Today's Headlines

Bloomberg:

- Mortgage applications in the U.S. rose for a second week as the lowest borrowing costs since May propelled a surge in refinancing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 4.3 percent to 514.4 in the week ended July 10, from 493.1 in the prior week. The group’s refinancing gauge jumped 18 percent. The average rate on a 30-year fixed-rate loan fell to 5.05 percent, the lowest level since the week ended May 22, from 5.34 percent the prior week.

- Borrowers are poised to issue at least $4.25 billion of dollar-denominated debt as spreads on high-yield, high-risk bonds relative to benchmark rates fell the most in two weeks. Speculative-grade bond spreads over similar-maturity Treasuries narrowed 16 basis points yesterday to 1,076 basis points, the biggest drop since June 30, according to Merrill Lynch’s U.S. Corporate Master High Yield II index. Junk-bond spreads fell 50 basis points on June 30, Merrill data show.

- Crude oil rose by the most in two weeks after a government report showed a bigger-than-forecast decline in U.S. crude inventories as refineries increased operating rates. Refineries operated at 87.9 percent of capacity, the most since August. Supplies of distillate fuel increased 553,000 barrels to 159.3 million in the week ended June 10, the highest since January 1985, the report showed.

- Natural gas futures fell in New York on forecasts that a government report will show a bigger-than- average increase in U.S. stockpiles. Natural gas for August delivery fell 12.1 cents, or 3.5 percent, to $3.308 per million British thermal units at 12:03 p.m. on the New York Mercantile Exchange. Prices yesterday rebounded from an 11-week low on signs of a recovery in demand. Futures have fallen 41 percent this year and are down 76 percent from a July 2008 high of $13.694. Stockpiles rose 75 billion cubic feet in the week ended July 3 to 2.796 trillion cubic feet, the department said last week. Supplies were 19 percent higher than the five-year average. Industrial gas consumption is forecast to drop 8.2 percent this year and total demand will slide 2.3 percent to 62.1 billion cubic feet a day, the Energy Department said July 7 in its monthly Short-Term Energy Outlook.

- Industrial production shrank less than forecast and a New York regional factory gauge showed the smallest contraction in more than a year, signaling manufacturing is on the verge of stabilizing. Capacity utilization, which measures the proportion of plants in use, decreased to 68 percent last month, the lowest level since records began in 1967. The auto industry may get a lift from the “cash for clunkers” bill that Congress passed in June, which gives consumers as much as $4,500 to trade in their old cars for more fuel-efficient vehicles. Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, is among those projecting carmakers will crank up production to meet the demand spurred by the program. A rebound in production will help pull the economy out of the recession, leading to economic growth of 3 percent in the second half of 2009, Maki said. Ford Motor Co.(F), the only major U.S. automaker to avoid bankruptcy, already said on June 29 that it’s boosting third- quarter North American production by 16 percent from a year earlier. Makers of personal computers are boosting orders for chips in anticipation of increasing demand in the second half, Intel’s Chief Executive Officer Paul Otellini said. While businesses probably won’t start buying new PCs until next year, consumers in Asia -- especially China -- are leading the recovery, he said. Intel reported a 12 percent jump in second-quarter sales from the previous three months, the largest sequential increase since 1988.

- Microsoft Corp.’s(MSFT) new Bing search grabbed market share at the expense of Yahoo! Inc. rather than Google Inc., research firm ComScore Inc. said.

- Investor sentiment for U.S. stocks fell to the lowest level since March and confidence in equities around the world declined as prospects for the global economy worsened in June, according to a survey of Bloomberg users. The Bloomberg Professional Confidence Survey’s measure for the Standard & Poor’s 500 Index fell 14 percent to 39.59 in July, its second consecutive drop. Readings below 50 show participants expect equity prices will decrease in the next six months.

- European consumer prices fell in June for the first time since at least 1996 as energy costs dropped and rising unemployment curbed household spending. Prices in the 16-nation euro area dropped 0.1 percent from a year earlier, the first annual decline since the data were first compiled in 1996, the European Union statistics office in Luxembourg said today.

- China’s probe of Rio Tinto Group and the iron-ore market may spur a decline in shipping costs and Chinese imports of the steelmaking ingredient, according to CIMB Investment Bank Bhd. China’s purchases in the second half may drop 16% form the first six months, Raymond Yap, an analyst at CIMB, said.

- Most Federal Reserve officials judged the economy at risk to further shocks last month even as they rejected an expansion in asset purchases, reflecting doubt at the likely impact of such a move. “Most participants saw the economy as still quite weak and vulnerable to further adverse shocks,” the central bank said in minutes of the Federal Open Market Committee’s June 23-24 meeting released today in Washington. “Although financial market conditions had improved, credit was still quite tight in many sectors.”

- American Express Co.(AXP), the largest U.S. credit-card company by purchases, said net write-offs for the second half of the year may be better than its previous forecast after uncollectible loans fell in June. “Assuming delinquency and bankruptcy trends continue to be below previously expected levels, the company believes that it is highly likely” that write-offs for the third and fourth quarters on U.S. cards “will be better than previously forecasted,” the New York-based company said today in a federal filing. The lender wrote off 9.9 percent of managed U.S. card loans, compared with 10 percent for May, the company said. American Express gained 9.1 percent to $26.68 in New York Stock Exchange composite trading at 12:54 p.m.

