Thursday Watch

Late-Night Headlines
Bloomberg:

- The Federal Reserve asked a judge to delay enforcement of her decision requiring the central bank to identify companies in its emergency lending programs. Chief U.S. District Judge Loretta Preska in Manhattan said on Aug. 24 that the Fed had until Aug. 31 to disclose daily reports on borrowing by banks and other financial institutions. The central bank wants Preska to stay her order, made in a Freedom of Information Act lawsuit, until the U.S. Court of Appeals in New York can act on an appeal that the Fed said it intends to file. The Fed and U.S. banks would suffer irreparable harm if details of the loan programs were made public, according to the central bank’s senior counsel, Yvonne Mizusawa. The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company that’s majority- owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit. Bloomberg News opposes the Fed’s request for a stay.

- A federal court rejected an attempt by two Ohio residents to use the so-called TurboTax defense that Timothy Geithner relied on to help win Senate confirmation as U.S. Treasury Secretary. The U.S. Tax Court in Washington rejected an appeal of accuracy-based penalties assessed by the Internal Revenue Service on Kenneth and Linda Hopson, who claimed they relied on tax-return preparation software that failed to detect income they had omitted from their 2006 federal tax returns. “Petitioners were not permitted to bury their heads in the sand and ignore their obligation to ensure that their tax return accurately reflected their income,” the court said in an opinion issued yesterday. “In the end, reliance on tax return preparation software does not excuse petitioners’ failure to review their 2006 tax return.” Geithner, who now oversees the IRS, testified during his confirmation hearing in January that he prepared his own returns when he worked at the International Monetary Fund in 2001 and 2002, using TurboTax, an Intuit Inc. product. He said his failure to pay taxes owed on some income during those years was not flagged by the software.

- President Barack Obama will create a federal task force to oversee restoration of the Louisiana and Mississippi coastlines, replacing the U.S. Army Corps of Engineers as the agency in charge. The move will overhaul decades of federal management of the Gulf Coast by the Corps, which has been criticized by lawmakers and New Orleans residents for building levees that couldn’t withstand the force of Hurricane Katrina four years ago. The new interagency effort will be led by the Obama administration’s budget and environmental offices, said Nancy Sutley, head of the White House Council on Environmental Quality, in an interview today.

- SAP AG(SAP), the world’s biggest maker of business-management software, must pay $138.6 million to Versata Software Inc. for violating its patents, a federal jury decided.

- TiVo Inc.(TIVO), the pioneer in digital video recording services, sued Verizon Communications Inc. and AT&T Inc. claiming infringement of patents used in their DVR systems.

- China’s banking regulators are “tweaking” lending policies to remove “froth” from the system while growth remains the top priority for policymakers, according to the Royal Bank of Scotland Group Plc. The goal is to manager risk exposure among banks and asset quality by checking lending from going into A-shares traded on the mainland and properties, Wendy Liu, Hong Kong-based head of China research at RBS ABN Amro, said in a report. China plans to tighten capital requirements for banks, threatening to curb the record lending that’s fueled a rally in the stock market this year, three people familiar with the matter said.

Wall Street Journal:

- A prominent fund-raiser for President Barack Obama, Hillary Rodham Clinton and other top Democrats left jail Wednesday for his $20 million New York City apartment, where he will remain under house arrest. Investment banker Hassan Nemazee, 59, left U.S. District Court in Manhattan shortly after noon. He spent one night at the Metropolitan Correctional Center next to the courthouse after his Tuesday arrest on a bank fraud charge.

- A statewide corruption investigation that has entangled dozens of New Jersey politicians had its origins a decade ago inside a dingy trailer office in Monmouth County, where federal agents overheard talk about bribes to local officials, some involving real-estate deals. The wiretaps of phones in the trailer eventually led to the arrests and convictions of a half-dozen public officials and sparked two other probes that have since ensnared nearly 80 politicians, fixers, businessmen and others. The key figure in last month's dramatic arrests of 44 people, real-estate developer Solomon Dwek, first came to investigators' attention through his connections with officials ultimately convicted in Monmouth County, according to a person in law enforcement familiar with the case.

- Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman. State revenue agents have begun nabbing scofflaws by mining information posted on social-networking Web sites, from relocation announcements to professional profiles to financial boasts. In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer's name.

