Today's Headlines

Bloomberg:

• High-Yield Default Swaps Gauge Falls to 13-Week Low in Europe. The cost of protecting European corporate bonds from default fell, with a gauge of high-yield company debt risk dropping to the lowest level in 13 weeks. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly junk credit ratings declined 6.5 basis points to 451, the lowest since May 4, according to JPMorgan Chase & Co. at 12 p.m. in London. The Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings dropped 1.5 basis points to 98, the lowest since May 13, JPMorgan prices show. The cost of protecting bank bonds from default fell to the lowest since April 21, with the Markit iTraxx Financial Index of 25 banks and insurers down 1.75 at 108.5 and the subordinated index 3 lower at 173.5. The cost of insuring against losses on government debt also fell. Contracts on Greece dropped 15 basis points to 711.5, Portugal declined 2 to 219, Spain decreased 1.5 to 179, Italy fell 1 to 130 and Ireland was 6 lower at 203, CMA prices show.
• U.S. Economy: Consumer Spending Stagnates, Home Sales Retreat. Consumer spending, pending home sales and factory orders were all weaker than projected in June, showing the U.S. recovery lost momentum heading into the second half of the year as employment stagnates. Household purchases, which account for about 70 percent of the economy, were unchanged from May, according to figures from the Commerce Department issued today in Washington. Contracts to buy existing houses unexpectedly dropped for a second month and factory bookings fell more than twice as much as economists estimated, other reports showed. The savings rate for American households increased to 6.4 percent, the highest level since June 2009, to $725.9 billion. The index of pending home resales dropped to 75.7, the lowest level since data began in 2001, figures from the National Association of Realtors showed.
• MasterCard(MA) Profit Rises as Travel Spending Increases. MasterCard Inc., the world’s second- biggest payments network, posted a 31 percent increase in second-quarter profit as consumers used their cards more while traveling beyond their home countries. Net income rose to $458 million, or $3.49 per diluted share, compared with $349.1 million, or $2.67, a year earlier, the Purchase, New York-based company said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was for earnings per share of $3.34. “I feel optimistic about our future growth prospects,” Banga said today in a conference call with analysts. “The majority of our revenues come from outside of the United States, which as of now is showing faster growth.” Worldwide spending on MasterCard credit and debit cards climbed 7.9 percent to $493 billion, when adjusting for currency fluctuations, driven by 21 percent growth in Latin America, 15 percent in the Asia-Pacific, Middle East and Africa and 13 percent in Europe, MasterCard’s second-biggest market outside the U.S. Total card spending in the U.S. climbed 0.7 percent.
• New York Hedge-Fund Manager Tax Likely to Fail, Paterson Says. New York’s Senate is unlikely to enact a plan to raise $50 million a year by taxing hedge fund managers who commute into the state, Governor David Paterson said. The proposal led Governor Jodi Rell of neighboring Connecticut to offer relocation assistance to New York-based fund executives who leave for her state. The New York Post reported that Rell held a dinner for representatives of 15 financial firms in Darien, Connecticut, on Aug. 2. “You have my promise to do all I can to help,” she said in a July 16 letter to the New York Hedge Fund Roundtable, a trade group.
• Oil Rises to Three-Month High Above $82 Before U.S. Supply Data. Oil rose to a three-month high in New York as the dollar weakened and analysts forecast that crude inventories declined last week in the U.S. Crude oil for September delivery climbed as much as 76 cents, or 0.9 percent, to $82.10 a barrel, in electronic trading on the New York Mercantile Exchange, the highest level since May 5.
• Europe's Abandoned Edifices Spell Trouble for Lafarge, Builders. The delayed revamp of Berlin’s Stadtschloss palace and a wobbly $8 billion bridge project in Sicily are setting off investor alarm bells that Europe’s building industry will bear the brunt of state spending cuts. “We’re expecting construction stocks to remain very much under pressure and sluggish for the next six months,” said Franck Nicolas, head of global asset allocation at Paris-based Natixis Asset Management, which oversees 309 billion euros ($400 billion) of investments. “Budgetary austerity won’t quicken the end of the crisis.”
• North Korea Threatens 'Physical Retaliation' Against Naval Drills. North Korea’s military warned it may make a “physical retaliation” against South Korean naval ships carrying out military drills near their disputed border later this week, and told all shipping to avoid the area. South Korea plans to stage anti-submarine exercises for five days starting Aug. 5 to improve the nation’s defenses. The South says a North Korean torpedo sank one of its warships in March, killing 46 sailors. he maneuvers by South Korea “are not simple drills but undisguised military intrusion into the inviolable territorial waters of” the North, state-run Korea Central News Agency said, citing the army. “It is the unshakable will and steadfast resolution of the army and people of the DPRK to return fire for fire,” it said, using the initials of the North’s official name.
• Goldman Sachs(GS) Offers More Power to AAA Holders in CMBS Deal. Goldman Sachs Group Inc. is offering to give investors in the highest-rated portions of a bond sale backed by commercial mortgages control in the event the loans go bad as bankers attempt to revive the market. The $788.5 million offering gives holders of the safest portion of the transaction, or about 81 percent of the deal, the power to direct and replace firms hired to handle loans that become troubled, according to marketing documents distributed last week to investors. Typically, that right is held by investors who buy the smaller, riskiest slice. It’s “plowing new ground,” said Patrick Sargent, a partner at Dallas law firm Andrews & Kurth LLP. Goldman Sachs is attempting to address concern that holders of the riskiest pieces of commercial mortgage bonds in the $700 billion market may make decisions that favor their interest over other investors in the transactions when loans sour. “This is a big nod to the AAA buyers,” Lisa Pendergast, a strategist at Jefferies & Co. in Stamford, Connecticut, said in an interview.
• Israeli Officer, Lebanese Soldiers Killed on Border. Israeli and Lebanese soldiers exchanged fire in the most serious border incident since a monthlong conflict in 2006, leaving an Israeli battalion commander, two Lebanese soldiers and a local journalist dead. Another Israeli officer was critically wounded in the fighting, Major-General Gadi Eisenkot, head of Israel’s Northern Command, said on Army Radio. In addition to the Lebanese deaths, 15 soldiers and civilians from Lebanon were injured, said a Lebanese Army spokesman, who commented on condition of anonymity due to military regulations.
• Cloud Formation, Copper Signal S&P 500 Gain: Technical Analysis. A Japanese charting technique and surging copper prices suggest U.S. stocks may extend gains through October, according to Katie Stockton, chief market technician at MKM Partners.

