Friday Watch

Evening Headlines

Bloomberg:

• Ghost of Lehman Haunts G-7 Amid European Debt-Crisis Paralysis. Europe's finance chiefs will face international calls today to accelerate efforts to contain their debt crisis as mounting bets on a Greek default highlight the biggest threat to the global economy. As central bankers and finance ministers from the Group of Seven nations convene in Marseille, France, for their first face-to-face talks since they promised "coordinated action" Aug. 8 to calm financial markets, Europe's failure to stamp out investor worries over sovereign debts are set to be the focus. Any global recession "will have Europe's fingerprints on it," said Constance Hunter, who helps manage about $12 billion as chief economist at Aladdin Capital Management LLP in Stamford, Connecticut. "Europe is the real risk." It's not the only risk as policy makers race to head off a recurrence of the contraction, the worst since the Great Depression, that followed the collapse of Lehman Brothers Holdings Inc. three years ago this month. The Organization for Economic Cooperation and Development yesterday said the G-7 will barely expand in the final quarter as the euro region shrinks.
• Bond Investors Consider Greek Debt Exchange as Budget Concerns Escalate. Questions over Greece’s ability to meet the terms of its first rescue package are dogging the indebted nation as bondholders weigh whether to participate in a debt exchange that’s crucial to a second bailout. Greece is seeking preliminary responses today from bond investors to the proposed debt swap, part of a 159 billion-euro ($220 billion) European Union rescue plan agreed upon in July. The government is still trying to show it can reach budget- cutting targets required for the next 8 billion-euro payment from a bailout engineered in 2010. “There are a lot of optics to get exactly right, or European bond investors are going to start trying to get out of more than just their Greek bond holdings,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. “This is about creating confidence in the markets that the euro -- the currency and union -- is not going to fall apart at the seams.” The cost of insuring Greek government debt soared 240 basis points to a record 3,045 basis points yesterday, according to CMA prices for credit-default swaps.
• Food-Price Gains Defy Policy Makers' Bid to Ease Inflation, Panelists Say. Rising food prices may be an exception to easing inflation worldwide, posing dilemmas for policy makers, particularly in emerging markets including China, panelists at a forum said today. Central banks “should be concerned” about food-price inflation, said Roberto Rigobon, a Massachusetts Institute of Technology professor, while James Rickards, senior managing director of Tangent Capital Partners, said China risks harming employment if the country tries too hard to contain inflation. Their comments compare with signals today from the Federal Reserve and European Central Bank that the inflation outlook is benign enough to allow further easing. China is “between a rock and a hard place, because they’re very concerned about inflation,” Rickards said during a panel discussion. At the same time, raising interest rates too much may hurt export-related jobs important to the country’s economy. “Inflation and unemployment are both highly destabilizing” for China, he said. Inflation remains a major concern of central bankers in Asia’s emerging markets, while policy makers in developed nations are focused on a slowdown in growth. Chinese inflation accelerated to a three-year high of 6.5 percent in July, prompting Premier Wen Jiabao to say Aug. 31 that his top economic priority is stabilizing prices.
• 'Specific Credible' Terror Threat Received by U.S. Officials. The U.S. Department of Homeland Security has “specific, credible but unconfirmed threat information” as the 10th anniversary of the Sept. 11 terrorist attacks nears, agency spokesman Matt Chandler said in a statement. The threat concerns a possible al-Qaeda-sponsored attack targeting New York or Washington on or near the anniversary of the attack, said a different U.S. official, who wasn’t authorized to discuss the matter publicly. The official said the intelligence concerns a possible vehicle-borne attack, perhaps on a transportation hub or bottleneck, and cautioned that the options may be broader than a car or truck bombing. Another intelligence official, who also spoke on condition of anonymity, said the information hasn’t been fully vetted.
• Power Failure Affects Southern California, Arizona. More than 1 million customers lost power in Southern California and Arizona when a transmission line failed. Utility officials said power might not be fully restored until tomorrow. Sempra Energy (SRE)’s San Diego Gas & Electric’s entire service territory was affected, with 1.4 million customers without power, said Jennifer Ramp, a spokeswoman for the utility.
• New Libyan Leaders Face 'Difficult' Unity Fight. Libya’s transitional prime minister, Mahmoud Jibril, called for national reconciliation and unity, saying they may be “more difficult” to achieve than the fight that toppled Muammar Qaddafi’s regime. “There are two battles,” Jibril said after arriving in Tripoli two and a half weeks after opposition fighters entered the capital. Achieving unity will be “our biggest challenge,” he said.
• Brazil Cut to Keep Inflation High, Macquarie's Welch Says. Brazil’s interest-rate reduction last week will prop up domestic demand and prevent inflation from slowing from a six-year high, said John Welch, chief emerging-markets strategist at Macquarie Capital Inc. Welch, speaking at the Bloomberg Global Inflation Conference in New York, said the 50 basis-point rate cut to 12 percent on Aug. 31 shows Brazilian policy makers are “betting” inflation will slow before year-end. Annual inflation surged last month to 7.2 percent, the fastest rate since 2005, in Latin America’s biggest economy. “I don’t see any reason for inflation dropping,” Welch said. “At the margin, it’s accelerating again.” Brazil’s rate cut, which followed five consecutive increases, surprised all 62 analysts surveyed by Bloomberg, who expected rates to be left unchanged. The central bank signaled it may reduce borrowing costs further on expectations the global economic slowdown will help inflation slow in line with its 4.5 percent target next year, according to the minutes of the meeting released today. “They will rethink it,” said Welch, the former chief Latin America economist at Lehman Brothers Holding Inc.
• SEC Files Action Against Deloitte Shanghai Unit. The U.S. Securities and Exchange Commission filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of its former auditing client Longtop Financial Technologies Limited. D&T Shanghai hasn’t provided any documents to the SEC, which issued subpoenas to the firm on May 27, the agency said in a statement today, citing a filing in U.S. District Court in Washington. As a result, the SEC has been unable to access “critical” information in its probe of possible fraud at Longtop, the statement said. Longtop, based in Hong Kong, said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation.
• Texas Instruments(TXN) Lowers Third-Quarter Revenue Forecast as Orders Recede. Texas Instruments Inc. (TXN), the largest maker of analog chips, said third-quarter sales may fall short of earlier forecasts, citing a slump in orders for electronics components from customers across its product lines. Profit will be 56 cents to 60 cents a share on revenue of $3.23 billion to $3.37 billion, the Dallas-based company said in a statement today. Analysts on average had estimated profit of 60 cents on sales of $3.5 billion, according to Bloomberg data. Texas Instruments gets most of its revenue from analog chips, semiconductors that are key components in everything from medical devices to e-book readers. The company’s customers and distributors are holding off on orders, concerned that a slowing economy will crimp demand for electronics, said Tore Svanberg, an analyst at Stifel Nicolaus & Co. “The weakness is fairly broad-based,” said Svanberg, who recommends buying Texas Instruments shares because of the company’s long-term growth prospects. “I don’t think there’s a place to hide right now.” Texas Instruments stock, down 21 percent this year, fell 1.2 percent to $25.48 in extended trading following the announcement.
• Glenn Beck Debuts Web TV Network to Leverage His Fame After Fox.
• Japan's Economy Contracts More Than Initial Estimate as Yen Hurts Recovery. Japan’s economy contracted more than the government initially estimated in the second quarter as capital spending decreased, adding to concern the stronger yen may derail the nation’s recovery from the March earthquake. Gross domestic product shrank at an annualized 2.1 percent rate in the three months ended June 30, more than the 1.3 percent contraction reported last month, the Cabinet Office said today in Tokyo. The reading was in line with the median forecast of 21 economists surveyed by Bloomberg News.
• Deutsche Bank(DB) Risk Seen Rising as Puts Appreciate Most in Europe: Options. The price of options to protect against losses in Deutsche Bank AG (DBK) shares is rising more than any other European lender as Germany leads the rescue of nations in the region’s shared currency. Three-month options that pay owners should Frankfurt-based Deutsche Bank drop 10 percent cost 1.3 times the price of contracts betting on 10 percent gains, according to data compiled by Bloomberg. That’s up from 1.14 at the end of July, the biggest increase among financial firms in the Stoxx Europe 600 Index, data using five-day averages show. Stocks subject to bans on short selling were excluded.

