Monday Watch

Weekend Headlines
Bloomberg:

- Health and Human Services Secretary Kathleen Sebelius said providing citizens with the option of government-run insurance isn’t essential to the Obama administration’s proposed overhaul of U.S. health care. “What’s important is choice and competition,” Sebelius said today on CNN’s “State of the Union.” The public option itself “is not the essential element.” Sebelius’ comments suggest that the Obama administration may be considering backing off its commitment to create a government-run health insurance system to operate alongside private insurers in order to get health legislation passed. “There are not the votes in the Senate for the public option, there never have been,” North Dakota Senator Kent Conrad, one of the lead Democratic negotiators on health care in the Finance Committee, said on “Fox News Sunday.” “To continue to chase that rabbit, I think, is just a wasted effort,” he said. “President Obama and his cabinet have read the tea leaves,” said Senator Richard Shelby, an Alabama Republican, on the Fox program. The American people “don’t want a government- run program,” Shelby said. Shelby also said that the creation of co-ops, while “that would be government involvement” would be “a step in the right direction.” Opponents at the meetings “are not really representative of America,” Senator Arlen Specter, a Pennsylvania Democrat, said on ABC’s “This Week” program. “We have to be careful here not to let those town meetings make the scene that influences what we do on health policy,” he said. Senator Orrin Hatch, a Republican from Utah, disagreed, saying “I’ve found people just up in arms everywhere I’ve gone on health care.” Hatch also predicted that the administration’s plan will result in rationing of health care for the elderly. “I don’t want a bunch of nameless, faceless bureaucrats setting health care for my aged citizens in Utah,” said Hatch on ABC. A provision in the plan that would provide end-of-life counseling to families, dubbed “death panels” by opponents, has also ignited opposition. Conrad said that provision has been dropped from consideration.

- Copper fell as stockpiles of the metal gained, indicating demand may be slowing, and on speculation that a rise in U.S. industrial production last month relied on short-term auto-sales subsidies. Copper inventories monitored by the London Metal Exchange surged 14 percent since July 14.

- Two firms that received $343.3 million to handle advertising for Barack Obama’s White House run last year have profited from his top priority as president by taking on his push for health-care overhaul. One is AKPD Message and Media, the Chicago-based firm headed by David Axelrod until he left last Dec. 31 to serve as a senior adviser to the president. Axelrod was Obama’s top campaign strategist and is now helping sell the health-care plan. The other firm is Washington-based GMMB Campaign Group, where partner Jim Margolis was also an Obama strategist. This year, AKPD and GMMB received $12 million in advertising business from Healthy Economy Now, a coalition that includes the Washington-based Pharmaceutical Research & Manufacturers of America, known as PhRMA, that is seeking to build support for a health-care overhaul, said the coalition’s spokesman, Jeremy Van Ess.

- Crude oil fell to a two-week low and gasoline tumbled after a report showed that confidence among U.S. consumers unexpectedly declined in August, bolstering skepticism that fuel demand will rebound this year. Oil dropped 4.3 percent after the Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 from 66 in July. Oil also slumped as the dollar gained against the euro, reducing the appeal of commodities to investors looking for an inflation hedge. “Consumers are worried about the economy, and that’s raising concerns about demand,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage. “Just a few days ago people were worried about inflation. That’s no longer the case.” The cost of living in the U.S. was unchanged in July, as the recession sapped companies’ pricing power. Compared with a year earlier, consumer prices were down 2.1 percent, the biggest 12-month decrease since 1950, according to Labor Department data released today in Washington. “The market may find it hard to maintain these prices with the end of the driving season just a few weeks away,” O’Grady said. U.S. crude-oil supplies increased by 2.52 million barrels to 352 million in the week ended Aug. 7, an Energy Department report on Aug. 12 showed. Stockpiles in Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, rose 281,000 barrels to 33.6 million, the highest since March. “Brent is now trading at a substantial premium to WTI,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “This tells us that the U.S. market is grossly oversupplied.”

- Colonial BancGroup Inc.(CNB), the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp.(BBT) in the biggest failure since Washington Mutual Inc. collapsed last year.