Wall Street Journal:

• New Drilling Rules Imperil Some Rig Operators. Higher costs arising from tough new rules for the offshore-oil industry prompted by the Gulf of Mexico oil spill could pose a serious threat to contractors with older fleets of drilling rigs. Legislation designed to prevent a repeat of the Deepwater Horizon accident sets minimum safety standards for well design and requires oil companies to use an enhanced type of blowout preventer, or BOP, the device which failed to control BP PLC's rogue well. But many drilling rigs are too small to accommodate newer and bigger BOPs, and it will cost billions of dollars to upgrade them all.
• Commission Clears Way for Ground Zero Mosque. The New York City Landmarks Commission unanimously voted Tuesday to deny landmark designation to the site of the proposed mosque near Ground Zero, paving the way for the controversial community center and worship space to rise two blocks from the site of the Sept. 11, 2001, terrorist attacks.

CNBC:

• Hedge Fund Merger to Reunite Star Traders. Two hedge funds that were both started by former star traders at Goldman Sachs are to merge in a deal that marks one of the biggest steps over the past year in the long-anticipated consolidation of the industry. New York-based TPG-Axon, one of the world’s biggest hedge funds, has agreed a deal to merge with UK-based Montrica Investment Management, one of London’s largest hedge funds specialising in trading on events such as takeovers.

MarketWatch:

• Microsoft(MSFT) and Ballmer Under Fire. A firestorm is raging through the media and the blogosphere these days over Microsoft Corp. Chief Executive Steve Ballmer and whether or not it's time for him to go.

NY Times:

• Most Carmakers Reported Higher Sales in July.

NY Post:

• NY Hedge Funders Wined and Dined by Connecticut Governor. Several New York hedge-fund honchos crossed the border last night for a date with the governor of Connecticut to talk about moving in with her. Representatives of 15 city-based financial firms were lured to a private meeting in Darien with Gov. Jodi Rell to hear her pitch to move their businesses to the Nutmeg State -- and avoid a tax on their industry that's being considered in New York.

Business Insider:

• 100 Wasteful Stimulus Projects That Actually Cost America Jobs by Senator John McCain and Senator Tom Coburn.
• Sorry, But The BlackBerry Torch Won't Save RIM(RIMM).
• The Administration Is Still Double-Counting Medicare Cuts.
  

Zero Hedge:

• Is Goldman(GS) Preparing to Spin Off Its $82 Billion Private Equity Division?

NewTeeVee:

• Apple(AAPL) Pushes Forward With Streaming Video Plans. The latest evidence that Apple will soon begin streaming video comes from CNET, which reports that the consumer electronics manufacturer is putting its resources behind a cloud-based video service. The report comes as Apple has transitioned many on the team from online music service Lala to work on streaming video instead. Apple acquired Lala in December of last year, but shortly thereafter shut down the streaming music service. Now it seems that Lala’s technology and personnel are being used to build a cloud-based video service, which could replace Apple’s current system for downloading movies and TV shows. The rollout of Apple’s streaming video service could coincide with the introduction of the next version of Apple TV, which is expected to be sold for around $99.

LA Times:

• Bell Withholds Public Records. Despite vowing greater transparency in the wake of a salary scandal, the city of Bell is refusing to turn over public records to The Times, community activists and even a sitting councilman. "They continue to keep us in the dark," said Councilman Lorenzo Velez, who has been critical of the high salaries paid to top Bell administrators and other City Council members. "The problem is a continuation of so many years of doing whatever they wanted in City Hall."

TechCrunch:

• Mobile Video Revenues Estimated at $548 Million in 2010. Revenues from mobile video in the U.S. are estimated to grow from $548 million in 2010 to $1.3 billion in 2014, according to eMarketer.
  

Time:

• Referendum in Missouri: Will the Show-Me State Show Up Obamacare? Missouri voters go to the polls Tuesday for the first-in-the-nation referendum on President Obama's health care plan. It is likely to give Republicans a chance to brag about the unpopularity of Obamacare, but the vote will be largely symbolic. Courts will eventually decide whether Missouri and other states can legally trump federal law and exempt citizens from the mandate to buy insurance. But sending a signal to Washington will be victory enough for the Republicans and Tea Party activists pushing Proposition C.

Rasmussen Reports:

• 67% Say Disclosure of Afghanistan War Secrets Hurts U.S. National Security. The Obama administration is wrestling with the illegal disclosure on the Internet of thousands of secret documents related to the war in Afghanistan, and 67% of U.S. voters believe the release of this kind of information hurts national security. A new Rasmussen Reports national telephone survey finds that just 19% believe media outlets that release secret government documents relating to the war in Afghanistan are providing a public service.