Wall Street Journal:

• Greek CDS Spreads Go Stratospheric. The cost of insuring Greece’s debt against default shot to a new high on Thursday, as investors increasingly see the country in a risk class of its own, even compared with other troubled euro-zone economies. Greece’s five-year credit default swaps rose to 3008 basis points, up 288 basis points from Wednesday, according to data provider Markit. The Greek government said Thursday the economy contracted in the second quarter even more than was originally thought, by 7.3% instead of 6.9%. Officials conceded the government will fail to cut its budget shortfall as planned this year. The rest of Europe is losing patience with Greece. Germany has hinted Greece will not get its next bailout check unless it gets its act together, and Finland reiterated its insistence on collateral for more Greek aid, a controversial condition that has Europe divided and threatens to delay new agreements. “The euro zone has spent a year trying to bail out an overindebted country by loaning it more money,” LeBas said. “That’s not going to work in the long run. Some form of Greek default is a largely foregone conclusion.” The Italian government has come up with an austerity plan that includes spending cuts and tax increases to the tune of EUR50 billion, which will be put to vote in parliament next week. Spain is also attempting budgetary controls to shore up investor confidence. Meanwhile, there are murmurs about Greece being asked to leave the 17-country euro-bloc. While there are denials from all sides that such a proposal is in the offing, the rumors add fuel to the theory that this may be an option, said Otis Casey, credit analyst at Markit.
• Obama's Bid to Spur Growth. President Asks Congress for $447 Billion In Cuts, Spending; Tepid GOP Response. President Barack Obama called on Congress Thursday to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth, in what might be the White House's last chance to revive its political fortunes before the 2012 campaign kicks into high gear.
• White House, Regulator Considering Refinance Program Revamp. The White House is pushing to revamp an existing federal program to allow more Americans with government-backed loans to refinance, and a federal regulator is weighing changes to accommodate that effort, according to people familiar with the matter.
• BofA(BAC) Job Cuts May Total 40,000. Bank of America Corp. officials have discussed eliminating roughly 40,000 positions during the first wave of a restructuring that Chief Executive Brian Moynihan is expected to discuss Monday, said people familiar with the plans.
• Cities Deep in Red Turn to Green Deals. Financing Strategy Skirts Laws on Using Bonds for Deficits. Cities and states have been firing workers and raising taxes to balance the books. But for some of the shakiest cities, those moves aren't enough. Enter Class Green Capital Partners, a New York financial adviser to municipalities. Class Green has been helping cities to essentially take out mortgages on their public buildings and use many of the proceeds to plug their budget shortfalls. Here is the twist: A portion of the bond proceeds go to improve energy efficiency in the buildings, which are meant to generate savings for the city.
• The Latest Jobs Plan. More temporary and targeted tax cuts and spending increases. If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.
• We'll Never Get Over It, Nor Should We. Ten years later, remembering a day of horror and heroism.
  

CNBC:

• China August Inflation Pulls Back Slightly From 3-Year High. China's inflation eased slightly to 6.2 percent in August from July's three-year high, raising expectations that the central bank will hold off on further policy tightening amid worries about a global economic slowdown. The People's Bank of China needs to keep policy tight as inflation is likely to stay elevated in the coming months and will almost certainly overshoot the government's full-year inflation target of 4 percent, analysts say. The figure was in line with market forecasts of 6.2 percent, and compares with 6.5 percent in July.
• Underfunded Pensions Pressured to Make Riskier Bets. After a tumultuous August, pension funds for companies, governments and unions are falling further under water, raising pressure on boards to take on more risk at a time when the economic and policy outlook has never been more uncertain.
• Weaker Euro Could Be in Store as Officials Struggle With Debt Crisis.
  

Business Insider:

• ... And Now John Paulson's Credit Fund is Getting Smashed. An investor in the fund tells us...John Paulson's "Credit Opportunities" fund tanked 10.10% last month, and is now down 6.77% for the year. Obviously, Paulson's flagship Advantage fund is getting slaughtered, but the credit fund has been touted as a successful product even as Advantage has stumbled. No more.
• Greece: Here's The Latest, And Here's What's Next.
  

Zero Hedge:

• Senate Attempt to Block Debt Ceiling Increase Fails: Debt Target Is Now $15.2 Trillion, Or Over 100% of GDP.

NY Times:

• Settlement Said to Be Near for Fannie and Freddie. Regulators are nearing a settlement with Fannie Mae and Freddie Mac over whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans, bringing to a close a three-year investigation.The proposed agreement with the Securities and Exchange Commission, under the terms being discussed, would include no monetary penalty or admission of fraud, according to several people briefed on the case.
• Judge Widens Antitrust Suit Against Private Equity Firms. A federal judge has greatly expanded the scope of an antitrust lawsuit against the world’s largest private equity firms, broadening the case to include some of the largest leveraged buyouts in history. The four-year-old suit accuses 11 firms, including Blackstone Group and Kohlberg Kravis Roberts, of a huge, overarching conspiracy to rig the market for multibillion-dollar takeovers.

Forbes:

• Customers Complain HP's(HPQ) $99 TouchPad Developing Cracks. Scores of users are complaining on Internet forums about cracks on forming on HP TouchPad tablet computer near the device’s speakers and headphone jacks.
• U.S. Video Game Sales Fall 23% In August Vs. Year Ago.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

Telegraph:

• Germany Pushes Greece in Dangerous Brinkmanship. Germany and Holland have threatened to block rescue payments to Greece unless the country complies to the letter with bail-out terms, raising the spectre of default and a chain-reaction through southern Europe.