Wall Street Journal:

- Even as CBS has been hurt by the plunging ad market in both television and radio over the past year, a bright spot has been its strength in selling TV shows to TV stations and cable channels. But now there are questions hanging over that business. Rising financial distress among TV-station groups is likely to damp demand for program purchases. And a growing wave of bankruptcies means existing long-term deals could be renegotiated.

- Fund managers were more positive on economic growth in July but less positive on equities as risk appetite was kept on a tight leash, according to Merrill Lynch's monthly survey. A total of 221 fund managers, managing a total of $635 billion, participated in the survey which was conducted just ahead of the second-quarter earnings season. Fund managers were marginally more positive about the global economy in July, with a net 79% of managers believing that growth will improve in the next twelve months, the highest reading since February 2004. A net 78% took this stance in June. "Economic optimism is raising expectations of corporate profitability in both margins and earnings," the survey said. A net 51% of managers now believe the profit outlook will improve, compared to 49% taking this view on June. Still, managers were a little less positive on equities in the period, with a net 7% taking an overweight stance in equities down from a 9% overweight in June. At the same time, managers were slightly more positive about bonds, cutting their underweight to 13% from a previous level of 15%. Managers cut commodity-sector positions in July, moving the sector to a net overweight of 8% from an overweight position of 19% in June. "The thirst for commodities was quenched rather quickly as commodity prices tumbled," the survey said. Emerging markets continued to be popular with a net 54% of asset allocators overweight on the region, the second-highest reading in the survey's history. Asset allocators are now underweight on the U.S. for the first time in fourteen months. A net 10% are underweight on the region. "Investors seemingly lost patience with the U.S.," the survey said.

- A renewed push in Washington to limit commodity futures trading runs counter to lawmakers' goal of bringing more over-the-counter trading onto exchange platforms, according to the top executive at CME Group Inc.(CME) U.S. lawmakers have reignited the debate on "excessive speculation" in energy markets, calling for tighter regulation at a time when the Obama administration is also trying to push more over-the-counter derivatives trades onto exchange-run clearinghouses. CME Chief Executive Craig Donohue said proposals to tighten oversight of the energy markets through increased position limits on trading could drive more trading off-exchange.

- Congressional lawmakers released the names Wednesday of 10 members of the Financial Crisis Commission, a body set up to investigate the events that led to the monumental collapse of the financial markets last year. Former California State Treasurer Phil Angelides is to chair the group.

- More than 175 prominent economists warned that "the independence of U.S. monetary policy is at risk" because of stepped up congressional criticism of the Federal Reserve. The 185-word petition, circulated at a recent meeting of academic economists, urged Congress and the president to "avoid compromising [the Fed's] ability to manage monetary policy as it sees fit" and to refrain from politicizing its decisions on emergency loans to financial institutions.

- U.S. Commerce Secretary Gary Locke said multinational companies in China "need to have assurances and confidence" that their workers will be treated fairly, and indicated he would raise the case of a detained Australian executive with Premier Wen Jiabao in a meeting Thursday. "We just need to continue to press" China for transparency, fair enforcement of laws and openness to foreign investment and cooperation, said Mr. Locke, in an interview in China with CNN on Wednesday.

- Containing health-care costs is impossible under the current legal structure. That fact has to be addressed if President Barack Obama is to create an affordable health-care system that is accessible to everyone. Every incentive in the system now is to do more -- that's how doctors get paid and that's how doctors get protected from lawsuits. Billions of dollars are wasted in "defensive medicine." Bureaucracy built up over decades diverts resources from patient care to mindless compliance. Forms are everywhere.

CNBC:

- Hiring is picking up in finance and health care, Korn/Ferry International CEO Gary Burnison said. “That, hopefully, is a trend here,” Burnison told CNBC.

- For the last two years, housing has been at the center of the banking industry’s troubles. But for at least one quarter, it will help lift its results. Even as banks remain cautious about lending and millions of borrowers still risk losing their homes, the mortgage business is returning as one of the most lucrative corners of the financial industry.

LA Times:

- Southern California's median home sales price jumped to $265,000 in June, the first substantial increase since the housing market collapsed, and the total number of sales rose to the highest level in 30 months, a San Diego real estate information service reported today. The current price is down to what it was seven years ago and is 48% below the peak price of $505,000 two years ago, according to MDA DataQuick. The median home price had hovered around $250,000 for five months before June's 7% increase over May's $249,000 median price.

NY Times:

- Long before four employees of the Anglo-Australian mining giant Rio Tinto were detained here last week on suspicion of stealing state secrets, people working in China’s steel industry were complaining about bribery, deceit and a system turned rotten. One of the tricks is widely discussed. Big government-owned steel makers used their import licenses to buy more iron ore than they needed. Then they profited by illegally selling excess ore to small producers that lacked licenses to import iron ore, a critical ingredient to make steel. This practice, described in detail this week by analysts, traders and industry experts, was part of a system that they say violated industry regulations and bred a culture of corruption.