Politico:

• The Lame Duck Looms. As Congress heads home for August, Republicans and conservative activists have a new rallying cry to energize voters: Fear the Lame Duck! With dark warnings, GOP members of Congress and right-wing media figures are suggesting that the Democratic majority could use a post-election session of Congress to jam through tax increases, cap and trade, immigration reform and legislation making it easier for unions to organize workers. The campaign began with a John Fund column in the Wall Street Journal, which was picked up by the heavily trafficked Internet gateway The Drudge Report early last month and gained steam when columnist Charles Krauthammer sounded the alarm not long after. Now the GOP is rallying around the perceived threat of a lame-duck session.

Real Clear Politics:

• A Bleak Picture of Government Debt. Rumors of Congressional Democrats privately expressing disapproval of the Obama administration's actions and policies have been given more credence by such things as House Speaker Nancy Pelosi's public criticism of White House spokesman Robert Gibbs. But when two long-time Democratic pollsters, Patrick Caddell and Douglas Schoen, called President Obama "cynical" and "racially divisive," that was a dramatic statement. It was like saying that the emperor has no clothes.

Reuters:

• U.S. Authorities Able to Tap Blackberry Messaging. The BlackBerry -- renown for the security of its messaging -- doesn't offer 100 percent protection from eavesdropping. At least not in the United States. U.S. law enforcement officials said they can tap into emails and other conversations made using the device, made by Research in Motion, as long as they have proper court orders.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-.83%)

Sector Underperformers:

• 1) Education -3.36% 2) Homebuilders -2.39% 3) Airlines -2.32%

Stocks Falling on Unusual Volume:

• PFG, GEOY, PG, KGC, SYKE, AAWW, TTEC, ARBA, TNS, TFX, BHI, DOW, BGC, VQ and VMC

Stocks With Unusual Put Option Activity:

• 1) KGC 2) CBS 3) HL 4) DOW 5) MCO
  

Stocks With Most Negative News Mentions:

• 1) SYKE 2) DUK 3) TRB 4) MF 5) MDU
  

Bull Radar

Style Outperformer:

• Large-Cap Value (+.23%)

Sector Outperformers:

• 1) HMOs +1.41% 2) Drugs +1.32% 3) Gold +1.26%

Stocks Rising on Unusual Volume:

• SOLF, IPGP, IDSA, OPLK, CTSH, ACOR, EXBD, SIRO, CGNX, POWI, TRS, HOLX, FIRE, IPAR, APKT, CSIQ, VRSN, SHPGY, TLEO, PFE, SA, HMY, HLF, NWL, TI, PHH and DVA
  

Stocks With Unusual Call Option Activity:

• 1) FRO 2) VRSN 3) GRMN 4) BHI 5) VMC
  

Stocks With Most Positive News Mentions:

• 1) DOW 2) COH 3) MA 4) BA 5) EMR
  

Tuesday Watch

Evening Headlines
Bloomberg:

• IBM(IBM) Bond Sale Signals Rally Strengthening as Ford Raised: Credit Markets. International Business Machines Corp. raised $1.5 billion at the lowest interest rate on record as the credit rally that began in June extended into August on investor confidence the economy won’t slip back into recession. “Even though the economy isn’t working to its fullest capacity, a lot of investors are feeling that if companies are capable of turning in decent earnings, then they’re able to manage themselves to this low-growth environment,” said Arthur Tetyevsky, chief U.S. credit strategist at Gleacher & Co. in New York. Borrowers sold $12.9 billion of U.S. corporate bonds yesterday, according to data compiled by Bloomberg. Citigroup Inc. issued $3 billion of notes, following July sales by Goldman Sachs Group Inc. and JPMorgan Chase & Co.
• Slowing steel demand in China, the world's largest consumer of the metal, led 40% of mills in the nation to cut output or put plants on maintenance, Luo Bingsheng, vice chairman of the China Iron & Steel Association said today.
• Greece Passes First Deficit-Reduction Test as Budget Challenges Increase. Greece’s austerity drive may pass its first test this week as a European Union-led mission prepares to dole out more rescue funds for a government trying to cut the euro-region’s second-biggest budget gap and weather a recession. In approving the second tranche of a three-year, 110 billion-euro ($145 billion) bailout, the EU and International Monetary Fund are likely praise Greece’s progress and say that more work is needed to lock in the gains, economists said. Greece is battling the highest inflation rate in the 27-nation EU, revenue is trailing targets and the EU and IMF forecast the economy will shrink as much as 4 percent this year. Prime Minister George Papandreou has raised taxes, cut wages and overhauled the state-run pension system, while braving months of strikes against the measures that helped shrink the budget gap by 45 percent in the first half. Sustaining the effort and qualifying for another 9 billion euros of EU-IMF funds will be complicated by a recession that has been deepened by his steps.
• Dendreon's(DNDN) $93,000 Cancer Drug Price Must Be Paid by U.S., Doctors Say. Dendreon Inc.’s $93,000 price tag for its Provenge prostate cancer treatment must be covered under the rules of the U.S. Medicare health plan, according to a letter submitted by the American Society of Clinical Oncology. The Centers for Medicare & Medicaid Services, the government agency that determines which treatments will be reimbursed, is required by the Social Security Act to pay for all cancer drugs approved by U.S. regulators, the cancer society said in a public letter submitted to the agency. Provenge won marketing rights in the U.S. in April, becoming the first drug designed to train the body’s immune system to fight cancer.
• MetLife(MET) Raises $3.15 Billion in Stock Sale for Acquisition of AIG(AIG) Business. MetLife Inc., the largest U.S. life insurer, raised $3.15 billion by selling shares below yesterday’s closing price to help pay for the acquisition of an American International Group Inc. business unit.
• Genzyme(GENZ) Said to Talk With Sanofi After Getting Buyout Bid. Genzyme Corp., the world’s largest maker of medicines for genetic diseases, has begun takeover talks with Sanofi-Aventis SA after receiving a proposal from the French drugmaker last weekend, according to a person with knowledge of the matter. The talks between Genzyme, of Cambridge, Massachusetts, and Paris-based Sanofi are ongoing, said the person, who declined to be identified because the discussions are private. Genzyme’s shareholders are looking for an offer above $80 per share, the person said. Genzyme rose as much as 2.5 percent in extended trading after the close of the Nasdaq Stock Market.
• Treasury Two-Year Yields Fall to Record on Bets Fed Plans to Spur Growth. Treasury two-year yields extended their decline to record lows as traders bet the Federal Reserve will introduce additional measures to keep borrowing costs low as soon as its next meeting on Aug. 10 to boost the economy. Ten-year notes rose, snapping a decline from yesterday, before a government report that analysts said will show personal income and spending cooled in June, a sign the economy is slowing. The London interbank offered rate, which banks pay for dollar loans, is tumbling partly because of speculation the Fed will start buying bonds again, Anthony Crescenzi of Pacific Investment Management Co. said in a report. “More and more people are looking for additional easing at the meeting,” said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo.