Sueddeutsche Zeitung:

• Germany has no funds for new road and rail projects and no new projects are therefore likely to be started in the coming few years.

Caixin:

• China's northeastern province of Liaoning defaulted on about 85% of its debt servicing payments in 2010, citing a government audit report. 120 of the province's 184 financing platform companies were operating at a loss. Local government platform companies engaged in fraudulent practices to secure and use loans, the report found.

China National Radio:

• Ba Shusong, a researcher at China's State Council's development research center, said that the effects of U.S. President Barack Obama's plan to spur jobs are "doubtful". Even so, the plan addresses U.S. internal problems as compared with using quantitative easing measures which transfers the cost of crisis to other nations, he said.

Evening Recommendations
Wedbush:

• Rated (PCLN) Outperform, target $675.
• Rated (EXPE) Outperform, target $38.
• Rated (ALLT) Outperform, target $16.

Night Trading

• Asian equity indices are -1.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 159.0 +5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 147.0 unch.
• FTSE-100 futures -.41%.
  
• S&P 500 futures +.23%.
  
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KR)/.43
• (LULU)/.22
• (PNY)/-.13

Economic Releases
10:00 am EST

• Wholesale Inventories for July are estimated to rise +.7% versus a +.6% gain in June.
  

Upcoming Splits

• (PII) 2-for-1
  

Other Potential Market Movers

• The Fed's Williams speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, More Financial Sector Pessimism, Global Growth Worries, Emerging Markets Inflation Fears

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 34.44 +3.18%
  
• ISE Sentiment Index 116.0 -2.52%
  
• Total Put/Call 1.10 +23.60%
  
• NYSE Arms 1.41 +229.60%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.50 -.53%
  
• European Financial Sector CDS Index 246.33 +2.32%
  
• Western Europe Sovereign Debt CDS Index 315.17 unch.
  
• Emerging Market CDS Index 286.99 +2.54%
  
• 2-Year Swap Spread 31.0 -1 bp
  
• TED Spread 33.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% -1 bp
  
• Yield Curve 179.0 -5 bps
  
• China Import Iron Ore Spot $179.90/Metric Tonne -.61%
  
• Citi US Economic Surprise Index -42.30 +12.4 points
  
• 10-Year TIPS Spread 2.01% +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -81 open in Japan
• DAX Futures: Indicating -62 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades near session lows on rising Eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries. On the positive side, Utility and Food shares are rising on the day. Lumber is rising +3.42%, Oil is falling -.7% and the UBS-Bloomberg Ag Spot Index is falling -.5%. On the negative side, Airline, Education, Insurance, HMO, Hospital, Medical, I-Bank, Bank, Oil Tanker, Alt Energy and Coal shares are under pressure, falling more than -2.0%. (XLF) has traded poorly throughout the day. Cyclical and small-cap stocks are substantially underperforming. Copper is falling -.17% and Gold is surging +3.0%. Rice is still near a multi-year high and has risen +35.0% in about 9 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.65/gallon. It is up .51/gallon in about 7 months. The Portugal sovereign cds is gaining +1.9% to 1,056.67 bps, the China sovereign cds is rising +1.7% to 117.38 bps, the Belgium sovereign cds is gaining +1.03% to 274.17 bps and the UK sovereign cds is rising +1.22% to 76.93 bps. The Greece sovereign cds is rising +5.4% to 2,811.72 bps, which is another all-time high. The Portugal sovereign cds is now getting uncomfortably close to its record high. The Eurozone Financial Sector and Western European Sovereign CDS Indices are still near all-time highs. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The Shanghai Composite fell another -.68% last night and is down -11.0% ytd. I continue to believe most emerging markets have a larger inflation problem than is generally perceived. If China takes the breaks off too soon, which many suggest it might, it would likely prove a huge policy error intermediate-term. The AAII % Bulls fell to 30.2% this week, while the % Bears rose to 40.3, which is still slightly too much bullishness given the backdrop. Most gauges of eurozone debt angst remain very elevated and continue to trend higher, which remains a large concern. The euro currency is breaking down through meaningful technical support today. I still think the euro has much further downside longer-term, notwithstanding any near-term oversold technical bounce. Investors seemed to cheer the passage of further tax hikes/spending cuts yesterday in Italy and Spain, however these same measures are likely to worsen those economies and thus their debt problems as we have seen with Greece. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries.

Today's Headlines

Bloomberg:

• Greek Credit Swaps Surge to Record, Signal 91% Chance Nation Will Default. Credit-default swaps on Greek government debt surged to a record, signaling a 91 percent chance the nation will fail to meet debt commitments, after its economy shrank more than previously reported. Five-year contracts on the country’s sovereign bonds jumped 196 basis points to 3,001 basis points, at 3:45 p.m. in London, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Gross domestic product shrank 7.3 percent from a year earlier after declining 8.1 percent on an annual basis in the first quarter, the Hellenic Statistical Authority said. Greece’s financial situation is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers last night, according to parliament’s HIB bulletin. “It’s a combination of Greece continuing to disappoint and probably a growing realization among politicians that they’re throwing good money after bad,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “They’ve finally woken up to the fact that they’re not going to get this money back.” The default probability, which is based on a standard pricing model, assumes investors would recover 40 percent of the bonds’ face value were Greece to fail to meet its obligations within five years. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 2.5 basis points to 322.5. The gauge is approaching the record close of 327 basis points on Sept. 6. Swaps on Portugal jumped 19 basis points to 1,060, Ireland climbed 18 to 834 and Spain rose five to 396. Greek two-year note yields jumped as much as 85 basis points to a euro-era record 55.76 percent today. The nation’s 10-year yield climbed to an all-time high 20.13 percent.
• Trichet Opens Path for Further Steps as Euro Region's Growth Forecasts Cut. European Central Bank President Jean-Claude Trichet said threats to the euro region have worsened and inflation risks have eased, giving officials the option to take further action should the debt crisis worsen. The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt today after the ECB left its benchmark rate at 1.5 percent. While monetary policy is still “accommodative,” financing conditions have worsened in parts of the 17-member euro region and the ECB stands ready to pump more cash into markets if needed, he said. The yield on German 10-year bunds fell to a record as some investors speculated the ECB could cut interest rates or open up more emergency credit lines for banks. The spreading debt crisis is sapping confidence in Europe’s financial institutions, driving up market borrowing costs and forced the ECB to widen its bond purchase program to Italy and Spain. “The hiking cycle has been aborted and Trichet even offered some goodies for rate cut fetishists,” said Carsten Brzeski, an economist at ING Group in Brussels. “A further worsening of the economy and deflationary tendencies could force the ECB’s hand to act. The tightening bias is gone.” The euro dropped as much as 1.1 percent and traded at $1.3952 at 6:19 p.m. in Frankfurt. The currency has depreciated 4 percent against the dollar this year.
• Trichet Loses Cool on Deutsche Mark Question. Almost 13 years after its demise, the Deutsche mark retains enough potency to haunt Jean-Claude Trichet’s final days as European Central Bank president. Trichet, 68, today lost his cool with a reporter who asked whether Germany should abandon the euro and return to the mark as Europe’s debt crisis roils markets and spooks voters.
• Solyndra Headquarters Raided by FBI. Solyndra LLC, the bankrupt solar- panel maker that was backed by the Obama administration, is being raided by the Federal Bureau of Investigation today, an agency spokeswoman said. “We’re executing a search warrant jointly” with the Department of Energy inspector general “regarding an investigation,” FBI spokeswoman Julie Sohn said of the raid at the company’s Fremont, California, headquarters offices and plant. Sohn said she couldn’t provide details about the investigation. The company, whose $535 million federal loan guarantee was criticized by Republicans, filed bankruptcy on Sept. 6, six days after shutting down its factory and firing 1,100 people. The U.S. Federal Financing Bank, owned by the U.S. Treasury Department, is the company’s biggest lender, according to court papers. Congressional Democrats have asked the company’s chief executive officer to explain his optimistic projections about its future. Democratic Representatives Henry Waxman of California and Diana DeGette of Colorado said Solyndra Chief Executive Officer Brian Harrison met with them earlier this year and assured them it was in a “strong financial position.” “At that time, he said the company was projected to double its revenues in 2011, there was ‘strong demand in the United States’ for its shipments, and the company was expected to double the megawatts of panel production shipped this year,” Waxman and DeGette wrote in a letter today to Representative Cliff Stearns, a Florida Republican who heads the oversight panel of the House Energy and Commerce Committee.
• Bernanke: Fed Will Weigh Stimulus at Next Meeting. Federal Reserve Chairman Ben S. Bernanke said policy makers will discuss the tools they could use to boost the recovery at their next meeting this month and stand ready to use them if necessary. Policy makers “are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability,” Bernanke said in the text of a speech to economists today in Minneapolis.
• Jobless Claims in U.S. Unexpectedly Climbed by 2,000 to 414,000 Last Week. Claims for U.S. unemployment benefits rose last week, a sign the labor market is struggling to gain traction more than two years after the recession ended. Jobless claims rose by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Today’s data showed the four-week moving average, a less- volatile measure than the weekly figures, rose to 414,750 last week from 411,000. The unemployment rate among people eligible for benefits remained unchanged at 3 percent in the week ended Aug. 27, today’s report showed.
• Gold Futures Gain in New York After U.S. Jobless Claims Unexpectedly Rise. Gold gained for the first time in three days after an unexpected rise in U.S. jobless claims spurred demand for the metal as a haven asset. Claims for unemployment benefits rose by 2,000 to 414,000 in the week ended Sept. 3, the Labor Department said. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. Before today, the metal was up 28 percent this year as waning prospects for global growth boosted investor demand. “Things aren’t looking very positive, and the market continues to remain skittish,” Adam Klopfenstein, a senior market strategist at MF Global in Chicago, said in a telephone interview. “We need some results to show that jobs will be created.” Gold futures for December delivery gained $34.70, or 1.9 percent, to $1,852.30 an ounce on the Comex at 10:33 a.m. in New York. The price touched a record $1,923.70 on Sept. 6.
• U.S. Consumer Sentiment at Second Lowest Level of Year in Bloomberg Index. U.S. consumer confidence last week fell to the second-lowest level this year as Americans grew more pessimistic about the world’s largest economy. The Bloomberg Consumer Comfort Index was minus 49.3 in the period to Sept. 4 compared with minus 49.1 the previous week. This year’s low of minus 49.4 was reached in May, when gasoline prices were the highest in three years. While the drop was within the survey’s 3-point margin of error, the index has been stuck below minus 40 -- the level associated with recessions or their aftermath -- since the end of February. Job creation stagnated in August, the unemployment rate held above 9 percent and hourly wages retreated, giving households little to cheer about. Pessimism stretches across social, economic and political lines, posing a threat to consumer spending that accounts for 70 percent of the economy. “Falling sentiment indicates signs of growing distress in the consumer sector,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The results reflect “a labor market that has seized up and the lagged effects of inflation that is effectively reducing the purchasing power of households.”
• OECD Slashes Growth Forecasts, Says Rate Cuts May Be Needed. The Organization for Economic Cooperation and Development slashed its growth forecasts for the U.S. and Japan and said central banks around the world should be ready to ease monetary policy if economies weaken further. The U.S. will grow 1.1 percent in the third quarter and 0.4 percent in the fourth, instead of the 2.9 percent and 3 percent predicted in May, the OECD said today in its interim economic assessment. Japan will expand 4.1 percent in the third quarter before stalling in the fourth, and the three biggest euro economies will grow 1.4 percent and then shrink 0.4 percent.
• JPMorgan(JPM) Sees Euro Break-Up Hedge in Sales of Italian Bonds. JPMorgan Chase & Co. said selling Italian and Spanish bonds along with bank stocks and debt, and buying dollars and gold may provide the best protection against the “very unlikely” risk of a euro-area collapse. “There are formidable barriers to break-up, which make it less likely, but also mean it would be more disruptive if it did occur,” Seamus Mac Gorain, a strategist in London, wrote in an investor report yesterday. “The financial turmoil and economic impact would be most pronounced in the euro area, arguing for broad underweight euro-area equity and credit.”
• Illinois Governor Calls for Employee Layoffs to Balance Budget. Illinois needs to lay off more than 1,900 state employees and close some facilities to avoid a partial government shutdown next spring, Democratic Governor Pat Quinn said today. “It’s time for a rendezvous with reality,” Quinn said at a news conference in Chicago. The state “clearly does not have enough money.”

Wall Street Journal:

• Interview: IMF Mideast Head: Dollar Peg Has Served Gulf States Well. Saudi Arabia and other Arab Gulf nations that peg their currencies to the U.S. dollar have no reason to drop the link, the International Monetary Fund's director for the Middle East said Wednesday.
• Deficit Committee Adds a Focus on Jobs.
• Fed's Plosser: Monetary Policy Can't Help Jobs Market Much Right Now. Monetary policy has little ability to help the U.S. jobs market in current economic circumstances, a top Federal Reserve official said Thursday. “I am really doubtful that monetary policy is a tool that is going to help us very much” to help spur demand and improve hiring in an economy where many households and companies are still looking to cut borrowing levels, rather than to increase them, Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview with Dow Jones Newswires and The Wall Street Journal.