- Some influential members of the Democratic party want to give electronic reading devices to every student in the country. Amazon.com(AMZN) should like the name of their proposal: “A Kindle in Every Backpack: A Proposal for eTextbooks in American Schools,” by the Democratic Leadership Council, a left-leaning think tank, was published on the group’s Web site Tuesday.

MarketWatch:
- Comex August Gold futures have risen back to the halfway point of the April to June advance at $930 a troy ounce but should be capped by it and the $950 resistance area and fall back towards $910 in the weeks to come.(VIDEO)

The Washington Times:

- Rep. Ed Perlmutter of Colorado inserted a provision into the recently passed House climate change bill that would drum up business for "green" banks, such as the one he has invested in and his family and a political donor helped found in San Francisco. The bill calls on bank regulators to promote green banking and says federal dollars should be used to support energy-efficient home improvements at government-funded housing projects. Mr. Perlmutter, a two-term Democrat, has two investments in the 3-year-old New Resource Bank, which calls itself the nation's first green bank.

ContrarianProfits:

- Here’s Why It’s Time to Ban Credit Default Swaps.

NY Post:

- New York Attorney General Andrew Cuomo is pressing former car czar Steven Rattner to accept a legal settlement to avoid civil charges in an influence-peddling case, The Post has learned. Cuomo and the Securities and Exchange Commission have charged a state official and a political consultant with extracting millions of dollars in kickbacks from investment firms trying to raise money from the state's big public pension fund. Rattner, who resigned abruptly on Monday as the Obama administration's key adviser on the auto industry, was co-founder of Quadrangle Group. The private-equity firm paid more than $1 million to one of the people indicted in the case, New York political consultant Hank Morris.

Denverpost.com:

- Thousands of low-income Coloradans reliant on public assistance could get a free cellphone under a plan before the state Public Utilities Commission. If approved, the plan by TracFone Wireless in Miami would make Colorado the 17th state it has settled into with free cell service for the indigent, a form of wireless welfare that proponents say taps into one of the last untapped markets for the telecom technology.

Politico:

- The state that gave 54 percent of its vote to Barack Obama last November greeted his first return since the election with skepticism, doubt and anxiety about the future. Obama, accompanied by his campaign manager, David Plouffe, on Air Force One, arrived Tuesday in this Detroit suburb, where one in five residents is unemployed, to face one of the most challenging audiences of his presidency. The president came to Warren to unveil a new 10-year, $12 billion program to improve community colleges, but that topic was far down the list of priorities for residents who said their top concerns did not get beyond one word: jobs.

- Republicans pressed Supreme Court nominee Sonia Sotomayor into further retreat Wednesday morning on some of her past public statements, but the low-key exchanges generally lacked the sparks of Tuesday’s session.

USA Today:

- The Episcopal Church moved Monday toward affirming their acceptance of gays and lesbians for all roles in the ministry, despite pressure from fellow Anglicans worldwide for a decisive moratorium on consecrating another openly gay bishop. Bishops at the Episcopal General Convention in Anaheim, California, voted 99-45 with two abstentions for a statement declaring "God has called and may call" to ministry gays in committed lifelong relationships.

Reuters:
- The U.S. Treasury Department wants to find a "responsible" way to provide government aid to troubled lender CIT Group Inc, Representative Barney Frank said on Wednesday.

Financial Times:
- Last week the US Treasury Secretary Timothy Geithner provided more details on how he plans to give regulators greater powers in policing the world of commodity exchange-listed and OTC derivatives. The biteback from the industry is now gathering pace. Beating all those views in terms of audacity, however, is Goldman Sachs’(GS) take on CFTC-proposed position limits for exchange-traded futures specifically. According to Reuters the bank believes it will and should be exempt from any such restrictions as its positions are for energy-hedging purposes (our emphasis):

AFP:

- Ayman al-Zawahiri, al-Qaeda’s second-in-command, urged Pakistanis to support insurgents in their battle against a US-led “crusade.” American intervention in Pakistan’s military and politics could break up the South Asian nation, Zawahiri said in an eight-minute video yesterday titled “My Muslim Brothers and Sisters in Pakistan,” according to the report. Zawahiri, an Egyptian-born doctor, rallied Pakistanis in the video to support militants in the country and in neighboring Afghanistan, according to the report.

Cepifine:

- European office paper demand fell 18.9% in May.

Nepszabadsag:

- Billionaire investor George Soros’s Soros Fund Management LLC, which appealed a fine for manipulating the share price of OTP Bank Nyrt. last year, will have a court date on Dec. 3 on the case, citing Soros spokesman Michael Vachon. The Soros Fund has already paid the 489 million-forint fine imposed by the Hungarian financial regulator and is now awaiting the court’s ruling. Soros has said he was “sincerely sorry” for his fund shorting the stock of Hungary’s largest bank on Oct. 9 of last year, which caused the shares to drop 14% in the final 30 minutes of trade, according to the regulator.

Rubriken stern.de:

- It is one of the central questions for Western governments dealing with Iran: How close is the regime to a nuclear bomb? According to stern magazine they have nearly reached their aim. Experts from the Bundesnachrichtendienst, the German Foreign Intelligence Service, claim that Iran will be able to set off an atomic bomb within a few months.