- The Obama administration's pay czar is expected to formally approve the $10.5 million pay package for American International Group Inc.'s new chief executive as early as next week, according to people familiar with the matter. AIG had received "approval in principle" from Kenneth Feinberg, the Treasury Department's special master for compensation, to pay AIG CEO Robert Benmosche an annual salary of $7 million and as much as $3.5 million in incentive pay. But Mr. Benmosche wanted formal written assurance that his pay would be honored and had been pushing for a speedy sign-off on his compensation. Mr. Feinberg is expected to approve Mr. Benmosche's pay ahead of making any other rulings about pay at AIG or any of the other companies under his purview. Mr. Feinberg is reviewing compensation packages for the top 25 highest-paid employees at AIG and six other firms receiving significant amounts of government aid. Earlier this month, a person close to Mr. Benmosche said the CEO was "ready to walk" if the pay issue wasn't resolved. Mr. Benmosche, a former CEO of insurer MetLife Inc., was pressing for a quick resolution in large part to energize AIG employees and show them that AIG employees could be well-compensated, according to people familiar with the matter. A furor earlier this year over bonus payments made to some AIG employees demoralized some employees and prompted some to quit.

- Apple Inc.(AAPL) is getting closer to clearing the hurdles to start selling iPhones in China, one of the last major phone markets Apple has yet to tap. The release of the iPhone in China could turbocharge overseas growth for what is already Apple's fastest-growing product. China is the world's largest mobile market by subscribers, with some 687 million subscribers. That compares with more than 270 million subscribers in the U.S. Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., calculates Apple can sell 2.9 million iPhones in China by the end of 2011. "Ultimately, it will probably be the fastest-growing overseas market," he said. Apple's iPhone, which launched two years ago, has so far sold more than 26 million units world-wide in more than 80 countries, but the majority of its sales have come from the U.S. According to research firm IDC, only 7% of total iPhone sales in the second quarter, ended in June, came from the Asia Pacific, where it is sold in countries like Australia, Hong Kong and India, compared with 49% from the U.S. and 25% from Western Europe. Apple must still complete negotiations with state-owned wireless operator China Unicom (Hong Kong) Ltd., which is expected to carry the iPhone, but analysts say those talks are nearing conclusion. Beijing-based research firm BDA China Ltd. said in a report this month that the iPhone is "now finally set to make its official debut in China in October," citing interviews with companies including Unicom. Competing products are already in the works in China, adding urgency to the iPhone's launch. China Mobile Ltd., the country's largest carrier by subscribers, plans to start selling smart phones with similar functions to the iPhone this year based on Google Inc.'s Android operating system. On Monday, Taiwanese phone maker HTC Corp. announced it plans to launch seven third-generation phones, including at least one Android phone, with China Mobile by next year.

- One of the biggest players in the hot area of high-frequency trading is one of the least known. Getco LLC, a private company with fewer than 250 employees, often accounts for 10% to 20% of the daily trading volume of many U.S. stocks, the company has said, including highly traded names such as General Electric Co., Oracle Corp. and Google Inc. Since its founding a decade ago, the firm has risen to become one of the five biggest traders measured by volume in stocks and other instruments that trade electronically on exchanges, such as Treasury bonds and currency futures, according to the firm and other people in the industry. "They are probably the biggest market maker in the U.S. stock market," said Justin Schack, a vice president at Rosenblatt Securities Inc. who closely tracks high-frequency trading. The Securities and Exchange Commission has increased its scrutiny of high-frequency trading, even as exchanges rush to attract the high volumes the trading firms bring. In turn, Getco has increased its contact with the SEC and others as it seeks to influence policy decisions on matters such as rules governing options markets. One day last October, Getco juggled about two billion shares, representing more than 10% of the volume in U.S. equities, according to a person familiar with the firm. All this has been profitable for Getco, which earned about $400 million in 2008, trading mostly with its own money, people familiar with its finances say. Getco depends on the success of its proprietary complex algorithms to help it make money on the transactions more often than not. It also can pick up tiny rebates that some exchanges offer to firms willing to take the other side of trading orders.

CNBC.com:
- Northern Trust(NTRS) said on Wednesday it repurchased warrants issued to the U.S. Treasury for $87 million, becoming the latest bank to free itself from the government bailout program.

NY Times:

- For solar shoppers these days, the price is right. Panel prices have fallen about 40 percent since the middle of last year, driven down partly by an increase in the supply of a crucial ingredient for panels, according to analysts at the investment bank Piper Jaffray.

IBD:

- Sourcefire (FIRE) has become the new darling of Wall Street — and the U.S. government. During its second-quarter conference call July 30, Sourcefire said sales of its cybersecurity software to the feds jumped 233% over the prior year to $6.9 million. And there should be more where that came from, says CEO John Burris.

Forbes:

- Google(GOOG) hasn't yet finished previewing its new Wave collaboration tool, let alone given consumers full-blown access to it. But on Wednesday, Lars Rasmussen--one of the principle engineers behind Wave--hinted at how Google might monetize the tool.

