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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Copper’s 80 percent rally this year may soon end on signs that China has stockpiled more than it can use in new homes, cars and appliances. Inventories monitored by the London Metal Exchange posted their first back-to-back weekly gains since February, increasing 8.6 percent from an eight-month low. Sumitomo Metal Mining Co., Japan’s second-largest smelter, said Chinese imports are slowing after record purchases boosted domestic supplies, and U.S. copper-scrap exporters report shipments to Asia are dropping. Prices will also decline because the 4 trillion yuan ($585 billion) of economic stimulus spending by China, the world’s biggest metals user, won’t make up for weak demand elsewhere, said Michael Pento, chief economist at Huntington Beach, California-based Delta Global Advisors, which manages $1.5 billion. “China’s copper imports are likely to fall in the second half of this year because it bought so much in the first half, the government has stopped buying and demand from end-users may not be as big as people anticipated,” said Zhao Mingwang, manager of futures trading at Zhuji, China-based Zhejiang Honglei Copper Co., which produces about 100,000 tons of wires and rods a year. “The imports were so large it’s hard to fathom where it all went.” Most of the gains in LME-monitored inventories during the past month reflect the eightfold jump in warehouses in Singapore and South Korea, the closest ones to China. As those LME stockpiles increased, China’s scrap-copper imports tumbled 18 percent in May and 15 percent in June after rising for three months, government data show. Inventories monitored by the Shanghai Futures Exchange more than doubled this year, sparking concern the pace of consumption in China hasn’t kept up with imports. Some of those purchases were by the State Reserve Bureau, which contracted to buy between 300,000 tons and 400,000 tons of the refined metal this year, according to Sydney-based Macquarie Group Ltd. The amount is equivalent to as much as 22 percent of first-half imports. “Excessive imports mean much of the purchased metal was just stored, raising the risk that they may sell it back to the market and depress prices,” said Koichi Kaku, the general manager of the copper and precious metals sales department at Tokyo-based Sumitomo Metal Mining. Imports may have exceeded manufacturing demand by as much as 1.3 million metric tons in the first half, Kaku said on July 24. “I don’t think copper prices climbed because of a dramatic improvement in supply-demand conditions,” he said. “I’m skeptical about a strong recovery in the market.”

- The U.S. “must seriously consider” strict position limits on energy markets to curb speculation, Commodity Futures Trading Commission Chairman Gary Gensler said. Bart Chilton, one of four commissioners, said the case for expanding oversight may be bolstered by a report the CFTC plans for next month on the role of index investors and swaps dealers in commodity markets. “It is abundantly clear that large-scale, institutional investors speculating in the energy markets continue to act as the driving force behind energy prices,” Sean Cota, treasurer of the Arlington, Virginia-based association told the CFTC.

- Tanning beds are as certain to cause cancer as smoking, according to a new risk assessment. Sun beds and all types of ultraviolet rays are now ranked in the highest risk group by the International Agency for Research on Cancer, putting them in the same group as plutonium and radium, researchers said in a paper published today in the medical journal Lancet Oncology.

- Station Casinos Inc., taken private by Colony Capital LLC and management in 2007, filed for Chapter 11 bankruptcy after failing to reach agreement with unsecured creditors on a plan for a pre-packaged court restructuring. None of the company’s operating casinos were included in the filing in U.S. Bankruptcy Court in Reno, Nevada, Station said today in a statement to regulators.

- Microsoft Corp.(MSFT) and Yahoo! Inc.(YHOO) are getting closer to forging a partnership to collaborate on Internet-search technology and advertising, a person familiar with the matter said. An agreement may be announced as soon as tomorrow if it’s not delayed, said the person, who declined to be identified because the talks are private. A deal, which would involve the companies sharing revenue from Web-search ads, hasn’t been signed and the terms aren’t final, the person said.