- Treasuries rose, with 10-year notes posting their biggest gain since December, after reports showing the U.S. cost of living was unchanged and retail sales fell in July suggested inflation remains restrained. Yields on 10-year notes touched the lowest in almost two weeks even as the Treasury sold $75 billion of notes and bonds in its largest so-called quarterly refunding to date. “Inflation will stay tame to surprise-to-the-downside for the rest of the year,” said Alex Li, an interest-rate strategist in New York at primary dealer Credit Suisse Securities USA LLC. “It’s going to be good for the 5- to 7-year sector and longer.”

- Pork, the fastest-growing U.S. meat export of the past decade, is sick with swine flu. Hog futures, the second-worst commodity investment of 2009, may fall 33 percent by yearend from 44.65 cents a pound on Aug. 14. U.S. exports plunged 20 percent in the first half and are heading for the first annual decline since 1990 after the H1N1 virus outbreak in April led to import restrictions in China and Russia.

- Wall Street firms are again recruiting commodities traders with promises of $1 million bonuses as prices of raw materials from oil to copper double. Less than a year after oil tumbled a record 54 percent and the Reuters/Jefferies CRB Index was suffering its biggest drop ever, Bank of America Corp. plans to boost commodity headcount by 25 percent. London-based Barclays Plc will increase staff about 6 percent. Morgan Stanley is recruiting traders in shipping. The banks declined to comment on compensation. “You are definitely seeing $1 million or more guaranteed bonuses coming back for 2009,” said George Stein, managing director at New York-based recruitment firm Commodity Talent LLC.

- Japan’s economy grew for the first time in five quarters as a revival in exports and consumer spending helped the country climb out of its worst postwar recession. Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following an 11.7 percent decline in the previous quarter, the Cabinet Office said today in Tokyo. The median estimate of 22 analysts surveyed by Bloomberg News was for 3.9 percent growth.

Wall Street Journal:

- Maine lobstermen are cutting competitors' trap lines, sinking boats and, in one case, shooting each other. Law-enforcement officials and people in Maine's tight-knit coastal communities say economic pressure on the state's 5,000 active lobstermen may be fueling the tension. With prices for the state's crustaceans at the lowest level since the early 1990s, lobstermen are having trouble covering bait, fuel and equipment costs, they say.

- On the defensive because of an increasingly skeptical public, President Barack Obama has recently spoken extemporaneously about his health plan. In doing so, he has revealed his lack of understanding about aspects of medical practice and the reasons for rising health-care costs.

- As the old Irish toast goes, may your sins be judged by the Senate ethics committee. Actually that's not an Irish toast but it must be the fervent hope of every politician who received a "Friend of Angelo" loan from former Countrywide Financial CEO Angelo Mozilo. Late last week the six Senators on the ethics panel dismissed complaints against Senators Kent Conrad and Chris Dodd with a mere admonishment about the appearance of impropriety. They say they found "no substantial credible evidence as required by Committee rules" that the Senators received mortgage rates or services that weren't commonly available to the public, and thus did not violate the Senate gift ban. We'll have to take their word that the evidence wasn't "substantial," because they didn't release those documents, nor did they encourage Mr. Dodd to release any of his records. Readers will recall that in February Mr. Dodd staged a peek-a-boo release with selected reporters but did not allow anyone to have copies of the documents. If the evidence was so clear-cut, why the months of stonewalling? The Associated Press may have the answer. AP recently noted that among the peek-a-boo papers were two documents titled, "Loan Policy Analysis." Reports AP, "The documents had separate columns: one showing points 'actl chrgd' Dodd — zero; and a second column showing 'policy' was to charge .250 points on one loan and .375 points on the other. Another heading on the documents said 'reasons for override.' A notation under that heading identified a Countrywide section that approved the policy change for Dodd." How does Mr. Dodd explain that one? He may not have had to. The Senate ethicists don't seem to have required either Mr. Dodd or Mr. Conrad to provide sworn testimony.

