Today's Headlines

Bloomberg:

• Bank Default Swaps Rise Most in Month on Concern of Higher Capital Demands. The cost of insuring against losses on bonds sold by European financial companies rose by the most in a month on concern higher capital requirements and losses from sovereign debt holdings will endanger the recovery. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers rose for a second day, climbing 8.25 basis points to 137.75, according to JPMorgan Chase & Co. at 3:30 p.m. in London. Investors are concerned the Basel Committee on Banking Supervision will propose higher capital requirements when it meets today, limiting banks’ ability to lend. Europe’s biggest lenders are already facing losses on more than 134 billion euros of Greek, Portuguese and Spanish bonds, according to a Bloomberg News survey. “If the minimum capital requirement is too high, profitability of banks will decline significantly,” said Alexander Plenk, a Munich-based strategist at UniCredit SpA. “That’s what everyone is waiting for today.” Swaps on Deutsche Bank rose 8 basis points to 106 and Commerzbank jumped 12.5 to 108, according to data provider CMA. Swaps on Germany rose 2 basis points to 40 after factory orders in Europe’s largest economy unexpectedly fell in July. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 9 basis points to 152, the biggest daily increase since Aug. 11, according to CMA. Italy jumped 17.5 basis points to 209.5 as the government planned a sale of three- year bonds in dollars. Contracts on Portugal climbed 29 basis points to 326, Spain increased 17.5 to 233, Ireland was 26.5 higher at 366.5 and Greece was up 24 at 892, CMA prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 11 basis points to 494. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 3.25 basis points to 109, JPMorgan prices show.
• Dividends Beating Bond Yields by Most in 15 Years. More U.S. stocks are paying dividends that exceed bond yields than any time in at least 15 years as profits rise at the fastest pace in two decades. Kraft Foods Inc. and DuPont Co. are among 68 companies in the Standard & Poor’s 500 Index with payouts that top the 3.80 percent average rate in credit markets, based on data since 1995 compiled by Bloomberg and Bank of America Corp. While Johnson & Johnson sold 10-year debt at a record low interest rate of 2.95 percent last month, shares of the world’s largest health products maker pay 3.66 percent. The combination of record-low interest rates, potential profit growth of 36 percent this year and a slowing economy has forced investors into the relative value reversal. For John Carey of Pioneer Investment Management and Federated Investors Inc.’s Linda Duessel, whose firms oversee $566 billion, it means stocks are cheap after companies raised payouts by 6.8 percent in the second quarter, data compiled by Bloomberg show.
• Obama Student-Aid Rule Riles For-Profits, Spurs Most Letters Since 1983.
  
• Gold Futures Approach Record High as Global Stocks Slump Amid Debt Concern. Gold futures approached a record high as a slump in equities spurred demand for the precious metal as an alternative investment. Stocks in Asia, Europe and the U.S. fell on heightened concern that the global economy will struggle. The euro dropped as much as 1.4 percent against the dollar as an industry group said Germany’s 10 largest banks may need fresh capital to meet new regulations. Gold climbed as much as 0.8 percent to $1,261.60 an ounce. The all-time high on June 21 was $1,266.50.
• Buffett-Backed BYD Falls in Hong Kong After August Vehicle Sales Decline. BYD Co., the Chinese automaker backed by Warren Buffett, fell the most in a week after saying its sales in August declined. BYD dropped as much as 3.1 percent to HK$47.75 and traded at HK$48.05 as of 12:29 p.m. The carmaker’s sales in China fell 19 percent from a year earlier to 31,069 vehicles last month, the Shenzhen-based company said in an e-mailed statement today. BYD, 10 percent owned by Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., cut its full-year vehicle sales target by 25 percent to 600,000 units on Aug. 4.
• SEC Considers Rules for High-Frequency Traders After Plunge. U.S. Securities and Exchange Commission Chairman Mary Schapiro said her agency may impose new rules on high-frequency traders after lawmakers and investors questioned whether market participants who execute thousands of transactions in seconds sparked the May 6 plunge. The SEC should consider whether traders with the “best access” to markets should face obligations to buy and sell stocks to preserve liquidity, Schapiro said today in remarks prepared for a speech at the Economic Club of New York. The agency is also examining whether stock quotations should have to stand for a minimum amount of time. Such a change would stop high-frequency traders from repeatedly placing and canceling orders in milliseconds. “Some could argue that May 6 was an aberration -- another perfect storm -- and now that it has passed markets have naturally adapted leaving no need for a comprehensive review of our market structure,” Schapiro said. “I disagree.”
• Potash Corp.(POT) CEO Doyle Says BHP Billiton(BHP) 'Will Not Be the Only Bidder'. Potash Corp. of Saskatchewan Inc. Chief Executive Officer Bill Doyle said he doesn’t believe that BHP Billiton Ltd. will be the only bidder for the world’s biggest fertilizer producer. “A number of third parties have already expressed interest in alternative transactions, some who we approached and others who initiated contact on their own,” Doyle, 60, said in a video clip posted today on the potash-producer’s website.