Wall Street Journal:

• Fed Mulls Symbolic Shift. Federal Reserve officials will consider a modest but symbolically important change in the management of their massive securities portfolio when they meet next week to ponder an economy that seems to be losing momentum. Officials to Consider Putting More Money Into Bond Market as Recovery Wavers. The issue: Whether to use cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is expected to do in the months ahead. Any change—only four months after the Fed ended its massive bond-buying program—would signal deepening concern about the economic outlook. If the Fed's forecast deteriorates significantly, it could also be a precursor to bigger efforts to pump money into the economy. Moving to stop the Fed's portfolio from shrinking would prevent monetary policy from slightly tightening in the face of a weakening recovery. The central bank's $2.3 trillion portfolio has nearly tripled in size since 2007. Buying new bonds with this stream of cash from maturing bonds—projected at about $200 billion by 2011—would show the public and markets that the Fed is seeking ways to support economic growth. It could also be a compromise that rival factions at the Fed support, as officials differ about whether and how to address a subpar recovery. Officials in the Fed's anti-inflation camp aren't convinced the economy is slowing significantly and are wary of taking new actions. Others are eager to consider new steps to address recent signs of a slowdown and persistent high unemployment. Fed officials aren't yet prepared to take the larger step of resuming large-scale purchases of mortgage-backed securities or U.S. Treasurys. But they are holding open that option if the economy deteriorates. Private forecasters generally expect real GDP to grow by an annual rate of about 2¾% in the second half of 2010. If the picture deteriorates and they forecast growth falling below 2%, the Fed would be more likely to act.
• Dual Role in Housing Deals Puts Spotlight on Deutsche(DB). Federal probes of the collapsed mortgage-bond boom are shedding light on how Wall Street firms sometimes created securities and sold them to one set of investors, while advising others to bet against them. One firm that was a major player in mortgage securities, Deutsche Bank AG, illustrates a pattern investigators are looking at. While creating and selling mortgage securities to some of its clients, the big German bank was not only advising other clients to bet the other way, but also sometimes doing so itself. A Deutsche trader helped create an index that made it easy to bet against housing, and the bank itself then used the index to do just that.

CNBC:

• Gold Miner Kinross(KGC) to Buy Red Back for $7 Billion. Gold miner Kinross Gold said it will buy the 91 percent of Red Back Mining that it does not already own for around $7 billion to create one of the world's largest gold miners.
• Upcoming 'Kill' Attempt Might Do the Trick Alone: BP(BP). After insisting for months that a pair of costly relief wells were the only surefire way to kill the oil leak at the bottom of the Gulf of Mexico, BP officials said Monday they may be able to do it just with lines running from a ship to the blown-out well a mile below.

IBD:

• Green Mountain Coffee(GMCR) Leads The Single-Serve Revolution.

Business Insider:

• Small Business Optimism Plunges: Firms See Lower Spending and More Layoffs Ahead. (graphs) The latest Wells Fargo/Gallup small business survey is out and it's UGLY. In keeping with other indications that the state of small business is very bad, the survey indicates a level of pessimism about future results that's worse even that during the worst of the crisis. What's more, small firms seem lower spending, lower cash flows, and lower headcount in the future.

Zero Hedge:

• As Ponzi Schemes Collapse the Chinese Government Fears Civil Unrest.
• US Treasury Projects a $13.9 Trillion Debt Balance at December 31, Anticipates Debt Ceiling Breach Some Time in February 2011.
  

CNNMoney:

• Senate to Vote on $27 Billion in Aid for Desperate States. Senate Democrats are once again trying to push through a bill that would send $27 billion to needy states.

CNN:

• Leak Suspect Had Been Disciplined at Least Twice Before Arrest. The leading suspect in the leaking of thousands of military documents to WikiLeaks had been disciplined at least twice in the previous three years but maintained his security clearance.

TheAppleBlog:

• Report: Apple(AAPL) to Take Top Spot in Portable Computing Market Share. A new report suggests the iPad is behind Apple’s unprecedented growth in portable computers, defined as notebooks, netbooks, and tablets. Apple took third place in worldwide market share for the second quarter of 2010, and is on a trajectory to become number one as soon as the end of the year.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Politico:

• Ethics Office Details Charges Against Maxine Waters. An independent ethics office accused Rep. Maxine Waters of violating House conflict-of-interest rules by intervening on behalf of a minority-owned bank in which her husband held $250,000 worth of stock, according to a report released Monday by the House ethics committee as part of its preparation for a "trial" of the California Democrat. The report, written in August 2009 by the Office of Congressional Ethics, became the basis of a full-scale investigation of Waters by the ethics committee. A special bipartisan investigative panel of the committee has found "substantial reason to believe" that Waters violated House rules. Waters, the No. 3 Democrat on the Financial Services Committee, has vehemently denied any wrongdoing. She is choosing to go to trial rather than admit violating ethics rules through a plea.

