Thursday Watch

Late-Night Headlines
Bloomberg:

- Oil extended its declines after falling the most since April yesterday as a government report showed an unexpected gain in supplies in the U.S., the world’s biggest energy consuming nation. Crude stockpiles increased 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. Supplies were forecast to decline, according to the median of analyst estimates in a Bloomberg News survey. The gains in stockpiles “show us the U.S. consumer is struggling and additional builds could follow,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “A drop back under $60 could easily take place.”

- Morgan Stanley(MS) and Wells Fargo & Co.(WFC) are reviewing whether to continue sales of leveraged and inverse exchange-traded funds as regulators caution that the securities might not be suitable for individual investors. Assets in leveraged and inverse funds have increased 51 percent to $32.8 billion this year, according to data from State Street Corp., the world’s largest money manager for institutions whose products include ETFs. That’s 5.5 percent of the $593 billion in U.S.-listed ETF assets at midyear, according to data compiled by the Boston-based company.

- General Electric Co.(GE), Harley- Davidson Inc.(HOG) and manufacturers with finance businesses should be allowed to keep the units under a revision of rules to govern banking, U.S. Representative Barney Frank said in an interview. Companies that already have finance arms or industrial loan businesses known as ILCs should be able keep them without being subject to Federal Reserve oversight of their manufacturing operations, Frank said. GE, based in Fairfield, Connecticut, said on a conference call with investors yesterday it has been “very active” in opposing any rules that might force it to split off its GE Capital finance unit, which has $557 billion in assets.

- China’s central bank said it will use market tools to control lending growth and pledged to maintain a “moderately loose monetary policy” to support the nation’s economic recovery. In the second half of this year, the central bank will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending growth,” said People’s Bank of China Deputy Governor Su Ning in Shanghai, according to a statement on its Web site late yesterday.

Wall Street Journal:

- Support for President Barack Obama's health-care effort has declined over the past five weeks, particularly among those who already have insurance, a Wall Street Journal/NBC News poll found, amid prolonged debate over costs and quality of care. In mid-June, respondents were evenly divided when asked whether they thought Mr. Obama's health plan was a good or bad idea. In the new poll, conducted July 24-27, 42% called it a bad idea while 36% said it was a good idea. Among those with private insurance, the proportion calling the plan a bad idea rose to 47% from 37%. Declining popularity of the health-care overhaul reflects rising anxiety over the federal budget deficit and congressional debate over the most contentious aspects of the legislation, including how to pay for it. The poll also shows concern over the role of government in determining personal medical decisions. In the Journal poll, only two in 10 people said the quality of their own care would improve under the Obama plan; just 15% of those with private insurance thought it would. Twice as many overall, and three times as many with private coverage, predicted their own care would get worse. "You can't pass a substantial health reform unless privately insured people see there's a benefit for them," said Bill McInturff, a Republican pollster who conducts the poll with Democrat Peter D. Hart. "People are properly skeptical about any proposals out of Washington that speak to cost because they've been singed by past experience," said the senior Obama adviser. Overall, Mr. Obama's ratings fell on a series of measures. His job approval now stands at 53%, down from a high of 61% in April. That is three points higher than President George W. Bush had in June 2001, following a contentious election victory. The share of those who said he could be trusted to keep his word fell to 48% this month from 58% in April. The poll also found a rising sense of partisanship. More than three in 10 surveyed said the current Congress has been more partisan and divided than in the past, compared with just 11% who said it has been less partisan. In February, people were more likely to blame Republicans by a two-to-one margin. This month, they were divided over who to blame, with most saying both parties were at fault. On other issues, the poll found: Falling support for the economic stimulus plan, with 34% in favor, down from 44% in February; 43% now say it is a bad idea. Two-thirds of people said they knew enough about the controversy surrounding the arrest of Harvard professor Henry Louis Gates Jr. to form an opinion. Of them, about one in three said both Mr. Gates and the police officer were equally at fault, 27% said Mr. Gates was more at fault and 11% said the officer was more to blame.