China Securities Journal:

- China should “moderately” increase its holdings of US Treasuries and purchases this year should not be lower than the total for 2008, a People’s Bank of China economist wrote.

Xinhua:

- Australia's A/H1N1 flu cases have risen to 10,387, which is 10 percent more than WHO’S data. Australian Health Minister Nicola Roxon said on Wednesday the real number could be much higher, adding that 123 people were in hospital, with 58 in intensive care. Australia is the worst-hit Asia-Pacific country, and has pre-ordered 21 million flu jabs, enough for its entire population, as laboratories race to prepare a vaccine. Officials have expressed growing concern over the disease as it starts to contaminate the healthy people.

Bear Radar

Style Underperformer:
Large-cap Growth (+2.50%)

Sector Underperformers:
Restaurants (-1.0%), Education (-.43%) and Drugs (+.69%)

Stocks Falling on Unusual Volume:
YUM, JBHT, LUFK, ABFS, HUBG, PPDI, FSF and ABT

Stocks With Unusual Put Option Activity:
1) EXPE 2) POOL 3) ABT 4) YUM 5) JOSB

Bull Radar

Style Outperformer:
Small-cap Value (+2.56%)

Sector Outperformers:
Semis (+4.42%), Steel (+4.25%) and Networking (+4.19%)

Stocks Rising on Unusual Volume:
VIP, BBV, PBR, E, THO, HITK, RDEA, ADTN, ACGY, INTC, ASML, OFIX, VSEA, FUQI, ALTR, COGT, AMAG, TLEO, CYOU, EXPE, CALM, SXCI, MNRO, PWRD, BBBB, SKY, MTR, LZ, SHG, PKE, AIR, SIG and RSC

Stocks With Unusual Call Option Activity:
1) AES 2) LGF 3) CCL 4) HOT 5) COF

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Intel Corp.(INTC) rose as much as 8.4 percent in late trading yesterday after its revenue forecast topped analysts’ estimates, indicating that shoppers in Asia are helping reignite demand for personal computers. Sales will be as much as $8.9 billion in the current quarter, Intel said yesterday. That compares with an average estimate of $7.86 billion in a Bloomberg survey of analysts. PC makers are boosting orders for chips in anticipation of increasing demand in the second half, Chief Executive Officer Paul Otellini said. While businesses probably won’t start buying new PCs until next year, consumers in Asia -- especially China -- are leading the recovery, he said. Intel reported a 12 percent jump in second-quarter sales from the previous three months, the largest sequential increase since 1988. Intel’s Asia-Pacific sales were $4.41 billion last quarter, up 21 percent from the first quarter. Sales in the Americas rose 12 percent sequentially, while Europe dropped 9.4 percent. There is “a clear expectation for a seasonally stronger second half,” Otellini said on a conference call. Gross margin, the percentage of sales remaining after excluding costs of production, will be about 53 percent this quarter, Intel said. Chris Danely, an analyst at JPMorgan Chase & Co. in San Francisco, had predicted 51 percent.

- Russian millionaires are returning to the U.S. property market, lured by distressed sales and the ruble’s rise against the dollar, lawyer Edward Mermelstein said. “The way many look at the U.S. right now is that it’s a bargain,” said Mermelstein, who has arranged about 300 real estate deals for buyers from the former Soviet Union since 2007.

- India won’t buy potash for more than $460 a metric ton, about 26 percent below a previous benchmark, and other consumers including China will likely seek similar prices, Indian Farmers Fertiliser Cooperative Ltd. said. International Potash Co., the marketing arm of Russia’s biggest producer, OAO Silvinit, agreed last week to supply India with 850,000 tons by March 10 at that price. Potash, a $28 billion global market, is used to make fertilizer. “Nobody in India will buy potash for more than $460 a ton,” U.S. Awasthi, managing director of IFFCO, said by phone from New Delhi today. “I don’t think anybody in the world will pay more than $460.” Lower prices threaten to curb earnings for producers including Potash Corp. of Saskatchewan Inc., the world’s largest producer of the crop nutrient, and K+S AG, Europe’s largest maker. Cheaper fertilizers may spur farmers to use more on their fields, bolstering yields.

- Nigeria’s main rebel group, the Movement for the Emancipation of the Niger Delta, declared a 60- day cease-fire in its campaign targeting oil and gas installations after authorities freed leader Henry Okah. The cease-fire, which came into force at midnight, should “create an enabling environment” for talks with the government, MEND spokesman Jomo Gbomo said in an e-mailed statement today.

- Gasoline consumption fell to a six- month low last week as heat in the South and rain in New England reduced demand after drivers had filled their tanks before the July 4 holiday, according to a MasterCard Inc. report. Motorists bought an average 9.021 million barrels of gasoline a day in the week ended July 10, MasterCard, the second-biggest credit-card company, said in its SpendingPulse report today. That’s 4.3 percent less than a year earlier and 6.3 percent less than the week before, which included July 3, the federal holiday that began the three-day weekend.

- HSBC Holdings Plc(HBC) and a Cayman Islands-based hedge fund were sued by the trustee liquidating Bernard Madoff’s business over claims they withdrew $578 million in “fake” profit from the con man’s firm before it collapsed.