Politico:

- “Let’s win one for Teddy” became the new health care reform rallying cry Wednesday, as Democrats hoped an emotional outpouring over Sen. Ted Kennedy’s death would give reform efforts a badly needed boost. But the political reality is more stark – as insiders predict the impact of Kennedy’s death is likely to be felt most in the legislative math. Democrats no longer have the 60 votes they need to pass a reform bill. And without the 60-vote margin, Democrats are hard-pressed to move legislation without picking up at least one Republican, diminishing their power to negotiate a bill that includes the coverage-for-all that Kennedy long championed. Even before Kennedy’s death, Democrats would have had a hard time wrestling their 60 members together to pass reform, which is why Senate Democratic leadership has toyed with the idea of passing chunks of the reform measures by using a procedural move that only requires 51 votes. It’s an idea that’s likely to get more attention now.

Rasmussen:

- For the second straight week, just one-third (34%) of likely voters believe the United States is heading in the right direction, according to the latest Rasmussen Reports national telephone survey.

gdgt:

- You know I like to keep my ear close to the ground when it comes to new gadgets, and I just got the scoop via a very reliable source about a new portable digital TV that Qualcomm(QCOM) is going to be introducing soon. Called the FLO TV Personal Television, or PTV, this thing will be an iPhone-sized device for tuning into broadcasts on Qualcomm's FLO TV terrestrial digital TV service.

USA Today.com:

- The USA TODAY/IHS Global Insight economic outlook index predicts GDP growth starting in September, the first increase since July 2008. Helping fuel the growth was improvement in financial indicators, such as the stock market, and increases in non-capital goods orders and light-vehicle sales. The rate of decline in the number of hours worked continued to stabilize. Seven of the eleven leading indicators in the Economic Outlook Index were positive contributors in August: hours worked, building permits, real non-defense capital goods orders, stock prices, ISM export orders, light-vehicle sales and the corporate bond spread. Four indicators had a negative effect on the index, including the money supply, crude oil prices, the real federal funds rate and the interest rate yield curve.

Reuters:

- Medco Health Solutions Inc (MHS) is seen as the lead bidder for Aetna Inc's pharmacy benefit manager in an auction that has drawn scant interest, sources familiar with the situation said on Wednesday. Aetna (AET) hired Bank of America Corp (BAC) and Credit Suisse Group AG to run the sale of the business, sources previously told Reuters.

- Massachusetts' top securities regulator said on Wednesday his office is demanding information from Goldman Sachs Group Inc (GS) on how the investment bank passes on analysts' short-term trading tips to top clients. William Galvin, Massachusetts' Secretary of State, said the subpoenas were sent recently and that Goldman has until around Sept. 7 to respond. "We thought we solved this problem with the preferred customers years ago when we settled with Goldman Sachs on Wall Street research, but now we don't know," Galvin said.

- Jo-Ann Stores Inc (JAS) posted a narrower-than-expected quarterly loss as cost cuts boosted margins and improved merchandise attracted shoppers to its stores, and raised its outlook for the year, sending its shares up 8 percent. The fabric and crafts retailer also said it expects the improvement in gross margins to continue in the third quarter.

Financial Times:

- Toyota(TM) is poised to slash production by as much as 580,000 vehicles – nearly 6 per cent of global capacity – in an effort to stem losses amid the sharp downturn in vehicle sales. The world’s largest carmaker, which is forecasting its second consecutive net loss this year, said it would shut a production line in western Japan from next spring through to the second half of 2011, reducing output by 220,000 vehicles. The Japanese company is also looking to pull out of Nummi, its manufacturing joint venture with General Motors in California, where it produced 359,000 vehicles last year.

- Two energy traders have been charged with breaking United Nations sanctions against Saddam Hussein’s Iraq in the long-awaited first prosecutions of individuals over the so-called “oil-for-food” scandal. Aftab al-Hassan, a businessman based in London, is due to appear in court on Thursday to face allegations he funneled about $1.6m of payments into Middle Eastern accounts controlled by Iraq’s state oil marketing body. The case – along with a similar prosecution launched this month against another man, Riad el-Taher – is one of the first public signs of movement in an epic Serious Fraud Office probe that has pulled in several leading multinational companies. The SFO declined to give further details about either case. The SFO launched its Iraq investigation after a committee headed by Paul Volcker, a former US Federal Reserve chairman, alleged in 2005 that more than 2,000 companies were involved in paying $1.8bn of illicit surcharges and kickbacks around a UN program set up to allow the sanctions-hit country to exchange its oil for food.