Reuters:

• House Subcommittee Chair Backs Comcast(CMCSA) - NBC Deal. A lawmaker who chairs the U.S. House of Representatives' communications subcommittee is urging regulators to approve Comcast Corp's purchase of a controlling stake in NBC Universal, as long as consumers still have access to a wide array of video programing.
  
• Reversal of Fortune as Falcone's Hedge Fund Drops. In the span of seven months, hedge fund manager Philip Falcone has gone from being one of the industry's better performers to one of its worst, according to new industry data. As of July 15, Falcone's Harbinger Capital Partners Offshore Fund I was down 10.7 percent, ranking the New York-based fund manager one of the industry's 20 worst performers, according to HSBC. Harbinger began the year with bang, with the offshore fund registering a 4.42 percent gain as of Jan. 15. And the fund was in positive territory up until a few weeks ago. Over the course of the year, the portfolio's assets under management have been nearly cut in half, falling from $6.7 billion to $3.8 billion as of mid-July. The firm also has a pool of hard-to-sell assets called a side-pocket with about $2 billion which lost roughly 14 percent in the first seven months of the year.It is not clear what has caused the big reversal of fortune at Harbinger. Several calls for comment to the firm were not immediately returned.
• Global Credit Conditions Improved in July - Kamakura. The number of companies globally that are at risk of defaulting on their debt fell again in July, continuing a global trend that has seen most companies improve their credit profile, risk management firm Kamakura Corp said on Monday.

Economic Times:

• BlackBerry to Open Code for Security. Research in Motion Ltd.(RIMM) agreed for the first time to allow Indian security agencies to monitor its Blackberry services in a bid to avoid a government ban, citing telecom dept. documents. The company offered to share technical codes for corporate e-mail services and open access to all consumer e-mails within 15 days.

Securities Times:

• China's central bank in October may increase the amount of reserves the nation's banks are required to keep, citing officials from the banking industry.

Evening Recommendations
Citigroup:

• Reiterated Buy on (VRSN), lowered target to $36.

Night Trading

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.0 -10.0 basis points.
  
• Asia Pacific Sovereign CDS Index 111.0 -5.5 basis points.
  
• S&P 500 futures -.22%.
  
• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NYX)/.59
• (PFE)/.52
• (VNO)/1.06
• (MMC)/.44
• (ADM)/.52
• (COH)/.56
• (MA)/3.34
• (PG)/.73
• (DHI)/.16
• (BHI)/.43
• (CLX)/1.20
• (MRO).80
• (EMR)/.68
• (DOW)/.57
• (AMT)/.19
• (DUK)/.28
• (DISCA)/.43
• (CHK)/.69
• (AVB)/1.00
• (PBI)/.57
• (PCLN)/2.65
• (WFMI)/.37
• (APC)/.36
• (ERTS)/-.35
• (DNDN)/-.50

Economic Releases
8:30 am EST

• Personal Income for June is estimated to rise +.2% versus a +.4% gain in May.
• Personal Spending for June is estimated to rise +.1% versus a +.2% gain in May.
• The PCE Core for June is estimated to rise +.1% versus a +.2% increase in May.
  

10:00 am EST

• Factory Orders for June are estimated to fall -.5% versus a -1.4% decline in May.
• Pending Home Sales for June are estimated to rise +4.0% versus a -30.0% decline in May.
  

Afternoon

• Total vehicle sales for July are estimated to rise to 11.6M versus 11.08M in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly retail sales reports, ABC Consumer Confidence reading, (NATI) Investor Conference and the (GLW) Investor Luncheon could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares 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 day

Stocks Surging into Final Hour on Technical Buying, Less Economic Fear, Short-Covering, Diminishing Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.86 -7.15%
  
• ISE Sentiment Index 120.0 +17.65%
  
• Total Put/Call .93 +16.25%
  
• NYSE Arms .47 -61.39%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.78 bps -3.91%
  
• European Financial Sector CDS Index 93.83 bps -5.81%
  
• Western Europe Sovereign Debt CDS Index 112.33 bps -2.25%
  
• Emerging Market CDS Index 206.40 bps -3.35%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 30.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% unch.
  
• Yield Curve 240.0 +5 bps
  
• China Import Iron Ore Spot $136.30/Metric Tonne unch.
  
• Citi US Economic Surprise Index -34.10 +3.3 points
  
• 10-Year TIPS Spread 1.84% +7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +165 open in Japan
• DAX Futures: Indicating +9 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Technology and Retail long positions
  
• Disclosed Trades: Added to my (MOS) long, took profits in another long
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 breaks up through its 200-day moving average despite weaker manufacturing gauges in the US/China. On the positive side, Gaming, REIT, Construction, HMO, Bank, Computer, Steel, Ag, Oil Service, Energy and Coal stocks are especially strong, rising 3.0%+. (IYR)/(XLF) have traded well throughout the day. The S&P GSCI Ag Spot Index is rising another +1.2% today. Copper also continues to trade well, rising another +2.34%. Lumber is jumping another +2.8%. The European Investment Grade CDS Index is falling -5.6% today to 94.33 bps. The Hungary sovereign debt cds is dropping -3.8% to 319.44 bps and the US Muni CDS Index is falling another -4.33% to 198.88 bps. On the negative side, gold and hospitals shares are substantially underperforming. The 10-year yield is only rising +5 bps, which isn't as much as I would have expected given the magnitude of today's equity rally, which is a mild negative. I suspect investment manager performance angst will begin to surface again pretty soon, which could lead to further near-term gains after a brief pause. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, technical buying, mostly positive earnings reports, diminishing financial sector pessimism and bargain-hunting.

