can immediately access your text."

- Two dump trucks packed with 6,600 pounds of high-grade explosives flattened a large swath of a Shiite village in northern Iraq on Monday, while two more bombs targeting Shiites struck Baghdad. The attacks, which left at least 45 people dead across the country, are part of a wave of violence aimed at rekindling the sectarian bloodshed that swept Iraq from 2006-2007, according to U.S. and Iraqi officials.

CNBC:

- New York Attorney General Andrew Cuomo has issued cease-and-desist orders to nearly 40 auto dealerships in the state for running misleading and deceptive advertisements about the U.S. government's "cash for clunkers" program.

New York Post:

- Victims of Bernie Madoff's massive Ponzi scheme may have to wait until 2024, or longer, before all the money is collected, according to one veteran court-appointed receiver. "We are still sending out checks on a 10-year-old Ponzi scheme case because of the complicated nature of the case," said Robb Evans, whose firm of 25 former bank executives is the receiver in dozens of cases. "I wouldn't be surprised if the Madoff case was not fully settled in 15 years," he said.

NY Times:

- The Internet has taken a lot of the paperwork out of banking, but there is no avoiding paper when someone gives you a check. Now one bank wants to let customers deposit checks immediately — through their phones. USAA, a privately held bank and insurance company, plans to update its iPhone application this week to introduce the check deposit feature, which requires a customer to photograph both sides of the check with the phone’s camera. “We’re essentially taking an image of the check, and once you hit the send button, that image is going into our deposit-taking system as any other check would,” said Wayne Peacock, a USAA executive vice president. Customers will not have to mail the check to the bank later; the deposit will be handled entirely electronically, and the bank suggests voiding the check and filing or discarding it. But to reduce the potential for fraud, only customers who are eligible for credit and have some type of insurance through USAA will be permitted to use the deposit feature. Mr. Peacock said that about 60 percent of the bank’s customers qualify.

- General Motors and eBay(EBAY) are expected to announce Monday that hundreds of G.M.’s California dealers will let consumers haggle over the prices of new cars and trucks through the online marketplace.

MarketWatch:
- Hedge funds have generated strong returns this year, but the $1.4 trillion industry remains in a sticky financial situation because many firms have yet to recoup losses from 2008, leaving them missing out on lucrative fees.

- Most economic forecasters say the recession will end this quarter, but most also believe a U.S. recovery will be subdued, according to the monthly survey of economists published Monday by Blue Chip Economic Indicators. The panel of 51 economists predicts that the economy will contract 2.6% in 2009 and that gross domestic product will grow 2.3% in 2010, according to the median forecast.

- Early warning signs suggest a bubble could be building in China's stock market, although it's too early to know whether this warrants an immediate exit from Chinese equities, analysts said in a recent research report.

Securities Industry News:

- Morgan Stanley(MS) in the last week of July nearly displaced Goldman Sachs(GS) as the program trader most active on the New York Stock Exchange. The global financial services firm’s program trading surged 59 percent, to 737.9 million shares bought and sold between July 27 and July 31, according to weekly statistics released by the exchange. That trailed Goldman Sachs, the perennially most active trader, by 8 percent. Goldman’s buy and sell programs totaled 796 million shares. In the previous week, July 20 to 24, Goldman was nearly twice as active as Morgan. Goldman executed buy and sell programs involving 823.7 million shares; Morgan, 463.7 million. Morgan’s biggest jump came in the daily after-hours crossing session. Its placement and execution of orders there reached 183.6 million shares, more than five times the 32.3 million leaving or coming into its hands the prior week. Also increasing strongly was program trading on its own account, up 39 percent to 184 millions shares.

Wealth Bulletin:

- Less than a fifth of all hedge funds launched this year have been able to charge investors the standard 2% management fee, according to new research that comes as the industry faces up to the prospect of life without the lucrative “two and 20” model. Only 13% of funds set-up this year have asked clients to pay a 2% fixed fee for managing assets, according to a report from Morgan Stanley’s prime brokerage division entitled ‘Out-perform and under-deliver’. This is a large drop on the figure from last year, when about half of all funds launched were able to charge the 2% levy. Between 2005 and 2006, 56% applied the fee. Morgan Stanley said: “New funds are making do with less.”

JLMPacificEpoch:

- An unnamed source says Apple (Nasdaq:AAPL) has selected NetDragon to operate its China application store, reports TechWeb.com.cn. Apple has contacted many local developers to provide applications, the source said.

LA Times:

- Lawsuits are the latest roadblock for California budget. Litigators go to court to undo cuts made by legislators and the governor. The state is spending billions of dollars fighting the lawsuits and dealing with increasingly unfavorable rulings. Lawyers are being drafted in droves to unravel spending plans passed by the Legislature and signed by the governor. The goal of these litigators is to get back money their clients lost in the budget process. They are having considerable success, winning one lawsuit after another, costing the state billions of dollars and throwing California's budget process into further tumult. In the last few months alone, the courts added more than a billion dollars to the state's deficit by declaring illegal reductions in healthcare services, redevelopment agency funds and transportation spending. Another ruling threatens to deprive California of all its federal stimulus money if the state does not rescind a cut to the salaries of home healthcare workers. Lawyers are scrambling to prepare additional suits related to the budget plan the governor signed last month.