- The head of Britain’s City watchdog supports the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society. Adair Turner, chairman of the Financial Services Authority, says the debate on bankers’ bonuses has become a “populist diversion” and that more drastic measures may be needed to cut the financial sector down to size. He also says the FSA should “be very, very wary of seeing the competitiveness of London as a major aim”, claiming the City has become a destabilising factor in the British economy. His comments, floated in an interview in Prospect magazine published on Thursday, may be read in other financial centres, including New York, as a sign that Britain is becoming increasingly sceptical about the perceived advantages of being a leading financial centre. Lord Turner’s suggestion that a “Tobin tax” – named after the economist James Tobin – should be considered for financial transactions is also likely to reverberate around the world. The proposed tax, which has previously been championed by development economists and the French government as a means of funding the developing world, has been fiercely opposed by the finance industry. “If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit,” he says. Lord Turner says higher capital requirements will be the FSA’s main tool to eliminate excessive activity and profit, but that a tax on transactions on a global level may be an additional option. The FSA chairman also claims that parts of the financial services sector had grown “beyond a socially reasonable size”, including derivatives and hedging and aspects of the asset management industry and equity trading.

- Half of the planned assistance pledged by the US to Pakistan is likely to be wastefully spent on administrative costs, Islamabad’s most senior finance official has said. Shaukat Tarin, Pakistan’s finance minister, has urged the US to channel its assistance through Pakistani agencies instead to save on high intermediation costs incurred by US counterparts. Pakistan has become one of the largest recipients of US aid as Washington seeks to help stabilise the country threatened by a Taliban insurgency. US President Barack Obama plans to raise economic assistance to about $1.5bn a year, or $7.5bn over the next five years. “Whatever aid [the US is] giving must have full impact on the ground which is why they should route as much of this aid through our agencies than their own agencies,” Mr Tarin said in an interview with the Financial Times. “Frankly, we only receive almost 50-55 per cent of the aid, 40-45 per cent becomes expenses [because of intermediation costs by the US].” Mr Tarin added that Pakistan would resist any linkage of financial assistance to the country’s nuclear programme or confidence-building measures with arch-rival India. he said aid would be “unacceptable” if it was tied to greater monitoring of the country’s nuclear arsenal. US aid is intended to win public goodwill across Pakistan where anti-Americanism is widespread. US administrations have in the past been viewed as generous with military support, but stinting on civilian partnership.

- General Motors and Chrysler sales under the US “cash-for-clunkers” car scrappage incentives fell well below the two Detroit carmakers’ recent market shares, according to the government’s final summary of the scheme, which ended earlier this week. Underscoring the challenges facing the two companies in the wake of their recent bankruptcy restructurings, the transportation department said that GM models made up 17.6 per cent of the 690,100 vehicles sold under the scheme, while Chrysler accounted for 6.6 per cent of sales. By contrast, GM’s market share in the first seven months of 2009 was 19.6 per cent, and Chrysler’s 9.6 per cent, according to Autodata, a market-research company. Toyota was the biggest beneficiary of the subsidies, with a 19.4 per cent market share. Chrysler ended in seventh place behind Nissan and South Korea’s Hyundai. Erich Merkle, an analyst who runs the autoconomy.com website, said that “regardless of the cash-for-clunkers programme, Chrysler was going to lose market share and will continue to lose market share”. GM and Chrysler offer relatively few of the small models that were most in demand among cash-for-clunkers buyers. Jeremy Anwyl, chief executive of Edmunds.com, an online car-pricing service, said that “cash-for-clunkers distorted the market in a way that benefited the industry for four weeks. Now the payback begins”. Edmunds estimates that, based on visits to its websites, “purchase intent” is down 11 per cent from the average in June, before the cash-for-clunkers programme began. A sizeable number of “cash-for-clunkers” participants already have buyers’ remorse as they contemplate hefty payments on their new car loans, according to CNW, an Oregon-based market research company. Those payments “could negatively impact the total family budget more than expected prior to buying the new vehicle”, CNW reported.

TimesOnline:

- GM Europe, the owner of Vauxhall and Opel, has sought professional insolvency advice to prepare for the possibility that it may not attract a firm buyer in time to rescue the carmaker, The Times has learnt. Vauxhall executives believe that if a firm offer for GM Europe is not made within days, the carmaker faces three scenarios, one of them bankruptcy. There are also doubts over whether the White House would sanction General Motors (GM) keeping its European business, because such a move could flout the spirit of a US taxpayer bailout agreement in February.