Wall Street Journal:

- Liberals who see the effort to overhaul health care as a once-in-a-generation opportunity are growing anxious that a final deal will negotiate away their top priority: a public plan to compete with private health insurers. Some Democrats are threatening to oppose any bill that excludes this option, and sympathetic outside groups are pressuring wavering lawmakers. President Barack Obama regularly emphasizes that he supports a vigorous public option, and he did so again Tuesday. But in talking with lawmakers privately, and when asked directly by reporters, Mr. Obama has made it clear that he wouldn't necessarily veto a bill without a public option. Already liberals feel they have compromised enough. Most of them would prefer a single-payer system with government as the sole insurer and no private insurance at all. For the White House, the idea is to keep all sides at the table for an endgame that could go either way. Outside Congress, Health Care for America Now, a liberal group, and the American Federation of State, County and Municipal Employees spent $800,000 on television ads targeting moderate Democrats, citing their opposition to a public option. In the House, liberal lawmakers have adopted a strategy of countering almost every statement against a public option with a threat to vote en masse against any final bill that excludes it. When one moderate Democrat suggested in a closed-door meeting that the public plan could function merely as a fallback option, Rep. Jerrold Nadler warned that if that were the case, a large bloc of House liberals would vote no. "We are making clear to the leadership that we insist on a robust public option and our votes won't be there if there isn't a public option," said Mr. Nadler (D., N.Y.), a senior member of the House Progressive Caucus.

- Proposals from the White House and Congress to give an independent commission significant power over Medicare payments are drawing opposition from the American Medical Association and the American College of Surgeons. Both groups have thus far supported significant pieces of the Democrats' health-care agenda, and President Barack Obama has repeatedly cited physicians' backing for his health-overhaul plans. But doctors are objecting to proposals that would allow a federal commission to set the size of Medicare payments to doctors, hospitals and other health-care providers. Surgeons would "vigorously oppose" legislation that gave an unelected executive agency power to set Medicare rates, said the American College of Surgeons, which claims more than 74,000 members, in a letter to House Speaker Nancy Pelosi last week. Several surgical-specialty societies also signed the letter. The AMA, which claims 250,000 members, said a commission shouldn't be authorized to set Medicare payment rates for physicians. "If the solution is we're just going to have a big board that will make draconian slashes, that's not getting at the root cause of what the problem is," said AMA President J. James Rohack.

- Vornado Realty Trust, one of the U.S.'s largest real-estate investment trusts, is planning on raising between $550 million and $600 million through a bond sale that would qualify for a key government program aimed at resuscitating the commercial-property market, according to people familiar with the matter. The potential deal, along with two by shopping-center giant Developers Diversified Realty Corp., would be among the first batch of offerings of commercial mortgage-backed securities, or CMBS, that will take advantage of the Term Asset-Backed Securities Loan Facility, or TALF, program.

- Information and communications technology companies, whose bust dragged down the world economy in 2001-2002, are much less of a problem and much more of the solution in the current recession, a report by the Organization for Economic Cooperation and Development suggests. The ICT industry — which includes anything from manufacturers (think Intel Corp.) to software firms (Microsoft Corp.) to Internet companies (Google Inc.) — took a hit from slumping global demand, but it is showing signs of a rebound, the OECD found. After a “tough start to 2009” with nearly all performance indicators plunging in the first quarter, sometimes as much as 40% from year-ago levels in Japan, Korea, China and other Asian economies, the industry has seen “positive month-on-month growth for most countries, and inventories running down sharply” in May and June.Asian firms, particularly in Japan, Korea, Taiwan and China, are leading the sector’s recovery. Though production drops were generally sharper in this downturn than in 2001-2002, so was the rebound in the first quarter of 2009. Even Europe and the U.S., where analysts haven’t yet spotted strong signs of recovery, appear to have at least bottomed out, the OECD noted. And the upturn looks likely to hold up.

MarketWatch.com:
- Shares of WellCare Health Plan Inc.(WCG) and McKesson Corp.(MCK) climbed Tuesday evening after the health-care industry firms each issued forecasts that outstripped Wall Street's current expectations.