- Iraq has appealed to Iran to free three American hikers after concluding that the trio who apparently strayed across the Iranian border were just lost tourists, Iraqi Foreign Minister Hoshyar Zebari said Sunday. Zebari said he had heard no word from the Iranians since making the request during a meeting with Iran's ambassador to Iraq last week. But he hoped for an answer in the coming days, he said.

Rassmussen:

- Thirty-two percent (32%) of voters nationwide favor a single-payer health care system where the federal government provides coverage for everyone. A Rasmussen Reports national telephone survey finds that 57% are opposed to a single-payer plan. Fifty-two percent (52%) believe such a system would lead to a lower quality of care while 13% believe care would improve.

Politico:

- Under fire from immigration reform supporters who say he’s not moving fast enough, President Barack Obama said Monday he expects to have a draft immigration bill in Congress by year’s end — but that lawmakers wouldn’t begin to seriously debate the issue until next year. He acknowledged that the fight for comprehensive reform would be difficult, saying, “Am I going to be able to snap my fingers and get this done? No. . . . There are going to be demagogues out there who try to suggest that any form of pathway for legalization for those who are already in the United States is unacceptable.” Obama also predicted that Congress would pass his health reform bill later this year when more “sensible and reasoned arguments will emerge” — a clear reference to the increasingly heated attacks being leveled against his overhaul plan by opponents.

AP:

- President Barack Obama says Canada's government-run health care system works for Canada, but wouldn't work for the U.S. Opponents of Obama's plan to reshape health care have contended it would result in a government-run system where people are denied care, as they say happens in Canada.

Reuters:
- Short sellers' portfolios were left in tatters in July after one of the strongest monthly run ups in equities in recent years, preliminary data from Credit Suisse/Tremont showed on Monday. Hedge funds made money overall during the month, with the Credit Suisse/Tremont Hedge Fund Index was up 2.35 percent. However, those returns paled against the MSCI World's 8.4 percent rise. Short sellers got the thin end of the wedge. The dedicated short bias index was down 8.3 percent on the month, bringing year-to-date losses to 18.2 percent. The only other loser aside from short selling was managed futures, a strategy which uses computer programs to exploit trends in certain asset classes. It was down 0.8 percent for the month, and has lost 8.2 percent so far this year.

- Dow Theory, one of the oldest stock market forecasting methods, has shown a new buy signal: the Dow Jones Transportation Average joined the Dow Jones Industrial Average to close above January highs, according to Bank of America Merrill Lynch. However, the bank's analysts said on Monday that a momentum indicator known as breadth thrust, which focuses on the proportion of advancing to declining stocks, shows a pull-back of 15 to 20 percent this fall when combined with the Dow Theory buy signal.

- Car sales in Russia fell 58 percent in July compared to the same period a year ago, a worse showing than the 56 percent slump seen in June, data from the Association of European Businesses showed on Monday. The AEB data showed that the slump in demand for cars has cut sales by 50 percent in the first seven months of this year.

Financial Times:
- Two years after the financial crisis began, Germany is still at risk of a credit crunch as banks face a wave of corporate downgrades, the head of the country’s main banking association has warned. “Will there be a credit crunch? Clearly it is a concern and there is a real danger of this. I do not think it is entirely unrealistic to think there will be one,” Andreas Schmitz, president of the Federal Association of German Banks, said in an interview. “I think we have reached the low point of the financial crisis. But it is obvious that every bank will have more to deal with in the next 18 months, in terms of defaults by clients and non-performing loans, than they have had up to now.” The warning from could undermine fragile confidence that the worst of the recession may be over in Europe’s largest economy. Mr Schmitz said banks were under pressure to reduce the size of their balance sheets and would have to set aside more capital if corporate customers were downgraded by credit rating agencies. “I think there is a substantial migration of ratings that will also come next year,” he said. His comments are one of the clearest statements of the risk of a credit squeeze from a German banker. Banks have been generally dismissive of complaints from other industrial groups that lending is already being reduced.

Frankfurter Rundschau:

- Germany’s metal and electrical industry may see production fall by as much as 20% this year, head of the Gesamtmetall employers’ group, was cited as saying. Kannegiesser said the industry is running at less than 70% of capacity “for the first time,” making further job cuts likely.

Bear Radar

Style Underperformer:
Large-Cap Growth (-.32%)

Sector Underperformers:
Homebuilders (-2.78%), Steel (-2.55%) and REITs (-2.43%)

Stocks Falling on Unusual Volume:
LLY, RTP, RIMM, BBL, VNDA, TNDM, SXCI, PFWD, MBLX, HANS, OCN, NRT and IFN

Stocks With Unusual Put Option Activity:
1) CBS 2) STT 3) VIA/B 4) SOHU 5) HK