Sydney Morning Herald:

- REAL damage is being done to the political capital of the charismatic American President, and the latest damage is being caused by the fraught moral issue of torture. While Barack Obama remains personally popular, his approval rating with the public is tipping rapidly towards negative territory for the first time since he swept into office on a wave of euphoria 10 months ago. Until a few months ago the President enjoyed a two-to-one approval rating, but that is eroding rapidly. The latest blow came on Monday when the US Attorney-General, Eric Holder, announced that a special prosecutor had been appointed to investigate the interrogation methods used by agents or contractors working for the Central Intelligence Agency in Iraq and Afghanistan during the previous Bush administration. The special prosecutor, John Durham, a senior Justice Department lawyer, will respond to a recommendation by the Justice Department's ethics watchdog that prosecution be considered for CIA employees or contractors who exceeded the guidelines of the US Army's field manual, which preclude torture. The decision has also opened a wound, and an issue the American public believed had already been investigated. Even Obama's director of the CIA, Leon Panetta, has expressed unease about the process. Obama's problem is that he is closely linked to his suddenly politically hot Attorney-General. They are friends, and Holder was the President's personal choice for the job. Both are the first African-Americans to hold their respective posts. Obama's reputation is thus linked to Holder, who is now in the eye of a domestic political storm. The President himself has said it was time to look forward and improve the CIA's performance, rather than engage in litigation that could damage the capabilities of the intelligence community. That is exactly the prospect now in store, and the American public has a right to be concerned.

Late Buy/Sell Recommendations
Citigroup:

- Rated (BBBY) Buy, target $44.

- Rated (WSM) Buy, target $21.

CSFB:

- Upgraded (AMG) to Outperform, target $69.

Night Trading
Asian Indices are -.75% to +.25% on average.

Asia Ex-Japan Inv Grade CDS Index 133.0 -.5 basis points.
S&P 500 futures -.26%.
NASDAQ 100 futures -.27%.

Morning Preview

BNO Breaking Global News of Note

Google Top Stories

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Yahoo Most Popular Biz Stories

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Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (TOL)/-1.27

- (ENER)/-.07

- (FRED)/.13

- (AEO)/.14

- (DELL)/.22

- (NOVL)/.07

- (MCRS)/.32

- (JCG)/.16

- (OVTI)/-.12

- (ARUN)/.02

Economic Releases

8:30 am EST

- Preliminary 2Q GDP is estimated at -1.5% versus a prior estimate of -1.0%.

- Preliminary 2Q Personal Consumption is estimated at -1.3% versus a prior estimate of -1.2%.

- Preliminary 2Q GDP Price Index is estimated at .2% versus a prior estimate of a .2%.

- Preliminary 2Q Core PCE is estimated at 2.0% versus a prior estimate of 2.0%.

- Initial Jobless Claims for last week are estimated to fall to 565K versus 576K the prior week.

- Continuing Claims are estimated to rise to 6242K versus 6241K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lacker speaking, Fed’s Bullard speaking, (ATPG) analyst breakfast, $28 bln 7-year Treasury Note Auction, (MDT) annual meeting and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Mixed as Strength in Airline, Homebuilding and Technology Stocks Offset Weakness in Transport, Construction, Steel, Coal and Gold Shares

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

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 75% 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 slightly below average. Investor anxiety is very high. Today’s overall market action is slightly bearish. The VIX is rising .76% and is very high at 25.11. The ISE Sentiment Index is low at 95.0 and the total put/call is high at 1.09. Finally, the NYSE Arms has been running above average most of the day, hitting 1.87 at its intraday peak, and is currently 1.18. The Euro Financial Sector Credit Default Swap Index is rising .84% today to 81.66 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 1.19% to 115.61 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .45% to 23 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 15.21% to 35.19 basis points. The Libor-OIS spread is falling another 2.93% to 19 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 1.74%, which is down 92 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is unch. today. Computer, Semi, Networking, Homebuilding and Airline shares are substantially outperforming today, rising 1.25%+. Long-term rates are unch. despite recent supply and today’s better economic reports. The broad market is unable to rally again today on positive news. However, given its extended short-term technical state, the fact that the bears are unable to gain traction for the third day in a row after a morning reversal lower is noteworthy. As well, high levels of investor angst today, combined with below average volume, leads me to conclude the bears still lack conviction. Contrary to popular belief in the media, I do not see high levels of investor complacency. Given how much we have rallied and improving economic data, I am actually surprised at the lack of complacency in most of my sentiment gauges. On the negative side, some market leading stocks are underperforming today and worries over China’s bubble persist. Nikkei futures indicate a -20 open in Japan and DAX futures indicate an +10 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and lower energy prices.

Today's Headlines

Bloomberg:

- Mortgage applications in the U.S. rose last week to the highest level in almost three months, led by gains in refinancing and purchases that signal housing is stabilizing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 7.5 percent to 566.4 in the week ended Aug. 21 from 527 in the prior week. The group’s refinancing gauge jumped 13 percent, while the index of purchases advanced 1 percent.