- Goldman Sachs Group(GS), already under fire for reaping record trading profits in the aftermath of the financial crisis, is now fighting to defend one of its biggest sources of revenue -- commodities trading -- with regulators considering setting limits on Wall Street speculators. At issue for Goldman Sachs is a major exemption it enjoys from limits on trading in certain types of agricultural commodities. Such an exemption is usually reserved for traders classified as "hedgers," such as farmers or food producers who depend on stable prices for their businesses. Goldman opened the door for investment banks to apply for a similar status when it won the first exemption 18 years ago to help its big institutional clients in commodity-index trading, or investment in a range of commodities by tracking a major index. The result, according to some members of Congress, has been a surge in all commodity speculation in the past few years, pushing oil prices near $150 a barrel and gold prices above $1,000 an ounce. Speculators' index trading is "creating price disruptions for producers and consumers," said Sen. Carl Levin, D-Mich., late last month after the release of a 247-page report documenting how index traders have made large purchases on the wheat-futures market in Chicago and pushed up futures prices over the past few years. It's time for regulators to "change course, rein in commodity index traders and clamp down on excessive speculation that is disrupting commodity prices," he added. Besides considering removal of the special exemption, the CFTC, the U.S. futures market regulator, is also thinking of adopting position limits on all commodities, not just in agriculture. The move could curb the growth of some major commodity exchange-traded funds. Goldman argues that any new limits will severely impact liquidity in commodities markets, hurting both large and small investors by reducing their access to these markets. The bank derives almost half of its revenue from trading commodities, currencies and bonds. Brad Hintz, analyst at Sanford C. Bernstein & Co., estimated that commodities trading accounts for about 8% to 9% of Goldman's revenue. While the percentage is not as big as fixed-income trading, it's an important sector for Goldman because "there are only a handful of major players." "It's a powerful, powerful piece of the firm," said Hintz.

CNBC.com:
- After posting three straight months of positive data, the residential real estate market has reached an equilibrium where prices will stop falling, said Sam Zell, founder and chairman of Equity Group Investments. This, in turn, will spark stabilization throughout the rest of the economy. (video)

- A new bill giving the SEC power to directly limit compensation for Wall Street employees will help put an end to a culture of excessive risk-taking, Congressman Barney Frank told CNBC Tuesday. The bill was was approved late Tuesday by the House Financial Services Committee, which Frank chairs. The measure was approved in a 40-28 party-line vote. Frank, a Democrat, introduced the bill, which gives "explicit instructions to the SEC with regard to financial institutions to disallow any compensation schemes that excessively reward risk," he says. When asked what he meant by "excessive risk," Frank declined to quantify it.

CNNMoney.com:

- No special treatment for GE Capital. If GE's finance arm is so good at what it does, then why is it trying to escape higher oversight of its balance sheet?

Forbes:

- Suspend Mark-to-Market—Now. In late 2007, the Financial Accounting Standards Board(FASB) changed the definition of mark-to-market accounting rules as they applied to the U.S. financial industry. The board forced financial firms and auditors to use "observable," market prices to value securities rather than models or cash flow. Within a year, the U.S. was in the middle of the worst pure financial panic in a hundred years. Coincidence? We think not.

Rasmussen:

- Support for Republican and Democratic congressional candidates changed little this week in the latest edition of the Generic Ballot. A new Rasmussen Reports national telephone survey shows that 42% would vote for their district’s Republican congressional candidate while 39% would opt for their Democratic opponent.

Washington Times:

- Two powerful Senate Democrats said Tuesday that they knew they got low mortgage-rate deals in a lender's VIP program but thought the special treatment was a "courtesy" or the same as "frequent flier" discounts. Both vehemently denied any wrongdoing or ethical lapse in the mortgage deals, which came to light a year ago and triggered investigations by the Senate Select Committee on Ethics and the House Oversight and Government Reform Committee. "I thought this was like a frequent-flier program," Sen. Kent Conrad, chairman of the Senate Budget Committee, said of the special benefits. "I thought nothing of it." Sen. Christopher J. Dodd, chairman of the Banking, Housing and Urban Affairs Committee, said an account executive at Countrywide Financial Corp. told him that the VIP status was "nothing more than ... courtesy stuff." A Countrywide official who handled the loans had said that both senators knew they got preferential treatment in the form of waived fees and points that likely saved them tens of thousands of dollars.