- A Senate panel has subpoenaed financial institutions, including Goldman Sachs Group(GS) Inc. and Deutsche Bank AG(DB), seeking evidence of fraud in last year's mortgage-market meltdown, according to people familiar with the situation. The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year's financial crisis. Earlier this week, a bipartisan group of 10 members of Congress sent a letter to Federal Reserve Chairman Ben Bernanke, questioning whether Goldman Sachs is being too lightly regulated and too generously backed by taxpayers. An idea for taxing high-value health insurance plans has even become known on Capitol Hill as the "Goldman Sachs tax," after criticisms of its executives' $40,000 health plans. A Goldman Sachs spokesman declined to comment on the criticisms from Congress.

- Republican Sen. Kay Bailey Hutchison of Texas said she would resign her seat in October or November to challenge Gov. Rick Perry in the GOP gubernatorial primary in March.

- The future of the New York Stock Exchange is inside the red-brick building that is rising from the ground here about 35 miles from Wall Street. Right now, the mammoth facility being constructed on the site of an old quarry is a largely empty shell with a jumble of high-tech gear. In about a year, the building is expected to house several football fields of cutting-edge computing equipment for hedge funds and other firms that engage in high-frequency trading, or the use of computers and complex algorithms to trade at lightning speed. "When people talk about the New York Stock Exchange, this is it," said NYSE Euronext Co-Chief Information Officer Stanley Young. "This is our future." As trading goes increasingly electronic, the last bastion of floor trading is embracing high-frequency trading as part of its race to keep up with competitors such as Nasdaq OMX Group Inc. High-frequency trading now accounts for more than half of all stock-trading volume in the U.S. as banks, hedge funds and institutional investors seek to gain an edge by trading before rivals. But even as the Big Board and other exchanges scramble to win more business, some regulators are growing concerned about the risks that high-speed trading potentially poses to the broader financial system. As trades flow at an ever-quicker pace, a computer glitch at even just one firm could trigger a wave of selling that sets off huge losses across financial markets, some people worry. "Unfettered access by unregulated entities into a market where trades can ripple through multiple markets can rise to the level of systemic risk," said David Shillman, associate director of the Securities and Exchange Commission's division of trading and markets. "The very high-frequency traders could be doing more of these activities that could go awry." SEC officials are particularly wary about "sponsored access," in which registered brokers lend out their identification numbers to high-speed trading firms. That effectively allows the firms to trade using a broker-dealer's code, helping them remain anonymous. A rogue firm engaging in aggressive trading could destabilize parts or even all of the market, Mr. Shillman said. Controversy also is growing over a practice known as "flash" orders, in which exchanges allow traders to briefly see and react to certain orders ahead of the rest of the market. The SEC is looking into the practice and is widely expected to ban it, according to people familiar with the matter. The NYSE is rolling the dice that it will become a go-to venue for high-speed trading and is even offering space to other exchanges. The aim behind the site is to get firms' computers as close as possible to the trading site, helping shave of tiny amounts of time -- trades here are calculated not in milliseconds but in microseconds, or millionths of a second.

- The Federal Deposit Insurance Corp., grappling with the worst banking crisis since the 1990s, is poised to start breaking failed financial institutions into good and bad pieces in an effort to drum up more interest from prospective buyers. The strategy, which is likely to begin soon, is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.

- The mayor of Dongguan said the southern Chinese manufacturing hub's gross domestic product growth rate so far this year is at 0.6%, far short of its full-year target of 10%, highlighting the severity of the global slowdown even as economists identify signs of a recovery for Chinese exporters. Li Yuquan, mayor of the city of 10 million people just north of Hong Kong, said the global slowdown has hit Dongguan far harder than other Chinese cities because of its reliance on manufacturing exports of garments, footwear and furniture. Exports, he said, are down by 24% this year in the city that has prided itself as, among other things, "The World's Shoe City." "Dongguan is closely linked to the international markets, so the financial crisis has had a strong impact on us," Mr. Li said to a group of foreign reporters. He attributed a 10% dropoff in employment this year to a deep slide in manufacturing orders, as well as a broader industrial restructuring that has shut down polluting cement and brick factories.

- Although the venture capital industry is having a hard time convincing endowments, pension funds and other limited partners to invest new capital in the asset class, the majority of venture firms still plan to raise a new fund in the next 12 months - if a new survey from Pepperdeine University is to be believed. Of the 185 respondents, 59% indicate they plan to raise funds over the next year, a surprising figure considering that venture capital fund-raising plunged 63% in the first half as cash-strapped investors stopped committing capital. Of those in the survey planning a fund-raising campaign, 43% report they plan to raise more than $100 million, followed by 29% that plan to raise between $50 million and $100 million.