- President Barack Obama may rely only on Democrats to push health-care legislation through the U.S. Congress if Republican opposition doesn’t yield soon, two of the president’s top advisers said. “Ultimately, this is not about a process, it’s about results,” David Axelrod, Obama’s senior political strategist, said during an interview in his White House office. “If we’re going to get this thing done, obviously time is a-wasting.” Both Axelrod and White House Chief of Staff Rahm Emanuel said taking a partisan route to enacting major health-care legislation isn’t the president’s preferred choice. Yet in separate interviews, each man left that option open.

- Ford Motor Co.(F), the only major U.S. automaker to avoid bankruptcy, may be able to snag buyers as General Motors Co. stops production of the Pontiac brand this month, according to a survey.

- Harvard Business School enrolled the largest incoming class ever for its Master of Business Administration program, partly to raise money in what it calls “challenging times.”

- There is never a good time to raise the minimum wage. Just ask the people working in low-skilled jobs that are laid off as a result. Now is a particularly bad time. Yet the federal minimum wage is scheduled to rise to $7.25 on July 24, the third step of a $2.10 increase enacted in 2007. In more than half the states, the minimum wage already exceeds the current national minimum of $6.55 an hour. While President Barack Obama and his economics team have been mum on the issue, I’ve got to think they are worrying, at least among themselves, about the impact given the current state of the labor market. Noble as intentions may be to give low-skilled workers an advantage and make life easier for the poor, the increase will have unintended consequences. That’s because the demand for labor, like that for any good or service, isn’t fixed. It depends on the price. You don’t have to be a sophisticated student of economics to understand that for most goods and services, a lower price leads to a higher quantity demanded. Any economist who claims that an increase in the minimum wage has no effect on employment is essentially saying he’s found the secret to circumventing the law of supply and demand. There are very few concepts in economics as firmly fixed and rooted in reality, not theory, as this one. Federal Reserve economists Mark Schweitzer and William Wascher, and David Neumark of the University of California, Irvine, have studied the effect of minimum wage increases on poor families and reported the results in a 2004 Cleveland Fed working paper and elsewhere. “If anything, raising the minimum wage tends to increase the proportions of families that are poor and near-poor,” they find. That’s because, in part, the effect of employment losses outweighs the increased income of those who keep their jobs.

- Foreign direct investment in China fell for a ninth month from a year earlier as companies pared spending to weather the global financial crisis. Investment slid 6.8 percent in June to $8.96 billion, the commerce ministry said at a briefing in Beijing today. The pace of the decline slowed from 17.8 percent in May and 17.9 percent in the first six months. The detention of Rio Tinto Group staff this month for the alleged theft of state secrets could make some companies more wary of investing in China.

- The world is watching how China deals with detained Rio Tinto Group executive Stern Hu for allegedly stealing state secrets, Prime Minister Kevin Rudd said. China, the world’s largest buyer of iron ore, detained four Rio executives on July 5 and said their actions harmed the nation’s economic interests and security.

Wall Street Journal:

- House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers. The House bill, which also would impose new taxes on the wealthy estimated to bring in more than $500 billion over a decade, came as lawmakers in the Senate raced against a self-imposed Thursday deadline to find ways to finance their health-care bill. Senators are weighing a combination of several more-modest tax increases, including some that would hit health-care industries. Under the House measure, employers with payrolls exceeding $400,000 a year would have to provide health insurance or pay the 8% penalty. Employers with payrolls between $250,000 and $400,000 a year would pay a smaller penalty, and those less than $250,000 would be exempt. The relatively low thresholds for penalties triggered criticism from business groups and Republicans, who said the burden on small business is too high.

- Jason Furman owes an apology to Michael Boskin, the Stanford economist who wrote a year ago on these pages that Barack Obama would raise American income tax rates nearly to 60%. Mr. Furman, then in the Obama campaign and now at the White House, claimed this was wrong and that Democrats would merely raise taxes back to their Clinton-era level. House Democrats are now proving that Mr. Boskin had it right, and before it's over even he may have underestimated how high taxes will go. In the middle of a recession and with rising unemployment, Democrats have been letting it leak that they want to raise U.S. tax rates higher than they've been in nearly 30 years in order to finance government health care.

- U.K. hedge-fund manager Gradient Capital, which paid its two principals £100 million each over the course of 2006 and 2007, suffered an 88% fall in its last fiscal year. The accounts of Gradient Capital Partners LLP, released Tuesday, showed that its fee income fell to £15 million ($20.9 million) from £112 million in the year ended July 31. After taking into account administrative expenses and interest income, the profit for distribution to members fell from £109 million to £13 million.

- A bipartisan group of lawmakers is proposing to raise about $10 billion a year to fix aging water and sewer systems by taxing the biggest users. The legislation, which has sparked significant opposition from industry, is expected to be unveiled Wednesday at a news conference on Capitol Hill. The bill calls for a 0.15% tax on any corporation earning a profit of more than $4 million a year. Manufacturers of any water-based beverages, excluding alcohol, would see a four-cent tax per container. Soaps, detergents, toiletries, toilet tissue, water softeners and cooking oils would face a 3% tax on wholesale prices. Pharmaceuticals would be taxed at 0.5% of the wholesale price. Rep. Earl Blumenauer (D., Ore.), the main sponsor of the Water Protection and Reinvestment Act, said he believed the bill was necessary to repair an aging system used by all Americans.