Reuters:

- Companies that service risky residential mortgages are warning U.S. officials that a key program to slow foreclosures may push some financing costs higher and derail their efforts, said a leading subprime firm. Companies forming the Independent Mortgage Servicers Coalition, service many of the riskiest mortgages made during the housing boom, making them key players in programs to rein in foreclosures. The group collects and distributes payments on more than $700 billion in loans, according to its leader, Carrington Mortgage Services of Santa Ana, California. Their concerns about financing payments for defaulted homeowners comes as pressure mounts from Congress, regulators and state legislators for servicers to do more for the plan, which aims to slow foreclosures and modify loans. The U.S. Treasury wants the companies to spend more on its resources, including hiring staff and expanding training programs. At least four servicers from the coalition were among the 25 meeting with the Treasury on Tuesday, where new commitments were forged to increase foreclosure prevention efforts under President Obama's Home Affordable Modification Program. But manpower isn't the main worry for the independent servicers, which don't include large banks such as Wells Fargo & Co. Implementing the program means giving delinquent homeowners more time fix their loans, which to servicers will the boost costs of extending payments to investors as contractually promised.

- ABC News said on Tuesday that its U.S. consumer confidence index climbed in the latest week, after hovering just above its record low for most of the summer. The Consumer Comfort Index rose to -47 in the week to July 26 from -50 the prior week.

It was the highest reading since the week ended June 7, though the index still remains in deeply negative territory.

Financial Times:

- Controversial draft regulations for hedge funds will be substantially amended, the new head of the European parliament's economic and monetary affairs committee has told the Financial Times. Sharon Bowles, British MEP and new chair of the committee, said European pension funds and institutional investors faced "excommunication" from global capital markets if the draft directive on alternative investment funds was implemented unchanged.

The Australian:
- EUROPEAN Union trade officials approved pre-emptive penalties on imports of steel pipe from China, a precedent-setting move that suggests the trading bloc is growing more protectionist in the face of the economic downturn. The vote by trade officials from the EU's 27 member states is significant, say trade experts, because they accepted an argument from steel producers -- including the world's largest by volume, ArcelorMittal -- that punitive tariffs are needed to protect them from the threat of underpriced imports from China. Previously, complainants have had to prove the imports had already hurt their businesses. Trade lawyers say they expect a host of industries to ask the EU for protective tariffs in August. The case also concerns one of the steel sector's most important finished products. Seamless steel pipes are major parts in housing construction, gas and oil plants and the automotive industry. The vote was close, according to EU officials familiar with the matter, although they declined to reveal the final tally. After clearing procedural hurdles, the duties, which will range from 17.7 per cent to 39.2 per cent, are expected to take effect in October and last five years, EU officials said. Temporary duties of up to 24.2 per cent have been in place since April.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded .

- Reiterated Buy on (X), target $49.

- Reiterated Buy on (CSGS), target $19.

Night Trading
Asian Indices are -1.0% to +.25% on average.

Asia Ex-Japan Inv Grade CDS Index -.52%.
S&P 500 futures -.26%.
NASDAQ 100 futures -.03%.

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Earnings of Note
Company/EPS Estimate
- (MCO)/.40

- (PX)/.99

- (CCE)/.51

- (MHS)/.65

- (TWX)/.37

- (WLP)/1.44

- (Q)/.09

- (AMT)/.16

- (S)/-.02

- (SO)/.59

- (COP)/.84

- (TER)/-.24

- (ESRX)/.87

- (VAR)/.64

- (TSO)/-.40

- (OI)/.90

- (FLS)/1.92

- (CBG)/.05

- (HIG)/1.16

- (AFL)/1.14

- (SEE)/.34

- (HES)/.00

- (EQR)/.54

- (GD)/1.57

- (CTX)/-1.31

- (AKAM)/.41

- (SYMC)/.35

Economic Releases

8:30 am EST

- Durable Goods Orders for June are estimated to fall .6% versus a 1.8% gain in May.