- Under the direction of Fiat SpA, Chrysler Group LLC is devising plans to produce the Italian auto maker's Fiat 500 subcompact at a Chrysler plant in Mexico, according to people familiar with the matter, while considering what other Fiat models to introduce to the U.S. market. A decision to make the 500 in Toluca, Mexico, could be an early test for relations between Chrysler's new management and two key owners, the U.S. government and the United Auto Workers union. The plant's workers are represented by a Mexican union, not the UAW. Making the car at Toluca would preserve jobs there at a time when Chrysler is closing several plants in the U.S. and eliminating thousands of American jobs. Chrysler was saved from collapse earlier this year when the federal government provided $15 billion in emergency loans and brokered a rescue plan that gave Fiat management control of the company. As part of the restructuring, a UAW health-care trust forgave $6 billion of the $10.6 billion it was owed by Chrysler. In exchange, the trust ended up owning 55% of the part of Chrysler that emerged from bankruptcy reorganization as well as a note for $4.6 billion. The U.S. government holds an 8% stake. "There is going to be political fall-out on anything in this kind of environment related to jobs," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. Mr. Cole cautioned that the U.S. market for subcompacts may not be big enough to support producing a vehicle like the 500 in the U.S. Fiat was given a 20% stake in Chrysler in exchange for providing the American auto maker with small cars, fuel-efficient engines and other technology. It wasn't required to put any cash into Chrysler.

- Hugo Chávez took a break last week from lobbying Washington on behalf of deposed Honduran President Manuel Zelaya to travel to Quito, Ecuador, for a meeting of South American heads of state. There he launched a virulent assault on the U.S. military, reiterated his commitment to spreading revolution in the region, and threatened the continent with war. Mr. Zelaya was by his side. The Venezuelan's tirade against the U.S. and its ally Colombia raised the question yet again of what the U.S. could possibly be thinking in pushing Honduras to reinstate Mr. Zelaya. He was removed from office by the Honduran Congress in June because he violated the country's constitution and willfully incited mob violence. But that's not the only thing that made him unpopular at home. He also had become an important ally of Mr. Chávez and was quite obviously being coached to copy the Chávez power grab in Venezuela by undermining Honduras's institutional checks and balances.

MarketWatch.com:

- Japanese carmaker Honda Motor Co. will begin increasing car production in the United States starting in September, according to a media report. Honda(HMC) will increase output by operating its plants in Ohio and Alabama on some Saturdays, Dow Jones Newswires reported, citing a story in the Nikkei newspaper.

CNBC.com:
- Russia and Venezuela on Saturday moved closer to an oil venture deal and discussed arms trade, forging a partnership that may drag Russia into a row over the U.S. military presence in Colombia. Venezuela's President Hugo Chavez, due in Russia in September, said last week he was prepared to buy dozens of Russian tanks to counter the U.S. intention to increase a military presence in Colombia. "The president of Venezuela is one of the leading international policy makers. He is a very strong personality and a big friend of Russia," said Russia's Deputy Prime Minister Igor Sechin. "I know from experience if he said something he will definitely do it," Sechin told a news conference after talks with Venezuelan Vice President Ramon Carrizalez when asked whether Russia would sell tanks to Venezuela.

- Tropical Storm Claudette, the third of the Atlantic hurricane season, formed in the eastern Gulf of Mexico Sunday and was expected to move ashore within hours in the Florida panhandle. The storm was located to the east of the heaviest concentration of U.S. energy rigs in the Gulf.

NY Post:

- Leon Black is returning to his roots -- with a vengeance. The former head of mergers at Drexel Burnham, who made a fortune repossessing companies that Drexel helped drive into bankruptcy -- before he proceeded with a more traditional private-equity playbook -- is now back to his old tricks of buying bankrupt businesses in hostile deals via the purchase of junior distressed debt at pennies on the dollar. His firm, Apollo Management, this year alone has helped buy two businesses out of bankruptcy and is in the process of acquiring four more.

IBD:
- SolarWinds (SWI) has sold some 80,000 copies of its network management software this way in its 10-year existence. Network management software performs a basic but crucial task: monitoring all the servers, routers and switches in a network to make sure they're running at the optimum.