- Samuel Palmisano has been busy. The previously low-profile chief executive of International Business Machines Corp.(IBM) has crisscrossed the globe in recent months, talking to government leaders about promoting the use of technology to improve everything from roads and water systems to the environment and health care. Government spending on such programs can stimulate economic development, argues Mr. Palmisano. And it has another benefit: boosting IBM's bottom line.

- Mountains of coal are piling up along the winding roads of Central Appalachia, a boon to buyers and a bane to miners. Coal companies centered in this region, which includes parts of Kentucky, Tennessee, Virginia and West Virginia, are seeing far fewer shipments to utility companies and steelmakers, resulting in contract renegotiations or cancellations for many of them. A new analysis says the coal sector will have to cut production 50 million tons this year, on top of even steeper cuts earlier in the year, to get supply in line with demand.

- Even many Democrats are revolting against Speaker Nancy Pelosi’s 5.4% income surtax to finance ObamaCare, but another tax in her House bill isn’t getting enough attention. To wit, the up to 10-percentage point payroll tax increase on workers and businesses that don’t provide health insurance. This should put to rest the illusion that no one making more than $250,000 in income will pay higher taxes. To understand why, consider how the Pelosi jobs tax works. Under the House bill, firms with employee payroll of above $250,000 without a company health plan would pay a tax starting at 2% of wages per employee. That rate would quickly rise to 8% on firms with total payroll of $400,000 or more. A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers. So who bears the burden of this tax? The economic research is close to unanimous that a payroll tax is a tax on labor and is thus shouldered mostly if not entirely by workers. Employers merely collect the tax and then pass along its costs in lower wages or benefits. This is the view of the Democratic-controlled Congressional Budget Office, which advised on July 13: “If employers who did not offer health insurance were required to pay a fee, employee’s wages and other forms of compensation would generally decline by the amount of that fee from what they otherwise would have been.”

NY Times:

- President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans’ ability to choose their doctor and course of treatment, according to the latest New York Times/CBS News poll. Americans are concerned that overhauling the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills and limit their options in choosing doctors, treatment and tests, the poll found. The percentage who describe health care costs as a serious threat to the American economy — a central argument being made by Mr. Obama — has dropped over the past month. “We need to fix health care, but if the government creates the system, I’m afraid the quality of care will go down and costs will go up: We will pay more taxes,” Mary Bevering, a Democrat from Fort Madison, Iowa, said in a follow-up interview. She added: “It’s going to come down to regulation. What also worries me is whether we will be told what physician we can have.” There has been a 10-point drop in Mr. Obama’s job approval rating since a high-point in April. And despite Mr. Obama’s efforts to address public misgivings — in speeches, news conferences, town hall meetings and other forums — 69 percent of respondents in the poll said they were concerned that the quality of their own care would get worse if the government created a program that covers everyone.

IBD:

- HMS Holdings (HMSY) is an exception. The company works with government health care programs to make sure claims are paid correctly and by the responsible party.

CNNMoney.com:

- In a note to clients issued Wednesday morning, Kaufman Bros.’s Shaw Wu reported on some interesting trends from his latest iPhone supply chain checks:

Politico:

- House Speaker Nancy Pelosi spent half of Wednesday finalizing a deal with the Blue Dogs — and the other half quelling a brewing rebellion among progressives who think conservatives have hijacked health care reform. Liberals, Hispanics and African-American members — Pelosi’s most loyal base of support — are feeling betrayed after House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) reached an agreement with four of seven Blue Dogs on his committee who had been bottling up the bill over concerns about cost. The compromise, which still must be reconciled with competing House and Senate versions, would significantly weaken the public option favored by liberals by delinking reimbursement rates to Medicare. “Waxman made a deal that is unacceptable,” said Rep. Jerrold Nadler (D-N.Y.), one of about 10 progressives who met repeatedly with Pelosi and Majority Leader Steny Hoyer (D-Md.) on Wednesday. “We signed a pledge to reject any plan that doesn’t include a robust public option, and this plan doesn’t have a robust public option,” he added. By sundown Wednesday, the outcry from the left had become so loud that Waxman was forced to scrap a scheduled markup of the compromise measure. He rescheduled the meeting for Thursday morning and convened a mass question-and-answer session for a deeply divided Democratic Caucus — a meeting that is expected to be extremely contentious.