CNBC.com:

• US Is Great Athlete Who Got Fat: Blackstone(BX) CEO. The CEO of private equity giant Blackstone believes America is like a once great athlete who has stopped training, let themselves go and put on a whole lot of weight.

Business Insider:

• Brooklyn Ad Agency Risks Reputation With "Tea Party Zombies Must Die" Pet Project. An online game called "Tea Party Zombies Must Die," produced by Brooklyn creative agency Starvingeyes, might provoke boycotts from the right over the game's targeted violence against conservative figures, AdWeek reports. Stavingeyes head Jason Oda made the game as a personal project, unrelated to work the agency has done for Pepsi, UPS, Nascar and other major brands.
• It's Falling Apart: Senator Already Threatening to Quit Super Committee.
• Why a Breakup of the Eurozone is Now Likely.
  

Zero Hedge:

• Bring Back the Uptick Rule!
• Bank of America's(BAC) Legal Woes Go Global After Norway's Sovereign Wealth Fund Sues for Mortgage Fraud.
• Rick Santelli Tells Arch Globalization Advocate Friedman He Is An Idiot. (video)
• August is 7th Worst Month Ever for SAC Capital. (Out of 229)
  

New York Times:

• Heat-Seeking Missiles Are Missing From Libyan Arms Stockpile.
• Google(GOOG) to Buy Zagat.
  

The Detroit News:

• Health Costs Trip Up UAW, Chrysler. With just a week left until their contract expires, Chrysler Group LLC and the United Auto Workers are still far apart on key issues — including health care cost sharing — according to people close to the negotiations. Talks between the UAW and Chrysler and General Motors Co. have intensified since the beginning of the week, and have now entered a critical stage.
  

The Daily Caller:

• Solyndra Officials Made Numerous Trips to the White House, Logs Show. Not only does the now-bankrupt solar energy firm Solyndra have a cozy financial relationship with the Obama administration, company representatives also made numerous visits to the White House to meet with administration officials, The Daily Caller has learned. According to White House visitor logs, between March 12, 2009, and April 14, 2011, Solyndra officials and investors made no fewer than 20 trips to the West Wing. In the week before the administration awarded Solyndra with the first-ever alternative energy loan guarantee on March 20, four separate visits were logged.

Reuters:

• Greek Economy Suffers, Government Rules Out Euro Zone Exit. Greece ruled out quitting the euro on Thursday, shrugging off warnings by its biggest creditor Germany and yet another set of bad economic figures showing it is struggling under the weight of EU/IMF-imposed austerity. Anger at Greece's failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior German politicians now talking openly about the possibility of Athens exiting the euro zone. Greece is missing fiscal and reform targets set out under the first, 110-billion euro bailout it obtained in May 2010, despite the spending cuts and tax hikes it took to comply. Faced with the threat of its EU partners blocking an 8-billion euro bailout tranche due next month if it does not get its act together, the country's socialist government pledged on Tuesday to step up long-promised budget cuts and asset sales. But economic figures released on Thursday show austerity is stretching the economy to the limit, making it more and more difficult for the country to meet its 2011 budget deficit target of 7.6 percent of GDP, from 10.5 percent last year. GDP contracted at an annual pace of 7.3 percent in the three months to June, from 8.1 percent in the previous quarter, according to seasonally unadjusted figures by statistics agency ELSTAT, while unemployment stayed near record highs. The figures confirm austerity is taking a bigger-than-expected toll on the economy, which is in its third consecutive year of recession. The GDP data showed private consumption dropped by an annual 6.1 percent in the second quarter while investment shrank by 17.9 percent, according to the ELSTAT figures. Construction, once one of the country's strongest growth engines, slumped by an annual 47 percent in terms of volume between January and May. Unemployment fell slightly to 16.0 percent in June, helped by seasonal tourism jobs. But it remained close to a record 16.6 percent it hit the previous month, well above its 11.6 percent level in June 2010. "It appears the rise in the unemployment rate will continue. There are no convincing signs of an imminent peak," said Platon Monokroussos, an economist at EFG Eurobank. Rules that make it hard to hire and fire workers have helped make joblessness among the Greek young more than 15 percentage points higher than the euro area average, according to OECD figures. Unemployment in the 15-24 age category stood at 43 percent in June, almost twice as high as three years ago. "If the (euro zone's) core economies demand that Greece passes further fiscal measures, it could prompt Greece to try to implement another debt restructuring as soon as next year," May said. "Exiting the euro zone is a real possibility."
• Euro Hits Two-Month Low Vs. Dollar; ECB Signals Pause.
• German Economy Ministry Opposes Stimulus - Report. Germany's economy ministry opposes new stimulus measures as a way to counter a possible economic downturn, newspaper Die Welt reported on Thursday. Citing a three-page ministry working paper, the daily said the idea had been dismissed by Economy Minister Philipp Roesler, who also heads the Free Democrats, junior coalition partner in Chancellor Angela Merkel's government. "Calls for programmes financed by debt, as they are being made somewhat internationally, are counterproductive given the underlying crisis of confidence in indebted countries," Die Welt quoted the report as saying.
• U.S. Commercial Paper Market Shrinks Again.

Financial Times:

• Market Turmoil Lands Hedge Funds With Big Losses. August, it now seems likely, will be the industry’s worst month since October 2008, when the collapse of Lehman Brothers triggered a worldwide sell-off. It will almost certainly also be one of the top five worst months for the industry since performance data started to be aggregated in 1990. According to the latest provisional figures from Hedge Fund Research, the average hedge fund manager has lost 4.1 per cent in the past four weeks.

Telegraph:

• 'No Quick Fix for Euro'. (video) Herta von Stiegel, author of The Mountain Within and a former senior executive with JP Morgan and Citibank, tells Robert Miller that a single Eurobond for all 17 members of the single currency bloc is not the solution to the sovereign debt crisis.

DeutschlandFunk radio:

• German Finance Minister Wolfgang Schaeuble said Italy's sovereign debt is far too large and that the country must make massive efforts to cut its deficit.