Wall Street Journal:

• Vale Starts Push to Be Global Leader in Fertilizer. This week, Brazilian miner Vale SA, the world's biggest iron ore miner, sets off on a new goal: to become the world leader in the production of crop fertilizers. On Friday, Vale hopes to begin by consolidating its fertilizers empire in a restructuring of some operations that will form a new company, Vale Fertilizantes SA. The Rio de Janeiro company has earmarked $12 billion to be spent on new projects and acquisitions in fertilizers in the next three years, according to Vale fertilizers director Mario Barbosa.
• Samsung Mobile Display to Boost 2011 Production. Samsung Mobile Display, which has had difficulty meeting demand for ultra-thin screens for smartphones, expects its production capacity to increase sharply when its new facility opens in July. Capacity will go up to 30 million screens per month from three million currently when the new facility opens.
• U.S. Treasury Blacklists Iranian-Owned German Bank EIH for Iran Business. The U.S. Treasury added Iranian-owned, German-based European-Iranian Trade Bank AG to its key blacklist Tuesday, saying the bank has provided a financial lifeline to Iranian companies involved in weapons proliferation. The move bans the Hamburg-based bank— known as EIH Bank for its German initials—from the U.S. financial system.
• ACLU Sues Homeland Security Over Search Policies. The U.S. Department of Homeland Security has been sued over its policies that allegedly authorize the search and seizure of laptops, cellphones and other electronic devices without a reasonable suspicion of wrongdoing, the American Civil Liberties Union said Tuesday. The ACLU claims the policies place no limit on how long Homeland Security can keep a traveler's devices or on the scope of private information that can be searched, copied or detained. There is no provision for judicial approval or supervision, the ACLU said.
• The Obama Economy. How trillions in fiscal monetary stimulus produced a 1.6% recovery.
  

CNBC:

• Small Cap Earnings to Double Large Caps: Analysts.

New York Post:

• GM's AmeriCredit Acquisition Irks Feds. Former GM Chief Ed Whitacre's decision to resign last month instead of staying as planned through the automaker's initial public offering came on the heels of Whitacre's decision to quietly acquire a subprime lender without consulting the government, according to people familiar with the situation. After the government bailed out GM's former auto finance arm, GMAC, to the tune of $17 billion, Treasury officials were flummoxed by GM's decision to return to auto lending with a July 22 deal to acquire AmeriCredit for $3.5 billion, sources close to the deal said.