NY Times:

- Senior Obama administration officials were wrestling on Friday with how to handle an explosive executive pay issue involving two traders’ compensation package of nearly $130 million that Citigroup says is exempt from government review. Citigroup’s decision leaves top White House and Treasury Department officials unable to do much about some of the highest-paid employees at the deeply troubled bank just two months after the administration announced, with great fanfare, the appointment of an official to crack down on lucrative payouts at companies that have become wards of the state. On Friday, Citigroup, which is facing a government deadline, submitted the pay packages for its 25 senior executives and highest-paid employees. People involved in that process said Citi advised the Treasury that an energy trader named Andrew J. Hall, due $98 million, was exempt from federal review, and so was a second unidentified trader who received more than $30 million.

- The nation’s big corporate research and development laboratories — at I.B.M.(IBM), General Electric(GE), Hewlett-Packard(HPQ) and a handful of other companies — have their roots and rationale in the industrial era, when communication was costly, information traveled slowly and social networks were fostered at conferences and lunchrooms instead of over the Web. Crowdsourcing and other new, more open models of innovation are really byproducts of the low-cost communication and new networks of collaboration made possible by the Internet. So, in the Internet era, what is the continuing role and comparative advantage of the corporate R.& D. lab?

- This interview with Brian Dunn, the chief executive of Best Buy(BBY), was conducted and condensed by Adam Bryant.

Forbes.com:

- Iraq’s Stealthy Progress. On June 30, U.S. troops completed their scheduled withdrawal from Iraq's cities, leaving matters of law and order in the hands of local authorities and the country's security forces. Since that day, headlines about Sarah Palin, Michael Jackson, Henry Louis Gates and health care town-hall protests have vied for the nation's attention. The media has showed little interest in covering the year's most extraordinary story: Americans successfully handed over security duties for Iraq's cities--and Iraqis are ably managing their affairs.

CNNMoney.com:

- iPhone market share grew 375% in Q2.

Business Week:
- Why It’s Smart To Be Optimistic. Sure, it has been a harrowing storm. And now is no time to discount the dangers that still exist. But opening your mind to optimism can help you seize the opportunities ahead.

LA Times:

- A fire that has burned more than 75,000 acres in Santa Barbara County over the last week was started in an illegal marijuana growing area operated by a Mexican drug organization, authorities said. Authorities said they confirmed that the blaze, which is burning out of control, started in a cooking area of the pot farm. They believe those responsible are still in the forest area trying leave the forest by foot.

- When Sarah Palin said that the emerging healthcare reform legislation would lead to "death panels" and government rationing of care, her language was explosive, but her premise about rationing was not. The most critical test of any reform proposal is whether it will empower individuals or impose on them. It is a fact that the leading bills in Congress would increase the power of government and decrease individual freedom. You cannot spend an additional $1 trillion of taxpayer money and reduce the role of government. You will get new bureaucracies, more regulation, more complexity. That means you will have less control of your healthcare. Disagree? Just read the versions of healthcare legislation:H.R.3200 in the House. One key proposal is to mandate an "essential benefit package" for every private insurance policy sold in the United States. Currently, individuals and employers usually make these coverage decisions. This legislation creates a new federal Health Benefits Advisory Committee that would decide instead. For example, if you are a single male with no children, the legislation still requires you to have maternity benefits and well-baby and well-child care coverage. You don't want or don't need that coverage? Sorry, you have to pay for it anyway.

NJ.com:

- N.J. car dealers say ‘Cash for Clunkers’ program a nightmare to navigate. Craig Ploetner has made more than a dozen deals with new car buyers under the "Cash for Clunkers" rebate program, but he's yet to receive any of the promised reimbursement from the federal government. "I've gotten rejection after rejection," said Ploetner, president of Towne Auto Group in Union. "There's absolutely no logic to it. The administration of it is a disaster. It's like dealing with a computer program from 15 or 20 years ago." Now, he said, he's pulling out of the program until he sees some of the money -- tens of thousands of dollars --he's owed.

Rasmussen Reports:

- Thirty-five percent (35%) of American voters say passage of the bill currently working its way through Congress would be better than not passing any health care reform legislation this year. However, a new Rasmussen Reports national telephone survey finds that most voters (54%) say no health care reform passed by Congress this year would be the better option. This does not mean that most voters are opposed to health care reform. But it does highlight the level of concern about the specific proposals that Congressional Democrats have approved in a series of Committees.