- Durables Ex Transports for June are estimated unch. versus a 1.1% increase in May.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -1,796,000 barrel decline the prior week. Gasoline supplies are expected unch. versus a +813,000 barrel increase the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +1,218,000 barrel increase the prior week. Finally, Refinery Utilization is expected unch. versus a -2.03% decline the prior week.

2:00 pm EST

- Fed’s Beige Book

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Dudley speaking, weekly MBA mortgage applications report, (RF) investor day and the Keefe Bruyette Woods Community Bank Conference could also impact trading today.

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

Stocks Finish Near Session Highs, Boosted by Airline, Education, Hospital, HMO, Biotech and Disk Drive Shares

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In Play

Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs, Financial longs and Commodity/Emerging Market shorts. I added to my (ILMN) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising 4.04% and is very high at 25.26. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running around average most of the day, hitting 1.59 at its intraday peak, and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising 3.89% today to 78.27 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 1.46% to 117.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .63% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .31% to 40.94 basis points. The Libor-OIS spread is rising .34% to 30 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.85%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The bears remain unable to gain any meaningful downside traction despite potential catalysts and the market’s overbought technical state. Disk Drive, Biotech, Hospital, HMO, Education and Airline stocks are all posting significant gains today. As I said last week, the US Dollar continues to trade as if it has begun a tradable rally, which should hold commodity prices in check. Gold is breaking below its 50-day moving average today and looks poised for a move back towards $880-$900. One of my longs, (DISCA), is breaking to a new 52-week high today on news of a joint venture in China with Bidu(BIDU). The short interest ratio for (DISCA) has moved from .84 at the beginning of the year to a near-record 3.61 currently. The stock is still very attractive at current levels, in my opinion. Nikkei futures indicate a -67 open in Japan and DAX futures indicate an +39 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, diminishing government healthcare reform worries, less economic fear, lower energy prices and earnings optimism.

Today's Headlines

Bloomberg:

- Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

- General Electric Co.(GE) sees financial- regulation measures being debated in Washington as “increasingly unlikely” to force a separation of the GE Capital unit from the parent company, executives said. The parent company has lost about 56 percent of its market value in a year, punished by investors concerned that the finance arm may harbor potential losses in real estate and consumer divisions. GE Capital is shrinking its asset base to $400 billion to $450 billion from about $637 billion at the end of last year. Credit-default swaps protecting against a default by GE Capital fell 20 basis points to 315 basis points, according to broker Phoenix Partners Group.

- American International Group Inc.(AIG), the insurer dismantling itself to repay U.S. loans, used $2.4 billion from asset sales to shore up a property-casualty unit instead of paying down its government credit line.

- Petroleum marketers citing distortions in oil and gas prices are calling on the Commodity Futures Trading Commission to impose limits on speculators rather than leaving the market to set rules for itself. The Petroleum Marketers Association of America and Intercontinental Exchange Inc., the second-largest U.S. futures market, plan to say they want the CFTC to set position limits in energy markets. “It is abundantly clear that large-scale, institutional investors speculating in the energy markets continue to act as the driving force behind energy prices,” Sean Cota, treasurer of the Arlington, Virginia-based Petroleum Marketers Association, said in his prepared testimony to the CFTC. CFTC Chairman Gary Gensler is considering imposing federal limits on speculative trading on markets of “finite supply,” particularly crude oil, natural gas and other energy products, according to a July 7 statement. Lawmakers and consumer advocates blamed speculators for last year’s rise in crude prices to a record $147.27 a barrel and called for CFTC action. Cota said in his testimony there are “unwitting speculators” he termed “investulators” who are “so large and lacking in fundamental knowledge of commodities trading that they have dramatically distorted these markets.” Cota’s association represents about 8,000 marketers and resellers of petroleum products, including gas stations, heating-oil companies and bulk storage facilities.