- Purchases of new homes in the U.S. jumped more than forecast and demand for long-lasting goods such as autos and computers climbed, reinforcing signs the economy is rebounding from the worst recession since the 1930s. Home sales increased 9.6 percent in July, the most in four years, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. Another report from the department indicated bookings for durable goods climbed 4.9 percent, also exceeding forecasts and the most since July 2007. The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier. The jump in sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.

- China’s three-year interest-rate swap will decline as banking regulators curb lending to prevent asset bubbles, said China International Capital Corp.

- China’s cabinet said it’s studying curbs on overcapacity in industries including steel and cement as policy makers seek to rein in investment growth fueled by a record credit expansion this year. The government will also increase “guidance” over parts of the coal, glass and power industries, the State Council said on its Web site today.

- Aluminum Corp. of China Ltd., the country’s largest producer, said Chinese smelters, traders and warehouses hold as much as 600,000 metric tons of inventories because of surplus output. Privately held inventories would be equal to two-and-a-half weeks of forecast Chinese demand this year, according to figures from Chalco, as the company is known. It’s also three times more than the reported stocks held by Shanghai Futures Exchange warehouses. “The biggest pressure for the aluminum industry is excessive capacity,” Chalco President Luo Jianchuan told reporters in Hong Kong today. “Both alumina and aluminum producers have stepped up the pace of restarting idled plants since the second quarter.” “It would take three years to turn China’s aluminum market from a surplus to a deficit, along with an economic recovery and demand improvement from users such as builders, automakers and power producers,” Chairman Xiong Weiping said at the same conference.

- Crude oil fell for a second day as the dollar strengthened, undermining demand for assets used to hedge against inflation. Oil dropped as much as 1.9 percent as the dollar advanced on a report by the Xinhua News Agency that China is studying curbs on industrial overcapacity, increasing concern the global economic recovery will slow. Inventories of crude oil rose 128,000 barrels to 343.8 million, the department said today in a weekly report. Supplies were forecast to drop by 1.15 million barrels. The American Petroleum Institute reported yesterday that oil supplies climbed 1.3 percent, the most since April, to 346.7 million barrels. U.S. total daily fuel use averaged 19.2 million barrels in the past four weeks, down 0.9 percent from a year earlier, the Energy Department said. U.S. travel during the Labor Day weekend will decline 13 percent from last year because the holiday falls later than usual, AAA said today. The retail price of regular gasoline will be down about a dollar to $2.60, the group said.

- Public support for charter schools, a component of President Barack Obama’s $100 billion education overhaul, rose to almost two-thirds of Americans this year even as most remained confused about what they are. Sixty-four percent of U.S. adults said they favor charter schools, up from 51 percent a year ago, Gallup Inc. and Phi Delta Kappa International, a public-school advocacy group in Bloomington, Indiana, found in a poll released today.

- The U.S. economy needs the stimulus from low interest rates for some time as it begins a “fragile” recovery from the worst recession since the 1930s, said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. “Overall, the U.S. economy is improving but still fragile,” Lockhart said today in remarks prepared for a speech in Chattanooga, Tennessee. “The FOMC has stated its intention to keep the policy interest rate low for an extended period. I agree that this approach is needed.”

- Senate Banking Committee Chairman Christopher Dodd is considering whether to succeed Edward Kennedy as leader of the Health Committee and give up his post on the panel that steers legislation on the financial industry. Dodd, the second-ranking Democrat on the Committee on Health, Education, Labor and Pensions, said today he will wait before deciding to exercise an option to replace Kennedy, who died yesterday of brain cancer.

Wall Street Journal:

- In an effort to keep potentially unsafe children's items from being resold, Toys "R" Us Inc. is launching a program that allows consumers to trade in used cribs, car seats and other baby products for discounts on new items in those categories. For each used item consumers bring in to Babies "R" Us or Toys "R" Us locations nationwide, they will receive a 20% discount on any new product from select manufacturers. Additional products that can be brought in are bassinets, strollers, travel systems, play yards and high chairs.

- The world's largest pilots union said Tuesday it wants bulk shipments of lithium batteries and products containing the batteries immediately banned from passenger and cargo planes because they can start a fire. The Federal Aviation Administration said it wasn't prepared to take emergency action on the issue.

- The U.S. and its allies are planning to reinforce Afghan police and army units guarding Kandahar with American and Canadian troops, a move that acknowledges the deteriorating condition of the south's largest city. According to senior military officials, U.S. and Canadian soldiers will for the first time deploy to bases on the outskirts of the city. The local Afghan forces will be bolstered by an expanded number of embedded American trainers. The plan represents a high-stakes wager that the Afghans have the ability to keep Kandahar safe, a mission they and North Atlantic Treaty Organization forces have so far largely been unable to accomplish. It is also a tacit admission that the U.S. and its NATO allies erred by sending troops to sparsely inhabited parts of eastern and southern Afghanistan instead of to major population centers, such as Kandahar.