- The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 32% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-one percent (41%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -9 (see trends). Today’s update marks the highest level of Strong Disapproval for President Obama. Previously, the number who Strongly Disapprove had reached 40% three times in late July.

Boston Globe:

- The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities. The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates. Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities.

Seeking Alpha:

- Treasury’s Derivatives Regulation Bill Draft: Calling It an Improvement Is a Travesty. The Treasury Department has released its draft OTC derivatives regulation bill, “The Improvements to Regulation of Over-the-Counter Derivatives Act.” The actual language of the 115 page proposal follows quite closely what Geithner has been floating for several months–a clearing mandate for standardized derivatives, attempts to force OTC derivatives trading onto execution facilities, differential margin and capital requirements for cleared and non-cleared products. My initial reactions:

Dealbreaker:

- Dawson-Herman Capital Management is shutting down its once high flying Southport Millennium hedge fund. Word from inside is that friction is mounting between co-founders John Dawson and Russell Herman over last year's performance, and traders have flooded the street with resumes in the last few days. It's unclear at this time if John or Russell (AKA "Russ") will stay with the firm. In its heyday Southport Millennium logged an AUM of over one billion but what's currently left in the coffers is unknown. Dawson-Herman was started in 1981 and lays claim to grooming the SEC's favorite insider trader Art Samberg. DHCM runs a long-short equity strategy with $4 billion of assets out of CT and NYC.

USAToday:

- Lawyer wants 34% of money recovered in Stanford case. The attorney supposed to clean up what the government says was Texas businessman R. Allen Stanford's multibillion-dollar Ponzi scheme is managing to anger just about every party involved in the case. The Securities and Exchange Commission and other stakeholders in the complicated and far-flung case say Dallas attorney Ralph Janvey, appointed by the court to track down billions of missing dollars, has instead become a rogue receiver who refuses to cooperate with the SEC. "You know everyone in the courtroom is angry with you," said U.S. Judge David Godbey at a recent court hearing.

Reuters:

- International Business Machines Corp (IBM) is looking to the building blocks of our bodies -- DNA -- to be the structure of next-generation microchips. As chipmakers compete to develop ever-smaller chips at cheaper prices, designers are struggling to cut costs. Artificial DNA nanostructures, or "DNA origami" may provide a cheap framework on which to build tiny microchips, according to a paper published on Sunday in the journal Nature Nanotechnology.

- Billionaire investor and philanthropist George Soros' Soros Fund Management reported holdings of $4.2 billion at the end of the second quarter after cutting its stake in a number of retailers. The New York-based fund firm cut its stakes in retailer Wal-Mart Stores (WMT) and drugstore chain Walgreen Co (WAG) during the quarter after boosting its position in Walgreen in the first quarter, according to a regulatory filing made on Friday. The firm also cut its stake in Lowe's Cos Inc (LOW) to 579,000 shares from 5.4 million shares. The firm also took a stake in Bank of America (BAC), whose share price has climbed 20.74 percent since January, at a time when many financial companies appear to be recovering from last year's sharp declines. Soros took new positions in computer maker Dell Inc (DELL) and drug company Pfizer Inc (PFE).

- U.S. President Barack Obama is "lost in the Andromeda" galaxy on Latin American policy, his chief critic in the region, Venezuelan leader Hugo Chavez, said on Sunday, while demanding the closure of U.S. military bases. Despite Chavez's frequent tirades against U.S. imperialism, the United States remains the main client for Venezuelan oil, though the OPEC country is gradually increasing sales to other countries, especially China.

Financial Times:

- The financial travails of two prominent Saudi companies locked in a bitter dispute has caused banks in Saudi Arabia to clamp down on lending to private sector companies, setting back the economic recovery in the world’s top oil producer, according to a Saudi investment house. Brad Bourland, chief economist at Jadwa Investment, estimates that the problems of Ahmad Hamad Algosaibi & Brothers Co (AHAB) and Saad Group, which is owned by Maan Al-Sanea, the Saudi billionaire, have knocked about 500 points off the Saudi stock market index and forecasts will shave 0.5 per cent off the kingdom’s growth this year.