Seeking Alpha:

- Over at Bespoke Premium, we provide members with a regular look at financial default risk through our Bank and Broker CDS Index. The index measures credit default swap (CDS) prices for global financial firms on a cap weighted basis. Below is a chart of our index that shows the huge spike in default risk that occurred during the peak of the financial crisis in late 2008 and early 2009. As things have settled down, default risk has now moved well below the levels it was at just before the Lehman bankruptcy. Our CDS index is currently at its lowest level since June 23rd, 2008, and it's down a whopping 67% from its all-time high.

Reuters:

- The top U.S. futures regulator on Wednesday expressed concern that exempting some investors from proposed position limits on futures contracts could undermine efforts to clamp down on excessive speculation in energy trading. "While I believe that we should maintain exemptions for bona fide hedgers, I am concerned that granting exemptions for financial risk management can defeat the effectiveness of position limits," CFTC Chairman Gary Gensler said at a second hearing looking into tightening regulatory oversight of U.S. futures markets. "We believe that eliminating or limiting swap dealer hedge exemptions not only will not address the 'swap loophole' but actually will have several negative consequences," said Donald Casturo, managing director of Goldman Sachs Group Inc. "I don't see a Goldman Sachs swap desk or J.P. Morgan swap desk as a passive mechanic," said Gensler, a former partner at Goldman Sachs. "It is a highly sophisticated risk business and it's an important component of our financial market." The representatives of the two financial companies maintained they were not asking for special treatment.

- It is too early to declare victory but investors seem increasingly confident that the healthcare industry may not take a big profit hit from reforms being hammered out in Washington. "The inevitable scaleback in order to have something bipartisan bodes well for all sectors," said Kim Monk, a healthcare analyst for Capital Alpha Partners, referring to a wide range of companies with much at stake, including insurers and hospitals. Wall Street and others are still awaiting final legislation, but the prognosis is improving for the industry with investors more inclined to take bets. "There's a sense of confidence now that we're going to get something a little more centrist," said Craig Miller, vice president of healthcare trading at Stifel Nicolaus. "Investors are comfortable getting into the space."

- Japan Petroleum Exploration Co has entered negotiations with Iraqi authorities to develop a giant oilfield in the Middle Eastern country, the Nikkei business daily said on Thursday.

Financial Times:

- The Obama administration’s plan to give US states more power to protect consumers from unfair banking practices would make it more difficult and costly for large lenders to operate across the country, a financial regulator has warned. John Dugan, who oversees national banks as comptroller of the currency, told the Financial Times that the proposals to create a federal consumer protection agency and give states more leeway to crack down on unfair practices would have negative “ramifications for companies operating across state lines”. “To have a single set of standards has been very beneficial to developing and innovating products,” Mr Dugan said, adding that he wanted to keep national banks “immune” from state regulation. The remarks by the head of the Office of the Comptroller of the Currency, which is part of the Treasury, the department behind the proposed rules, shows the political high stakes surrounding the post-crisis regulatory framework. Mr Dugan said this would cause legal uncertainty and additional red tape for banks, creating a situation akin to the state-based regulation of insurance – a system that has been criticized for its complexity and bureaucracy.

- Chinese bubble fears as funds flow into IPOs.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (NKE), target $65.

UBS:

- Rated (GOOG) Buy, target $525.

Piper Jaffray:

- Rated (DISCA) Overweight, target $30.

Night Trading
Asian Indices are -1.25% to +.25% on average.

Asia Ex-Japan Inv Grade CDS Index -.25%.
S&P 500 futures +.21%.
NASDAQ 100 futures +.17%.

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Earnings of Note
Company/EPS Estimate
- (NYX)/.45

- (QSII)/.45

- (PTEN)/-.12

- (STRA)/1.97

- (EXPE)/.31

- (GT)/-.70

- (STE)/.40

- (ADP)/.45

- (CNX)/.80

- (FSS)/.05

- (IP)/.00

- (ABC)/.39

- (CI)/.96

- (DOW)/-.07

- (EK)/-.36

- (MOT)/-.04

- (COL)/.90

- (K)/.83

- (APA)/1.02

- (DIS)/.51

- (FSLR)/1.66

- (MET)/.69

- (MWW)/.01

- (MORN)/.47

- (N)/.00

- (XOM)/.99

- (CL)/1.05

- (BDX)/1.23

- (MFE)/.57

- (TRV)/1.27

- (MA)/2.42

- (AVP)/.24

- (WYNN)/.00

- (PBI)/.59

- (CVC)/.28

- (CMI)/.25

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 575K versus 554K the prior week.