HandelsZeitung:

• Credit Suisse Group AG may wind down its onshore banking business in the U.S. following pressure from authorities there. The bank will instead concentrate on Asia.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.21%)

Sector Underperformers:

• 1) Banks -2.61% 2) I-Banks -2.53% 3) Coal -2.40%

Stocks Falling on Unusual Volume:

• SI, CLMT, GGAL, TZOO, GIII, TITN, OPEN, MTRX, UNFI, LAYN, AVAV, CASY, MIND, AIRM, ICLR, HITT, ALOG, INDB, ABCO, DNDN, VRSN, BOKF, CPLA, ORCL, EZU, TRC, PLL, MW, MHK, PKI, DG and VSI
  

Stocks With Unusual Put Option Activity:

• 1) OPEN 2) RRD 3) AGO 4) ECA 5) FXY
  

Stocks With Most Negative News Mentions:

• 1) KWK 2) DG 3) TZOO 4) PBI 5) OPEN
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.29%)

Sector Outperformers:

• 1) Gold & Silver +1.89% 2) Steel +1.29% 3) Homebuilders +1.28%

Stocks Rising on Unusual Volume:

• POWI, GOLD, ITMN, CALP, WPRT, HRBN, SNDK, TTWO, REXX, TKC and PAY
  

Stocks With Unusual Call Option Activity:

• 1) HTZ 2) MU 3) TWX 4) KFT 5) SFD
  

Stocks With Most Positive News Mentions:

• 1) DVN 2) MW 3) CSCO 4) DRI 5) POWI
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Thursday Watch

Evening Headlines

Bloomberg:

• Trichet May Resist Rate-Cut Calls as Debt Crisis Tightens Money Markets. European Central Bank President Jean-Claude Trichet will probably resist calls to cut the benchmark interest rate today and may opt instead to increase the supply of cash to euro-area banks as the region’s debt crisis worsens. Policy makers meeting in Frankfurt will keep the key rate at 1.5 percent, according to all 57 economists in a Bloomberg News survey. The ECB may lower its inflation and growth forecasts, signaling rates are now on hold after two increases this year. The spreading debt crisis is sapping confidence in European banks and driving up market borrowing costs. “The situation is very, very bad, the money markets have almost stopped functioning,” said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. “The debate in markets has moved to rate cuts but I doubt it will happen, and one way to buffer the inevitable disappointment would be to reintroduce the 12-month tender.” The ECB announces its rate decision at 1:45 p.m. in Frankfurt and Trichet holds a press conference 45 minutes later. Separately, the Bank of England will probably keep its key rate at a record low of 0.5 percent and maintain its bond-purchase program at 200 billion pounds ($320 billion).
• Chinese Developers, Small Caps May Weigh on Equities, Jefferies's Ju Says. Chinese stocks face “challenges” this year because the government is unlikely to ease measures to stem inflation even as global economic growth slows, said Jefferies Group Inc. (JEF)’s head of Hong Kong and China Research. Investors should be cautious on the nation’s property developers as sales may worsen in the next two months, while small-company shares are more vulnerable than their larger peers to a global downturn, said Christie Ju who joined the U.S. investment bank in Hong Kong in January. Ju previously helped Bank of America Corp.’s brokerage unit take the top spots in Institutional Investor’s inaugural All-China Research Team poll and AsiaMoney’s survey of analysts. The Hang Seng China Enterprises Index of Chinese companies available to foreign investors has plunged 17 percent this year amid speculation the government will maintain policies to cool inflation. “Inflation hasn’t really come down as significantly as people expected,” Ju said. “Right now we are still in the tightening cycle. It’s difficult to count on a general loosening cycle such as interest-rate cut and I don’t see that happening in the near term.” The central bank has raised interest rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to tame inflation, which jumped to a three-year high of 6.5 percent in July. Jefferies’s Ju said Chinese property stocks haven’t “priced in” the possibility that sales in September and October will worsen amid tighter liquidity. “We are seeing sales starting to decline and mortgage quotas are getting limited,” Ju said. “The situation has not improved, but worsened in the past couple of weeks.” China Vanke Co., the nation’s biggest listed property developer, said sales dropped 13 percent in August from a year ago while Beijing Capital Land Ltd. (2868) said its contracted sales fell 43 percent last month. Chinese small-capitalization stocks may extend their declines given the global economic outlook, Ju said. A ChiNext index of start-up companies has tumbled 21 percent this year on concern monetary tightening will make it more difficult for small companies to borrow from banks and expand businesses. “Small caps don’t weather the downturn as much as their larger counterparts and the outlook for small caps is very challenging,” Ju said.
• Paulson's Fund Said to Lose 34% This Year. John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost 34 percent this year in his largest hedge fund, according to two people familiar with the firm. Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, lost 15 percent last month, said the people, who asked not to be identified because the fund is private. That compares with a 5.7 percent decline last month in the Standard & Poor’s 500 Index. The fund’s gold-denominated share class has lost 17 percent this year, after declining 7 percent in August. Paulson, 55, whose New York-based firm Paulson & Co. manages $35 billion, has scaled back bullish bets after losses this year. He reduced his stake in Bank of America Corp. (BAC) to 60.4 million shares as of June 30 from 124 million shares on March 31. The bank’s shares have tumbled 44 percent so far this year. The hedge-fund industry has gained 3.4 percent in 2011 after falling 1.1 percent last month, according to the Bloomberg aggregate hedge-fund index. Paulson would have to return about 52 percent in the remainder of the year to break even in the Advantage Plus Fund.
• Dalio Returns 25% on Diversified Bets as Markets Convulse: Influential 50. Bridgewater Associates LP founder Ray Dalio can rattle off the investing fads he’s witnessed since he began trading as a 12-year-old golf caddie: the Nifty-50 stock craze of the 1970s, the 1980 gold bubble and even the 60- 40 stock-to-bond mix. “Manias occur when there is group thinking,” Dalio says. Dalio, 62, built Bridgewater into the world’s largest macro hedge-fund firm, with $122 billion in total assets, by tacking against consensus.
• China Stocks May Drop as Trading Value Plunges. China's stocks are poised to drop, if history is any guide, with trading activity at "pretty much dead" levels, according to China International Capital Corp. Trading was a leading indicator at five different activity cycles since 2006 as highs in the Shanghai Composite in October 2007 and July 2009 occurred about five months after activity reached peaks, said CICC, the top-ranked China research provider in Asiamoney magazine's annual survey. Trading on Sept. 6 was a 14-month low of $7.8 billion. "Trading has been pretty much dead in the A-shares market amid recent market routs," Hao Hong, a Beijing-based global strategist at CICC, wrote. "Consensus took this as a sign that Shanghai has bottomed. But we are less enthusiastic."
• Japan's Machinery Orders Fall Most in 10 Months as Yen Gain Stalls Rebound. Japan’s machinery orders fell the most in 10 months in July, as the yen’s gain to a postwar record eroded company profits and discouraged investment. Factory orders dropped 8.2 percent in July from June, when they increased 7.7 percent, the Cabinet Office said today in Tokyo. Orders, an indicator of capital spending in three to six months, were projected to decline by 4.2 percent, according to the median forecast of 27 economists surveyed by Bloomberg News. Today’s report adds to concern that a rising yen may derail the nation’s recovery from March’s record earthquake, putting pressure on officials to take action to stem gains in the currency. Finance Minister Jun Azumi, who was sworn in last week, said on Sept. 4 that the government is ready to take decisive action against speculative moves in the yen. “The rebound may have run its course,” Richard Jerram, chief economist at Bank of Singapore Ltd., who has analyzed Asian economies for two decades, said before the report. The strong yen “is lowering profitability of companies, deterring them from making investments,” he said.
• A Layman's Guide to the President's Jobs Speech: Caroline Baum. Let’s face it: If the president had a plan to create jobs, he wouldn’t have kept it under wraps until now. Why take flak from Republicans and heat from the public if you have what it takes to turn the economy and labor market around? Barack Obama doesn’t have a plan to create jobs. Nor is that his job. The government’s role is to provide an environment in which the private sector will create them. That should be his goal.
• Australia Employers Cut Workers in August. Australian employers unexpectedly cut workers for a second straight month in August, sending the nation’s currency tumbling and bond yields lower as investors added to bets the central bank will cut interest rates. The number of people employed fell by 9,700, after a revised 4,100 drop in July, the statistics bureau said in Sydney today. That compares with the median estimate for a 10,000 increase in a Bloomberg News survey of 24 economists. The jobless rate rose to 5.3 percent, the highest since October 2010, from 5.1 percent. Retailers and factories are getting hurt by a 16 percent gain in the currency in the past year that cuts export income and the developed world’s highest borrowing costs, which were left unchanged at 4.75 percent this week.
• Growth Risk Means Favor Defensive Stocks, BofA's Kim Says. Investors should favor “defensive” utility and telecommunications shares in Asia whose earnings may be sheltered from a slowdown in the world’s biggest economies, Bank of America Corp. (BAC)’s head of Asia Pacific research said. There’s a risk of more selling in regional stocks, Hunsoo Kim at Bank of America’s Merrill Lynch unit said in an interview in Seoul yesterday. Merrill was rated first for Asia research in 2011 by Institutional Investor magazine. Kim, based in Hong Kong, was visiting Seoul for an annual Korea conference hosted by Merrill. The MSCI Asia Pacific Index slumped 8.6 percent last month, the most since May 2010, on signs the U.S. economic recovery is faltering and concern that Europe’s debt crisis will spread. Utility and telecommunications gauges within the MSCI index lost less than 3 percent in August, the best performers among 10 industry groups. “We’re taking a defensive stance, and we acknowledge there are risks out there,” Kim said, without naming individual stocks nor giving an index forecast. “There’s going be less growth most likely next year, and markets reflect that.” Another round of asset purchases, or quantitative easing, in the U.S. is unlikely to happen in a “major” way, and even if it does, it may not necessarily resolve problems of the world’s largest economy, Kim said. The U.S. economy posted zero jobs growth last month, a government report on Sept. 2 showed. Federal Reserve Chairman Ben S. Bernanke is scheduled to speak on the U.S. economic outlook later today. The central bank’s policy makers voted on June 22 to conclude a $600 billion bond-buying program as scheduled and maintain its balance sheet near record levels. The Fed pledged on Aug. 9 to keep its target interest rate near zero until at least mid-2013. “We’re not sure about the effectiveness of such policy to really get the U.S. back on track,” said Kim. “It didn’t create jobs, and at the end of the day, you cannot solve debt issues by creating more debt.”