- Gold fell the most in almost three weeks as the dollar rebounded against the euro, eroding demand for the metal as an alternative investment. “It is rather painful to describe the moves in gold solely in terms of the euro-U.S. dollar, but that is all that seems to be driving the gold price at the moment,” John Reade, UBS AG’s head metals strategist in London, said in a report. “Jewelry, physical investment and ETF flows remain very quiet.” “Not having gold at $1,050 at a time when the greenback is scraping the floor of 2009’s index levels is not too good,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a report. “We are having to lean with the projections that call for a possible $100 break in the gold price following this rubber-band congestion and the metal’s inability to sail smoothly higher.” In July, gold held in 15 ETFs has tumbled 26 tons, heading for the largest monthly outflow since April 2008, according to Barclays Capital.

- BP Plc(BP), Europe’s second-biggest oil company, said profit fell 53 percent on lower energy prices and there is “little evidence” of a recovery in demand.

- The Libor-OIS spread, a gauge of banks’ reluctance to lend, dropped below 30 basis points for the first time in 18 months, adding to evidence that the two-year freeze in credit markets is thawing. The spread dropped half a basis point to 29 basis points today, the least since January 2008, taking this year’s decline to more than 90 basis points. It soared to 364 basis points Oct. 10 after Lehman Brothers Holdings Inc. collapsed in September. Former Fed Chairman Alan Greenspan said in June last year that he wouldn’t consider credit markets back to “normal” until the Libor-OIS spread narrowed to 25 basis points.

- International Business Machines Corp.(IBM), the world’s biggest computer-services provider, agreed to buy SPSS Inc. for about $1.2 billion in cash to gain software that helps businesses analyze and predict trends. The per-share price is $50, the companies said today in a statement. That is 42 percent more than Chicago-based SPSS’s closing stock price yesterday.

Wall Street Journal:

- The chairman of the U.S. Commodity Futures Trading Commission said Tuesday he believes the agency must "seriously consider" setting "strict" new limits on traders who place bets on energy contracts.

- When Blue Dog Democrats revolted over the cost of ObamaCare 10 days ago, the White House quickly came up with a plan to give them political cover: a government board that would tell Congress how to restrain costs. Well, so much for that, as the Congressional Budget Office has now exposed this idea as another false economy. But it’s worth understanding the reason because it also exposes the core problem with government-run health care.

CNBC:

- U.S. single-family home prices rose in May from April, the first monthly increase in nearly three years, suggesting prices may be stabilizing, according to Standard & Poor's/Case Shiller home price indexes Tuesday.

MarketWatch:
- Making a bigger foray into the fast-growing prepaid market, Sprint Nextel Corp. on Tuesday said it will buy Virgin Mobile USA Inc. in a stock deal valued at $483 million.

NY Post:

- Goldman Sachs'(GS) uncanny ability to make money during the recession has drawn the attention of a bipartisan group of House members who suggest the investment bank took taxpayer dollars and ratcheted up the risk in order to pay fat bonuses. The congressional members, including Reps. Alan Grayson, (D-Fla.), Ron Paul (R-Texas), Maxine Waters (D-Calif.) and Walter B. Jones (R-NC), wrote a two-page letter yesterday asking the Federal Reserve to explain why it granted a special exemption allowing Goldman to take on more risk over the past few quarters. "The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big," said the letter. Goldman sought bank-holding company status late last year because the move would offer the financial institution easier access to taxpayer funds. In exchange for that access, the firm would face more oversight from the Fed and stricter rules that would require it take less risk. However, the Fed granted Goldman, along with Morgan Stanley, temporary exemptions that allowed them to take on the same risky bets an investment bank would have. That risky stance helped Goldman post a second-quarter profit of $2.7 billion on revenues of $13.76 billion -- a performance that could see every Goldman employee's bonus amount to $772,858, the representatives' letter noted.