- Continuing Claims are estimated to rise to 6300K versus 6225K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The $28 bln 7-yr Treasury Note Auction, EIA weekly natural gas inventory report and (MSFT) analyst meeting 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 Lower, Weighed Down by Commodity, Gaming and Construction Shares

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In Play

Stocks Lower into Final Hour on Healthcare Reform Worries, Budget Deficit Concerns, Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs, Defense longs and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 4.28% and is very high at 26.06. The ISE Sentiment Index is below average at 106.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running around average most of the day, hitting 1.64 at its intraday peak, and is currently .93. The Euro Financial Sector Credit Default Swap Index is falling 2.40% today to 79.33 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 falling 1.27% to 116.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .56% 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 plunging 13.17% to 35.44 basis points. The Libor-OIS spread is falling .94% to 29 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.84%, which is down 80 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. Defense, software, telecom, I-Bank, medical, biotech, hospital, retail, education and airline stocks are all higher on the day. The only real significant weakness today is seen in commodity-related shares. The decline in commodity prices is a short-term broad market negative, but a huge positive intermediate/long-term for the majority of US stocks. Nikkei futures indicate an +12 open in Japan and DAX futures indicate an +3 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, less economic fear, lower energy prices and earnings optimism.

Today's Headlines

Bloomberg:

- The Dow Jones Industrial Average is sending a buy signal that has foreshadowed gains of 18% during the past 90 years. The 30-stock gauge climbed to more than 10% above its mean level from the previous 200 days, rebounding from 34% below the so-called 200-day moving average in November, according to Bloomberg. Eighteen of the last 21 times the Dow rallied from at least 10% below the 200-day level to 10% above, it posted gains during the next 12 months, Bloomberg data since 1921 show. “This rally, while it will have its fits and starts, is the beginning of a new trend, not just a bounce,” said Michael Williams, managing director of NY-based Genesis Asset Management, which oversees about $42 billion. “It is a significant opportunity.” The Dow posted an average advance of 18% during the 12-month period following buy signals since 1921. In the six-month period, there were 17 advances for an average gain of 8.2%. In three months, it climbed 18 times, averaging an increase of 5.7%.

- The Standard & Poor’s 500 Index will rally 22 percent as the world economy rebounds from the first global recession since World War II, and Japanese stocks are attractive, investor Barton Biggs said. Consumer spending and the housing market will recover, boosting earnings for U.S. companies, said Biggs, who runs New York-based hedge fund Traxis Partners LP. “I’m still bullish,” Biggs, the chief global strategist for Morgan Stanley until 2003, said in an interview with Bloomberg radio. “We’re going to have a pretty strong recovery in earnings both this year and next year.” Cost cuts at U.S. businesses during the recession will boost earnings, Biggs said. Companies have reduced expenditures by firing workers and curbing business expansion, leading them to beat analysts’ profit projections on a per-share basis by 9.9 percent while topping revenue expectations by only 0.2 percent, according to data compiled by Bloomberg. Sales will start to rise by the end of the current quarter, Biggs said, with a pickup in retail spending by the end of 2009.