Business Insider:

• Is Chuck Schumer's Criticism of Yuan Price Fixing a Secret Play to Boost Hist Hedge Fund Pals? The common line from politicians, including New York's Chuck Schumer, is that China must be punished for fixing the price of the yuan, as it hurts US manufacturers. But the very plugged-in Tim Carney hears "whispers" from K Street lobbyists that there may be something more at work: Currency exchange rates are a major playground for hedge funds. George Soros, for instance, has multiplied his hedge funds' value a hundred-fold through currency speculation. One K Street lobbyist told me he's received phone calls this week from a hedge-fund client desperate to learn if and when Schumer and Baucus's fight to un-peg the yuan might go through Congress. So the question is this: Which hedge funds are betting on the yuan rising versus the dollar (or possibly even falling)? And is anyone at that fund keeping in touch with Schumer? What's interesting, too is that Schumer's partner on this fight, Montana Senator Max Baucus is the second biggest recipient of financial industry money after Schumer.
• HP(HPQ) Sues Mark Hurd for Violating Severance Agreement.
  

Zero Hedge:

• Alan Greenspan Admits America is a Crony Capitalist System.

Rigzone:

• PetroChina Seeks Bids for Iraq's Halfaya Oil Project. PetroChina has started issuing tenders for a multibillion project to develop Iraq's giant untapped Halfaya oil field in southern Iraq, Iraqi oil sources said Tuesday.

SEC:

• SEC Charges Colorado-Based Investment Adviser With Fraudulently Recommending Hedge Funds to Older Investors. The Securities and Exchange Commission today charged Boulder, Colo.-based investment adviser Neal R. Greenberg with fraud and breach of fiduciary duty in the marketing and recommendation of his firm's hedge funds to investors, including many elderly clients. The SEC's Division of Enforcement alleges that Greenberg falsely stated that the Agile hedge funds offered and managed by his two investment advisory firms were suitable for conservative investors who were retired or nearing retirement. However, the Agile hedge funds used leverage and concentrated in a small number of investments. The funds suffered substantial losses in September 2008 and ceased redemptions to investors. The SEC Division of Enforcement further alleges that the Agile hedge funds improperly collected approximately $2 million in management and performance fees that were not adequately disclosed to investors.

FINalternatives:

• Michigan Boosts Hedge Funds, Cuts Private Equity. The Michigan State Retirement Systems is tripling its hedge fund allocation—at the expense of its private equity investments. The $45 billion public pension fund has boosted its hedge fund allocation from 2% to 6%, Pensions & Investments reports. The hedge fund increase, as well as that of real return and opportunistic funds from 1% to 4%, will be funded by a sizeable cut in its private equity allocation from 20% to 14%.

WeeklyStandard.com:

• Democrats Fleeing Obamacare. Do Any Congressional Democrats Favor Repeal? The question now is whether the 34 House Democrats who voted against Obamacare are willing to pledge publicly that they support repeal – and whether their GOP opponents will make them answer that question.

Rasmussen Reports:

• California Senate: Fiorina (R) 48%, (D) 47%.
• 55% Oppose Second Economic Stimulus Plan. A new Rasmussen Reports national telephone survey finds that 55% of U.S. voters continue to oppose a second economic stimulus package. Only 31% support a second stimulus.

Politico:

• White House Still Seeks to End Tax Cuts. President Obama disagrees with his former budget director’s proposal that the Bush tax cuts for the rich be extended for two years, White House press secretary Robert Gibbs said Tuesday.
• Congress Outsourcing Some Ethics Work. Congress is outsourcing key parts of its ethics investigations. The Office of Congressional Ethics, an independent ethics body, has contracted out more than $500,000 of work over the past year, a sign of just how busy the ethics watchdog has been and how expansive the ethics process has become.
  The recipient of nearly $530,000 in taxpayer dollars is Navigant Consulting, a business consulting firm. Navigant, based in Chicago, was not involved in any of the most sensitive legal aspects of ethics cases, but because of an unpredictable caseload, a small staff and institutional constraints on its time, the OCE has found itself outsourcing things like document retrieval and management, forensic accounting and technology services, according to public records and sources familiar with the matter.
• Carson-Gore Academy of Environmental Sciences Built on Toxic Soil.
  
  Conservative corners of the Internet are buzzing over a Los Angeles school named after former Vice President Al Gore that was built on toxic soil and, some say, poses a health risk to students.