Today's Headlines

Bloomberg:

• HSBC, BNP Earnings Spur Drop in Bank Swaps to Three-Month Low. HSBC Holdings Plc and BNP Paribas SA led a decline in the cost of insuring bank bonds to the lowest level in three months after posting profits that beat analysts’ estimates, easing concern of a global economic slowdown. The Markit iTraxx Financial Index of credit-default swaps linked to 25 banks and insurers fell 3 basis points to 112.5, near the lowest since April 21, according to JPMorgan Chase & Co. at 12:30 p.m. in London. HSBC, Europe’s biggest bank, and BNP Paribas are the latest companies to exceed profit forecasts in what Deutsche Bank AG strategist Jim Reid called a “blockbuster earnings season.” Credit-default swaps on London-based HSBC fell 1 basis point to 81 and contracts on BNP Paribas, France’s largest lender, declined 3 to 84, according to data provider CMA. Higher bank profits also helped fuel a rally in corporate credit, with the Markit iTraxx Europe Index of 125 companies with investment-grade ratings down 3 basis points at 102, the lowest since May 13. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings declined 12.5 basis points to 466.5.
• U.S. Economy: Manufacturing Slowed in July as Orders Cooled. The manufacturing rebound that propelled the U.S. out of the recession cooled in July, reflecting a slowing in orders and production. The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. The ISM’s new orders measure dropped to 53.5, the lowest level since June 2009, from 58.5. The measure was as high as 65.7 in May. The group’s production gauge decreased to 57 from 61.4.
• Bernanke Says U.S. Consumer Spending to Accelerate. Federal Reserve Chairman Ben S. Bernanke said rising wages will probably spur household spending in the next few quarters, even as weak job gains drag down consumer confidence. While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Bernanke said today in a speech in Charleston, South Carolina. “We are maintaining strong monetary policy support for the recovery,” he said in response to an audience question, without discussing any further action the Fed could take to aid growth. The remarks signal Bernanke and his colleagues, when they meet in Washington next week, will stop short of making major changes in their policy statement or taking new steps to lower interest rates and reduce unemployment, said John Ryding, a former Fed researcher. Consumer spending, which accounts for about 70 percent of the economy, “seems likely to pick up in coming quarters from its recent modest pace,” Bernanke said. “Further action still has a pretty high hurdle to get over,” said Ryding, co-founder and chief economist at RDQ Economics LLC in New York. “The status quo on policy remains.”
• A gauge of U.S. corporate credit risk fell to the lowest in more than two months as manufacturing slowed less than economists had forecast, spurring investor optimism that the economy may avoid a double-dip recession. The Markit CDX North American Investment Grade Index declined 4.31 basis points to a mid-price of 100.08 basis points, the lowest since May 12, as of 12:37 pm in NY, according to Markit Group.
• Soybeans, Corn Rise as Drought Slashes Grain Output in Russia. Soybean and corn prices jumped to the highest level since January as drought slashed grain production in Russia and parts of Europe, boosting demand for supplies from the U.S., the world’s biggest producer and exporter. Soybean futures for November delivery rose 12.25 cents, or 1.2 percent, to $10.1725 a bushel at 10:20 a.m. on the Chicago Board of Trade. Earlier, the price reached $10.295, the highest level for a most-active contract since Jan. 11. In July, the oilseed jumped 11 percent, the most since May 2009. Corn futures for December delivery gained 6 cents, or 1.5 percent, to $4.1275 a bushel. Earlier, the price reached $4.18, the highest level since Jan. 12. In July, the price advanced 8.9 percent, the most since February.
• Copper Rises to Three-Month High as China May East Tightening. Copper prices rose to a three-month high on speculation that China’s government may cut back on policies aimed at slowing economic growth. Copper futures for September delivery rose 5.9 cents, or 1.8 percent, to $3.3705 a pound at 10:35 a.m. on the Comex in New York. Earlier, the price touched $3.3735, the highest for a most-active contract since April 30. Today’s gain would leave the metal up 0.7 percent this year.
• Ford(F) Debt Raised by S&P on Improved Image With Public. Ford Motor Co.’scredit rating was raised two levels by Standard & Poor’s because of expectations the company will remain profitable and signs that customers have a better impression of the automaker’s vehicles. The rating was raised to B+, the fourth level below investment-grade, from B-, S&P said today in a statement. The outlook is positive. Ford has “substantial” cash balances and likely will continue to generate free operating cash flow, the ratings firm said. The retail market has an “improved perception” of Ford’s vehicles and its efforts to introduce more fuel-efficient models in the next few years, S&P said.
• Funds Provide Inadequate Disclosure on Derivatives, SEC Says. U.S. regulators said mutual funds aren’t telling investors enough about why they use derivatives, with some funds providing “generic” disclosures and others failing to explain how the products affect performance. Regulators said they are concerned that the use of derivatives has increased in the mutual-fund industry without shareholders comprehending the risks or investment strategies.
• BlackRock's(BLK) Doll Sees U.S. Stocks Returning 8% a Year. U.S. stocks will return 8.1 percent a year and the Standard & Poor’s 500 Index will almost double by 2020 after its first losing decade made American equities appear cheap, BlackRock Inc. Vice Chairman Robert C. Doll said. The S&P 500, which closed at 1,101.6 on July 30, will rise 85 percent to 2,034 by the decade’s end, Doll said in a statement today. U.S. equity returns will outpace those of other developed nations because of attractive valuations, stronger economic growth, shareholder-friendly management practices and more serious problems in other economies, Doll said.