Wall Street Journal:

• Renaissance Quant Fund Adds to Gains. Renaissance Technologies LLC's quantitative hedge fund Renaissance Institutional Equities Fund was up a gross 5.4% in August, bringing the $6.5 billion fund's year-to-date gains to 25.56%, a person familiar with the situation said Wednesday. The strong gross return by the Renaissance fund—gross gains exclude the impact of fees and expenses paid by investors—shows that in a difficult month for hedge funds, some still managed to eke out gains.
• Libya Oil Chief Plans Revival. Rebel Who Quickly Set Up Shop in Tripoli Sees Production Resuming Soon; an Expanding Portfolio. Libya's oil industry will be prepared to resume production within two weeks, while the rebel council is considering keeping their headquarters in Benghazi, said Oil and Finance Minister Ali Tarhouni, who has established himself—in a plush office left behind by the Gadhafi regime—as a key figure in the country's transition. A decision to keep the seat of power in the eastern base of the rebellion against Col. Moammar Gadhafi could sharpen regional rivalries and make it harder for leaders to convince their countrymen that they are the nation's legitimate rulers.
• Feared SEC Watchdog Preps Slew of Reports. The Securities and Exchange Commission is bracing for a battery of reports from its internal watchdog that could be fodder for legislators looking to clip the agency's wings.
• SEC Shifts Tack on Document Destruction Amid Whistleblower Threat. The back-stage action kicked up Wednesday in the ongoing Securities and Exchange Commission whistleblower case involving the agency’s record-keeping. Recall that a longtime SEC enforcement lawyer has accused the regulator of destroying probe-related documents it should have kept over more than a decade, to the likely detriment of Wall Street investigations and policing of the SEC’s own procedures and staff. The SEC has said it considered its policies proper when they were adopted. Wednesday brought a change to the implementation of some of those policies that have long mandated document-purging. Late in the day, SEC General Counsel Mark Cahn issued a memo to Division of Enforcement staff telling them to stop existing record-destruction procedures for closed cases, until further notice.
• U.S. Hits Builders With Pay Probe. The Labor Department is investigating pay practices at many of the top companies in home building, hitting them with a broad demand for records that has led to complaints of regulatory overreach. Recipients of the letters include PulteGroup Inc.,Lennar Corp., D.R. Horton Inc. and KB Home, according to people familiar with the matter. A Labor Department spokeswoman confirmed the investigation but declined to discuss details. A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers. The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year.
• Perry, Romney Clash at Debate. Rick Perry and Mitt Romney clashed from the opening bell of a Republican presidential candidates' debate Wednesday, challenging each other on job creation, health care and Social Security in pointed exchanges that signaled their burgeoning rivalry is likely to dominate the contest in the months ahead.
• The Obama Presidency by the Numbers by Michael J. Boskin.
• Why the Stimulus Failed. New research on what actually happened to a trillion dollars.

CNBC:

• The Economy Is Slowing: Blackstone's(BX) Steve Schwarzman. The economy appears to be slowing down dramatically, Steve Schwarzman said in an interview this afternoon with Maria Bartiromo. The Blackstone Group, a publicly traded private equity firm that owns many companies around the world, has seen the growth in its portfolio companies fall by more than half since the beginning of 2011. “We can see the economy slowing down. In the first quarter, our companies were growing around 9 and a half percent. In the second quarter, eight. In the last two months, it looks to be around half of that,” Schwarzman said. “We can see it getting slower in August than it was in July.” Schwarzman points out that the slowdown is taking place both in the US and in Europe. “The basic problem in Europe is that the banks are short capital if you mark to market sovereign debt,” Schwarzman said.
• Libor Investigation of Banks Looks at Criminal Angle. The US investigation into alleged manipulation of interbank lending rates is focusing on possible violations of a commodities law that has previously been used to send financial executives to prison.
• China to Back London as Offshore Renminbi Center. China is for the first time to give formal backing to moves by British banks to turn the City of London into an offshore trading center for the renminbi, UK government officials have told the Financial Times.