- Crude oil fell the most in three months after a government report showed an unexpected gain in U.S. inventories as imports jumped and refiners reduced operating rates. Stockpiles surged 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. It was the biggest weekly increase since April. Supplies were forecast to decline by 1.5 million barrels, according to the median of analyst estimates in a Bloomberg News survey. “The main problem with this market is the fact that there’s too much oil out there,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “We may test $60 before the week is over as these numbers are absorbed.” The inventory increase left crude-oil stockpiles 9.5 percent higher than the five-year average for the period, according to the Energy Department. Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude oil is delivered, rose 1.31 million barrels to 32.1 million, the highest since March. “A lot of oil is going into storage,” Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch in London, said in an interview with Bloomberg Radio. “Supply is exceeding demand at the moment. It tells you that maybe we will see another few dollars drop from the oil price.” Crude-oil imports climbed 8.9 percent to 10 million barrels a day last week, the highest since January, the report showed. Refineries operated at 84.6 percent of capacity, down 1.5 percentage points from the prior week and the lowest since May. “Refiners are making a rational economic decision,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Distillate supplies are very high and there’s a lack of gasoline demand, so refiners are doing all they can to protect their very thin profit margins.” Stockpiles of distillate fuel rose 2.2 million barrels to 162.6 million, the seventh straight increase, the report showed. The gain left supplies at the highest level since January 1985 and 27 percent higher than the five-year average for the period. Total U.S. daily fuel demand averaged 18.7 million barrels last week, down 1.1 percent from the prior week, the report showed. Goldman Sachs Group Inc., the bank that makes the most money from commodities, fixed-income and currency trading, said attempts to curb speculation may be “disruptive” to markets. CFTC Chairman Gary Gensler, a former Goldman Sachs employee, said yesterday that the agency should “seriously consider” setting strict federal position limits to curb speculation in commodity markets.

- The main U.S. market for energy trading has repeatedly let investors exceed levels meant to keep one firm from amassing too much control, underscoring the need for stricter limits, the top commodities regulator said. Traders in the past 12 months sometimes held two to three times the so-called accountability levels set by the New York Mercantile Exchange for crude oil, natural gas, heating oil and gasoline contracts, according to a report by the Commodity Futures Trading Commission. About 70 traders exceeded the levels. Nymex often failed to intervene, CFTC Chairman Gary Gensler said.

- Treasuries fell for a second day after the government’s record $39 billion auction of five-year notes drew a higher-than-forecast yield, renewing concern the deluge of U.S. debt being sold will overwhelm investor demand.

- Orders for U.S. durable goods, excluding automobiles and aircraft, unexpectedly rose in June, signaling manufacturing may expand in the second half of the year. Excluding transportation equipment, demand for goods meant to last several years climbed 1.1 percent, the most in four months, the Commerce Department said today in Washington. The durable-goods figures used to calculate economic growth indicate companies plan to boost investment in coming months, adding to evidence the worst recession in five decades is starting to ease. Bookings for non-defense capital goods excluding aircraft, which economists consider a proxy for future business investment, rose at a 0.4 percent annual pace in the third quarter after plunging at a 44 percent rate in the first three months of the year. Shipments of those items, used in calculating gross domestic product, fell at a 16 percent three-month annual rate in June, less than half the decrease in March and signaling that the decline in business investment eased last quarter. Ongoing inventory drawdown in manufacturing is setting the stage for future growth. Stockpiles fell at an $87 billion annual rate in the first quarter, the biggest drop on record, according to figures from Commerce. Companies cut inventories by 0.9 percent in June, today’s report showed. The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July.

- The return of an El Nino climate pattern to the Pacific Ocean may relieve the worst Texas drought in 90 years and may reduce the threat of hurricanes ravaging orange groves in Florida. El Nino, characterized by warming waters in the Pacific, “could bring relief” in the fall and winter to Texas, where farms are suffering from the lack of rain, the National Weather Service said July 16. The El Nino will last through the Northern Hemisphere winter and into 2010, presaging winter storms in the Southwest and a reduction in Atlantic hurricanes, the U.S. National Oceanic and Atmospheric Administration said July 9.

- Gold futures fell to a two-week low as the dollar’s rebound reduced the appeal of the precious metal as an alternative investment. Silver tumbled the most in five weeks. The dollar is up 1 percent in two days against a basket of six major currencies, partly on demand for a haven amid slumping equities in China. “Having taken out supports at $948 and at $942, bullion is tasked with proving that it can attract supporters at just about this level, lest it should ease back toward the previous $905 price, from which it did manage the last bounce,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a report. Yesterday, holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, fell 3.36 metric tons to 1,083.25 tons. “Leakage continues to be manifest in the gold ETF,” Nadler said.

- Police in Jersey City, New Jersey, are investigating the death yesterday of Jack Shaw, a political consultant arrested July 23 and accused of funneling bribes to a local official in a federal corruption probe.