Wall Street Journal:

• U.S. Plans to Name North Korea's Partners. U.S. officials in charge of new sanctions against North Korea on Monday said they will name and shame banks and businesses in other countries that help Pyongyang with illegal activities.
• BP(BP) to Begin First Phase of Killing Damaged Well. BP PLC is poised to start the latest attempt to kill a damaged deepwater well in the U.S. Gulf of Mexico by flooding it with thousands of barrels of drilling mud, an executive said Monday.
• Global Chip Sales Rose 7.1% in Second Quarter. Global chip sales edged up 0.5% in June from a month earlier, contributing to 7.1% growth in the second quarter from the prior quarter. Meanwhile, gains for the month and quarter from last year were 49% and 45%, respectively, reflecting growth in a broad range of markets from an industry slowdown in the first half of last year.
• Glimcher, Blackstone to Buy Hawaii's Pearlridge Center. A partnership between shopping-mall owner Glimcher Realty Trust and buyout firm Blackstone Group LP has agreed to buy Pearlridge Center, one of the largest malls in Hawaii, for $242 million, according to people familiar with the talks.

CNBC:

• Better-Than-Expected Earnings Should Help Stocks: Cohen. Corporate earnings in the US and Europe have been "dramatically better than expected" and may give average investors more confidence in stocks, Abby Joseph Cohen, chief market strategist at Goldman Sachs, told CNBC Monday.
• Economist: V-Shaped Recovery Won't Go W-Shaped. The chances of a double-dip recession in the developed world are very weak despite a fall in global business confidence, according to researchers at Barclays Capital.

MarketWatch:

• Intuit(INTU) Small Business Employment Index Shows Slower Job Growth in July; Wages and Hours Worked Increased.

Business Insider:

• Scuttlebutt: FrontPoint Is Going To Completely Spin Off From Morgan Stanley(MS) And Everyone Wants A Piece. Morgan Stanley's hedge fund, FrontPoint Partners, will be completely spun off within the next three months, a single source at the hedge fund tells us.
• All This Stuff About Bailouts Preventing The Second Great Depression Is Just Propaganda.
• Freddie Mac Denies It's In The Zero-Down-Payment Business - We Disagree. Earlier today we highlighted, with some shock, that Freddie Mac, on its website was still promoting zero-down-payment mortgages, despite the events of the past few years. Here's what Freddie posted:

Zero Hedge:

• July's Hedge Fund Winners and Losers.

Automotive News:

• The New Ford(F) Has Learned to Think Small. Ford Motor Co., long known for pickups and SUVs, will emphasize cars, crossovers and fuel-efficient engines in the next few years. The company wants to be the fuel economy leader, and federal mpg standards are rising. Ford launched the Fiesta subcompact this summer and will introduce a redesigned Focus compact early next year. The Fiesta and Focus are the first U.S. vehicles from the One Ford plan. Under the plan, each region has global responsibility for certain models. For example, designers and engineers in Dearborn, Mich., will continue to work on trucks and crossovers that can be adapted worldwide. The Europeans are designing small cars.

LA Times:

• Other California Cities Stuck With the Tab for Bell Officials' Massive Pensions. Under the state's arcane, convoluted public pension system, Bell will pay a fraction of the city manager and police chief's pensions. Former employers and other cities will bear the brunt of the cost. The unfolding story of the high salaries paid to municipal officials in Bell has delivered a surprise twist to taxpayers in Glendale, Simi Valley, Ventura and several other Southern California cities — they're on the hook for the pension bills. More than half of former city manager Robert Rizzo's $600,000-a-year pension will be spread among 140 small cities and special districts such as Norco, La Cañada Flintridge and Goleta that are in the same pension liability pool as Bell. The rest would be shouldered by his former employers, Hesperia and Rancho Cucamonga, according to estimates made by The Times and reviewed by pension experts. In the case of its former police chief, Randy Adams, Bell escapes nearly all the costs of his estimated $411,300-a-year pension. Under CalPERS rules, the city is responsible for just 3% of that because he only worked there for one year. Taxpayers in Glendale, Simi Valley and Ventura would have to pick up the rest.

Bespoke Investment Group:

• Country Default Risk. Default risk for sovereign debt has declined quite a bit since the start of July when equity markets here in the US made their correction lows. Below we highlight the default risk as measured by 5-year credit default swap prices for a large number of countries as well as four US states that have the highest default risk. The left side is sorted by percent change since July 2nd, and the right side is sorted by CDS price (highest to lowest).

Chicago Sun-Times:

• A New Headache for Giannoulias? Another Rezko Loan. His family bank lent $22.75 million, in newly uncovered deal. By February 2006, businessman and political fixer Tony Rezko was already politically radioactive, caught up in a federal investigation that would see him criminally charged by the end of that year. News reports had linked Rezko, a key adviser and campaign fund-raiser for then-Gov. Rod Blagojevich, to shady deals involving state pension funds -- among the crimes that ultimately would send him to prison. This was the Tony Rezko who, looking for millions of dollars for a massive South Loop development, turned to Broadway Bank, owned by the family of Alexi Giannoulias. Giannoulias, the Democrat now running for U.S. Senate, had left his post as a senior loan officer at the Chicago bank in late 2005 to mount a successful campaign for Illinois state treasurer, though he still held an ownership stake in the bank. Rezko's company asked. And Broadway Bank came through.

Mining Weekly:

• Ivory Coast to Triple Gold Output by 2015. Ivory Coast will triple gold output by 2015 to about 20 t/y as three new mines start up, including Randgold Resources' Tongon development, a government official told Reuters. The West African state, the world's top cocoa grower and a modest producer of oil, is eager to diversify its economy in part by developing its mining sector which now makes up just 1% of gross domestic product. "From here to 2015, production of gold in Ivory Coast will be at least 20 t/y because of the new mines," Mbe Adou, general director of mines and geology said in an interview late on Friday on the sidelines of an industry conference.