- J.P. Morgan Chase & Co.(JPM), freed from the government's strictures after repaying $25 billion in federal money, is back to playing hardball. The bank's tougher stands include stepping up its opposition to the government's proposed legislation on derivatives and telling the Treasury Department it is fed up with haggling over the value of warrants that the government holds in J.P. Morgan. The bank also is talking tough with clients and taking market share and top performers from competitors. The renewed swagger comes as J.P. Morgan is poised to report strong quarterly results on Thursday, solidifying its place as the strongest major commercial bank. Although the bank's mortgage and credit-card businesses are being hurt badly by rising unemployment and the recession, its traditional Wall Street businesses are booming. The bank also is expected to provide a strong showing from retail branches that it acquired last fall from failed thrift Washington Mutual.

NY Times:

- With a possible fight brewing in Congress over repeal of the Pentagon’s “don’t ask, don’t tell” policy on gays in the military, Senator Harry Reid of Nevada, the majority leader, came down on Tuesday solidly in favor of eliminating the ban.

- Breakingviews, the financial commentary Web site and a content partner of The New York Times, is in preliminary discussions to be acquired by Thomson Reuters, people briefed on the negotiations told DealBook.

- The nation’s largest public pension fund has filed suit in California state court in connection with $1 billion in losses that it says were caused by “wildly inaccurate” credit ratings from the three leading ratings agencies.

Forbes:

- Inflation’s Last Hurrah For the Summer.

- Our forecast for the second half of this year and all of next year is that real (inflation-adjusted) economic growth is going to average more than 4% at an annual rate, well above the consensus, which expects below-trend growth of about 2%. To be more precise, we are forecasting that real gross domestic product (GDP) grows at a 3.5% rate in the second half of 2009 and 4.5% next year.

Politico:

- Supreme Court nominee Sonia Sotomayor on Tuesday broke with the man who nominated her – President Barack Obama — saying she took issue with Obama’s statement in a 2007 speech that a judge’s “heart” would dictate the outcome in a small number of cases. “I wouldn’t approach the issue of judging in the way the president does…Judges can’t rely on what’s in their heart. They don’t determine the law. Congress makes the law. The job of a [judge] is to apply the law,” Sotomayor said, in response to question by Sen. Jon Kyl (R-Ariz.) “It’s not the heart that compels conclusions in cases, it’s the law.” Sotomayor went on to say a judge’s feelings were irrelevant to the correct outcome in a case. “We apply law to facts. We don’t apply feelings to facts,” Sotomayor said. Also Tuesday, after hearing two months of pointed attacks over her so-called “wise Latina” comments, Sotomayor publicly backed off the remarks Tuesday, describing them as “a rhetorical flourish that fell flat.”

Rasmussen:

- Republican candidates continue to lead on the latest edition of the Generic Congressional Ballot as Democrats fall to their lowest level of support among voters in recent years. A new Rasmussen Reports national telephone survey shows that 40% would vote for their district’s Republican congressional candidate while 37% would choose the Democratic candidate.

- The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 28% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-six percent (36%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –8 (see trends).

Washington Post:

- The ‘Cap and Tax’ Dead End by Sarah Palin.

- When an Air Force command in north Florida sought new battlefield technologies, Rep. John P. Murtha (D-Pa.) steered millions in federal dollars its way to hire defense contractors. The research effort at the Pensacola Air Force base fell apart, however, when investigators found evidence that it was used to improperly pay a series of companies linked to Murtha. A handful of defense firms were paid for work that was never done or not called for in the contracts. Some of the companies involved, based in Wyoming, Florida and Murtha's district in Pennsylvania, had hidden owners, prosecutors allege; one was secretly owned by the Air Force official who helped approve the payments. As prosecutors reveal new details of their criminal probe into the $8 million earmark that Murtha arranged for the Air Force project, one familiar player is never mentioned by authorities. Several of the companies had hired the lobbying firm of the lawmaker's brother, Robert C. "Kit" Murtha.

USA Today.com:

- A week after launching one of the steepest fare sales in years, discount carriers Southwest (LUV) and AirTran (AAI) are at it again, offering travelers broader windows in which to fly this fall at some low prices. Passengers can get an off-peak, one-way fare on some AirTran flights for as low as $39 for travel through Dec. 16. Southwest is offering trips for as low as $49 on some flights taken from Aug. 18 through Nov. 18.

Reuters:

- Moody's cut its rating on Tuesday on about $72 billion of California's debt to near junk status, citing the state's budget crisis, but a top lawmaker said a deal to close a $26.3 billion gap was near. Moody's Investors Service in a statement said it cut the state's general obligation debt by two notches to Baa1, or three notches above speculative "junk" status and the rating may suffer further downgrades because of a growing risk to the state's ability to make priority payments.