- John Costas and Mike Hutchins, former star bankers at UBS, will focus on opportunities in the real estate market as part of their investment strategy for their new boutique start-up, PrinceRidge. The pair, whose departure from UBS two years ago was precipitated by the Swiss bank’s over-exposure to the real estate business, have hired 50 people and begun trading fixed-income products with an eye toward growing into an investment bank.

- The eurozone economy may appear to be recovering faster than those of the US and UK, but its companies are underperforming their British and American rivals. Companies from the eurozone are the only ones, among the trio of regions, where there have been more disappointments than positive surprises in the ongoing second-quarter results season, according to analysts at Dutch bank ING. Leading the way – in contrast to the economic growth figures – are German companies, with more than a third releasing results that were worse than analysts’ expectations and fewer than one in 10 beating forecasts.

TimesOnline:
- Workman’s belts could soon need a new compartment to carry an iPhone, with the trendy handset set to make an unlikely appearance on British building sites this October. Ashtead, Britain’s largest plant hire company, is set to equip its UK sales force with the Apple devices in what it describes as an industry first. Geoff Drabble, chief executive of Ashtead, said that using the iPhone would enable the company’s sales force to provide customers with instant quotes and information about the availability of equipment. He said that customers would even be able to place orders for the hire of machinery on the spot, “all with their boots still in the dirt”.

Telegraph:

- There is one overwhelming fact about the world economy that cannot be wished away. Excess capacity in industry is hovering at levels not seen since the Great Depression. Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today. Thankfully, leaders in the US and Europe have this time prevented an implosion of the money supply and domino bank failures. But they have not resolved the elemental causes of our (misnamed) Credit Crisis; nor can they. Excess plant will hang over us like an oppressive fog until cleared by liquidation, or incomes slowly catch up, or both. Until this occurs, we risk lurching from one false dawn to another, endlessly disappointed. Justin Lin, the World Bank’s chief economist, warned last month that half-empty factories risk setting off a “deflationary spiral”.

AFP:

- Iranian opposition leader Mir Hossein Mousavi will continue his protest against the presidential election in a social movement named the "Green Path of Hope", newspapers reported on Sunday.

Sonntag:
- UBS AG may disclose data on 4,000 to 5,000 US clients as part of a settlement agreement initialed last week by Switzerland and the US, citing people familiar with the matter. While the bank isn’t facing a fine, its clients may have to pay about $3.7 billion in taxes and penalties.

Edaily:
- Samsung Electronics Co. will make NAND flash memory chips at its US factory in Austin, Texas, where the South Korean chipmaker produces dynamic random access memory, or DRAM. Samsung will stop DRAM production at the Austin plant from October and invest $500 million to revamp the line, aiming to start operation in the second half of next year, citing an official. The move is an attempt to boost Samsung’s cost competitiveness.

Shanghai Securities News:

- China’s banking regulator said it urged the nation’s small and medium-sized banks to further improve their capital adequacy ratio, citing an official.

Weekend Recommendations
Barron's:
- Made positive comments on (ENOC), (MHS), (MON), (MSFT), (XOM), (PEP), (SWY), (CNQR), (ERTS), (KO), (MXB) and (VPRT).

- Made negative comments on (FSLR).

Citigroup:

- Semi Beat – 8 Fabs Added, 43 Taken Away, Why Capacity Will be Tight in the Next Cycle. In the past 2 Semi Beats, we have concluded that significant upside to current demand forecasts exists and that inventories do not pose a threat to cyclical recovery. In this week’s Beat, we focus on supply, noting that 8” equivalent wafer capacity has fallen 13.6% from the 3Q08 peak, leading to potential shortages should production return to trend line levels. We conclude that the forthcoming cycle is therefore apt to be amplified by firming ASP’s, creating another source of potential upside to current estimates. We favor (INTC), (NVDA), (QCOM) and (ALTR) in addition to (IGTI), (STM) and (TXN). On pullbacks, we also advised clients to look at higher beta names, like (MU) and/or (AMD).

- Reiterated Buy on (CLF), raised estimates, boosted target to $35.

Night Trading
Asian indices are -2.0% to -1.0% on avg.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures -.59%.
NASDAQ 100 futures -.57%.