The Detroit News:

• Firms Crack Down on Staffers' Posts on Social Media Sites. What employees say on Facebook, Twitter, or YouTube could cost them their jobs, experts say.

Rasmussen Reports:

• 57% Say Health Care Plan Bad For Country, 59% Favor Repeal. Voter pessimism towards the new national health care bill has reached an all-time high, while the number of insured voters who feel it will force them to switch their coverage is up 11 points from early last month. A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters say the recently passed health care law will be bad for the country. That’s the highest level of pessimism measured since regular tracking began following Congress' passage of the law in late March. Thirty-two percent (32%) say the health care plan will be good for the United States.

Politico:

• Republican Party Eyes Choking Healthcare Law Funding. Republicans may not be able to repeal the Democrats’ health care reform law next year, but they’re eyeing the next best thing: Deny the Obama administration the money it needs to implement the law. GOP candidates across the country are running on a promise to repeal the law. But simply winning the House and the Senate wouldn’t get them there; they’d need to corral two-thirds majorities to overcome what would be an almost certain veto from President Barack Obama. Resigned to that fact, Republicans are now readying a campaign trail message that voters should grant them the power of Congress’s purse strings so that they can choke off funding for the law. “Our goal remains to repeal the bill and replace it, but, clearly, with the president’s veto pen, we’re going to have to take interim steps,” said Rep. Kevin Brady of Texas, the top House Republican on the Joint Economic Committee.
• President Obama's Climate 'Plan B' in Hot Water. President Barack Obama’s ‘Plan B’ for tackling global warming is under attack in the courts and on Capitol Hill. Through federal lawsuits, two conservative attorneys general, a major coal company and the U.S. Chamber of Commerce are leading the charge to overturn the Environmental Protection Agency’s ability to write its own climate rules. Key coal-state Democrats and nearly all Republicans are also unified in their bid to slow down the EPA via legislation — and they’re determined to force a series of votes on the issue before the next big suite of rules start kicking in next January. “You attack it at all fronts,” Sen. Lisa Murkowski (R-Alaska), a leading advocate for stopping the EPA, told POLITICO. “You go the judicial route. You go the legislative route. I think this is important to make sure we are looking at all avenues.”
• Judge Greenlights Health Reform Suit. In the first substantive legal ruling on President Barack Obama’s health care reform law, a federal judge has rejected the Justice Department’s request to dismiss a lawsuit from Virginia’s state government challenging the reform’s requirement that individuals purchase health insurance. U.S. District Court Judge Henry Hudson ruled that enough factual issues were in dispute in the case to allow the suit, brought by Virginia Attorney General Ken Cuccinelli, to go forward against the health care reform law, Obama’s signature legislative accomplishment.

USA Today:

• Rating Sag for Obama's Handling of Wars. War-weary Americans are losing faith in President Obama's handling of conflicts in Afghanistan and Iraq, contributing to his lowest approval ratings since taking office. Barely one in three Americans favor Obama's management of the war in Afghanistan, a new USA TODAY/Gallup Poll shows. Forty-one percent support his handling of the war in Iraq, a new low for Obama. Overall, those surveyed Tuesday through Sunday disapproved of the way Obama is handling his job by a 53%-41% ratio, by far his lowest ratings since January 2009.

Reuters:

• Hedge Fund Noster Shorts Banks After Stress Tests. Hedge fund Noster Capital has begun shorting five European banks because it believes last month's stress tests were too weak and that problems over their sovereign debt holdings have not gone away. Managing partner Pedro de Noronha told Reuters he had put short positions on a basket of five banks -- Barclays (BARC.L), UBS (UBSN.VX), Intesa Sanpaolo (ISP.MI), UBI (UBI.MI) and BBVA (BBVA.MC) -- because the stress tests did not assume difficult enough conditions.
• SEC Zeroing In On U.S. 'Stub Quote' Ban - Sources.
  

Financial Times:

• US Tells China Not to Exploit Sanctions on Iran. Washington has told China to stop taking advantage of the UN sanctions regime against Iran by seizing opportunities left by departing European companies. China last month condemned moves by the European Union to ratchet up sanctions against Tehran’s nuclear programme by hitting transport, energy and finance. Iran is the third biggest oil supplier to China, and Beijing is investing heavily in the Islamic republic’s energy fields and refineries.

Caixin Online:

• Combined new loans in the four Chinese major banks, including Agricultural Bank of China, were 236 billion yuan, down from 356 billion yuan a year earlier, citing industry data.

Iraq Oil Report:

• American Base in Basra on Frontline of Oil Boom. Oil executives buzz in and out of this American base, the former British base connected to the Basra airport, some for meetings with officials, some staying the night – or longer. The American mission in Basra, Iraq’s oil capital, is perhaps unlike that of any U.S. outpost in the world: to ensure the world’s largest oil companies have as few problems as possible as they start work on Iraqi oil contracts that could see the country become the largest producer ever. Of the 18 firms that formed winning consortiums for 11 oil development deals over the past year, only two were American companies. Yet the U.S. military presence in Iraq and the State Department has been ordered to help. “U.S. government policy at this time is that the USG in Iraq should assist in facilitating the mobilization of these companies without regard to the nationality of the companies,” said Kenneth Thomas, head of the energy and transportation section of the Basra Provincial Reconstruction Team, a U.S. Embassy initiative. “If more American companies come into Iraq, we will of course assist them in any way we can.” For the Americans – and the British, who maintain a consulate on the base and rent space to the two British oil companies awarded deals – it’s a hyper-inclusive distillation of their goals around the globe: sow peace through the free market.