- Venezuelan President Hugo Chavez pulled his ambassador to Colombia and froze imports from the neighboring country, the second time in as many years he’s recalled his top diplomat in Bogota. Chavez, 55, said he is taking the actions in response to accusations by Colombia’s vice president that Venezuela provided Swedish anti-tank weapons to Colombian guerrillas, and to a proposal to allow the U.S. military to use Colombian bases. He threatened to expropriate Colombian companies in Venezuela.

- U.K. utilities may need to mothball power plants and cut investment plans as the country faces the biggest electricity glut in almost 20 years.

- The euro is poised for further declines, testing support levels starting at the 55-day moving average of $1.40, as the market grows “uncomfortable,” according to a Citigroup Inc. technical analysis report. Europe’s 16-nation currency lagged behind gains in stocks last week and failed to surpass resistance levels beginning around $1.43, Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote in a report today.

- American Express Co.(AXP), the biggest U.S. credit-card company by purchases, bought back the last of the government’s stake by paying $340 million for warrants held by the Treasury’s bailout program.

- Investors should close bets the euro will gain against the dollar, Goldman Sachs Group Inc. said, recommending ending the trade before the common currency reached the bank’s target of $1.45. “We do not see any near-term macro catalyst for an extension of the move in the direction we hoped for,” Goldman Sachs analysts wrote today in a report.

- The Federal Reserve said most of its 12 regional banks detected a slower pace of economic decline in June and July, further signs the worst U.S. downturn in at least five decades is closer to an end. “Economic activity continued to be weak” in June and July, the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. San Francisco, the district with the biggest economy, and three others “pointed to signs of stabilization,” while Chicago and St. Louis showed a “moderating” pace of decline.

CNBC:

- The Commodities Futures Trading Commission will seriously consider imposing strict position limits on traders placing bets on energy contracts, and that's just fine with hedge fund manager Mike Masters. The head of Masters Capital Management blew the whistle on oil speculators last year when he testified before Congress regarding the rapid run-up in oil prices as it reached its record high of $145 a barrel. He is scheduled to testify at the CFTC hearings Aug. 5. "We compiled data from the CFTC and aggregated it together which showed excessive speculation in oil markets," Masters said. "Currently, the crude oil market (when classified correctly on a reasonable pro-forma CFTC classification scheme), is approximately 80 percent or so speculative (non commercial) versus 10 years ago, when it was approximately 25 percent).

- U.S. cities, first hit by slumping property tax revenues in the housing downturn, are now vexed by surging unemployment with 18 metropolitan areas recording jobless rates of more than 15 percent in June, a Labor Department report said on Wednesday.

Rasmussen:
- The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 29% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-nine percent (39%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -10. The President’s Approval Index rating is down four points over the past week and 11 points over the past month (see trends). Just 23% believe health care costs will go down if health care reform is passed. Most (53%) expect prices would rise and 50% expect the quality of care would decline.

- Nearly one-out-of-two U.S. voters (49%) now say the nation’s best days are in the past, a five-point jump from last month and the highest level of pessimism on this question in a year.

Politico:

- Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) has cut a deal to reconvene his committee and vote on the Democrats' sweeping health care bill, with a goal of completing work by the time lawmakers leave town for the summer on Friday. There won’t be a vote before the full House before the August recess, but the committee breakthrough – after tense negotiations with Blue Dog Democrats – is a significant step for the Democrats.

- Democrats giddy with possibilities only six months ago now confront a perilous 2010 landscape signaled by troublesome signs of President Barack Obama’s political mortality, the plunging popularity of many governors and rising disquiet among many vulnerable House Democrats. The issue advantage has shifted as well, with Democrats facing the brunt of criticism about the pace of stimulus package spending, anxiety over rising unemployment rates and widespread uneasiness over the twin pillars of Obama’s legislative agenda: his cap-and-trade approach to climate change and the emerging health care bill.

LA Times:

- Relations between the United States and China are getting cozier as their battle against the global recession has drawn them closer together. But things aren't quite so warm when it comes to some hot-button topics, particularly climate change. U.S. and Chinese officials ended two days of high-level talks in Washington on Tuesday still at loggerheads on the issue, a top priority for President Obama. Global warming got little attention during the Bush administration. China is resisting a push to commit to targets for reducing greenhouse gas emissions and to open its market to U.S. clean energy technology. "China and the United States are different in their stages of development, national conditions and historic footprints, so I think they should shoulder different responsibilities in tackling climate change," Zhang Guobao, president of China's National Energy Administration, told reporters. It's just one of several areas in which U.S. and Chinese interests are at odds despite all the smiles and signs of mutual respect before the cameras as the Obama administration hosted its first Strategic and Economic Dialogue. Chinese officials, for instance, expressed deep concern about the ballooning U.S. budget deficit because of fears that the inflation that could follow would erode their huge investment in Treasury securities.