- The Justice Department's decision to investigate CIA interrogation practices increased tension between the agencies and prompted a sense of betrayal among some CIA officers, current and former officials said.

- World trade volumes rose at the fastest rate in almost a year in June, another indication that the global economy is emerging from its most severe downturn since the Great Depression. According to figures Wednesday compiled by the Netherlands Bureau for Economic Policy Analysis -- also known as the CPB -- trade volumes increased by 2.5% from May, the largest increase in a single month since July 2008.

CNBC:

- Hedge funds and bank trading desks are hiring again and have already snapped up some of the most talented managers who were dislodged while firms struggled in the credit crisis, industry insiders said.

NY Times:

- This fall, law students are competing for half as many openings at big firms as they were last year in what is shaping up to be the most wrenching job search season in over 50 years.

Washington Post:

- The ranking Republican on the Senate Health, Education, Labor and Pensions Committee has asked President Obama to withdraw his nominee for Department of Labor solicitor, saying she gave inconsistent testimony to the panel about a program she helped launch in New York this year. Obama nominated New York State Labor Commissioner M. Patricia Smith in March to the third-ranking job at the Labor Department. If confirmed, she will serve as general counsel to Labor Secretary Hilda L. Solis after more than 30 years of work on labor issues. In a letter sent Monday to Obama, Sen. Mike Enzi (R-Wyo.) said Smith's testimony before the Senate panel in May contradicted documents obtained by committee staffers about New York's Wage Watch program. The project, started in January and modeled after the Neighborhood Watch program, is an effort to root out companies that do not pay proper wages. Enzi and his staffers suggest that the program unfairly targets small businesses and was developed without input from small-business representatives. Most notably, Enzi said Smith made "at least four significant statements" that contradicted documents describing the program's development, according to his letter. Smith told the committee that the program was developed internally by state officials, but documents show that a union and a public interest entity partially financed by unions were involved in its development, according to Enzi spokesman Michael Mahaffey. Smith also described the program as an educational effort, but documents quote her aides, as well as unions and public interest groups, describing it as an enforcement program. Other statements by Smith about the involvement of labor unions and the future of the program also contradicted information in the documents.

NY Post:

- A union-backed investor called on Whole Foods to oust its controversial CEO John Mackey, charging a recent opinion piece Mackey wrote on health-care reform alienates the pricey grocery chain's left-leaning customer base. CtW Investment Group -- the investor arm for unions including the United Food and Commercial Workers -- said Mackey damaged the upscale supermarket's reputation when he published an Aug. 12 op-ed in The Wall Street Journal.

Washington Times:

- A month after they voted to punish some corporate executives for taking hefty bonus payouts, members of the House of Representatives quietly gave their own staffers a new potential bonus by making even their top-earning aides eligible for taxpayer dollars to repay their student loans. The change, which took effect in May, means House employees earning up to $168,411, or the top level, are now eligible for government-funded subsidies to help pay down their student loans.

zerohedge:

- Hedge Funds Have Failed To Participate In Equity Rally.

Rassmussen:

- Seventy percent (70%) of likely voters now favor a government that offers fewer services and imposes lower taxes over one that provides more services with higher taxes, according to a new Rasmussen Reports national telephone survey. That’s up five points over the past month and is the highest level measured in nearly three years. Just 19% would prefer a government that provides more services in exchange for higher taxes, down five points from July and the lowest level in over two years. This marks the first time the percentage of voters who prefer this type of government has fallen below 20%.

Politico:

- Edward Moore Kennedy, Camelot’s youngest brother who never reached the White House but grew into the most accomplished legislator of his generation in the Senate, died late Tuesday night at home in Hyannis Port after a long battle with cancer.

LA Times:

- Mortgage delinquencies will continue to rise and set records the rest of this year in California, according to projections to be released today by TransUnion, one of the three big U.S. credit-reporting companies. The good news from TransUnion's number-crunching is that, even in the tarnished Golden State, the trend may finally reverse itself by the middle of next year. In the immediate future the percentage of California home loans that are delinquent at least 60 days or are in foreclosure is projected to skyrocket to more than 14% by year's end from 9.7% as of June 30, TransUnion said. In the region including Los Angeles, Orange, Ventura, Riverside and San Bernardino counties, the delinquency rate also was expected to hit 14% at the end of the year, up from 10.7% as of June 30. "We think that's about as bad as it's going to get," Guarrera said.