- Call it the "Bo-tax." Lawmakers have discussed slapping a 10 percent excise tax on cosmetic surgeries such as face-lifts, tummy tucks and hair transplants to help foot the bill for health-care reform. Procedures that would be eligible for the new tax are those not considered medically essential, including nose jobs, liposuction, teeth-whitening procedures and Botox injections. Lawmakers were also weighing a tax on video games to discourage a sedentary lifestyle, sources said. Malcolm Roth, a plastic surgeon at Maimonides Medical Center in Brooklyn and an official with the American Society of Plastic Surgeons, told the National Journal, which first broke the story, that the Bo-tax "would be a discriminatory tax against women." He said that 86 percent of patients are female and 91 percent are of working age, between 19 and 64. Roth rejected the claim that it would be a "tax on the wealthy," saying most patients earn less than $100,000 a year. "People put money aside for years, sometimes weekly under-the-mattress deductions" to get the surgery they want, he told the National Journal.

WashingtonTimes:

- During the worst economic downturn in decades, the federal program that provides free legal help to impoverished Americans has spent tax dollars on a decorative natural-stone wall, no-bid contracts for consultants, alcohol for a congressional party and more than 100 casino hotel rooms that were never occupied, government documents show. The Legal Services Corp. - which stirred national controversy a few years back by paying for limousines, first-class airfare and $14 Death by Chocolate pastries for its executives - has created new symbols of excessive spending in recent months, according to federal audit reports and congressional correspondence obtained by The Washington Times.

Washington Post:

- For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement. President Obama's primary goal is to extend formal health insurance to those low-income individuals who are currently uninsured despite the nearly $300-billion-a-year Medicaid program. Doing so the Obama way would cost more than $1 trillion over the next 10 years. There surely must be better and less costly ways to improve the health and health care of that low-income group. Although the president claims he can finance the enormous increase in costs by raising taxes only on high-income individuals, tax experts know that this won't work. Experience shows that raising the top income-tax rate from 35 percent today to more than 45 percent -- the effect of adding the proposed health surcharge to the increase resulting from letting the Bush tax cuts expire for high-income taxpayers -- would change the behavior of high-income individuals in ways that would shrink their taxable incomes and therefore produce less revenue. The result would be larger deficits and higher taxes on the middle class. Because of the unprecedented deficits forecast for the next decade, this is definitely not a time to start a major new spending program. A second key goal of the Obama health plan is to slow the growth of health-care spending. The president's budget calls explicitly for cutting Medicare to help pay for the expanded benefits for low-income individuals. But the administration's goal is bigger than that. It is to cut dramatically the amount of health care that we all consume. A recent report by the White House Council of Economic Advisers claims that the government can cut the projected level of health spending by 15 percent over the next decade and by 30 percent over the next 20 years. Although the reduced spending would result from fewer services rather than lower payments to providers, we are told that this can be done without lowering the quality of care or diminishing our health. I don't believe it. To support their claim that costs can be radically reduced without adverse effects, the health planners point to the fact that about half of all hospital costs are for patients in the last year of life. I don't find that persuasive. Do doctors really know which of their very ill patients will benefit from expensive care and which will die regardless of the care they receive? In a world of uncertainty, many of us will want to hope that care will help. At a time when medical science offers the hope of major improvements in the treatment of a wide range of dread diseases, should Washington be limiting the available care and, in the process, discouraging medical researchers from developing new procedures and products? Although health care is much more expensive than it was 30 years ago, who today would settle for the health care of the 1970s?

- Two influential Senate committee chairmen were told they were getting special VIP deals when they applied for mortgages, an official who handled their loans told Congress in closed-door testimony. Democratic Sens. Christopher Dodd and Kent Conrad had denied knowing they were getting discounts when they negotiated their loan terms. Robert Feinberg, who worked in the VIP section of Countrywide Financial Corp., testified about the loan terms before the Senate Ethics Committee, and provided the same information in an interview with Republican investigators of the House Oversight and Government Reform Committee.

TheBusinessInsider:

- Yesterday the SEC announced a pair of rules on short selling. Here's the surprise: they're not bad! The only note of caution we would raise here has to do with harrassment and litigation risk. These rules add "red tape" to short selling, making it more difficult than it would be otherwise. This will be to the advantage to institutional short-sellers, such as hedge funds, but discourage smaller investors by making it more costly. You'll note that hedge funds did not fight hard against these rules.