Morning Preview
BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/Estimate
- (LOW)/.54

- (A)/.11

- (CIT)/-1.60

Upcoming Splits

- None of note

Economic Releases

8:30 am EST

- Empire Manufacturing for August is estimated to rise to 3.0 versus -.55 in July.

9:00 am EST

- Net Long-term TIC Flows for June is estimated to rise to $17.5B versus -$19.8B in May.

1:00 pm EST

- The NAHB Housing Market Index for August is estimated to rise to 18.0 versus 17.0 in July.

Other Potential Market Movers
- None of note

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

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for Stocks to Watch Monday by MarketWatch.

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

Economic reports for the week include:

Mon. – Empire Manufacturing, Net Long-term TIC Flows, NAHB Housing Market Index

Tues. – Weekly retail sales reports, Producer Price Index, Housing Starts, ABC Consumer Confidence

Wed. –Weekly MBA Mortgage Applications report, weekly EIA energy inventory report

Thur. – Initial Jobless Claims, Leading Indicators, Philly Fed.

Fri. – Existing Home Sales

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

Mon. – Lowe’s(LOW), Agilent Tech(A), CIT Group(CIT)

Tues. – Cardinal Health(CAH), Saks Inc.(SKS), TJX Cos(TJX), Analog Devices(ADI), Home Depot(HD), Target(TGT), Hewlett-Packard(HPQ)

Wed. – BJ’s Wholesale(BJ), Eaton Vance(EV), Gymboree(GYMB), Synopsys(SNPS), Phillips-Van Heusen(PVH), NetApp(NTAP), PetSmart(PETM), Deere & Co.(DE), Ltd Brands(LTD)

Thur. – Tech Data(TECD), Patterson Cos(PDCO), Sears(SHLD), Dick’s(DKS), Stage Stores(SSI), Ross Stores(ROST), Gap(GPS), Salesforce.com(CRM), Intuit(INTU), Brocade(BRCD), GameStop(GME), Foot Locker(FL), Children’s Place(PLCE), Aeropostale(ARO), Barnes & Noble(BKS), HJ Heinz(HNZ)

Fri. – AnnTaylor(ANN), Cost Plus(CPWM), JM Smucker(SJM)

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

Mon. – None of note

Tue. – (PBR) analyst meeting, (PHM) shareholders meeting

Wed. – None of note

Thur. – (TLEO) analyst day, (VSEA) investor day

Fri. – Fed’s Bernanke speaking, Fed’s Madigan speaking

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

Market Week in Review

S&P 500 1,004.09 -.63%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,004.09 -.63%
DJIA 9,321.40 -.52%
NASDAQ 1,985.52 -.74%
Russell 2000 563.90 -1.49%
Wilshire 5000 10,240.52 -.78%
Russell 1000 Growth 441.27 -.51%
Russell 1000 Value 518.05 -.83%
Morgan Stanley Consumer 595.74 -.24%
Morgan Stanley Cyclical 710.18 -1.62%
Morgan Stanley Technology 496.82 -.39%
Transports 3,705.92 -1.16%
Utilities 373.07 +.50%
MSCI Emerging Markets 36.03 -1.11%

Sentiment/Internals
NYSE Cumulative A/D Line +49,840 +4.55%
Bloomberg New Highs-Lows Index +183 +57.76%
Bloomberg Crude Oil % Bulls 25.0 +13.64%
CFTC Oil Net Speculative Position +27,077 -20.70%

CFTC Oil Total Open Interest 1,172,385 -2.51%
Total Put/Call .95 +30.14%
OEX Put/Call 1.42 -11.80%
ISE Sentiment 224.0 +68.42%
NYSE Arms 1.61 +89.41%
Volatility(VIX) 24.27 -1.98%
G7 Currency Volatility (VXY) 13.37 -.3%
Smart Money Flow Index 8,799.68 +1.41%

Money Mkt Mutual Fund Assets $3.594 Trillion -.4%
AAII % Bulls 51.0 +2.0%
AAII % Bears 33.0 -6.14%