FINalternatives:

- The hedge fund industry standard fee structure of 2% management and 20% performance is going the way of the dinosaurs, thanks to pressure from investors who are demanding more for less. According to a Preqin survey, the mean hedge fund management fee stands at 1.63%, and the mean performance fee is 17.21%. But seven in 10 hedge funds still maintain a performance fee of 20%, demonstrating that investors are still willing to reward the alpha generated by top hedge fund managers.

NY Times:

- The problem with the sudden popularity of high-frequency trading is that it may increasingly destabilize the market. Hedge funds won’t necessarily care whether the increased volatility causes stocks to rise or fall, as long as they can get in and out quickly with a profit. But the rest of the economy will care. Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.

BusinessInsider:

- The official details of the Microsoft(MSFT)-Yahoo(YHOO) deal aren't much different than the leaks we reported last night. Here's our take: The deal is significantly worse than expected for Yahoo, as the company will get no money upfront. The deal is positive for Microsoft, but largely because Microsoft was nowhere in search without it. Saving the upfront payment is also a help. Ironically, the deal will likely be positive for Google(GOOG), which will now likely benefit from months of purgatory as Microsoft and Yahoo work to clear regulatory scrutiny and then go through the massive challenge of trying to integrate their sales forces and technology. Google itself will also now be able to argue persuasively that there is a big, viable (if discombobulated) competitor in the market.

Forbes:

- Russia and Cuba signed agreements to search for oil in the Gulf of Mexico, and Moscow extended the island $150 million in credit for construction materials and farm machinery, state media said Wednesday.

Reuters:
- Nearly 10,000 Uighurs involved in deadly riots in China's northwestern Xinjiang region went missing in one night, exiled Uighur activist Rebiya Kadeer said Wednesday, calling for an international investigation. Kadeer's visit to Tokyo was condemned by China.

Caijing:

- China’s stocks plunged amid speculation the central bank is poised to order lenders to set aside larger reserves, citing a “well-informed person.” The Shanghai Composite Index fell 5% today, the largest one-day decline in eight months.

Resalat:
- An Iranian political group has warned President Mahmoud Ahmadinejad of “consequences” should he fail to obey the country’s supreme leader, Ayatollah Ali Khamenei. “The Iranian nation and all the conservatives are following your deeds with attention and sensitivity for full obedience to the supreme leader and for your efficiency,” the Islamic Society of Engineers, which is loyal to the Islamic clerics who wield ultimate power over policy, said in an open letter to the president published by the newspaper today.

Bear Radar

Style Underperformer:

Mid-cap Value (-1.54%)

Sector Underperformers:

Steel (-4.33%), Oil Service (-3.97%) and Gold (-3.12%)

irlind

Stocks Falling on Unusual Volume:

EHTH, EAC, CMC, SLF, MBT, SNP, CHU, CLF, EPD, YHOO, HITK, PENN, SPTN, PNRA, BCRX, STLD, RS, NYB, TSL, SPN, RCL, TWP and TKR

Stocks With Unusual Put Option Activity:

1) ODP 2) ROK 3) SLM 4) MAS 5) MHK

Bull Radar

Style Outperformer:
Small-Cap Growth (-.54%)

Sector Outperformers:
HMOs (+1.82%), Education (+1.30%) and Hospitals (+1.20%)

Stocks Rising on Unusual Volume:
MCK, MMSI, HMC, PMTI, AOC, WSH, NUS, WMT, GLBC, FTI, LGCY, TRMB, LIFE, SYNT, DWA, SLAB, WRLD, CSGS, SVVS, COLM, WTFC, USNA, NICE, HSII, SMSI, ADVS, SSYS, AMED, PEGA, SEPR, LAZ, WTS, FIS, CRI, PLT, WXS and TE

Stocks With Unusual Call Option Activity:
1) WYN 2) ODP 3) MCK 4) DTV 5) WDC