Telegraph:

• China's Young Officers and the 1930s Syndrome. It was slightly disturbing to hear the warnings of a distinguished China-watcher at a closed-door session of the annual Ambrosetti conference on Lake Como. (This gathering of the global policy elites at Villa D’Este is a hardship assignment for Telegraph hacks. It fell to me again this year, but somebody has to do it.) “China’s military spending is growing so fast that it has overtaken strategy,” said Professor Huang Jing from the Lee Kwan Yew School of Public Policy in Singapore. (He kindly let me quote his remarks.) “The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. They are thinking what they can do, not what they should do. This is very dangerous. “They are on a collision course with a US-dominated system”. Harvard Professor Niall Ferguson rattled me even further with a talk warning that the Chimerica marriage of the last generation is “on the rocks”.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-1.39%)

Sector Underperformers:

• 1) Oil Tankers -3.23% 2) Semis -2.98% 3) Banks -2.55%

Stocks Falling on Unusual Volume:

• SMSC, KLAC, HES, RADS, CYMI, CHBT, SLAB and BEC
  

Stocks With Unusual Put Option Activity:

• 1) AVNR 2) CCE 3) LDK 4) DYN 5) ORCL
  

Stocks With Most Negative News Mentions:

• 1) JBLU 2) MF 3) AEP 4) CPB 5) RAD
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.59%)

Sector Outperformers:

• 1) Software +.61% 2) Gold +.51% 3) Restaurants +.o8%

Stocks Rising on Unusual Volume:

• ORCL, PKX, MLM, X, IAG, INTU, VMC, KALU, RSCR, ASTE, CMED, CASY, ASYS, MASI, PAAS, CBRL, SAFM, HTWR, EPE, BVF and IX
  

Stocks With Unusual Call Option Activity:

• 1) BRCD 2) ORCL 3) NUE 4) ATHR 5) TLB
  

Stocks With Most Positive News Mentions:

• 1) CVX 2) CASY 3) AAPL 4) GOOG 5) ORCL

Tuesday Watch

Weekend Headlines
Bloomberg:

• Euro Declines on Speculation European Banks Will Struggle to Raise Funds. The euro fell the most in a week against the dollar and the yen on concern European banks will struggle to raise funds, damping the region’s economic outlook. The 16-nation currency weakened against 15 of its 16 major counterparts after the Association of German Banks said the nation’s 10 largest lenders, including Deutsche Bank AG, may need about 105 billion euros ($134 billion) in fresh capital because of new regulations. The yen rose for a second day versus the euro as economists predicted the Bank of Japan will forego announcing fresh liquidity injections at the end of a policy meeting today, boosting demand for the currency. “Worries over fundraising by Europe’s banks and governments are likely to persist,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The bias is for the euro to be sold.”
• Obama Plans Business Tax Relief, Spending to Spur Growth. President Barack Obama this week is proposing to expand tax relief for businesses and boost federal spending on the nation’s transportation system to help bolster an economy that’s losing jobs heading into the November congressional elections. Obama tomorrow will announce an expanded tax incentive to encourage business investment, an administration official said on condition of anonymity. Obama also will urge Congress to extend permanently and expand a research-and-development tax credit for businesses, costing about $100 billion over a decade. He began the rollout of initiatives yesterday in Milwaukee, calling for $50 billion in the first of a six-year program to fix roads, railways and runways and modernize the air-traffic control system.
• Unemployment in U.S. May Rise Toward 10% on 'Feeble' Growth. The jobless rate in the U.S. is likely to approach 10 percent in coming months as the economy fails to grow quickly enough to employ people rejoining the labor force, according to economists at BofA Merrill Lynch Global Research and Morgan Stanley. Private payrolls climbed 67,000 in August, after a gain of 107,000 the previous month, and the unemployment rate rose to 9.6 percent, Labor Department figures showed Sept. 3. “Growth is too sluggish to successfully bring down the unemployment rate,” said Michelle Meyer, a senior economist at BofA Merrill Lynch in New York. “At this stage, about one year into the recovery, this was still quite feeble job growth.”
• IMF's Lipsky Sees 'Modest Recovery' for Global Economy. John Lipsky, the second-ranking official at the International Monetary Fund, said Group of 20 nations deputies showed confidence about the global economic recovery, even taking into account challenges and risks. “They’re mainly confident that there’s a moderate recovery under way globally,” Lipsky said yesterday after a G-20 deputies’ meeting in the South Korean city of Gwangju. There are “obviously risks and challenges but things seem to be moving more or less in the line with our forecasts.”
• Lloyd's Insurance Brokers Test iPads to Replace Paper, FT Says. Lloyd’s of London will begin a trial of Apple Inc.’s iPad as a potential replacement for the traditional cases and paper slips used to arrange bespoke insurance policies, the Financial Times reported. The iPad is easier to carry while still supporting the “face-to-face negotiation that makes Lloyd’s unique,” Lloyd’s director of market operations, Sue Langley, told the newspaper.
• Greece Default Risk is 'Substantial,' Pimco's Bosomworth Says. Greece still faces a “substantial” default risk as insolvency prevents the nation from repaying its debt when its bailout program expires in three years, Pacific Investment Management Co. fund manager Andrew Bosomworth said. “Greece is insolvent,” Bosomworth, Munich-based head of portfolio management at Pimco, which oversees the world’s largest bond fund, said in a telephone interview today. “I see it as being quite a substantial risk that Greece eventually defaults or restructures.” In a best-case scenario, Greece’s government debt will swell to 150 percent of gross domestic product, Bosomworth said. The European Union-led rescue package assumes the Athens-based government will tap investors for 82 billion euros ($106 billion) during the life of the bailout program, “and that’s I think going to be very difficult,” he said.
• Hedge Funds Turn Gasoline Bears First Time in Four Years: Energy Markets. Hedge-fund bets against gasoline exceeded wagers that prices will rise for the first time in almost four years as the fuel fell in the final week of the U.S. driving season. Net-short positions held by money managers in gasoline futures and options increased to 1,169 contracts the week ended Aug. 31, the first time speculators have been bearish since November 2006, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. Hedge funds cut bullish bets for four straight weeks. Investors have turned bearish on gasoline amid a slide in demand just as the motoring season ends and economic data sends mixed signals about U.S. recovery.
• Mark Hurd Joins Oracle(ORCL) After Leaving HP(HPQ); Phillips Resigns.
  

Wall Street Journal:

• Europe's Bank Stress Tests Minimized Debt Risk. Europe's recent "stress tests" of the strength of major banks understated some lenders' holdings of potentially risky government debt, a Wall Street Journal analysis shows. As part of the tests, 91 of Europe's largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks' total holdings of that debt as of March 31.
• Wall Street's New, Unknown Power Broker. Just two years ago, Chris Cernich was working in obscurity, crunching numbers about used cars from his desk at Ford Motor Co.'s headquarters in a Detroit suburb. Today he is one of the most powerful people on Wall Street, whose opinion can sway fortunes and scuttle empires.
• Samsung Flags Record Investments. South Korea's Samsung Electronics Co., the world's largest computer-memory-chip maker by revenue, is considering investing a record 30 trillion won ($25.55 billion) next year to bolster its existing operations and expand into new business segments.
• Reserve Fund's Manager Says It Wasn't Only One to 'Break the Buck'. Reserve Management Co. has told a federal judge that its Reserve Primary Fund wasn't the only money-market fund for which the net asset value dipped below $1 per share, known as "breaking the buck," in the wake of Lehman Brothers' 2008 bankruptcy.
• Deals Offer Dell(DELL) Multiple Paths to Goal. Dell Inc. may have lost out to Hewlett-Packard Co.(HPQ) last week in its bid to acquire storage maker 3PAR Inc.(PAR), but the company has other options as it looks to expand beyond its core personal-computer business.