Business Insider:

• Fed Considering 3 Options for Next Round of Easing.
• GOP Candidates Want to Get Rid of Bernanke.
  

NY Times:

• Some Hedge Funds, to Stay Nimble, Reject New Investors. Since the financial crisis, big hedge funds like Paulson & Company, Millennium Management and Och-Ziff Capital Management Group have not turned away money, eagerly collecting billions of dollars from investors who have tended to stick with the industry’s marquee firms. The situation makes Anthony Bozza all the more unusual. With assets swelling, the hedge fund manager is closing the door to new investors at his four-year-old firm, Lakewood Capital Management. In a little more than a year, his fund has grown from $200 million to $900 million, according to investors in the fund. Small hedge funds were supposed to be the big losers in after the crisis, hampered by costly regulation and investors who flocked to the seeming safety of larger institutions. But three years later, some small and midsize managers are flourishing, attracting assets at a rapid rate. Rather than risk their returns, they are just saying no to new investors.

Seeking Alpha:

• Is Greece About to Default? Yields on two-year Greek government bonds reached 46.84% recently. This is roughly comparable to yields on Argentine bonds in early December 2001 - only a month before the country defaulted on its debt. Similar interest rates occurred this spring in Greece before the second bailout package was put together. The bailout saved Greece from defaulting back then, but the bailout is now falling apart while the fiscal situation in Greece continues to deteriorate. The risk of default in the near future has returned, but the will to stop it this time around is much weaker than in the past.

Institutional Investor:

• Market Conditions Make Appaloosa's David Tepper Cautious. Think the markets are scary and uncertain? Well, you’re not the only one. Even some of the savviest players are baffled about what is going on and have therefore turned very cautious. Case in point: Appaloosa Management’s David Tepper. Yes, the hedge fund manager who has ice-water in his veins and who likes to ride roller-coasters with his hands in the air, has turned cautious. Sources say he has gone 30 percent to 40 percent in cash, which is very high for him. Some of his cash is invested in U.S. Treasuries, which have in turn risen in value in recent weeks. Keep in mind that Tepper had about 30 percent in cash entering 2009, shortly before he started buying up banks such as Bank of America before anyone else had the guts to do the same and racked up triple-digit gains by the end of the year. Sources say he is not preparing to aggressively start spending this cash any time soon, except to pick up some shares of stocks he already owns on the dips. If you recall, last September Tepper helped to touch off a market rally when he offered his famous win-win analysis on CNBC, asserting stocks would either do well if the economy strengthened or with government stimulus.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

Reuters:

• U.S. Mutual Fund Flows Break Six Week Losing Streak. U.S. domiciled mutual funds broke a six week losing streak, pulling in an estimated net $902 million in the week ended Aug. 31, data from the Investment Company Institute showed on Wednesday. ICI, a U.S. mutual fund trade organization, reported net outflows for both equity and bond funds, however, the largest net inflow for hybrid funds since early May overcame the deficit. Hybrid funds, which invest in both equities and bonds, pulled in a net $1.1 billion. Municipal bonds had a net inflow of $227 million, breaking a five week outflow streak.
• G-III Apparel(GIII) Misses Expectations, Sees Weak Q3. Clothes maker G-III Apparel Group Ltd's posted second-quarter earnings well below analysts' estimates and forecast a weak third-quarter as more discounts eat into its margins. The New York City-based company's shares fell nearly 13 percent in after-market trade on Wednesday, after closing at $28.66 on Nasdaq.

Financial Times:

• US Damps Likelihood of Joint Action on Currencies.
• U.S. Congressional Budget Office researchers have found a government plan to back mortgages at current low interest rates would mean private investors being saddled with twice as much in losses as borrowers would get in payment relief, citing the CBO. A total of 2.9 million mortgages worth $428 billion would be refinanced, offering savings of $7.4 billion in lower payments and averting 111,000 defaults. The cost to the government would be around $600 million, although investors in government-guaranteed mortgage-backed securities would lose between $13 billion and $15 billion from prepaying for securities above market rates.
  

Telegraph:

• German Court Curbs Future Bail-Outs, Bans EU Fiscal Union. Germany's constitutional court has at last delivered its Solomonic judgment on Europe's rescue machinery.

Sky News:

• France Accuses Syria of War Crimes. France has accused of Syria of crimes against humanity as the EU moves to impose fresh sanctions against the country and its leader. 'The Syrian regime has committed crimes against humanity,' French Foreign Minister Alain Juppe said on Wednesday during talks in Moscow with his Russian counterpart Sergei Lavrov. 'The way it (the Syrian regime) suppressed the popular protests is unacceptable,' he said, expressing hope that Russia would change its stance and back UN condemnation of the crackdown. The Syrian authorities, he said, should be sent 'a powerful signal that such actions cannot continue.'

Securities Times:

• China may raise interest rates this month or next. Increases would be triggered by continuing high inflation, citing an economist at China International Capital Corp.

China Business News:

• China will have a "very difficult" job achieving its price stabilization target, citing Yao Jingyuan, former chief economist at the National Bureau of Statistics.

Evening Recommendations
Citigroup:

• Rated (GPN) Buy, target $53.

CSFB:

• Rated (VFC) Outperform, target $137.
• Rated (WWW) Outperform, target $44.
• Rated (DECK) Outperform, target $110.
• Rated (COH) Outperform, target $64.
• Rated (ZUMZ) Outperform, target $24.
  

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 154.0 -6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 147.0 +.5 basis point.
• FTSE-100 futures +.15%.
  
• S&P 500 futures -.14%.
  
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (VRNT)/.60
• (TITN)/.27
• (SFD)/.66
• (UNFI)/.42
• (KFY)/.33
• (JW/A)/.77
• (ULTA)/.32

Economic Releases
8:30 am EST

• The Trade Deficit for July is estimated to shrink to -$51.0B versus -$53.1B in June.
• Initial Jobless Claims are estimated to fall to 405K versus 409K the prior week.
• Continuing Claims are estimated to fall to 3706K versus 3735K prior.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a +5,281,000 barrel gain the prior week. Distillate inventories are estimated to rise by +500,000 barrels versus a +363,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,400,000 barrels versus a -2,795,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -1.0% versus a -1.1% decline the prior week.
  

3:00 pm EST

• Consumer Credit for July is estimated to fall to $6.0B versus $15.53B in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE Rate Announcement, ECB Rate Announcement, Fed's weekly balance sheet/M1, M2 reports, weekly Bloomberg Consumer Comfort Index, (TXN) mid-quarter update, (COV) investor meeting, (ARBA) analyst day, (GD) analyst day and the (ATR) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.