HousingWire.com:

- The origination market in the Las Vegas region swelled in June as home sales in the area climbed to the highest monthly level since December 2006. A total 5,519 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (or Clark County) in June, up 21.7% from may and up 44.1% from a year ago, according to real estate data provider MDA DataQuick. It’s the highest sales volume recorded there since 5,780 units sold in December 2006.

USA Today:

- The road to Todd Allen's farm wends past irrigation canals filled with the water that California's hot Central Valley depends on to produce vegetables and fruit for the nation. Yet not a drop will make it to his barren fields. Three years into a drought that evokes fears of a modern-day dust bowl, Allen and others here say the culprit now isn't Mother Nature so much as the federal government. Court and regulatory rulings protecting endangered fish have choked the annual flow of water from California's Sierra mountains down to its people and irrigated fields, compounding a natural dry spell. "This is a regulatory drought, is what it is," Allen says. "It just doesn't seem fair." For those like Allen at the end of the water-rights line, the flow has slowed to a trickle: His water district is receiving just 10% of the normal allocation of water from federal Bureau of Reclamation reservoirs. He says he's been forced to lay off all his workers and watch the crops die on his 300 acres while bills for an irrigation system he put in are due. "My payments don't stop when they cut my water off," Allen says. Although some farmers with more senior water rights are able to keep going, local officials say 250,000 acres has gone fallow for lack of water in Fresno County, the nation's most productive agriculture county. Statewide, the unplanted acreage is almost twice that. Unemployment has soared into Depression-era range; it is 40% in this western Fresno County area where most everyone's job is dependent on farming. Resident laborers who for years sweated in fields to fill the nation's food baskets find themselves waiting for food handouts. "The water's cut off," complains Robert Silva, 68, mayor of the farm community of Mendota. "Mendota is known as the cantaloupe capital of the world. Now we're the food-line capital."

- It's a sign of a lagging economy: American pro and college sports teams seeking new revenue through increasingly bold marketing relationships with gambling interests. It's why team logos have begun appearing on state lottery tickets and why some basketball games have been played at casino hotels. Now officials in Delaware and New Jersey, facing their own budget problems, say it's time for a bolder move: full-scale, legalized sports betting in states other than Nevada, currently the only place such activity is allowed. They are pushing hard to add legalized, in-casino sports betting to their states' gambling offerings, which include horse racing, lotteries, slot machines and — in Atlantic City — table games.

Reuters:
- The U.S. Commodity Futures Trading Commission (CFTC) is planning to issue a report next month that suggests that wild swings in oil prices were significantly driven by speculators, the Wall Street Journal reported on its website on Tuesday. A 2008 report by the main U.S. futures-market regulator that attributed oil-price swings primarily on supply and demand was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, told the paper in an interview on Monday.

Financial Times:
- Robert Gates, the US defense secretary, on Tuesday praised the security conditions in Iraq, almost one month after US combat troops completed their ­withdrawal from Iraqi –cities. Mr Gates, who was visiting the country for the first time this year, said there was a “real sense of Iraqi empowerment by the Iraqis”.

Al-Hayat:
- Saudi Arabia plans to maintain a spare oil production capacity of 1.5 to 2 million barrels a day, citing an interview with Saudi Aramco Chief Executive Officer Khalid al-Falih. The kingdom has now a spare production capacity of about 4 million barrels a day, as its total output capacity reached 12 million barrels a day in June, al Falih said.

Bear Radar

Style Underperformer:
Large-cap Value (-.88%)

Sector Underperformers:
Gold (-4.70%), Oil Service (-3.57%) and Oil Tankers (-3.15%)

Stocks Falling on Unusual Volume:
SONO, TMK, MBT, QDEL, IMA, BW, ING, PFWD, KIRK, PCAR, MELI, BEAV, WGOV, AXE, AME, ORB, NTG, OLN, ACI, TBH, RSC and FPL

Stocks With Unusual Put Option Activity:
1) TWX 2) MYL 3) AGO 4) EWJ 5) MTW