Futures Spot Prices
CRB Index 257.75 -2.65%

Crude Oil 67.59 -4.19%
Reformulated Gasoline 194.75 -2.55%
Natural Gas 3.27 -10.82%
Heating Oil 184.61 -3.04%
Gold 949.90 -.73%
Bloomberg Base Metals 187.81 +5.15%
Copper 284.95 +2.39%

US No. 1 Heavy Melt Scrap Steel 228.33 USD/Ton +3.0%

China Hot Rolled Domestic Steel Sheet 4,138 Yuan/Ton -6.38%

S&P GSCI Agriculture 313.33 +2.63%

Economy
ECRI Weekly Leading Economic Index 123.90 +1.81%

Citi US Economic Surprise Index +40.90 -26.31%

Fed Fund Futures imply 76.0% chance of no change, 24.0% chance of 25 basis point cut on 9/23

US Dollar Index 78.73 -.28%

Yield Curve 251.0 -4.0 basis points

10-year US Treasury Yield 3.57% -28 basis points

U.S. Sovereign Debt Credit Default Swap 28.0 unch.

10-year TIPS Spread 1.73% -28 basis points
TED Spread 26.0 -3 basis points
N. Amer. Investment Grade Credit Default Swap Index 117.21 +9.74%

Euro Financial Sector Credit Default Swap Index 87.40 +8.66%
Emerging Markets Credit Default Swap Index 323.42 +8.14%
CMBS Super Senior AAA 10-year Treasury Spread 477.0 unch.

M1 Money Supply $1.678 Trillion +1.81%

Business Loans 725.50 -.67%
4-Wk MA of Jobless Claims 565,000 +1.5%

Continuing Claims Unemployment Rate 4.70 unch.
Average 30-year Mortgage Rate 5.29% +7 basis points
Weekly Mortgage Applications 499,000 -3.54%

ABC Consumer Confidence -47 +4.08%
Weekly Retail Sales -4.20% +140 basis points
Nationwide Gas $2.65/gallon +.02/gallon
US Cooling Demand Next 7 Days 19.0% above normal
Baltic Dry Index 2,685 -7.64%

Oil Tanker Rate(Arabian Gulf to US Gulf Coast) 27.50 +1.85%

Rail Freight Carloads 195,014 +.69%

Iraqi 2028 Govt Bonds 68.61 -.71%

Best Performing Style
Large-Cap Growth -.51%

Worst Performing Style
Small-Cap Value -1.64%

Leading Sectors
Disk Drives +3.78%
Networking +2.77%

HMOs +2.68%
Hospitals +2.64%
Computer Hardware +1.10%

Lagging Sectors
Construction -1.76%
I-Banks -2.04%
Papers -2.92%
Alt Energy -4.40%
REITs -4.99%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Lower, Weighed Down by Semi, Steel and Oil Service Shares

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Stocks Falling into Final Hour on Rising Economic Worries, Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Steel longs, Biotech longs and Technology longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 2.02% and is very high at 25.21. The ISE Sentiment Index is very high at 256.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running very high most of the day, hitting 2.44 at its intraday peak, and is currently .65. The Euro Financial Sector Credit Default Swap Index is rising 4.17% today to 87.26 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 3.31% to 117.21 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 3.15% to 26 basis points. The TED spread is now down 440 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 6.4% to 39.50 basis points. The Libor-OIS spread is falling 2.62% to 25 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 9 basis points to 1.73%, which is down 93 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Considering recent stock market gains, a better-than-expected July jobs report and an uptick in auto sales, today’s consumer confidence reading was even more disappointing. Healthcare reform fears are likely weighing heavily on the American psyche right now. As well, deflation concerns and the ongoing correction in Chinese equities are pressuring stocks today. Cyclical shares are especially weak, falling 3.23%. On the positive side, the NYSE Arms has been very high most of the day on below average volume. Bank stocks, led by (BAC), are hugging the flat line, which is a big positive. Rumors are circulating that Monday’s Master Trust data will show that credit card losses are improving more rapidly than analysts’ had estimated. As of now, there does not seem to be much bearish conviction behind today’s pullback. Nikkei futures indicate a -112 open in Japan and DAX futures indicate an +21 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates, declining energy prices, diminishing financial sector pessimism and short-covering.