- CIT Group Inc (CIT) and government officials remained locked in talks on Tuesday as the lender to thousands of small businesses pushed for government aid in its fight to survive. By late on Tuesday, the outline of an aid package was emerging, even as CIT clients tapped their credit lines, drawing some $750 million from the company in two days, the Wall Street Journal reported, citing unnamed sources. The plan calls for CIT to transfer assets to its bank, use some of them to pledge at the Federal Reserve's discount window and refinance some debt, the paper reported on its website.

- New York Attorney General Andrew Cuomo is trying to reach settlements with Steven Rattner, who led the U.S. autos task force, and the private equity firm he co-founded, the Associated Press reported on Tuesday. The Treasury Department said on Monday that Rattner will leave as head of the autos task force, which oversaw bankruptcies at General Motors Corp (GMGMQ) and Chrysler Group. Cuomo has recently started pushing Rattner and the Quadrangle Group to settlements that would allow them to avoid civil charges, the AP reported, citing a source familiar with the investigation. Cuomo does not want to press criminal charges, the AP reported.

- Iraq's oil exports have reached an average 2.1 million barrels per day (bpd) in July so far, the finance minister said on Tuesday, putting them on track for the biggest month since the 2003 U.S.-led liberation. Higher revenue from oil plus about $2 billion in fees from mobile phone companies will give the country a supplementary budget of up to $3 billion, Finance Minister Bayan Jabor told journalists in Baghdad. "Now we are exporting 2.1 million bpd average and sometimes 2.15 million bpd," Jabor said. "This is delightful and encouraging." Jabor said mobile phone companies had paid the Iraqi government $2 billion recently in punitive early license fees.

Financial Times:

- Tim Geithner, US treasury secretary, sought to assure Gulf nations on Tuesday about their holdings of treasury bills when he told Saudi business leaders that his country “has a special responsibility to play” in defending the value of the dollar. He also said that the US is committed to maintaining the openness of its economy to foreign investment and to expanding international trade. ”The policies of the United States are designed to lay the conditions for a strong dollar,” he said. ”We are very committed ... to making sure that as we get through the crisis, we bring down fiscal deficits and we reverse these extraordinary interventions we’ve taken.” Analysts said it was expected that Mr Geithner would hope to persuade the kingdom to increase its contribution to the International Monetary Fund to help it support economies hardest hit by the financial crisis. The Saudi government has so far resisted calls from Britain and the US to provide additional funding to the IMF, arguing that instead it has its own stimulus plan at home, which will eventually spill over into the global economy. In spite of the region’s petrodollar wealth, the region has been hit hard by the global economic crisis. Growth forecasts for the Gulf states have declined sharply, credit has dried up and a number of prominent companies are facing difficulties. The strength of the dollar is of particular concern to the Gulf as oil dominates their economies and five of the six members of the Gulf Co-operation Council, including Saudi Arabia, peg their currencies to the greenback. “The [Saudi] government is very worried about the deteriorating value of the dollar and the mounting debts of the US in the medium- and long-term,” a Saudi economist said.

- The volume of goods leaving eurozone factories rose in May in the first pick-up since last August, although the upturn was weaker than expected and was accompanied by signals that German investors think any rebound there could be sluggish. Industrial production in the 16-member currency region rose 0.5 per cent in May, although output was still 17 per cent below the level seen the year before, the European Union’s statistics office said. “All told, the weaker-than-expected rise on the month was something of a surprise and will damp any hopes of a strong rebound in euro-area activity,” said Colin Ellis at Daiwa Securities. Underlining this caution, German investor sentiment in June decreased for the first time after eight straight months of gains, according to the the Mannheim-based ZEW Centre for European Economic Research. The ZEW’s index of economic expectations, a closely watched leading indicator of future trends, fell to 39.5 points from 44.8 in May, disappointing economists, who had expected the mood of investors to continue rising.

- More than half of company directors are “climate change cynics” who are stifling the enthusiasm of junior and young managers to take action on green issues, a report warns on Wednesday. Its UK-wide survey of 1,500 managers found that while 81 per cent recognized that energy use was an important business issue, just 26 per cent reported that their organization actively managed its carbon footprint. John Roberts, former chief executive of United Utilities, said skepticism about the benefits of tackling climate change was at its deepest “among the very people who should be giving a lead”.

- Pay at Goldman Sachs(GS) this year is set to beat the boom levels enjoyed before the financial crisis, when top executives raked in tens of millions of dollars in year-end bonuses. The prospect of bumper pay and bonuses at Goldman, which on Tuesday reported surging second-quarter profits and is a bellwether for Wall Street banks, is likely to reignite a fierce debate in the US over bankers’ pay. The firm set aside $6.6bn for compensation. It has earmarked $11.4bn for compensation for the first six months of the year. If Goldman’s second-half earnings stay on track, it would pay out an average of $770,000 to each of its 29,400 employees. Some US lawmakers were riled by the bank’s pay plans. Many in Washington believe Wall Street’s bonus culture encouraged excess risk-taking and led to last year’s financial crisis. Jon Tester, a Democrat on the Senate banking committee, said Goldman had to realise it was not “business as usual any more. They can’t continue along these lines or there will be outrage”. Lawmakers were furious when they learnt this year that Goldman and other banks were fully reimbursed by the taxpayer on credit default swap contracts with failed insurance group AIG.