USA Today:

- Cash for clunkers ended this week — for cars. But old energy-hogging refrigerators and freezers qualify for recycling and cash from more than 60 utilities across the nation. And the federal government is making money available to states so consumers could get rebates of $50 to $200 for new, more energy-efficient appliances later this year in a so-called "cash for appliances" program. Combined, the appliance initiatives have a goal similar to the cash-for-clunker program for autos: They get less-efficient appliances off the nation's energy grid in favor of newer efficient ones. The government's rebate program, in which the Department of Energy is providing states with $300 million approved earlier this year as part of President Obama's $787 billion stimulus plan, serves another goal similar to the cash-for-clunker program: It's designed to boost the economy.

Reuters:
- U.S. regulators have been negotiating until the last minute on highly anticipated guidelines for private equity investments in distressed banks. The Federal Deposit Insurance Corp is meeting later on Wednesday and is expected to soften the private equity guidelines first proposed in July, in an attempt to attract more investors to the assets of distressed banks.

Financial Times:
- More investment thanks to China’s rescue package threatens to worsen the already severe overcapacity, while the cash injection is already creating asset bubbles. The reason for China’s stimulus is simple. While it did not suffer a western-style financial crisis, it was hit hard by the second-order effects, as exports suddenly collapsed. In 2007, the growth rate of exports was 25.7 per cent, and exports made up 36 per cent of GDP. In November last year the exports shrank 2.2 per cent on the year, and have fallen continuously since then. In May 2009, exports plunged 26.4 per cent against a year earlier. The fall of exports may have cut GDP growth 3 percentage points. If its indirect impact is included, it may have shaved more than 5 points off China’s 2008 growth. The most important component in the stimulus package is investment in infrastructure. Fixed asset investment has long been the most important driving force for China’s economic growth, and has been growing faster than GDP since the turn of the century. Due to the dual role of fixed asset investment in creating demand in the short run and supply in the long run, an increasing investment rate will create immediate excess demand for a while, then the economy will shift from a phase of overheating to overcapacity. Correspondingly, inflation pressure will be replaced by deflation pressure. It is right that China should adopt an accommodating monetary policy in response to the global financial crisis and domestic slowdown. However, China did not suffer a liquidity shortage and credit crunch. Its monetary multiplier has been more or less stable. China does not need a helicopter to drop money from the sky. The excess liquidity has led to the resurgence of asset bubbles.

The Scotsman:

- JUSTICE secretary Kenny MacAskill was last night under pressure to reveal more details of the medical evidence that led to the release of the Lockerbie bomber, after it emerged that only one doctor was willing to say Abdelbaset Ali Mohmed al-Megrahi had less than three months to live. Labour and Conservative politicians have demanded the Scottish Government publish details of the doctor's expertise and qualifications, amid suggestions he or she may not have been a prostate cancer expert. The parties have also raised questions over whether the doctor was employed by the Libyan government or Megrahi's legal team, which could have influenced the judgment. The evidence provided by the doctor is crucial as compassionate release under Scots law requires that a prisoner has less than three months to live. Doubts about Megrahi's life expectancy have already been raised by American relatives of the 270 victims of the bomb that blew up Pan Am flight 103 over Lockerbie on 21 December, 1988. But last night the Scottish Government said it would not publish details of the individual who gave the crucial advice.

Bild:

- Germany faces “dramatically” higher costs for its health system from 2020 as the population is getting older, citing a forecast by the health-system-research. Services by the country’s health insurances will have to be reduced.

Bear Radar

Style Underperformer:
Mid-Cap Value (-.39%)

Sector Underperformers:
Coal (-2.08%), Steel (-1.85%) and Gold (-1.73%)

Stocks Falling on Unusual Volume:
RTP, UNT, ABB, JCP, ISLE, HAIN, WCRX, OVTI, LANC, CWEI, ITWO, CPTS, BOLT, CISG, WPPGY and DY

Stocks With Unusual Put Option Activity:
1) MAR 2) AMX 3) MHS 4) BMC 5) FNM

Bull Radar

Style Outperformer:
Small-Cap Value (+.01%)

Sector Outperformers:
Homebuilders (+1.75%), Airlines (+1.58%) and Networking (+1.27%)

Stocks Rising on Unusual Volume:
DLTR, LFC, STJ, CHDX, LOW, TGT, HD, AIXG, TXT, GEOY, T, COP, SUN, MYGN, BAMM, BCSI, KIRK, HGSI, MDAS, BWLD, GRMN, IIVI, CHDX, CSTR, NETL, BBBY, FRED, DNDN, LIHR, RMBS, IRF, WSM and DSW

Stocks With Unusual Call Option Activity:
1) MYGN 2) DLTR 3) INTU 4) BCSI 5) TXT