NY Times:

• The Boss is Robotic, and Rolling Up Behind You. Robots being used by more U.S. Hospitals, Companies.

CNN:

• Sources: As Many as 2,000 More Troops May Be Going to Afghanistan. As many as 2,000 additional troops -- including a number of U.S. forces -- may be headed to Afghanistan in the coming weeks under a plan backed by Gen. David Petraeus, CNN has learned.

Washington Post:

• America Has a Cow Over Alan Simpson's Candor on Deficits.

Philadelphia Inquirer:

• What's Hot on Campus: Textbook Rentals.

Lloyd's List:

• The number of tankers storing crude oil and petroleum products fell tot he lowest in 18 months, citing data from EA Gibson Shipbrokers Ltd. At the end of August, 58 tankers were used for floating storage, down from 64 at the start of the month and 76 at the end of June. That compares with a peak of 149 tankers in November 2009, it said.
  

Detroit Free Press:

• Ashton's Task Is to Get GM Pact. Joe Ashton, 62, spearheaded the UAW's crucial effort to add numbers by organizing more than 6,000 casino workers in Atlantic City, N.J. One of those casinos even ratified a contract -- the first for the casino workers. Now, Ashton has responsibility for another UAW priority: negotiating a new General Motors contract next fall. GM's profitability sets a different scene for negotiations than the one the two sides faced last year, when GM was teetering on the edge of bankruptcy. The UAW agreed to concessions, but may ask for many of those cuts back next year. That could lead to tension, as GM plans to go public late this year, and investors are leery of labor costs that could increase again.
  

Reuters:

• The European Union aims to place anti-dumping duties of 22.3% on imports of Chinese aluminum car wheels that could remain in effect five years, citing an unidentified document.

Le Figaro:

• U.S. and European economic growth will remain weak, IMF chief economist Olivier Blanchard said in an interview. Better-than-expected European growth in the second quarter hasn't removed the brakes on consumption and investment, which include the weakness of the financial system, Blanchard said.

Financial News:

• China should pay more attention to systemic risks associated with property loans, citing Yi Xianrong, a researcher with the Chinese Academy of Social Sciences. China has about 20 trillion yuan of loans related to the property industry, citing Yi, who didn't specify how many of them are at risk. China's current property bubble is a nationwide problem. The Chinese government will stick to its property curbs, citing Yi.

Beijing Times:

• About 80% of banks in the Chinese capital of Beijing raised loan rates for first-home purchases by reducing discounts, citing unidentified people from local property agents. Most buyers can only get a 15% discount for interest rates paid on loans to buy first homes, compared with an earlier 30% off. Banks also cut the amount of loans buyers can get to 60% of the total cost of a first home from up to 80% previously, citing some developers.

Weekend Recommendations
Barron's:

• Made positive comments on (DHI), (TOL), (AAPL), (MCD), (OCI), (CMS), (NE), (PHM), (RTN) and (BZH).
• Made negative comments on (DELL), (MOT), (GVA), (STJ) and (OSK).

Citigroup:

• Rated (CHKM) Buy, target $28.50.
• Rated (BMC) Buy, target $45.

Night Trading

• Asian indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.0 -8.0 basis points.
• Asia Pacific Sovereign CDS Index 110.25 -8.25 basis points.
• S&P 500 futures +.11%.
• NASDAQ 100 futures +.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CASY)/.81
• (PVH)/.54

Economic Releases

• None of note
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The $33 Billion 3-Year Treasury Notes Auction, weekly ABC consumer confidence reading, Barclays Consumer Conference, Citi Tech Conference and the Keefe Bruyette Woods Insurance Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and mining shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Tuesday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly higher on buyout speculation, diminishing economic fear, technical buying, less sovereign debt angst, falling financial sector pessimism, bargain-hunting and short-covering. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,104.51 +3.75%*



The Weekly Wrap by Briefing.com.

*5-Day Change