TimesOnline:

- It is surely the biggest Big Brother project yet conceived. India is to issue each of its 1.2 billion citizens, millions of whom live in remote villages and possess no documentary proof of existence, with cyber-age biometric identity cards. The Government in Delhi recently created the Unique Identification Authority, a new state department charged with the task of assigning every living Indian an exclusive number. It will also be responsible for gathering and electronically storing their personal details, at a predicted cost of at least £3 billion.

- Britain’s plan to cut its carbon dioxide emissions by more than a third by 2022 could be achieved by buying “permits to pollute” from poor countries rather than genuine reductions in domestic emissions, according to documents seen by The Times. A draft copy of the Government’s energy strategy, due to be published today, reveals that ministers have considered scrapping a commitment made three months ago intended to prevent the UK from buying so-called “carbon offsets” from developing nations. It states that while genuine cuts would be preferable, carbon offsets — where one country is paid to make reductions in emissions on another’s behalf — should be reserved as an “insurance option”. The report also suggests that the Government might need to overturn a commitment made in the Budget by Alistair Darling that Britain would not resort to carbon offsets to meet its emission reduction targets before 2012.

- The US Government has begun an investigation into the credit derivatives market by asking about 15 dealers for detailed information on trading and pricing over several years. Markit, which supplies information to financial markets around the world, is also being investigated by US government officials trying to find out if its owners have unfair access to statistics related to the credit default swaps (CDS) market. The inquiry is attempting to determine whether the banks that own Markit have disproportionate access to the information that it provides. Its major shareholders include JPMorgan, Bank of America, Royal Bank of Scotland (RBS) and Goldman Sachs. JPMorgan, RBS and Goldman Sachs all declined to comment on the investigation yesterday. Traders in CDS — complicated derivatives blamed for the downfall of AIG, the American insurer — are facing increased regulation on both sides of the Atlantic.

Globe and Mail:
- Hedge fund strategies are now making their way into the world of exchange-traded funds. U.S.-based ProShares Advisors LLC yesterday launched ProShares Credit Suisse 130/30 ETF on the New York Stock Exchange Arca, which lists both stocks and options. ProShares, which also runs the Horizons BetaPro ETFs traded in Canada, said it is the first 130/30 ETF in the United States, and will also be the first in a new family of Alpha ProShares funds aimed at providing “advanced investment strategies to investors.” The 130/30 concept – which aims to capture “alpha” or returns in excess of a market benchmark – involves a strategy of combining a 130-per-cent long leverage position and a 30-per-cent short position.

South China Morning Post:

- Greater China is expected to see an almost fourfold increase in demand this year for mini-notebooks, commonly known as netbooks, as computer makers aggressively market the low-cost devices amid the economic downturn, analysts say.

- China issued a plea for understanding from the Muslim world yesterday and vowed to "take all necessary measures" to protect its overseas workforce after al-Qaeda threatened to avenge the deaths of Uygurs in Xinjiang.

Shanghai Securities News:

- Banks in the Chinese cities of Nanjing and Shenzhen are tightening requirements for second-home mortgages in measures that may damp purchases for investment purchases. Down payments for second homes will be at least 40% of their value and loans will be charged 10% more than the benchmark lending rates.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (ADTN), target $27.

Bank of America:

- Raised (NTRS) to Buy.

CSFB:

- Reiterated Sell on (SQM), lowered estimates, target $29.

Macquarie:

- Raised Samsung to Outperform.

BNP Paribas:

- Raised (AUO) to Buy.

Night Trading
Asian Indices are +.75% to +1.75% on average.

Asia Ex-Japan Inv Grade CDS Index -2.50%.
S&P 500 futures +1.10%.
NASDAQ 100 futures +1.83%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (GWW)/1.17

- (WWW)/.27

- (WOR)/-.05

- (GCI)/.38

- (AMR)/-1.31

- (ABT)/.89

- (CBSH)/.38

- (KMP)/.28

- (RECN)/.03

- (CTAS)/.36

- (LSTR)/.40

- (XLNX)/.17

Economic Releases

8:30 am EST

- The Consumer Price Index for June is estimated to rise .6% versus a .1% gain in May.

- The CPI Ex Food & Energy for June is estimated to rise .1% versus a .1% increase in May.

- Empire Manufacturing for July is estimated to rise to -5.0 versus -9.41 in June.

9:15 am EST

- Industrial Production for June is estimated to fall .6% versus a 1.1% decline in May.

- Capacity Utilization for June is estimated to fall to 67.9% versus 68.3% in May.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,100,000 barrels versus a -2,896,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +875,000 barrels versus a +1,902,000 barrel increase the prior week. Distillate inventories are expected to rise by +2,000,000 barrels versus a +3,739,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.13% versus a -.19% the prior week.

2:00 pm EST

- Minutes of June 24 FOMC Meeting.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Bloomberg Global Confidence Index, weekly MBA mortgage applications report (VRGY) analyst meeting, (KLAC) analyst briefing, (CPB) presentation to securities analysts, Piper Jaffray Cancer Summit and SEMICON West could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and mining shares in the region. I expect US equities to open higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.